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Fed cuts rates

For the third time this year, the Federal Reserve cut rates and signalled that it would refrain from cutting rates further unless the economy slowed sharply. The target range for the central bank’s benchmark rate is now between 1.5% to 1.75%. The markets took the widely-expected rate cut in stride as the S&P closed at an all-time high of $3046.77.

Chairman Jerome Powell further added that “The current stance of [interest rate] policy is likely to remain appropriate” for as long as economic activity is in accord with the central bank’s outlook for growth. 

A looser monetary policy can often lead to the creation of leveraged financial markets and capital excess that boosts expansion but can create bubbles. But, the Fed Chairman doesn’t see “bubbles and that kind of thing”. Stating that the current policy is “accommodative”, Mr Powell does not believe that there are any financial imbalances in the markets. Of course, WeWork going from $47 billion to basically insolvent in less than 90 days is a striking example of the “balanced” and “accommodative” growth the US economy boasts. 

Powell said that “there’s plenty of risk left but I’d have to say that the risks seem to have subsided”, with regard to the trade war and Brexit. I’ve said it before, and I’ll say it again – the Fed is merely kicking the can down the road. There will come a time when stock buybacks aren’t enough to pass for “growth”, and when the downturn hits, the first institution to lose its credibility will be the Fed.

Apple earnings

$AAPL proved that its bet on the services business can bolster revenues even when iPhone sales are declining. Here are the stats:

• Revenue rose 1.8% to $64.04 billion (ahead of estimated $62.99 billion) behind the rise in sales of accessories (Watch, AirPods etc) and subscriptions (Music)
• iPhone sales declined by 9.2% in the quarter. This is an improvement from the 15% decline reported over the three previous quarters.
• EPS was $3.03 beating estimates of $2.83 a share
• App Store sales rose nearly 30% to $4.1 billion
• The stock closed at $248.19 in after-hours trading

I think the majority of the growth that Apple boasts is driven by stock buybacks. It’s no question that Tim’s operational excellence since taking over from Jobs has turned the firm into the world’s most valuable company, but the looming question still remains if the firm can continue to innovate the way it has in the past. 

A brand synonymous with breakthrough innovation in the past now seems to be trailing behind when it comes to truly “new” design and products. Apple’s becoming a lot closer to a conglomerate than a technology company. It has its hand in technology, software, accessories, services, streaming, and even banking. There’s nothing particularly wrong with that, but I do think that there will come a time when the fourth camera lens or the next great piece of content just wouldn’t be enough to justify calling it a trillion-dollar giant. 

However, entering a market last also provides last mover advantage as one can learn to succeed from where others have failed. The latest iPhone line-up this year didn’t boast major upgrades to software and performance, except the camera. But, we can expect next year’s lineup to be refreshed model as opposed to a camera upgrade. With USB-C, no notch on FaceID, 5G connectivity, and refreshed industrial design, Apple may reclaim its innovator title.

Facebook earnings 

Despite being in the middle of multiple lawsuits regarding user data and privacy, Facebook beat top and bottom-line estimates, killing it this earnings season. Here are the stats:

• EPS was $2.12 against an estimated $1.91
• Revenue was  $17.65 billion against an estimated $17.37 billion, jumping by 29% from $13.73 billion a year ago
• Daily active users grew to 1.62 billion users
• Monthly active users grew by 8% to 2.45 billion 
• Operating margin for the recent quarter was 41%, up from 27% in the second quarter and 22% in the first. 
• The stock closed at $196.64

Despite a $5 billion dollar fine from the FTC, and Zuckerburg having testified in front of Congress, Facebook shows signs of continued growth. 98% of the firm’s revenue comes from advertising. I think Facebook has dominated the communications marketplace and has found an effective way to monetise the business. Facebook has effectively leveraged the human need for communication by owning whatever we may use to communicate in the digital age. 

The firm also plans to add a layer of e-commerce to its growing ad-business. Instagram is rolling out a shopping feature, and I think there’s major potential for growth here as customers can view how other users are using and responding to the product. It’s easier to form an opinion on a $400 piece of clothing if you can see how other users are wearing it, as opposed to reading a written review or shopping for the same product on amazon. 

Here’s what we are talking about:

• Cognetivity Neurosciences ($CGN.C) dementia cognitive assessment platform gets the EU nod
• Curaleaf ($CURA.C) amends and closes acquisition of Cura Partners for half the original amount
• SLANG Worldwide ($SLNG.C) closer to Big Pharma than Big Farming
• Digital Reality ($DLR.NYSE) and Interxion ($INXN.NYSE) combine to create a multinational colocation company