Just for the Smell of It

The Hard Rock Café Hotel in Orlando pumps out artificial scents of sugar cookies and waffle cones that act as “aroma billboards” to draw people to their ice cream shop in the basement (increasing sales by 45%). The marketing company ScentAndrea attached chocolate artificially-scented strips to some vending machines in California, tripling Hershey’s sales. The Hershey’s store in Times Square uses artificial scent machines that blow the scent of chocolate into their store. Disney reportedly applies an artificial “grilled scent” to their frozen burgers to make them smell fresh, along with strategically placed scent machines in the bushes that disperse scents of cotton candy, popcorn, or caramel apples. According to the Scent Marketing Institute, when the smell of fresh baked bread was pumped into a grocery store, sales in the bakery department tripled. A grocery chain in New York (Net Cost) admittedly places scent machines that release scents of chocolate and baking bread to make customers hungry, and sales jumped.

Even subtle changes in operations can trick our noses and make a big impact on increasing food sales. For instance, Panera Bread recently moved its baking time to daytime hours so that customers smell the bread all day long and their New Haven, Connecticut location has a small “show oven” without a hood, so the smells vent into the restaurant. This is the same reason that Subway places their bread ovens up front in their restaurants, so that smell hits you when you walk in the door. Starbucks has an “aroma task force” to make sure their stores smell like coffee and not the cheese from their breakfast items

So don’t be surprised the next time you drop into our office and feel rich as we are working with the SF Federal Reserve to capture a new, “crisply minted $100 bill” scent for use in our Glade “office fresh” dispensers.

An Internet Minute

A fascinating chart I saw regarding what happens on average every minute on the internet for the sites with greatest activity . I can honestly say I am active in 3 of them daily and only 2 others on a weekly basis. What about you?

How Much Do You Spend on Taxes?

How bad is the tax burden in America? According to the Tax Foundation, people will spend more on state, municipal, and federal taxes than the annual financial burdens of food, clothing, and housing combined, according to its data.

The calculation is based on the date of Tax Freedom Day, the point at which Americans have gone enough days to pay their annual taxes, beginning from the first day of the year. This year, that date will be April 24. It is worth noting that U.S. tax payers are better off than those in several other countries.

The organization’s researchers explain:

·         This year, Tax Freedom Day falls on April 24, or 114 days into the year (excluding Leap Day).

·         Americans will pay $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes, for a total bill of almost $5.0 trillion, or 31 percent of the nation’s income.

·         Tax Freedom Day is one day earlier than last year, due to slightly lower federal tax collections as a proportion of the economy.

·         Americans will collectively spend more on taxes in 2016 than they will on food, clothing, and housing combined.

·         If you include annual federal borrowing, which represents future taxes owed, Tax Freedom Day would occur 16 days later, on May 10.

·         Tax Freedom Day is a significant date for taxpayers and lawmakers because it represents how long Americans as a whole have to work in order to pay the nation’s tax burden.

Make Sure You Have a Chair When the Music Stops

A very interesting read in the Bloomberg article below. Clearly this market is being driven by a different mechanism than those of the past and investors need to have a plan when corporate buybacks begin to slow.

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Buybacks at $46 Billion a Month Dwarf Everything in U.S. Market

The biggest source of fresh cash in American equities isn’t speculators or exchange-traded funds -- it’s companies buying their own stock, by a 6-to-1 margin.

Chief executive officers, who just announced the biggest round of monthly repurchases ever, executed about $550 billion of buybacks last year, according to data compiled by S&P Dow Jones Indices. That compares with a net $85 billion of deposits by customers of mutual and exchange-traded funds, the biggest gap since 2012, data compiled by Bloomberg and Investment Company Institute show.

If you sell a share of stock in the U.S. market, there’s a fair chance the buyer is the company that issued it -- and it’s buyers who’ve been on the right side of the trade since 2009. Buybacks are helping prop up a bull market that is entering its seventh year just as investors bail out and head back to bonds.

“Buybacks have come up in every meeting with clients and always have, because of the observation that the largest buyers of stocks have been companies themselves,” Dan Greenhaus, chief strategist at BTIG LLC in New York, said by phone. “For the last few years, that’s been the right call.”

Repurchases by U.S. companies averaged $46.1 billion a month in 2014, compared with $7.1 billion in ETF and fund inflows. Investors have pulled more than $10 billion out of equity funds in January and February and sent $38 billion to bonds -- even as companies announced $132.7 billion more in buybacks. February’s total of $104.3 billion was the highest on record, according to TrimTabs Investment Research.

Buyback Index

Companies with the most buybacks are beating the market. The S&P 500 is up 1.6 percent on the year after falling from a record on Monday to 2,092.21 as of 11 a.m. in New York. The S&P 500 Buyback Index, which contains the 100 companies with the highest repurchase ratio, has climbed 4 percent this year.

“It’s amazing that people are still sitting on the sideline getting zero-something percent returns,” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said in a phone interview. “Usually when you get where everyone says we’re in a bull market you see big money coming out of lifeboats and chasing yield, yet we haven’t seen the mass money come in.”

The reluctance of investors to pile into equities has left corporate America the larger source of cash throughout the bull market. Buybacks exceeded inflows by $468 billion last year when the S&P 500 climbed 11 percent and $318 billion more in 2013, when the gauge had its biggest advance since 1997.

Companies in the S&P 500 have spent more than $2 trillion on their own stock since 2009, underpinning an equity rally in which the index has more than tripled. They were on pace to spend a sum equal to 95 percent of their earnings on repurchases and dividends in 2014, data compiled in October showed.

Buyback Incentives

Not everyone is convinced buybacks are good. They’re used to boost per-share earnings in a way that enhances the pay of chief executives, according to William Lazonick, a professor of economics at the University of Massachusetts Lowell.

“Companies use a phony ideology saying if you maximize your shareholder value you somehow increase the efficiency of the economy,” Lazonick said in a phone interview. “But the only justification for doing it that holds water is that executives get a lot of their income from buybacks.”

Home Depot Inc., Comcast Corp. and TJX Cos. were among 123 companies that disclosed repurchases in February. The increased buybacks came as plunging oil and a strengthening dollar threaten to stall five years of earnings expansions.

Profits from S&P 500 members will decline at least 3.2 percent this quarter and next, according to analysts’ estimates compiled by Bloomberg. For the full year, growth will be 2.3 percent, down from 5 percent in 2014.

Profit Contractions

Buybacks will boost per-share earnings, with the potential of helping avoid the first back-to-back profit contractions since 2009, according to Yardeni Research Inc.

“In the last earnings season, the strength of the dollar clearly had a negative impact on earnings guidance by a lot of companies,” Dan Miller, who helps oversee $23 billion as director of equities at GW&K Investment Management, said by phone. “In some cases, the announcement of buybacks was perhaps meant to soften the blow a little bit. It shows the management is committed to their own stock.”

Switching Positions

Corporations and investors have switched positions as the bigger buyer of stocks. Inflows from equity funds exceeded corporate buybacks every year in the late 1990s, contributing a total of $640 billion over the three years through 2000. That compared with $418 billion from share repurchases.

Companies have since taken the lead, with buybacks setting a record $589 billion in 2007. Last year, corporations beat all other groups as the biggest source of fresh cash to the stock market, according to a January report by Goldman Sachs Group Inc., which tracks money flows from pension funds, foreign investors and ETFs.

The S&P 500 will increase about 7 percent to 2,238 by the end of 2015, according to the average of 21 equity strategists surveyed by Bloomberg. The Nasdaq Composite Index closed above 5,000 for the first time in 15 years on Monday and is within 2 percent of a record.

S&P 500 companies hold $1.75 trillion in cash and marketable securities, data compiled by Bloomberg show.

“These companies do this because they can,” Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2 billion, said in a phone interview. “So many have tremendous amounts of cash historically and the investment rates on short-term cash are not too attractive. It’s good for the company and good for stockholders.”

Politics and the Economy

While the markets take a breather and consolidate I thought it be fun (or not) to step away for a quick look at politics (a subject I try to avoid). The WSJ asked economist’s their view on the potential impact the individual presidential candidates would likely have on the economy.  Like all predictions, I put zero faith in the results but find the discussion interesting and fodder for some fun. 

Q: Why did God create economists?      A: In order to make weather forecasters look good.

Three econometricians went out hunting, and came across a large deer. The first econometrician fired, but missed, by a meter to the left. The second econometrician fired, but also missed, by a meter to the right. The third econometrician didn't fire, but shouted in triumph, "We got it! We got it!"

A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist says, "Lets smash the can open with a rock." The chemist says, "Let’s build a fire and heat the can first." The economist says, "Let’s assume that we have a can-opener.”

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More than three-fourths of forecasters in a new Wall Street Journal survey say the presidential election has introduced more uncertainty than is typical from a change at the White House.

Their current economic forecasts aren't all rosy: On average they see about a 20% risk of recession in the next year, down slightly from 21% in the previous survey. They forecast the economy will be too fragile for the Federal Reserve to raise rates before June. They predict the economy will add fewer jobs this year than in 2014 and 2015.

More than four-fifths of economists rate the possible election of either Mr. Sanders or Mr. Trump as an outcome that may force them to lower their economic forecasts. About half the survey’s respondents rate them as “significant” risks. Regardless of who wins, it is unlikely the new president would be able to change policy quickly enough to affect 2017.

As with most things, the economists polled could not reach consensus, unlike their past recession predictions where they accurately forecasted 29 of the last 3.