From Wal-Mart’s acquisition of Jet.com to the Bank of England cutting interest rates for the first time in seven years, this week proved to be a week of action. Read more in this edition of Steady Investor’s Week…
Biggest E-Commerce Deal, Ever – when we say “e-commerce deal” we’re not talking about online shopping sales or Cyber Monday records. We’re talking about a $3 billion acquisition of a company that has only been in business for 1 year. If you’re thinking that you’re in the wrong business right now, you are certainly not alone! Earlier this week, Wal-Mart announced the acquisition of Jet.com, in a deal that appears to be the largest acquisition in the e-commerce space. Jet.com’s business model focuses on selling household goods at discount prices, with extra incentives for lower prices from bulk buying or paying by debit card, for instance.
British 10-year Government Bonds Break a New Record – U.K. gilts have broken yet another record, this time by falling below 0.6% for the first time in history. When it comes to sovereign debt in wealthy, developed countries, there appears to be a race to zero, which is why demand for U.S. Treasuries has remained robust, putting ‘flattening’ pressure on the yield curve. This is something for investors to watch going forward—if the yield curve flattens to the point of eventually inverting, it could portend recession. The British pound remains weak against the dollar as well.
Bank of England Takes Action – amidst mounting signs that leaving the EU may have an adverse economic impact, the Bank of England cut interest rates for the first time in seven years to a historic low of 0.25%. They also unveiled a bond buying program designed to keep downward pressure on longer term interest rates, to keep the borrowing environment easy and hopefully inspire new investments. But on just the second day of bond-buying (QE), the central bank was about 52 million pounds short in orders for the 1.17 billion pounds of long dated gilts that they intended to buy. Why? Because big pension funds and banks didn’t want to sell them back! In a world starved for yield, many pension funds simply decided to pass on the Bank of England’s offer to buy back the bonds, which underscores problems that future QE endeavors may cause at the bank.
Making Sense – Australia’s central bank governor, Glenn Stevens, made a rational point this week when he called for developed countries around the world to look to fiscal spending for boosting economies versus relying so heavily on monetary policy measures. His argument makes sense for two reasons: 1) extraordinary monetary policy measures have proven to be very modestly effective so far, and it risks having too many countries stuck to the zero bound; and, 2) fiscal stimulus actually works. Government spending can contribute a decent bump to overall GDP, and for the United States, at least, it has been relatively weak over the past few years.
Delta Airlines’ Woes – in a detrimental turn of events for Delta Airlines, it’s computer systems malfunctioned earlier this week leading to the cancellation of over 1,600 flights over two days. The CEO of Delta, Edward H. Bastion, conceded that this would certainly lead to a dent in earnings for the company this quarter, and its effects could certainly linger as passenger confidence wanes. Delta has returned to normal operations since.
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