July 2, 2013 Update

DJIA:14,975 S&P 500:1,615 NASDAQ:3,434 Gold:$1,260 Oil:$98.18 EURO:$1.30 YEN:99.77

The Unlimited Upside in Destruction

Creative destruction, the theory derived by Karl Marx and later coined by Joseph Schumpeter, portrays the classic narrative behind entrepreneurship and invention. This concept of economic development depicts the roots of innovation, while shedding light on both the tragic and magnificent sides of creation. As modernity destroys factory jobs and replaces human brain power with computers and machines, the concept of being creatively destructed has become increasingly infamous in the media. People are scared of change, so it's no wonder there is so much public animosity toward dismissing the old and embracing the new. But in the eyes of a trader, the market that creative destruction makes is nothing short of a gift, literally. Shorting may have unlimited downside and limited upside (since a stock can only go to $0), but betting on a company with an “old world” mentality failing as it is being creatively destructed by a company with modern ideas does not seem very risky to me. As technology continues to advance, my peers and I are constantly being creatively destructed. For instance, when I was eleven years old it was essential to own a printer and have a television. About a decade later, I do not know anyone my age who has a printer in their apartment (since all homework assignments are submitted electronically) and can count on one hand my friends who own TVs (when programs can be streamed online for free, why waste the capital?). Could this be a sign that the paper & packaging industry and television manufacturing is something of the past? I believe that taking advantage of my generation as we become creatively destructed could only provide an unlimited upside as the rate of technological advancements grows exponentially. As Schumpeter said, “process of creative destruction is the essential fact about capitalism,” and when has betting on the spirit of capitalism ever failed?  

Domestic News

• Market Update Futures are trading up ahead of factory orders and auto sales data, despite poor market performance overseas. 
• The Commerce Department will release data on factory orders at 10am, economists expect new orders for manufactured goods to have increased 1.9% in May vs. April’s 1% gain. 
• Ford Motor Co (F) and General Motors Co. (GM) will release data on U.S. auto sales for June, analysts expect the data to be robust. 

International Updates

Asia

• Market Update Markets had a mixed session, Australia and Japanese stocks rallied as Chinese equities sold off. 
• The average price of new homes in China’s 70 largest cities rose 5.3% YoY in May vs April’s 4.3% increase. New homes in China are now the most expensive they have been in two years.
• The Federal Reserve Bank of Australia has left is benchmark overnight cash-rate target at a record low of 2.75%, as a result of below-average domestic and international growth.

Europe

• Market Update Markets trading down as investors take profits and insurers face pressure from JPM’s claim that a 10% decline in natural catastrophe reinsurance can be expected. 

Corporate

• Nestle (NSRGY.PK), Abbott Laboratories (ABT), and Mead Johnson (MJN) are being investigated by China’s National Development & Reform Commission for possible breaches of antitrust law as a result from the absurd high price of infant milk. 

 Commodities and Forex

• Gold and crude-oil prices rose slightly.
• The USD strengthened across the board.