Private Client Group

August 5th, 2016

How Far Down the Debt Wormhole Can Japan Go?

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This week proved to be a week of last chances as Uber made its final surrender to the Chinese government and Japan turned to “helicopter money” in hopes of boosting spending. Read more in this edition of Steady Investor’s Week…

How Far Down the Debt Wormhole Can Japan Go? – if it feels like every single week Japan is back in the news announcing some new form of monetary or fiscal stimulus, it’s because they are. Just this week, Japanese Prime Minister Shinzo Abe’s cabinet approved a $274B stimulus package that is basically a form of “helicopter money.” As part of the program, handouts will be offered to over 20 million low income people of about $150, to boost spending in the economy and hopefully support inflation. Japan is truly running out of options, as interest rates have been on the zero bound for several years and quantitative easing programs have simply not delivered any sustainable growth. With the population aging quickly and global demand for exports remaining fairly tepid, the Japanese economy could run into serious problems during the next business cycle.

Uber Surrenders? – that’s not a storyline you should expect to see, but Uber may have finally met its match in its battle for market share in China. And by ‘match’ we don’t mean its competitor, Didi Chuxing (DIDI), but rather the force behind the competition – the government. Uber may have finally come to the realization that some battlegrounds aren’t worth the fight, especially if the battleground is controlled completely by the state. Such is the nature of doing business in China. Earlier this week, Uber struck a deal to essentially leave the country, swapping its local operations for a minority stake in DIDI. The newly formed entity as a result of the deal will combine DIDI’s latest valuation of $28B with Uber China’s $7B valuation, for a new $35B market cap for DIDI. As part of the deal, DIDI agreed to make a $1 billion investment in Uber (basically paying it to leave). The deal is not set in stone, however, as later in the week China’s antitrust regulators stated that they had not received the necessary application to authorize the deal. It was initially reported that the application was not necessary, as neither company was profitable yet, but it appears that may have been misinformation.

Shifting Trends in the Tech Industry – a close analysis at some of the tech giants’ earnings reports are confirming that cloud and mobile are the key drivers behind earnings growth. Those companies that have a stronghold in both segments, like Google, Facebook and Amazon, are capitalizing the most. For investors in the space, it is increasingly important to analyze growth in mobile and cloud to determine if that tech company has a shot at being competitive. The two technologies are interdependent and as people increasingly use mobile devices to access cloud services, demand is rising across the board.

All Eyes on Rio – more stories continue emerging from Brazil about its unpreparedness for the Olympics, and a recent report suggested the crime rate there has surged in recent months. Demand in general for amenities is up (as it should be during the Olympics), but it is lagging fairly far behind some of the readings from recent Olympics. Hotels and flights aren’t being booked up at strong paces, and it was reported that less than 80% of the over six million tickets have been sold. Compare that to the last two iterations of the Summer Olympics in London and Beijing, where over 95% of tickets were sold. Let’s hope for the best.

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Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
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