12/15/17

Quote of the Day

I'm convinced that this combination, under Bob Iger's leadership, will be one of the greatest companies in the world."

A bittersweet day for Rupert Murdoch as he hands over a portion of his media empire to Disney. More on that to come...

Market Snapshot

  • 10 out of 11 S&P sectors finished in the red.
  • Hold on to those grapefruits--Florida production could hit a 99-year low.
  • ICOs have raised $4 billion to date.
  • Shares of Pier 1 Imports dropped 30% as the furniture retailer slumps through the holiday season.



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The Net Shifts Out of Neutral

If you're reading this, great news: Comcast hasn't throttled us yet. But it has the power to, thanks to a 3-2 FCC vote gutting the Obama-era regulation known as "net neutrality."

What this means in a nutshell: internet companies will now be able to favor some websites over others.

Still not clear? Think about it like this (thanks, WaPo)

Imagine you're in an airport. Websites are passengers lined up in the security line, and internet providers like AT&T, Verizon, and Comcast are the TSA agents waving them through.

In the current world of net neutrality regulation, all passengers are in the same line. But yesterday's repeal paves the way for ISPs to create multiple lines of varying speeds and convenience (TSA PreCheck). Websites that pony up cash (rich business travelers) will breeze through without having to take off their shoes, while the little guys are busy getting a pat down from Verizon.

That might seem unfair, but we live in a free market society, do we not?

We know, a lot of this is hypothetical

So let's travel to the Midwest for a concrete example.

FarmLogs is a fast-growing mobile app bringing big data to the cornfields of the Great Plains. Founded only six years ago, it's now helping one-in-three U.S. farms (over 75 million acres) manage their operations, like predicting crop yields and tracking weather patterns. It's so effective, we even use it to monitor the soil nutrients of the Brew's succulents.

Unfettered access to the internet allowed FarmLogs to disrupt an entire industry (benefiting millions of farmers). In a future without net neutrality, FarmLogs is concerned that it and similar startups, which need broadband like humans need oxygen, won't get a fair shake.

Should these worries outweigh the costs of regulation? Not according to the FCC.

Bob Iger Caught a Murdoch

Yesterday, we got into the weeds on why Disney (+2.75%) was acquiring 21st Century Fox (+6.50%) assets and left the details of the actual deal a little hazy. Primarily, because those details had yet to be ironed out.

But now that the deal's finito, we've got the good word for you while Iger and Murdoch clink glasses over a nice candlelit dinner:

The deal: $52 billion ($66 billion if you include the debt Disney assumes). Fox's assets will become a new company under the Disney umbrella.

What Disney's getting:

* 20th Century Fox, Fox searchlight television, and movie studios
* Marvel's missing pieces (Deadpool, X-Men)
* FX, National Geographic, YES, Fox's regional sports networks
* International business (39% of U.K.'s Sky)
* 60% of Hulu (Disney originally owned 30%)

What Fox is getting/keeping:

* 25% of Disney's shares, $8.5 billion cash dividend
* Fox News
* Fox's sports networks (FS1 and FS2), Big Ten Network

Fox is hoping a leaner, meaner operation is the key to success in an increasingly complex media industry. At the very least, Fox, you've got the President rooting for you.

Teva's Series of Unfortunate Events

If you're interested in reading stories with a happy ending, you're better off reading something else. Because after Israeli pharmaceutical company Teva (+10.19%) laid off 25% of its workforce, there is no happy ending. And very few happy things in the middle.

Fourteen thousand employees will pack their bags, factories will close, and the company's dividend...gone.

Ironically, for the world's largest maker of generic drugs and best-selling MS drug (Copaxone), Teva seems to be in need of a remedy.

Increased competition in the U.S. generics market crippled prices, an acquisition of fellow pharma company Allergan strapped Teva with $35 billion in debt, and nine months without a CEO wound up costing it in Q3.

There is a path forward. The job cuts, shuttered factories, and frozen dividend will amount to $3 billion in cost savings (5% of its overall expenses), but new CEO Kare Schultz will no doubt be praying for a Hanukkah miracle.

Ginkgo Bioworks Is One Rich Mad Scientist

Ginkgo Bioworks, or as we like to call it, God, raised a $275 million Series D at a valuation of over $1 billion.

The Almighty Ginkgo works in the field of synthetic biology, creating DNA from scratch. Of course, scientists have been manipulating plants and animal genes for thousands of years through selective breeding (pretty much everything we eat is genetically modified, from the Granny Smith apple to Red Angus cattle).

But Ginkgo represents the new frontier, where DNA isn't just rearranged, but used as the code with which you can make...well...anything.

That's why CEO Jason Kelly wants you to think of Ginkgo as the "Amazon Web Services of biology," essentially a platform for customers to place an order for a microbe or two.

So what types of customers should we expect? Take your pick. Ginkgo has mainly focused on food and fragrance, in one instance designing microbes used to make rose petal scents.

But with the new dose of cash, it plans to go Dr. Frankenstein on agriculture, pharmaceuticals, and consumer goods.

What Else Is Happening...

  • Walmart (-0.70%) is now allowing workers to collect payday checks before payday.
  • AI is moving into manufacturing with the help of an ex-Google engineer.
  • Apple's (-0.03%) new iMac Pro is officially on the market.
  • NYTimes (-0.55%) publisher Arthur Sulzberger is stepping down so his son, A.G. Sulzberger, can step up.

Economic Calendar

  • Monday     Earnings: No Events
  •                     Economic Events: JOLTS (-)

  • Tuesday    Earnings: No Events
  •                   Economic Events: No Events

  • Wednesday    Earnings: No Events
  •                         Economic Events: FOMC Meeting Announcement (+/-)

  • Thursday   Earnings: Costco (+), Oracle (+)
  •                    Economic Events: Jobless Claims (-)

  • Friday       Earnings: No Events
  •                  Economic Events: Baker-Hughes Rig Count

Buy/Sell/Hold

Buy--Pot in Canada

Crypto's not the only thing that's got "bubble" written all over it. As Canada tokes its way to legalization, marijuana stocks have popped. Some believe the good herb could rake in nearly $6 billion in revenue by 2021, sending the industry's top dog, Canopy Growth, up 150%.

Sell--Bitcoin Energy Consumption

While you're busy trying to get your hands on every last Bitcoin, here's some food for thought: every single transaction costs about $24 in energy consumption. And on an annualized basis, Bitcoin mining consumes nearly as much energy as Serbia. Is this sustainable? It sure doesn't seem like it...

Hold--The January Effect

January is coming. And with it? Snow, resolutions, and small cap U.S. stocks. Well...maybe, for that last one. It's called the January Effect, and since the early 1900s there's been an upward charge from the "small cap stocks that could" every January. The phenomenon was first discovered in 1942, and it's held pretty strong. That said, every January is different...

The Breakroom

Question of the Day

Every answer today is a familiar three-word phrase in the form "___ of ___." We'll give you anagrams of the words in the blanks and you identify the phrases.
Ex. PLUM of ARGUS --> LUMP OF SUGAR

1. CAT of DOG
2. TACO of MARS
3. STREAM of RATS
4. STAPLER of PAIRS
5. SIDE of CHARM

(Answer located at the bottom of newsletter)

Business Trivia

In honor of Star Wars: The Last Jedi arriving in theaters tonight, you'll need to use the force to answer this question:

The Star Wars franchise has sold a whopping $32 billion in merchandise, easily #1 among movie franchises. Who's #2 in the Merch Wars? (Hint: think Pixar)

(Answer located at the bottom of newsletter)

Stat of the Day

250,000--Annual applications to appear on ABC's Shark Tank. About 150 companies actually tape a show. We sometimes wonder what the Cubes would say about an e-mail business...

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Breakroom Answers

Question of the Day: 1) Act of God 2) Coat of arms 3) Master of Arts 4) Plaster of Paris 5) Ides of March

Business Trivia: Cars ($10 billion)