The Fabulous Mr. Fed
Welcome to Fed Day!
Are you on pins and needles yet?
Today is the day that the U.S. Federal Reserve concludes its two-day policy meeting and gives its outlook on interest rates.
You, my dear reader in the future, may already know how this all played out. If so, don’t tell me yet … I don’t want any spoilers.
Most Fed watchers are not expecting much today. Federal Reserve Chairman Jerome Powell is only expected to remove the word “patient” from his statement regarding interest rates. Edgy.
With the Fed out of patience (just a little patience, yeah), it paves the way for an interest rate cut at next month’s meeting. Fed funds futures are pricing in an 80% chance of a rate cut in July.
But more than U.S. interest rates may be on the line with today’s announcement. President Trump has reportedly considered demoting Powell. “Let’s see what he does,” Trump said yesterday when asked about getting rid of Powell.
A move to demote Powell could have a broader-ranging impact on the markets than today’s Fed statement.
Hold on to your seats. This could get really interesting.
With the Fed likely already giving its statement by the time you read this, we’re going to limit the takeaway to just this: A surprise rate cut means a big market rally. Removing “patience” means a smaller rally. Inaction by the Fed will lead to a drop in the markets and the demotion of Fed Chairman Jerome Powell.
At least, that’s how we see it.
Good: The Stunner in Paris
People are actually buying the Boeing Co.’s (NYSE: BA) 737 Max 8 again. In a shocker at the Paris Air Show, Boeing announced a letter of intent for 200 737 Max jets, including the Max 8 — the Ford Pinto of the airways.
The brave soul buying these jets?
International Airlines Group (IAG), the parent company of Aer Lingus, British Airways, Iberia and Vueling. The order is valued at $24 billion per 737 Max list prices, though IAG likely got one heck of a deal.
What’s more, Ethiopian Airlines is coming around again on Boeing. CEO Tewolde GebreMariam has more confidence in Boeing after the company’s transparency and acknowledgement of its mistake.
While Boeing is far from recovered from this debacle, it’s clear the situation is beginning to right itself.
Better: A Long, Strange Trip
SunTrust Robinson Humphrey be trippin’. The ratings and research firm issued a bullish note on TripAdvisor Inc. (Nasdaq: TRIP) this morning. “Our buy thesis centers on our calculations that TRIP’s rapidly (+30% annual growth) expanding experiences segment now represents nearly a third of sales.”
Blah, blah, blah … man, research notes get boring.
Basically, SunTrust is impressed with the money TripAdvisor is bringing in with its Experiences division — the one that helps you book tours, see attractions and basically have fun. This is where the real money is for TripAdvisor, which used to just help you book hotels, flights and rental cars. SunTrust is so impressed, it upgraded TRIP to “buy” from “hold” and put a $60 price target on the stock.
Not too shabby.
Best: My Name Is Mudd
OK … which one of you bought a copy of Adobe Photoshop last quarter?
We all know that no one actually buys Photoshop. But, somehow, Adobe Inc. (Nasdaq: ADBE) reported a 25% surge in revenue in the second quarter. In fact, Photoshop and Premiere saw revenue grow by 22% to $1.89 billion!
Earnings topped expectations at $1.83 per share, while analysts were expecting $1.78 per share.
That’s pretty impressive for one of the most pirated pieces of software on the internet.
It’s clear that Adobe’s move to the cloud and subscription-based services is having a major impact on growth. Basing its software in the cloud has also had a considerable impact on piracy, making illegal copies much harder to obtain.
The brokerage bunch is loving the results. Stephens upgraded ADBE to “overweight,” while BMO Capital Markets, JPMorgan Chase and Wedbush Securities all lifted their price targets.
If ADBE wasn’t already on your short list to add to your portfolio, what are you waiting for?
In honor of Fed Day … I’ll just leave this here without comment. Enjoy.
Great Stuff Rant: I’ve Got aBad Feeling About This
Have you seen what Target is selling?
Don’t worry, I took a picture:
This, dear reader, is a $25 gift card for Facebook Inc. (Nasdaq: FB) stock at Stockpile.com.
A bit of background: Stockpile is a discount trading service like Robinhood. But there’s a key difference. Stockpile allows you to trade fractional shares of a company.
Now, it may seem like a harmless gift card. Who wouldn’t want to receive a gift card for FB from their well-meaning grandparents FB?
But there are two significant problems here.
First, FB doesn’t trade anywhere near $25.
At last check, the stock was nearly 10 times that price at about $186 per share. This means that you’re not getting FB stock for $25. You’re getting roughly 11% of a share of FB. Nowhere on the front of this gift card is that mentioned.
It’s in the fine print. But who reads the fine print? Not grandparents looking for a graduation gift, that’s for sure.
You have to sign up for Stockpile.com just to claim your 11% share of FB. And, look at that fine print up in the right-hand corner. There’s a $4.95 stock trading fee.
That’s a 19.8% commission! For 11% of a share!
There’s a sucker born every minute, I guess.
Second, there’s another reason to be worried about these new stock gift cards.
Remember back during the housing crisis when home-flipping shows proliferated like rabbits on cable TV? The extreme popularity of house-flipping was a warning sign back then, and this is a warning sign now.
I’m not sure how popular stock gift cards are going to be yet, but the fact that they’re sold out at all my local Target stores in the Cincinnati, Ohio, area is at least anecdotal evidence of a sentiment bubble in stock prices.
So, tell your well-meaning relatives that you don’t mind gift cards, but stay away from this crap … the commissions alone are a rip-off. And, keep a close eye on your portfolio. If a sentiment bubble is in place, an interest rate cut from the Fed will only serve to inflate it further.
Until next time, good trading!