SFM Observer - January 2021
The Dow closed the month of January at 29,982 for a loss of -624 points or -2.0%. The market started the year off on a weak note and has largely traded sideways for the first month of the new year. Beneath the averages, there are a number of winners and losers and some market rotation is occurring. Many of you have probably heard the news on the stock GameStop. This is a failing retailer of new and used video games. Many large institutional investors had placed bets that the stock would fall as its business deteriorates but a large group of online traders decided they would all buy the stock at the same time and create a shortage of shares. When this happens, the stock price will increase rapidly and the large institutional investors will lose money quickly (and without limit) and force the large institutional investors to buy the stock to close out their negative bets. This is exactly what happened and millions of dollars were made and lost in just a few days.
Some interesting events from the month just passed:
• Louis Vuitton and Tiffany are now one company and the French LVMH is installing new management at Tiffany’s to strengthen demand for the upscale jeweler and burnish the upscale image of the popular New York retailer. This deal was signed before the pandemic and nearly collapsed when most of retail was forced to shut down last year. The parties agreed to a minor price reduction.
• Amazon and Walmart are using artificial intelligence to decide when to skip processing a return from an online customer. In some cases, it is more profitable to refund a customer and have them keep the product. This is particularly true when the item is inexpensive or very large and expensive to ship. I was surprised when this happened to me and Amazon told me to just keep the item.
• Municipalities around the country issued debt last year to deal with the revenue shortfalls and additional expenses caused by the pandemic. In the aggregate, $252 billion in new debt was issued in 2020. Total municipal debt now exceeds $3.9 trillion. Much of the new debt was issued at interest rates of 1% or less.
• The price of corn, soybean and wheat are rallying and are currently at six-year highs. This is good news for the farmers but not for the buyers of these commodities and consumers. Bumper crops and disruptions in demand have been hurting farmers for the past few years but a recent surge of orders from China has created strong demand and increased prices for many food commodities.
• Microsoft reported record sales and profits as the pandemic fueled a surge in demand for their cloud services and software products. Quarterly sales increased by 17% to $43 billion and profits increased 30% to $15 billion. That’s a tidy profit of $5 billion per month!
• Chevron posted its third quarter of losses as it closes out one of the worst years for the large oil and gas company. Due to the pandemic and other negative factors, Chevron went from a $3 billion profit in 2019 to a $5 billion loss in 2020. Chevron still maintains a strong financial position and is looking for a rebound in 2021 as people return to work and resume commuting and traveling.
Thank you for reading this issue of the SFM OBSERVER.
Until next month,