There has been a lot of sideline-type talk from Trump’s team about the possibility of bringing back Glass-Steagall, the rule that separated retail from investment banking in the US for most of the 20th century. However, President Trump himself has now made clear this was a priority. “I’m looking at that right now … there’s some people that want to go back to the old system, right?”, said Trump in a recent Oval office interview.
FINSUM: Rumors and backstage comments from Trump’s team are one thing, but on-the-record comments in the Oval Office from the president are another. Given how big of a shakeup Trump is seeking in many areas, we think he is going to go ahead and try to put in place a new form of Glass-Steagall. This could be a major threat to big US universal banks like JP Morgan (JPM), Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC).
Auto stocks like GM and Ford have gotten hammered recently. The big reason why was horrible earnings reports for the first quarter. The pair saw their quarterly sales drop 5.8% and 7.2% respectively, much worse than was expected. The losses in revenue seem to point out that the peak has been reached in this auto sales cycle. Investors are also worried about the companies’ exposure to subprime auto loans, as that sector boomed in recent years. Now, used car prices are plunging as tons of inventory floods the market, which puts many borrowers under water.
FINSUM: This article points out that auto manufacturing may touch 5% of the US work force in some way, so the economy could actually be significantly weighed down by problems in Detroit.
Some are growing worried about the US auto industry and perhaps they should be. The country’s car industry is likely to announce a fourth straight month of falling vehicle sales for April. However, the companies remain bullish and did deliver good earnings. This may be because even if sales fall, they are doing so from a record level. “Total sales are still strong from a historical perspective and the decline is very gradual”, says an auto industry analyst cited in the piece. GM, Ford, and Chrysler are all seen to be in a better positon than rivals because of their lower reliance on sedans. SUVs and other more popular styles offer higher profit margins.
FINSUM: The US auto industry has been strong for a few years, but it does seem conceivable there could be a lull now before another move higher as electrics and self-driving cars catch on.
Source: Wall Street Journal
There has been a lot of speculation over the last few weeks that high-end foods store Whole Foods, often dubbed “whole pay check” by consumers, may be set to sell. That hype may come good soon as this story reports that grocery giant Albertsons, which is owned by a private equity firm, is considering a bid for the chain. Whole Foods has been struggling with steep drops in shoppers, competition in organics by other grocery stores, and the shift to online sales. Albertsons is currently the third largest grocery store chain behind Walmart and Kroger and was previously considering a bid for smaller health foods chain Sprouts.
FINSUM: We wonder what sort of operating benefits there maybe for Whole Foods if it were to be bought by a larger chain. It does seem like some of the resources of a larger business might provide it with tools to overcome its issues.
Source: Financial Times
Most investors will be aware that retail is going through a very tough period. The whole industry is under threat from Amazon’s dominance, as well as changing consumer habits, and the decline of the traditional brick and mortar retail model. This article puts the scale of those challenges in perspective, reporting that the pace of retail bankruptcies is running at a record pace. There have been 14 retail bankruptcies so far this year, almost as many as all of 2016. Urban Oufitters’ CEO said there were just too many stores, “This created a bubble, and like housing, that bubble has now burst … We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate”.
FINSUM: There are huge challenges facing retailers, but we do think the current fears are a bit overhyped as many sources make it sound like the industry is simply going to disappear.
This Barron’s article argues that Delta Airlines looks like a strong buy right now. Delta got a lot of publicity recently because of Warren Buffett’s big investment, and this piece thinks the stock is set to soar. Delta is the best managed of America’s big three airlines, but its shares are down 10% this year, offering a good buying opportunity, says the article. Recent earnings were solid, but not entirely convincing. The airline industry is probably in its best shape ever after consolidation has led to a focus on profit. Warren Buffett’s Berkshire Hathaway is the biggest owner of Delta, holding an 8% stake. The company is sporting a 1.8% yield. Morgan Stanley is overweight the stock.
FINSUM: There is a virtual oligopoly in the US airline business, and it seems like with this environment Delta is poised to do well.