Weekend Reading

16 June 2017 | by Paul Perrino, CFA

A summary of this week’s best articles. Follow us on Twitter (@INTRINSICINV) for similar ongoing posts and shares.

Amazon to Buy Whole Foods for $13.7 Billion  (Austen Hufford, Annie Gasparro, and Laura Stevens; @austenhufford, @Annie_Gasparro, @LauraStevensWSJ; WSJ)

The acquisition of Whole Foods will bring grocery operational experience into Amazon. Earlier this year, Amazon tested a brick-and-mortar store with a new experience for shoppers. There were no check-out clerks. Shoppers check-in with their phone and items are automatically added to their bill when they put something in their cart, so when they’re done shopping they can walk out. In addition to normal grocery items, the store offered a number of prepared food. This acquisition would allow Amazon to leverage Whole Food’s food prep service.

Homeowners Are Again Pocketing Cash as They Refinance Properties (Christina Rexrode; @chris_rexrode; WSJ)

As the Federal Reserve raises short-term rates, long-term mortgage rates remain low. This combined with rising home prices is causing some homeowners to exhibit behavior reminiscent of before the financial crisis. “Nearly half of borrowers who refinanced their homes in the first quarter chose the cash-out option.” This could provide a tailwind to the US economy because it gives consumers higher spending power and it shows that consumers are more optimistic about the US economy.

Hospitals Are Dramatically Overpaying for Their Technology (Peter Pronovost, Sezin Palmer, Alan Ravitz; @PeterPronovost, Harvard Business Review)

Healthcare is a large, complex part of our economy. Over the past few decades, there have been large technological advances in patient treatment, but there are still many inefficiencies. Many of these systems aren’t communicating with each other. This causes healthcare workers to spend time translating information from one system to another. There is a great opportunity for a company to take the lead to develop the platform for interconnected devices.

Why expansions die (Cardiff Garcia, @CardiffGarcia, FT)

Deutsche Bank identified three reasons why expansions end. Domestic imbalances (overinvestment), international shocks (oil), and Fed tightening (rising rates).

The Dot-Com Bubble Vs. Today: A Comparison (Ben Eisen, @BenEisen, WSJ)

Over the last year, FAANG stocks have collectively increased 41%. “Those stocks are responsible for more than a quarter of the year-over-year increase in the $20.95 trillion market capitalization of the S&P 500.” For some, this has “evoked memories (nightmares?)” from the Dot-Com bubble. However, profitability and cash flow generation are much higher today, than it was over 15 years ago.

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