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What I think I learned last week #38

Did you know? According to a recent study by Hendrik Bessembinder of Arizona State University, since 1926, most stock market returns in America have come from a tiny fraction of shares. Just five stocks (Apple, ExxonMobil, Microsoft, GE and IBM) accounted for 10% of all the wealth created for shareholders between 1926 and 2016. The top 50 stocks account for 40% of the total and the best-performing 4% explain the net gain for the entire US stock market since 1926. More than half (57%) of the 25,000 or so stocks listed in the US in the past 90 years proved to be worse investments than Treasury bills. This sounds like a prescription for concentrated portfolios, which is why Echiquier World Equity Growth only has 22 equities in it.

While the focus has been on trade wars, India has been having water wars. A shortage of water in the capital, New Delhi, has forced people to stop doing laundry and taking daily showers, and it has led to fighting in which three people have died. One analyst projected that water shortages will negatively affect Indian GDP by six percentage points over the next decade.

More bad news for India as its currency, the rupee, hit an all-time low against the dollar as fears that rising oil prices will harm the economy.

Andres Manuel Lopez Obrador in his third attempt has won the Mexican presidency in a landslide with more than double the vote of his closest competitor.

The US Federal Reserve’s preferred inflation measure, the core personal consumption expenditures price index, hit the Fed’s target of 2% for the first time in six years in May.

Chicago Purchasing Managers Index hit its highest level in six months, climbing to 64.1 in June, up from 62.7 in May. Consensus expectations called for a reading of 60. The report showed that business activity expanded at a faster pace and new orders were up for a second consecutive month in June.

US new home sales grew 6.7% in May from the previous month to hit the highest level since last November, despite rising prices and low inventory. However, pending home sales unexpectedly fell for the 2nd straight month, indicating a slowdown in housing activity over the next few months.

US consumer confidence fell more than expected in June to the lowest level in two months.

In the final release, US GDP growth was revised down to a 2% growth rate for the first quarter. Most are expecting the second quarter to be significantly better. The New York Fed’s model projects second quarter growth to come in at 2.87% while the Atlanta Fed’s model is predicting 4.5%.

President Trump told us that trade wars are good. The Nasdaq Composite index would agree as it posted its 8th straight quarter of gains as investors dropped industrial companies in order to raise their bets on technology.

The European Central Bank said the outlook for global growth has been decreasing with further downside risk due to the trade wars.

China’s central bank cut the reserve requirement ratio, the amount of cash that banks must hold, as reserves by 50 basis points, releasing $108 billion in liquidity for lending to small businesses that might be affected by a trade war.

The Chinese yuan dropped to its weakest level against the dollar this year while suffering its longest losing streak in two years.

Asian stocks slumped to nine-month lows during the week as fears about a trade war harming global growth increased.

GE, after exiting the Dow Jones Industrial Average, is now exiting businesses. They started the week with news of selling their large industrial engine business to private equity firm Advent. Then they announced that they would divest their healthcare division and its stake in oil services company Baker Hughes. This led to GE having its best day in more than three years. Even so, GE has seen its market capitalization cut in half over the last year, erasing $100 billion of market value.

Oil prices spiked as the US had its largest weekly fall in crude inventories since September 2016. This followed Washington’s pushing for countries to stop buying Iranian oil by November.

This has helped the energy sector of the S&P 500 to a double digit gain this quarter, on pace for its best quarter in seven years.

The American Institute for International Steel and two of its member companies filed a lawsuit with the US Court of International Trade in New York. They contend that the US president’s move to impose tariffs is unconstitutional.

Facebook has filed a Predicting Life Changes patent, which covers a « life change prediction engine » that predicts major events in a Facebook user’s life, including a change in marital status, birthdays, new jobs, the birth of children, graduation, or death. « The life change prediction engine computes the probability of a user undergoing a life change event using a machine learning model and historical data of other users of the social networking system who have went through life change events, » the patent states.

Amazon says that, because shipping partners like UPS, FedEx and the US Postal Service can’t handle the number of online orders, it is starting Delivery Service Partners, a program to help entrepreneurs run their own local delivery networks. Each partner can start with as little as $10,000 in capital.

Finished announcing plans to disrupt the delivery business, Amazon then announced it was acquiring online pharmacy PillPack.

In other acquisition news, it is OK for the Mouse to catch the Fox as the US Justice Department gave antitrust clearance to Disney’s proposed acquisition of 21st Century Fox.

Even food companies are getting in on the acquisition game. Conagra announced that they were buying Pinnacle Foods for $8.1 billion to bring together Conagra’s Healthy Choice brand and Pinnacle’s Bird’s Eye brand in order to create the second-largest frozen food company behind Nestle.

These stories all point to the fact that mergers & acquisitions deal activity in the first half of the year hit $2.5 trillion, an all-time record for the period. The US remains the top dog having reached the $1 trillion mark, up 82% from last year.

And that’s what I think I learned last week…