U.S. housing starts increased 13.7% in October. This growth was driven by a 37% growth in multifamily starts, and 5.3% growth in single-family starts. The South bounces back from Hurricane Irma and Harvey as it saw a 16.7% increase of starts from September to October.
The prices of homes have been increasing due to labor shortages, rising wages, and low supply. In addition, the National Association of Realtors reported that a house is on the market for just 3 weeks. The growth of starts hopes to meet the increasing demands for residential housing, especially cheap homes. Cheap residential homes will see greater demand if the new tax reform passes which will allow interest deductible on mortgages up to $500,000 instead of the previous $1,000,000. The tax reform will remove benefits of purchasing more expensive homes. Home-builders are building more homes and showing an increased confidence in the housing market.
Wal-Mart announced it will raise prices for specific products online. The listed prices for specific products stocked in store for purchase or pick-up will be lower than its listed price online. However, the prices would still be comparable to other e-commerce businesses like Amazon. This decision would hopefully help the retailer increase foot traffic in its retail stores.
This announcement shows the difference between Wal-Mart’s and Amazon’s strategy for their respective e-commerce business. Wal-Mart is more focused on increasing its declining gross margin rate while Amazon is focused on revenue growth. One critique of Wal-Mart’s strategy is that it does not align with its acquisition of Jet.com to provide the lowest price for consumers. Expect to see effects of this price change in Wal-Mart’s 4th quarter report.
Oil prices gain on Friday after nearly a week of losses, based on signs that Saudi Arabia plans to support an extension on OPEC’s deal to continue cutting global production. Crude rose $1.41 or 2.6% to $56.55 a barrel on the New York Mercantile Exchange, which finally snapped a three session losing streak for the commodity.
On Thursday, Saudi Arabia’s energy minister Khalid Al-Falih reiterated the country’s commitment to the deal and that further production cuts are needed to re-balance the market. Many traders throughout Wall Street anticipated that OPEC and other major oil producers will announce decisions to extend supply cuts past March 2018 after their November meeting in 2016.
After last year’s meeting, OPEC agreed to reduce its crude output in an effort to reduce the supply glut and boost oil prices. In addition, the organization was able to have Russia and other major producers to take the same action. Russia has also indicated their willingness to extend production cuts and participate in OPEC’s meeting at the end of the month.
The high amount of speculative long positions in the oil market may also put increased pressure on OPEC to produce extension agreement. According to Commerzbank analysts, anything except an extension agreement will likely cause oil prices to fall again.
Despite Friday’s gains, oil prices closed down for the week after five straight weeks of gains. In addition, U.S. shale producers are continuing to increase output, raising questions on whether OPEC’s actions are being undermined by U.S. producers. On Wednesday, the U.S. Energy Information Administration reported a rise in U.S. production of 9.645 million barrels, while crude stockpiles climbed by 1.9 million barrels.
Apple announced on Friday that the company will delay the release date for its HomePod smart speaker till early next year. The HomePod was expected to ship out to the public in December, but instead joins the AirPod Headphones, Apple Watch and other recent products that missed their projected shipment date.
The delay on the HomePod will further postpone Apple’s goal to penetrate the fast growing smart-speaker market which has been dominated by Amazon and Alphabet. Amazon was the original company that pioneered the market with its Echo speaker in 2014, and Alphabet soon followed with its own version in 2016. Both companies have announced that they will soon release updated models with improved features and lower prices compared to the HomePod’s $349 price tag.
According to Mike Levin, from market-research firm Consumer Intelligence Research Partners, the HomePod has the potential to fail due to the market’s shift away from expensive audio speakers, which is how Apple marketed their product. Amazon has sold over 20 million units of their smart-speaker at a reasonable $50 price tag, which may prove problematic to Apple.
The product’s delay isn’t expected to affect earnings for the current quarter, even though the company projected record revenue between $84 billion and $87 billion for the December quarter.
Richard Cordray, the head of the Consumer Financial Protection Bureau (“CFPB”) has announced that he will be stepping down as chief at the end of November. By stepping down, Cordray – who has headed the bureau since its inception – paves the way for the Trump administration to restructure the agency.
The CFPB has been subject to criticism on both sides of the political aisle. Cordray, an Obama appointee, has been one of the only agency heads that has been able to continue the pursuit of an Obama-era agenda under a Republican administration. Mr. Cordray, whose term was due to end in 2018, has been the subject of speculation for a gubernatorial run in Ohio.
Whomever the Trump administration nominates to head up the agency, they will likely face a difficult confirmation fight by the Senate. “The new director of the CFPB must be someone with a track record of protecting consumers and holding financial firms responsible when they cheat people,” said Sen. Elizabeth Warren (D. Mass), who helped to create the CFPB. “This is no place for another Trump-appointed industry hack.”
A number of financial-industry experts and lawmakers have been viewed as potential successors to Cordray. Among them, Jeb Hensarling (R., Texas), chairman of the House Financial Services Committee; Todd Zywicki, a law professor at George Mason University; and Jeremiah Buckley, founding partner of Buckley Sandler LLP, a law firm. One thing is for sure, the next head will inherit an agency that will undergo a complete ideological shift and immense restructuring.
WSJ – CFPB Head Cordray to Step Down
Thursday, Tesla Inc. CEO Elon Musk announced a new direction for the company in the form of fully electric semi trucks. With an announced production in 2019, the Tesla truck could have very broad and immediate implications on the global economy which is very dependent on shipping, especially trucking. With a range of 500 miles, the Tesla truck will struggle to replace the diesel trucking industry in the short term. Current diesel trucks have ranges of 800-1000 miles between refills. Regardless, Musk is selling a brighter future.
Under the current plan, Tesla will plan to have recharging stations across trucking markets that will be powered by solar panels. The Tesla trucks claim to be able to accelerate quicker than any truck on the market, even at maximum gross vehicle weight. Musk also claims that the trucks are more economically efficient than freight. While these claims may be grand, future iterations of Tesla trucks in the near future will have the ability to completely reshape the American, and global, trucking and shipping landscape. Tesla already has received pre-orders from Wal-Mart and J.B. Hunt for its trucks.
Tesla’s announcements also seek to put investors at ease about Tesla’s current shortcomings with its Model 3 release and current cash burn. Tesla has burned $1.4 billion in cash in the third quarter alone. In the same time, it has only built 260 Model 3 vehicles, after saying that it would be able to produce as much as 200,000 in the second half of the year. While the Tesla announcement is exciting, it raises a question. How much longer can Tesla’s promises keep its stock afloat while its performance continues to lag?
WSJ – Tesla Plays the Long Game With Semi Truck
– Tesla Receives Orders from Wal-Mart and J.B. Hunt
– Tesla Changes the Subject
Meredith Corp. has made a takeover bid offer that is within the range of $17 to $20 dollars a share. Time Inc.’s share week valued as low as $10 last week and has risen to $16.20 after news of the offer. Meredith’s offer price tells us that they believe Time Inc.’s equity is worth $2 billion, which is 50% greater than its equity value last week.
Meredith Corp has already lined up financing commitments from the Koch brothers and several banks in order to fund the Time Inc. acquisition. Time Inc.’s board have received the offer and have only begun to discuss the matter. Time Inc. is most know for People, Sports Illustrated, and Time Magazine. The bid price sounds like a great offer but it doesn’t guarantee that Time Inc. will accept as this is at least the 3rd time Meredith as made an acquisition offer the magazine company. Within the last three years, Time Inc.’s shares have been worth as much as $25 but have fallen as a result of industry-wide print advertising declines.
It is widely believed that Meredith is seeking ownership of Time Inc. for their digital presence which continues to show strong growth. If Meredith does find success in their efforts they would gain access to Time Inc.’s 139 million monthly visitors.