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Wells Fargo illegally repossessed another 450 service members’ cars

 

Wells Fargo illegally repossessed another 450 service members’ cars

  @MattEganCNN

Wells Fargo has uncovered another 450 service members who had their vehicles illegally repossessed by the bank. That brings the total to more than 860.

The Department of Justice on Tuesday said Wells Fargo agreed to pay an additional $5.4 million for the illegal vehicle seizures.

Federal law requires banks to get a court order before repossessing a car from members of the military. The DOJ previously charged Wells Fargo in September 2016 with illegally seizing 413 cars owned by service members.

As part of a settlement reached last year, Wells Fargo has “identified additional violations” that affected about 450 service members between January 2008 and July 2015, according to the DOJ.

Wells Fargo(WFC) has agreed to repair the credit of the service members and to pay each $10,000, plus any lost equity in the vehicle, with interest.

“Losing an automobile through an unlawful repossession while serving our country is a problem service members should not have to confront,” Sandra Brown, acting United States Attorney, said in a statement.

Wells Fargo said in a statement that it’s committed to “ensuring all service member customers have the protections and benefits available to them.” The bank said it’s in the process of notifying and refunding impacted customers.

Dennis Singleton found out that Wells Fargo had repossessed his car in 2013 just as he was preparing to go to Afghanistan.

“I said, ‘Hey, they can’t do that!'” Singleton told CNNMoney last year. “Honestly, I just think it sucks.”

Under the Servicemembers Civil Relief Act, courts must sign off on vehicle repossessions if the service member took out the loan and made a payment prior to entering military service.

Wells Fargo and its troubled auto lending division are no stranger to legal problems. Wells Fargo has admitted to charging as many as 570,000 customers since 2012 for car insurance they didn’t need. The bank estimates that about 20,000 of those customers may have had their cars repossessed as a result of their inability to pay for the additional car insurance.

Wells Fargo recently said one former employee has alleged “retaliation for raising concerns” about the bank’s auto lending tactics.

All of this is on top of Wells Fargo’s infamous fake account scandal. Wells Fargo recently raised its estimate of the number of unauthorized accounts its employees opened to 3.5 million.

–CNNMoney’s Jackie Wattles and Aaron Smith contributed to this report.

Published at Tue, 14 Nov 2017 22:30:25 +0000

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Buffalo Wild Wings soars 25% on takeover talk

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5 stunning stats about the fast food industry
5 stunning stats about the fast food industry

 Buffalo Wild Wings soars 25% on takeover talk

  @lamonicabuzz

Fast food chain Arby’s likes to tout in TV ads that it “has the meats.” It’s even introduced venison to the menu. But if Wall Street rumors are to be believed, the company behind Arby’s may soon own a chain famous for something more common — chicken.

Roark Capital, the majority owner of Arby’s, Carl’s Jr and Moe’s Southwest Grill, is reportedly looking to buy Buffalo Wild Wings(BWLD) for $2.3 billion. Shares of the chicken wing and sports bar franchise surged nearly 25% Tuesday on the news.

Spokespeople for Buffalo Wild Wings and Roark Capital, which also has big stakes in Auntie Anne’s, Carvel and Jimmy John’s, were not immediately available for comment.

But Buffalo Wild Wings, known as B-Dubs to its fans, has been struggling due to rising food costs and slumping sales. That could make it vulnerable to a takeover. The stock is still down more than 5% in 2017 — despite Tuesday’s big pop.

Longtime CEO Sally Smith announced in June that she would retire at the end of the year after investors elected three candidates to the company’s board who were backed by activist shareholder firm Marcato Capital. Marcato owns about a 6% stake in Buffalo Wild Wings.

Still, there have been some recent signs of a turnaround at Buffalo Wild Wings.

Shares soared after its most recent earnings report in October. Sales of so-called boneless chicken wings helped boost profits. One of the problems that Buffalo Wild Wings was facing was a spike in the price it paid suppliers for its namesake wings.

By offering cheaper boneless wings, which are really just breast meat cut to look more like wings, Buffalo Wild Wings was able to boost profit margins.

There are still concerns that ratings declines for National Football League games this season are hurting sales though. Papa John’s, the pizza partner of the NFL, has already blamed the National Anthem protests by some players for weak sales.

Same-store sales, which measure the performance at the company’s locations open at least a year, fell 2.3% from a year ago at the company-owned restaurants and were down 3.2% at franchise-run locations.

Buffalo Wild Wings CFO Alexander Ware said during the company’s conference call last month that he expected similar sales declines in the fourth quarter on Thursday nights, Sundays and Monday nights when the NFL plays its games.

So Buffalo Wild Wings may still be a company that, like a defensive back struggling to cover a star wide receiver, gets a lot of penalty flags from Wall Street.

For that reason, several analysts think that Buffalo Wild Wings would be wise to say yes to any deal from Roark.

“We believe Roark’s extensive restaurant experience could aid Buffalo Wild Wing’s turnaround and cash in-hand is difficult to turn down unless investors believe a recovery is already well underway,” said BTIG’s Peter Saleh in a report Tuesday.

Morgan Stanley analyst John Glass added in a report that a deal makes sense since it would give the investors at Marcato a chance to quickly cash in on their investment.

Of course, it remains to be seen whether a takeover actually happens or not.

But a Buffalo Wild Wings acquisition would just be the latest deal in what’s been an incredibly busy year for restaurant mergers. Private equity firms and other investment companies have been hungry for deals.

Oak Hill Capital bought Checkers. Golden Gate Capital ate up Bob Evans Restaurants. And Krispy Kreme owner JAB acquired Panera.

Publicly traded restaurant chains appear eager to grow as well. Burger King parent Restaurant Brands(QSR) scooped up Popeyes Louisiana Kitchen this year while Olive Garden owner Darden(DRI) gobbled up Cheddar’s Scratch Kitchen.

 

Published at Tue, 14 Nov 2017 18:20:54 +0000

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BlackRock’s Fink learns to live with activist investors

 

BlackRock’s Fink learns to live with activist investors

NEW YORK (Reuters) – Larry Fink, whose $6 trillion BlackRock Inc seldom picks a public fight with large companies, said on Monday that activist investors often help lay the groundwork for positive change in the corporate world.

The company logo and trading information for BlackRock is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 30, 2017. REUTERS/Brendan McDermid

“The role of activists is getting larger, not smaller,” Fink said at the Reuters Global Investment 2018 Outlook Summit in New York, “in many cases their role is a good one.”

BlackRock is one of the world’s largest so-called passive investors, which runs portfolios that largely mirror stock market indexes and sticks with the companies that are included in those indexes.

Joking that BlackRock owns some of the world’s best and worst companies, Fink said the interaction between management and so-called activists who push top executives to perform better is often very productive for investors like his funds.

Years ago, Fink made headlines by warning corporate chiefs that they should not be so quick to give in to corporate nudges’ demands.

Activist investors, which often include big-name hedge fund managers such as Nelson Peltz, Carl Icahn and William Ackman, have repeatedly asked corporate management to buy back more stock and raise their dividends, something Fink said could push up share prices in the short term but be less helpful in the long term.

He said he is still worried about the short-term investment strategies and noted that activists often play those well. But he also gave them credit for setting the path for longer-term improvements.

Even as Ackman’s Pershing Square Capital Management last week lost a bruising proxy battle with Automatic Data Processing, Fink said that the campaigns will bear fruit.

At ADP, for example, Ackman pushed for management to become more efficient, deliver more robust earnings and consolidate its real estate footprint. “They may have lost but they are forcing change,” Fink said of activists, without discussing any specific proxy contest.

BlackRock, whose votes are often instrumental to a proxy contest’s outcome, is now talking more openly about how it reaches its decisions on which way to vote.

In May, BlackRock helped pass a shareholder resolution calling on Exxon Mobil Corp to provide more information about how new technologies and climate change regulations could impact the business of the world’s largest publicly traded oil company.

Fink said the firm is only voting in the long-term interests of its investors, and that its responsibilities are growing as more money moves into its index funds and ETFs. The new detail around its proxy votes is what investors now expect, he said. “The market is demanding it, I mean I would prefer never talking about it,” Fink said of the new explanations.

For other news from Reuters Global Investment 2018 Outlook Summit, click here

Reporting by Svea Herbst-Bayliss and Ross Kerber; Editing by Susan Thomas

 

Published at Mon, 13 Nov 2017 23:01:06 +0000

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Most millennials seen worse off than parents despite aptitude: study

 

Most millennials seen worse off than parents despite aptitude: study

ZURICH (Reuters) – Most millennials will struggle to earn more money and find better jobs than their parents despite being more highly trained, according to a study by Credit Suisse.

Defined by the U.S. Census Bureau as being those born between 1982 and 2000 — so between 35 and 17, now — millennials face tougher borrowing rules, rising home prices, and lower income mobility, the study said.

“With the baby boomers occupying most of the top jobs and much of the housing, millennials are doing less well than their parents at the same age, especially in relation to income, home ownership and other dimensions of wellbeing,” the Swiss bank wrote in its annual Global Wealth report, published on Tuesday.

As a result only high achievers and those in lucrative areas like technology and finance have better prospects than their parents.

Overall, Credit Suisse found global wealth at mid-2017 totaled $280 trillion, up 6.4 percent year-on-year, the fastest pace of growth since 2012 thanks to surging equity markets and more valuable non-financial assets such as property.

However, the wealth is heavily concentrated.

Some 36 million millionaires making up less than 1 percent of the adult population own 46 percent of global household wealth; 70 percent of adults — 3.5 billion people — own less than $10,000 in assets and account for 2.7 percent of wealth.

Reporting by Joshua Franklin Editing by Jeremy Gaunt

 

Published at Tue, 14 Nov 2017 10:37:37 +0000

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GE is broken. Fixing it will be long and difficult

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GE losing bulb division, lives on in retro ads
GE losing bulb division, lives on in retro ads

 GE is broken. Fixing it will be long and difficult

  @MattEganCNN

Restoring General Electric to greatness, or even just mediocrity, won’t be quick or easy.

GE’s(GE) fall from grace has forced the iconic company to take drastic steps just to stop the bleeding. This week, GE cut its beloved dividend in half, and launched plans to sell off the century-old railroad business as well as at least 12 other units.

But just as it took years to run GE into the ground, there’s a growing realization inside and outside the company’s Boston headquarters that fixing it will be long and difficult. GE stock nosedived another 7% on Monday, its worst day since April 2009, after new CEO John Flannery detailed his turnaround vision.

Flannery warned that 2018 will be difficult, dubbing it a “reset year for us.”

That’s not exactly music to the ears of GE’s long-suffering shareholders, especially when the rest of the stock market is booming. GE shares closed at a five-and-a-half year low on Monday.

GE faces a “tough slog ahead,” Cowen & Co. analyst Gautam Khanna wrote in a research report on Monday.

Scott Davis, head analyst at Melius Research, said it’s still “early days” for Flannery to “fix the GE mess he was handed.”

While Davis has “high hopes,” he wrote in a report that GE is facing a “debacle” and it’s “hard to have much confidence yet.”

GE is not just one of America’s most storied companies. It’s one of the country’s biggest employers, with nearly 300,000 workers, and one of its most widely held stocks.

Facing a serious cash crunch, GE has cut its dividend to save about $4 billion a year. It also plans to jettison more businesses, including the transportation division that makes trains and railroad parts. GE is even getting rid of the light bulb business that long symbolized the innovative company. And it’s thinking about relinquishing a majority stake in Baker Hughes(BHGE), which was formed when it combined with GE’s oil-and-gas assets.

Flannery has said these sales are necessary to simplify GE and refocus the company on core areas: aviation, healthcare and power.

“Complexity has hurt us,” the new GE CEO said.

Yet even a slimmed-down GE will still be quite complex, making everything from jet engines and MRI machines to power plants.

And it’ll take time to sell off these various businesses, especially the ones like transportation that GE admits are slumping right now. Flannery warned that the transportation division faces a “protracted slowdown in North America” due in part to shrinking coal shipments.

The other problem is that some of the businesses GE is keeping are in even worse shape. GE now expects to earn just $1.00 to $1.07 per share next year. That’s roughly half the goal GE had less than a year ago.

GE warned it will take one to two years to fix its power division, which supplies over 30% of the world’s energy in 140 countries. The business has been hit hard as utilities move away from fossil fuels in favor of renewable energy like solar and wind. GE expects a “challenging market into 2019,” which will force further cost-cutting.

“It’s a heavy lift to turn around,” Flannery admitted.

Davis put it this way: “Power is still a mess.”

That mess threatens to delay efforts to fix GE’s cash crunch. Free cash flow, which measures how much cash is generated after investing in the business, has dropped for six-straight years.

GE said it expects industrial free cash flow, which includes dividends from Baker Hughes but excludes deal taxes and pension obligations, of $6 billion to $7 billion in 2018.

That’s barely enough to cover even the lowered dividend payments.

But Cowen’s Khanna thinks GE’s “cherry-picked” definition of free cash flow has inflated its figures, making things appear better than they are. He noted that GE is borrowing $6 billion to fund its pension obligations through 2020.

Underlying free cash flow “appears close to zero as most industrial firms would define it,” Khanna wrote.

 

Published at Tue, 14 Nov 2017 13:19:10 +0000

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Tesla’s Model 3 Is the ‘iPhone of EVs’

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Tesla’s Model 3 Is the ‘iPhone of EVs’

By Shoshanna Delventhal | November 13, 2017 — 6:10 PM EST

Electric car pioneer Tesla Inc. (TSLA) invited institutional investors to take a ride in its new Model 3 sedan, its first mass-market model, at a closed-door event at its showroom in Brooklyn, N.Y. A number of analysts, including a team at Instinet, were enthusiastic about the company’s first mass-market vehicle after their test drives. (See also: Tesla’s Margin for Error Is ‘Uncomfortably Thin’.)

“We believe there is a real passion for the brand. It is bigger than loyalty because much of the enthusiasm comes from people who have never owned a Tesla. The only comparable we see is the iPhone. Apple succeeded because the world shifted from PCs to smartphones and Apple had the best product. Similarly, we believe there is a secular shift today from internal combustion engines (ICEs) to electric vehicles and we think Tesla has the best product,” said Instinet’s Romit Shah in a note to clients Thursday.

Questions of Quality

While the analysts admitted that they “aren’t professional car reviewers,” they wrote that they walked away confident that Tesla will sell as many cars as it can produce “for a long time.” Shah was particularly upbeat on Tesla’s technology integration, noting that the Model 3’s “immersive central display experience is as close as we’ve seen to smartphone automobile integration.”

Bernstein analyst Toni Sacconaghi was less optimistic in his review, deeming the fit and finish of Tesla’s demo cars “relatively poor,” while pointing to misalignment in some parts including the glass roof, body panels and rubber trim. “Poor overall initial quality could undermine Tesla’s brand and potentially overwhelm its service network,” wrote the analyst, who also worries that the new affordable car could cannibalize sales of the Model S.

The test run responses come as Tesla faces production issues with the Model 3. Earlier this month, the Silicon Valley company was forced to push back its target of building 5,000 units per week by three months to late in the first quarter of 2018. (See also: Tesla: Elon Musk Takes Blame for Production Delays.)

 

Published at Mon, 13 Nov 2017 23:10:00 +0000

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SoftBank says considering investment in Uber but no final agreement reached

The logo of Uber is seen on an iPad, during a news conference to announce Uber resumes ride-hailing service, in Taipei, Taiwan April 13, 2017. REUTERS/Tyrone Siu

SoftBank says considering investment in Uber but no final agreement reached

TOKYO (Reuters) – Japan’s SoftBank Group Corp (9984.T) said on Tuesday it was considering investing in Uber Technologies Inc [UBER.UL] but there was no final agreement at this stage.

“If conditions on share price and a minimum of shares are not satisfactory for the SoftBank Group side, there is a possibility the SoftBank Group may not make an investment,” it said in a statement.

Uber said this week that a planned deal with SoftBank and Dragoneer Investment Group was moving forward. The investment could be worth up to $10 billion, two people familiar with the matter have said..

SoftBank and Dragoneer are leading a consortium that plans to invest $1 billion to $1.25 billion in Uber, the mostly highly valued venture-backed company in the world, along with a purchase of up to 17 percent of existing shares in a secondary transaction.

Progress in the negotiations came after venture capital firm Benchmark, an early investor with a board seat in the ride-services company, and former Chief Executive Travis Kalanick struck a peace deal, reaching agreement over terms of the planned SoftBank (9984.T) investment.

The Japanese tech and telecoms firm has become a prolific investor in ride sharing firms such China’s Didi and India’s Ola as it works to achieve SoftBank founder Masayoshi Son’s vision of a future driven by artificial intelligence and interconnected devices.

Reporting by Sam Nussey; Editing by Edwina Gibbs

 

Published at Tue, 14 Nov 2017 02:55:20 +0000

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GE’s Shrinking Cash Flow Signals Stock’s Tragic Decline

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The ticker and logo for General Electric Co. is displayed on a screen at the post where it’s traded on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 30, 2016. REUTERS/Brendan McDermid

GE’s Shrinking Cash Flow Signals Stock’s Tragic Decline

By Mark Kolakowski | November 9, 2017 — 1:30 PM EST

New CEO John Flannery of embattled General Electric Co. (GE) is expected to announce a significant cut to the company’s robust 4.8% dividend, Barron’s reports. This announcement may come either at a major presentation to shareholders scheduled for Monday, November 13, or sometime in advance of that meeting. In any case, investors who focus on free cash flow rather than earnings already are anticipating this move.

The very thought that GE plans cut its dividend is symbolic of the tragic decline of what, once, was one of America’s greatest corporations, founded by legendary inventor Thomas Edison. GE also is the only stock to remain in the Dow Jones Industrial Average (DJIA) from its inception in 1896 to today. But after outperforming the market for much of the 1980s and 1990s, GE’s stock has fallen by nearly two-thirds from its 2000 highs as the conglomerate struggles to restructure. During that period, the stock market soared and left GE’s shares behind.

While there have been many signs of GE’s decline, an often overlooked one on Wall Street is GE’s worsening cash flow.

Watch Cash Flow

In 1975, publisher Herbert S. Bailey wrote a parody of Edgar Allan Poe’s famed poem, “The Raven,” entitling his effort “Quoth the Banker, ‘Watch Cash Flow.'” It soon became required reading in many business school accounting and finance courses. The point is that businesses must pay their operating expenses, their creditors, and their dividends in the form of real, hard cash. The upshot of various accounting conventions is that reported earnings do not necessarily equal the net cash generated by the business in the same period of time. Earnings according to Generally Accepted Accounting Principles (GAAP) may be higher or lower. In the case of GE, earnings are paltry, and free cash flow has been negative in recent quarters.

Operating cash flow represents the cash produced by a company’s normal business operations. Deduct capital expenditures, and the result is free cash flow. Free cash flow, in turn, finances the payment of interest and principal to creditors, and dividends to shareholders. If free cash flow is insufficient, the company must draw down cash holdings, borrow, or issue more stock to make up the deficit. GE is in such a deficit position.

Source: Barron’s

GE’s Cash Crunch

For a detailed look at GE’s cash flow problem, statements provided by Morningstar Inc. are instructive. During the most recent trailing twelve months (TTM), GE generated operating cash flow of $5.147 billion and spent $7.161 billion on capital investments, leaving it with a deficit of $2.014 billion in free cash flow. By contrast, net income available to common shareholders was a positive $7.089 billion, also per Morningstar.

Meanwhile, the company spent $26.686 billion on debt service, and $8.612 billion on dividends. This increased the total cash flow deficit to $37.312 billion. How did the company fill this yawning gap?

GE raised $9.651 from new issues of debt, drew down its cash balances by $15.096 billion (a 27% reduction), and produced the remaining $12.565 billion through a variety of investing and financing activities, including the sale of assets. CEO Flannery has announced that he plans to sell an additional $20 billion of assets in the next year or two, per Reuters.

While slashing the dividend is an obvious and necessary move to address the cash flow gap, this alone is insufficient to fix problem, as Cowen Inc. (COWN) indicates in a research note quoted in another Barron’s article. Curtailing capital investments, for example, may jeopardize future growth. GE’s problems also may stem from the fact, that the company may not be investing wisely, as noted below. (For more, see also: How Stock Investors Can Profit Big From Spinoffs.)

Competing Irrationally

GE is a complex industrial and financial conglomerate with a crazy quilt of transactions between divisions, adding to the difficulty of analyzing its various businesses, according to Stephen Tusa, an analyst with JPMorgan Chase & Co. (JPM), as interviewed by Barron’s. Meanwhile, the industrial side of GE generates a significant portion of its revenue from long-term contracts. Under various accounting conventions, such as the percentage of completion method, the company recognizes revenue either before or after cash payments actually are received from the customer. The ongoing cash flow deficit relative to earnings suggests that accounting conventions are driving the recognition of revenue, on balance, before cash is being received.

Worse yet, Tusa says, GE “is competing irrationally, giving away content and terms that underprice the risk,” per Barron’s. The company enters into many complex contracts involving the sale of both equipment and services, and often with durations of 18 to 24 months, Tusa indicates. Based on his analysis, they tend to bid aggressively on these contracts, underestimating the costs, and thus forcing writeoffs down the road. “That’s a big reason their cash flow has been so weak relative to their earnings,” he tells Barron’s. Additionally, Tusa suggests that “they are making capital allocation decisions with bad or optimistic data.”

The Takeaway

“The best companies in my sector reinvest excess free cash into acquisitions to drive growth,” Tusa comments to Barron’s. Meanwhile, GE is forced to do the opposite, selling off businesses to raise cash. “If you’re not generating free cash, there’s a lack of resources for that,” he continues. The result: “lower growth and lower-quality earnings,” Tusa concludes. (For more, see also: 9 Stocks Outperforming by Investing in Growth: Goldman.)

 

Published at Thu, 09 Nov 2017 18:30:00 +0000

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Snapchat launches redesign as growth disappoints Wall Street

Snapchat launches redesign as growth disappoints Wall Street

(Reuters) – Snap Inc (SNAP.N) is redesigning its disappearing-message app Snapchat in an attempt to reach a broader audience, going back to the drawing board after being clobbered by Wall Street for another quarter of slowing user growth.

A woman stands in front of the logo of Snap Inc. on the floor of the New York Stock Exchange (NYSE) while waiting for Snap Inc. to post their IPO, in New York City, NY, U.S. March 2, 2017. REUTERS/Lucas Jackson

The Venice, California-based firm, which had the hottest debut of any tech stock in years in March, reported revenue and user growth for the third quarter well below Wall Street expectations as it struggles to compete with Facebook Inc’s (FB.O) Instagram.

The disappointing financials and announcement of the redesign sent shares down as much as 20 percent in after-hours trading. They rebounded partially to $12.57, still well below the initial public offering price of $17 in March.

Snap’s user growth in the last three months was about half what investment analysts expected. Daily active users rose to 178 million in the third quarter from 173 million in the second quarter. Analysts had expected 181.8 million, according to research firm FactSet.

Chief Executive Evan Spiegel said the company was launching the redesign after hearing for years that Snapchat was difficult to understand or hard to use.

“We are going to make it easier to discover the vast quantity of content on our platform that goes undiscovered or unseen every day,” Spiegel, 27, said in written remarks prepared for a call with investment analysts.

He said that there was a “strong likelihood” the redesign would be disruptive in the short term, but that Snap was willing to take the risk for long-term gain.

Such a radical change so soon after an IPO is unusual. But Snap is not the only social media company looking to revive growth by changing its look. Microblogging service Twitter Inc (TWTR.N) said on Tuesday it would roll out 280-character tweets to users across the world, double the length of its iconic 140-character tweets.

Asked on the analyst call what the redesign would look like, Spiegel offered no details but said the company had been studying the evolution of mobile content feeds such as Twitter streams and the Facebook News Feed.

“There’s a really exciting opportunity here for another evolution,” he said.

REVENUE MISS

Revenue, the bulk of which comes from advertisements, rose to $207.9 million from $128.2 million. Analysts on average were expecting revenue of $236.9 million.

Snap’s average revenue per user rose to $1.17 in the latest quarter, from 84 cents a year earlier, but missed analysts’ average estimate of $1.30.

Snap Chief Strategy Officer Imran Khan said revenue was affected by a shift toward a software-based auction system for selling ads – a method employed by Facebook and Alphabet Inc’s (GOOGL.O) Google – which has driven down the average price.

The auction system hit revenue in the short term but “builds the foundation for long-term scalable revenue,” Khan said in written remarks.

The amount of ads in Snapchat compared to non-ad content, known as “ad load,” remains very low, Spiegel said.

Snap recorded a $39.9 million charge in the quarter related to inventory of its hardware product “Spectacles.” The company said it “misjudged strong early demand” and ended up buying more of the product than it could sell.

Snap’s Spectacles, at $129.99 a pair, are sunglasses with a video camera on one corner. They allow users to take 10-second videos with the press of a button on the frame, which are then saved to users’ Snapchat account.

INVESTORS SOUR

In its third earnings report since the company went public in March with a $3.4 billion valuation, Snap posted a net loss of $443.2 million, or 36 cents per share, compared with a loss of $124.2 million, or 15 cents per share, a year earlier.

Wall Street had expected a loss of 32 cents per share, on average, according to Thomson Reuters I/B/E/S.

Snapchat, popular among millennials for the bunny faces and floral tiaras that people can add to pictures, allows users to chat through a series of disappearing photos and videos. Users can also post images and videos as “stories” – ephemeral posts that can be viewed in chronological order and that disappear after 24 hours.

Investors’ view of Snap has soured since its IPO.

Before the quarterly release, Snap’s share price was already down 39 percent from its close on March 2, its first day of trading on the New York Stock Exchange. Facebook’s shares were up 32 percent over that time.

Facebook’s Instagram said in September that it had 500 million daily active users.

As of June, Instagram Stories – a replica of Snapchat’s synonymous feature – had 250 million daily users, up from 200 million in April, according to the company.

Reporting by David Ingram in San Francisco and Pushkala Aripaka in Bengaluru; Additional reporting by Laharee Chatterjee in Bengaluru; Editing by Savio D’Souza and Bill Rigby

 

Published at Tue, 07 Nov 2017 23:29:39 +0000

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Priceline Stock Breaks Down From Head and Shoulders

 

Priceline Stock Breaks Down From Head and Shoulders

By Justin Kuepper | November 7, 2017 — 10:58 AM EST

The Priceline Group Inc. (PCLN​) shares fell more than 10% on Tuesday after the company reported third quarter financial results. While the company exceeded expectations for the quarter, fourth quarter guidance came in well below expectations. Management expects earnings per share of $13.40 to $14.00 per share during the fourth quarter, which is lower than the consensus estimate of $15.56 per share, while revenue is expected to be $870 million to $910 million, versus a consensus of $1 billion.

Third quarter revenue jumped 20.1% to $4.43 billion – beating consensus estimates by $90 million – while net income of $35.22 beat consensus estimates by 97 cents per share. Gross travel bookings also increased by 18%, which was higher than the 11% to 16% that analysts were expecting. Room nights jumped 18.6%; car rental days rose 5.5%; and airline tickets fell 11.8% – largely positive results for the quarter. (See also: How Priceline Group Makes Money.)

Technical chart showing the performance of The Priceline Group Inc. (PCLN) stock

From a technical perspective, the stock broke through all major near-term support levels, including the 50-day moving average, 200-day moving average and all pivot point supports, to levels last seen earlier this year. The stock also broke down from a head and shoulders (H&S) pattern, which could signal a longer-term decline. The relative strength index (RSI​) fell to oversold levels of 21.43, but the moving average convergence divergence (MACD​) experienced a sharp move lower.

Traders should watch for some consolidation at trendline support levels of around $1,650.00 per share or a move lower to support levels of around $1,500.00 from late last year. The MACD and H&S pattern suggest that a longer-term downtrend is coming, but the oversold RSI could mean that there is some consolidation before a sharp move lower. Traders will also be keeping an eye on whether these adverse fundamental trends become a long-term problem. (For more, see: Trade Priceline and TripAdvisor Stocks on Guidance.)

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.

 

Published at Tue, 07 Nov 2017 15:58:00 +0000

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Apple defends use of new tax haven

 

Apple defends use of new tax haven

  @CNNTech

Apple has defended its tax arrangements after reports revealed it had shifted its mountain of offshore cash from Ireland to a tax haven in the English Channel.

A trove of documents known as the Paradise Papers have reportedly shed light on Apple’s search for a new place to store the huge sums, after more than two decades of benefiting from artificially low taxes in Ireland.The company has resisted bringing the money back to the U.S. because of the massive tax bill it would face.

Coverage of the documents is being coordinated by the International Consortium of Investigative Journalists, which has shared them with major media outlets including The New York Times, The Guardian and the BBC.

CNN hasn’t independently reviewed the documents.

Apple(AAPL, Tech30) for years funneled most of its overseas profits through Ireland. Arrangements with the Irish government allowed Apple to pay a tax rate of just 0.005% in 2014 on the money it made selling its products to most of the world outside America, according to the European Commission.

The ICIJ reports that the maker of the iPhone and iPad began hunting for a new jurisdiction to hold overseas profits after Ireland in 2014 came under pressure from the European Commission to close tax loopholes that allow companies to lower their tax below Ireland’s 12.5% rate.

Apple eventually opted for Jersey, a British Crown Dependency off the coast of France that doesn’t usually charge tax on foreign companies’ profits and mostly falls outside of EU jurisdiction. Jersey also has strong links to the U.K. banking system.

The ICIJ reported that the documents in the Paradise Papers suggest Apple didn’t want word of the Jersey move to get out.

Tim Cook: Corporations should have values
Tim Cook: Corporations should have values

Apple, which currently has $252 billion of its cash outside the U.S., said in a statement Monday that it adjusted its corporate structure when Ireland changed its tax laws in 2015.

“As part of these changes, Apple’s subsidiary which holds overseas cash became resident in the U.K. Crown dependency of Jersey, specifically to ensure that tax obligations and payments to the U.S. were not reduced,” the company said.

“Since then Apple has paid billions of dollars in U.S. tax on the investment income of this subsidiary,” it added. “There was no tax benefit for Apple from this change and, importantly, this did not reduce Apple’s tax payments or tax liability in any country.”

The company said it “pays every dollar it owes in every country around the world,” including tax in the U.S. at the standard rate of 35% and an effective rate of 21% on foreign earnings.

“This rate has been consistent for many years,” it added.

Apple CEO Tim Cook was forced to defend Apple’s tax practices in testimony to the U.S. Senate in 2013.

There’s no indication Apple has done anything illegal. The company didn’t immediately respond to requests for further comment on its international tax arrangements.

Mnuchin: Apple hoards cash because of our tax code
Mnuchin: Apple hoards cash because of our tax code

Apple isn’t the only global tech firm to run international operations out of Ireland. Google(GOOGL, Tech30) also has its European HQ in the country.

The European Union is currently trying to force Ireland to collect €13 billion ($15 billion) in unpaid taxes from Apple. The European Commission — the EU’s executive arm whose remit includes antitrust cases — ruled last year that the Irish government had granted illegal aid to Apple by helping it keep its tax bill artificially low for more than 20 years.

The Irish government said last month that while it has “never accepted the Commission’s analysis” in the Apple case, it was working to recover the taxes.

Cook has said the Commission’s ruling has “no basis in fact or in law,” calling it “obvious targeting of Apple.”

The Paradise Papers disclosures come as President Trump’s administration seeks to overhaul the U.S. federal tax code.

Under the House GOP tax bill, the main federal tax rate would be 20%, not 35%, and overseas profits would no longer be subject to U.S. tax. Instead they would be taxed by the country where the money is made.

 

Published at Tue, 07 Nov 2017 14:39:10 +0000

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Bezos Sells $1.1 Billion Worth of Amazon Stock

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Bezos Sells $1.1 Billion Worth of Amazon Stock

By Shoshanna Delventhal | November 6, 2017 — 5:06 PM EST

Jeff Bezos, the founder and CEO of e-commerce and cloud computing giant Amazon.com Inc. (AMZN), became the world’s richest person last month after shares of the retail titan jumped above $1,100 a share. (See also: Amazon Will Be Top Retailer, Tech Co. by 2025: MKM.)

The sale was made public in a Form 4 filing with the U.S. Securities and Exchange Commission on Friday, indicating that the CEO sold 1 million shares for $1,097,803,365. As Bezos’ near $95 billion dollars of wealth is largely tied up in Amazon stock, the company founder has been periodically selling shares to convert his holding into cash. In May, the tech executive sold about $940 million worth of stock.

A Big Check for Philanthropy, or Space?

It is not clear how Bezos plans to spend his rapidly growing wealth. The CEO does not operate a philanthropic initiative on the scale of Microsoft Corp.’s (MSFT) Bill Gates or Facebook Inc.’s (FB) Mark Zuckerberg. In June, the Amazon CEO asked his followers for ideas about a philanthropy strategy “that is the opposite of how I mostly send my time—working on the long term.” He wrote that he wants to make an impact “right now.”

Alternatively, Bezos could use his mounting wealth to continue funding his aerospace manufacturing and spaceflight service company Blue Origin LLC. In April, the entrepreneur and investor said he plans to funnel about $1 billion annually into his commercial space venture. Although Blue Origin has yet to complete its first mission, its ultimate goal is to send tourists to the edge of space on a suborbital rocket called the New Shepherd. CEO Bob Smith recently said that he expects the first manned flight to launch by April 2019.

After the recent sell-off, which represented 1.3% of Bezos’ Amazon stake, the company’s founder still personally owns an approximate 16.4% of his 23-year-old company. (See also: Bezos: Amazon Needs Its Own ‘Game of Thrones’.)

 

Published at Mon, 06 Nov 2017 22:06:00 +0000

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Arista to Grab Market Share From Cisco: Davidson

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Arista to Grab Market Share From Cisco: Davidson

By Shoshanna Delventhal | November 6, 2017 — 6:55 PM EST

Shares of software-driven cloud networking company Arista Networks Inc. (ANET) continue to increase this week after spiking 12% on Friday following its blowout quarterly earnings report. Trading up 2.5% on Monday afternoon at $206.49, ANET reflects a whopping 113.4% gain year-to-date (YTD) versus the S&P 500’s 15.8% rally over the same period.

Following the earnings beat, in which current quarter guidance also exceeded forecasts, one team of Street analysts foresees further upside in shares as Arista steals market share away from legacy networking leader Cisco Systems Inc. (CSCO). (See also: Arista Poised to Grab 400G Market: Morgan Stanley.)

Acceleration of Cloud Adoption

D.A. Davidson analyst Mark Kelleher lifted his rating on shares of Arista to buy from neutral. Founded in Santa Clara, Calif. by a team of ex-Cisco executives, the tech firm has benefited from the rapid adoption of cloud computing, noted the analyst.

“With new router products now in the market and the move to large cloud data centers accelerating, we believe the company is poised for years of strong growth and market share gains at Cisco Systems’ expense,” wrote Kelleher. The analyst lifted his 12-month price target from $180 to $224, reflecting an approximate 8.5% upside.

Also this week, analysts at Needham released a research note deeming results “impressive” despite lower-than-expected sales results for hyperscale customers such as cloud computing operator Microsoft Corp. (MSFT). After posting over 50% growth in sales to Microsoft and others in the past three quarters, Arista said its purchases were delayed due to the extra time needed to comply with a court-ordered redesign of its gear tied to its long-running legal battle with Cisco.

While remaining bullish overall, maintaining a buy rating on ANET and raising his price target from $175 to $217, Needham analyst Alex Henderson indicated that he is still “concerned by valuation and looming comparisons.” (See also: Buy Arista, Equinix on Cloud Dominance: Berenberg.)

 

Published at Mon, 06 Nov 2017 23:55:00 +0000

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Some big business groups hate the GOP tax plan

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What's in the GOP proposed tax plan
What’s in the GOP proposed tax plan

 Some big business groups hate the GOP tax plan

  @mattmegan5

President Trump argues the GOP tax overhaul will “create tremendous success for companies.” Yet some of America’s most powerful business alliances are already trying to kill the bill.

The instant opposition of well-organized and deep-pocketed lobbying groups threatens to delay or even derail passage of the legislation, which House Republicans unveiled on Thursday.

Three of the country’s largest and most influential business groups have already come out against the GOP bill.

“These three groups aren’t ‘lean no’ — they are full-blown, burn-it-to-the ground ‘no’,” Chris Krueger, managing director of the Cowen Washington Research Group, wrote in a report on Friday.

This hostility underscores why it’s so difficult to get tax reform done: entrenched interests will always fight tooth and nail to keep coveted tax breaks. Yet tax loopholes need to be closed to pay for the corporate and individual tax cuts promised.

The GOP bill would permanently cut the corporate tax rate to 20% from 35%, consolidate income tax brackets for individuals from seven to four and repeal or limits many deductions.

Analysts believe business opposition, combined with concern from Republicans in high-tax states, will make it tough for the GOP to pass meaningful reform by year-end — the party’s latest self-imposed deadline.

The initial reaction from “livid lobbyists” and others suggest it’s “farcical” that Congress will enact tax legislation before 2018, Isaac Boltansky, senior policy analyst at Compass Point Research & Trading, wrote in a report.

Here’s why some business groups are voicing serious concern about Trump’s effort to revamp the tax system:

Big problems for small business: Owners of mom-and-pop shops worry the tax bill doesn’t fix a system they feel already favors big business.

The National Federation of Independent Business, which represents 325,000 small businesses in the U.S., wasted little time saying it can’t support the tax legislation “in its current form.”

“This bill leaves too many small businesses behind,” Juanita Duggan, the groups’ president and CEO, said in a statement.

Most small businesses are set up as “pass-throughs,” meaning their profits are passed through to the owners, shareholders and partners, who pay tax on them through their personal returns. The GOP tax bill slashes the pass-through tax rate to 25%.

However, small business owners fear this won’t help the vast majority of them because most already pay taxes at a 25% rate or less.

“This proposal would primarily help wealthy individuals rather than small businesses,” according to John Arensmeyer, CEO of the Small Business Majority, another advocacy group.

Housing trouble: While Trump often brags about record highs on Wall Street, the tax plan he endorsed was greeted poorly by the homebuilding stocks.

Toll Brothers(TOL), KB Home(KBH) and other builders tumbled this week because the tax bill would limit key tax breaks that favor homebuyers.

Specifically, the legislation calls for capping the mortgage interest deduction at $500,000 instead of $1 million. It would also limit the deduction for state and local property taxes at $10,000.

The fear, at least in the housing industry, is that these tax breaks could sap demand for pricey homes, especially in expensive markets. Many of those markets, such as San Francisco and Manhattan, are in high-tax states. That’s a problem because the GOP tax plan would eliminate state income tax deductions altogether.

The National Association of Home Builders warned the GOP tax plan “slams the middle class” by hurting home values. The group complained that Republicans didn’t include its proposal to replace the mortgage deductions with a tax credit.

“This tax reform plan will put millions of home owners at risk,” said Granger MacDonald, chairman of the NAHB.

Realtors really mad: The GOP proposal to cap the mortgage interest deduction is also riling up the vast real estate industry.

Echoing the arguments made by the home builders, the National Association of Realtors complained that the plan “threatens home values and takes money straight from the pockets of homeowners.”

The concern for realtors is that a slowdown in housing could hurt their income or even employment prospects. It’s a major employer. There are about 2 million active real estate licensees in the U.S., according to the Association of Real Estate License Law Officials. The NAR alone represents 1.3 million realtors.

The White House has argued that Americans don’t buy homes for the tax breaks, they do it because they feel confident about the economy.

Nonetheless, the tax bill “fundamentally alters the tax benefits of homeownership,” according to Compass Point’s Boltansky.

Expect the “housing industrial complex fighting ferociously,” he said.

–CNNMoney’s Jeanne Sahadi contributed to this report.

 

Published at Fri, 03 Nov 2017 17:30:10 +0000

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U.S. banks in cross-hairs as Powell could help and hinder

 

U.S. banks in cross-hairs as Powell could help and hinder

NEW YORK (Reuters) – With the announcement of Jerome Powell as the new Federal Reserve Chair, banks are likely to see a battle between a boost from deregulation supported by the new Fed leader and the challenge of a flattening yield curve as monetary policy is likely to remain on course.

A steepening yield curve is seen as a boon to banks, as they borrow on lower shorter-term rates and lend on higher long-term rates, which helps generate profits through increased net interest margins. But the curve has flattened under current Fed policy which is expected to continue under Powell, who has worked alongside current Fed Chair Janet Yellen for the past five years.

The shape of the Treasury yield curve, which plots the yields of the various debt securities issued by the U.S. government, often reflects investors’ perceptions of the health of the economy and the outlook for inflation.

A steeper curve, when long-term yields rise relative to shorter-dated yields, typically augurs brisker economic growth and inflation. A flatter one, when the gap between short and long term yields narrows, most often occurs as the Fed is raising short-term interest rates as it is now, and signals a muted outlook for both growth and inflation.

However, investors are likely to welcome Powell’s view on deregulation, as he has gone further than his colleagues in calling to relax some of the rules put in place to limit banks in the wake of the financial crisis.

The S&P bank index jumped nearly 18 percent in November 2016 in anticipation of U.S. President Donald Trump’s policies to stimulate the economy.

It then cooled in 2017, with a gain of 2.9 percent through the end of August. Gains have picked up steam since then, as the index has climbed more than 10 percent, buoyed by a rise in the benchmark U.S. 10-year note yields, quarterly earnings results from financials and increased expectations for a rate hike by the U.S. Federal Reserve in December.

After the announcement of Powell’s nomination on Thursday, the bank index added to gains, to close out the session up 0.8 percent, boosted by a 1.2 percent gain in Bank of America and JPMorgan’s 0.7 percent rise.

The nomination will go through the Senate for confirmation and, if confirmed, Powell will take the reins of the central bank when Yellen’s term expires in early February.

Powell as leader of the Fed is seen as a boon for Wall Street as the key banking regulator continues its review of a raft of rules for supervision and examination introduced after the 2007-09 financial crisis.

Regarding the Fed’s future monetary policy path, Powell’s appointment is expected to provide investors with some certainty as his views are seen as more in line with those of Yellen. A Fed governor since 2012, he has yet to cast a dissenting vote against the Federal Open Market Committee’s decisions on monetary policy.

“Powell will probably have a positive effect because while he is gradual on the unwind process, he is a fan of deregulation,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

Working against banks, however, has been a flattening of the yield curve, which could dampen profits. The yield curve between five-year notes and 30-year bonds was 81.7 basis points on Friday, its flattest level last seen in late 2007.

Reporting by Chuck Mikolajczak; Editing by Chizu Nomiyama

Our Standards:The Thomson Reuters Trust Principles.

 

Published at Fri, 03 Nov 2017 23:53:31 +0000

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House Republicans Release Tax Overhaul Bill

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House Republicans Release Tax Overhaul Bill

By David Floyd | Updated November 3, 2017 — 3:54 PM EDT

On Thursday, Nov. 2, the House Ways and Means Committee unveiled the “Tax Cuts and Jobs Act,” a bill that would slash corporate tax rates, reduce the number of personal income brackets, limit or eliminate a number of popular tax breaks and – if it passes – mark the largest overhaul of the federal tax code since 1986.

The bill was initially slated for released on Nov. 1, but the committee’s chair Kevin Brady (R-Texas) held off, reportedly due to continuing disagreements over some of the bill’s key provisions.

Provisions

Personal Taxes

• Collapse the current seven tax brackets into four, paying marginal rates of 12%, 25%, 35% and 39.6%. Here is how the proposed brackets compare to those under current law (2017):

Tax Cuts and Jobs Act proposed brackets vs current law
Single filers
More than Up to Proposed rate Current rate
$0 $9,325 12% ↑ 10%
$9,325 $37,950 12% ↓ 15%
$37,951 $45,000 12% ↓ 25%
$45,000 $91,900 25% – 25%
$91,900 $191,650 25% ↓ 28%
$191,650 $200,000 25% ↓ 33%
$200,000 $416,700 35% ↑ 33%
$416,700 $418,400 35% – 35%
$418,400 $500,000 35% ↓ 39.6%
$500,000 And up 39.6% – 39.6%
Married couples filing jointly
More than Up to Proposed rate Current rate
$0 $18,650 12% ↑ 10%
$18,650 $75,900 12% ↓ 15%
$75,900 $90,000 12% ↓ 25%
$90,000 $151,300 25% – 25%
$151,300 $233,350 25% ↓ 28%
$233,350 $260,000 25% ↓ 33%
$260,000 $416,700 35% ↑ 33%
$416,700 $470,700 35% – 35%
$470,700 $1,000,000 35% ↓ 39.6%
$1,000,000 And up 39.6% – 39.6%
Source: Investopedia analysis.

• Raise the standard deduction to $24,000 for married couples filing jointly in 2017 (from $12,700 under current law), to $12,000 for single filers (from $6,350), and to $18,000 for heads of household (from $9,350).

• Eliminate the $4,050 personal exemption and the additional standard deduction ($1,550 for single filers who are blind or over 65).

• Change the measure of inflation used for tax indexing. The Internal Revenue Service (IRS) currently uses the Consumer Price Index for all Urban Consumers (CPI-U), which the bill would replace with the chain-weighted CPI-U. The latter takes account of changes consumers make to their spending habits in response to price shifts, so it is considered more rigorous than standard CPI. It also tends to rise more slowly than standard CPI, so substituting it would likely accelerate bracket creep. The value of the standard deduction and other inflation-linked elements of the tax code would also erode over time.

• Scrap most itemized deductions, including those for medical expenses and student loan interest.

• Leave the mortgage interest deduction unchanged for existing homes. Married couples can currently deduct interest on mortgages worth up to $1,000,000; that cap would fall to $500,000. The charitable giving deduction would be left unchanged.

• Retain the deduction for state and local tax (SALT) property taxes up to $10,000, but scrap state and local income and sales tax deductions. The SALT deduction disproportionately benefits high earners and taxpayers in Democratic states, though a number of Republican members of Congress representing high-tax states have opposed attempts to eliminate it, as September’s Big Six framework proposed.

• Preserve the Earned Income Tax Credit.

• Leave annual 401(k) and Individual Retirement Account (IRA) contribution limits unchanged. Reports began circulating in October that traditional 401(k) contribution limits would fall to $2,400 from the current $18,000 ($24,000 for those aged 50 or older). IRA limits, currently $5,500 ($6,500 for 50 or older), may also have been considered for cuts.

• Repeal the alternative minimum tax, a device intended to curb tax avoidance among high earners.

• Roughly double the estate tax exemption and repeal the tax entirely after six years, along with the generation-skipping transfer (GST) tax.

• Introduce a “family credit,” which includes raising the child tax credit to $1,600 from $1,000 and providing each parent and non-child dependent with a temporary $300 credit. Only the first $1,000 of the child tax credit would be refundable initially, but this amount would rise to $1,600. The $300 credit would end after five years.

Business Taxes

• Permanently lower the top corporate tax rate to 20% from its current 35% and repeal the corporate AMT.

• Reduce the top pass-through rate to 25%, while introducing safeguards to keep high earners from passing off wage income as pass-through income. Owners of pass-through businesses – which include sole proprietorships, partnerships and S-corporations – currently pay taxes on their firms’ earnings through the personal tax code, so the top rate is 39.6%.

• Introduce rules to prevent abuse of the 25% pass-through rate. These would assume that 70% of a pass-through entity’s income is compensation subject to personal income tax rates, while 30% is business earnings subject to the pass-through rate. Businesses can prove otherwise, and certain industries – law, health, finance, performing arts – must “prove out” business income in order to qualify for the pass-through rate on any earnings.

• Allow businesses to immediately write off the costs of new equipment, rather than depreciating the value of these assets over time. This provision would end after five years.

• Limit the net interest expense deduction on future loans to 30% of Ebitda with a five-year carry-forward. Firms with at least $25 million in revenues would be exempt from the cap, as would real estate companies and some utilities.

• Limit the deduction of net operating losses (NOL) to 90% of taxable income in a given year, but allow NOLs to be carried forward indefinitely – the current limit is 20 years – while eliminating carrybacks, with exceptions for disasters.

• Scrap a number of business credits and deductions, including the section 199 (domestic production activities) deduction, the new market tax credit, the orphan drug credit and like-kind exchanges.

• Retain the low-income housing tax credit and the research and development credit.

• Alter the rules governing tax-exempt groups such as religious organizations, potentially allowing them to support or oppose political candidates and retain their tax-exempt status.

• Enact a deemed repatriation of overseas profits at a reduced rate of 12% for cash and equivalents and 5% for reinvested earnings. Goldman Sachs estimates that U.S. companies hold $3.1 trillion of overseas profits. As of Sept. 30 Apple Inc. (AAPL) holds $252.3 billion in tax-deferred foreign earnings, 94% of its total cash and marketable securities.

• Introduce a territorial tax system: repatriated dividends and earnings are not subject to U.S. tax, but 50% of foreign subsidiaries’ excess returns (greater than 107% of the short-term applicable federal rate) count towards U.S. shareholders’ gross income. A 20% excise tax would be applied to payments made to foreign subsidiaries. Proponents of these measures argue that – together with the lower corporate tax rate – they will increase American businesses’ competitiveness and discourage corporate inversions.

Whose Tax Cuts?

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Speaking at a rally in Indiana shortly after the Big Six framework’s release in September, President Trump repeatedly stressed that the “largest tax cut in our country’s history” would “protect low-income and middle-income households, not the wealthy and well-connected.” He added the plan is “not good for me, believe me.” That claim is hard to verify, however, because Trump is the first president or general election candidate not to release his tax returns since the 1970s. The reason he has given for this refusal is an IRS audit; the IRS responded that “nothing prevents individuals from sharing their own tax information.”

The Tax Policy Center (TPC) and Tax Foundation, two nonpartisan think tanks that lean to the left and right respectively, have not yet scored the bill, so its distributional effects are hard to assess. Previous Republican tax proposals would have cut the top personal income tax rate to 33% or 35%, eliminated the head of household filing status and cut the corporate tax rate to 15%. As a result, most analyses forecast enormous gains for the highest earners – not just in absolute dollar amounts, but as a percentage of income – and modest gains for working- and middle-class taxpayers. Some middle earners would have seen tax rises, particularly the single parents who would no longer have benefited from the head of household filing status.

The current plan would still cut the corporate tax rate, benefitting corporate shareholders (who tend to be higher earners); eliminate the alternative minimum tax, which requires high earners to calculate their liabilities twice and pay the higher amount; scrap the estate tax; and cut the rate married couples pay on income between $470,700 and $1 million. Unlike earlier plans, it leaves the carried interest loophole open. As a result, the bill may disproportionately benefit high earners, opening it up to charges of being “a giveaway to corporations and the wealthiest,” as Senate minority leader Chuck Schumer (D-N.Y.) said on Nov. 2.

On the other hand, some conservative commentators see a profound difference in approach between earlier Republican plans and the one released Nov. 2. The Wall Street Journal’s editorial board called it “a surrender to Democratic class warriors” (casting part of the blame on President Trump’s “flightiness and lack of principle”), arguing that the result will be “more income redistribution.”

A Middle Class Tax Hike?

While the standard deduction would increase under the bill, that increase would be mostly offset by the loss of the personal exemption. Currently a middle-income single filer does not pay tax on the first $10,400 they earn: the $6,350 standard deduction plus one $4,050 personal exemption. In other words, the standard deduction is roughly doubling only in the most technical sense; it is raising the amount that can be earned tax-free by a single filer with a moderate income by 15.4%. For people who are blind or older than 65, who would no longer receive the $1,550 additional standard deduction, the increase is just 0.4%.

For families with children, the loss of the personal exemption could result in a tax hike, though the increased child credit would offset the change at least in part.

The Estate Tax

The bill would roughly double the estate tax deduction to $10 million, indexed to inflation, and eliminate the tax entirely in six years. Speaking in Indiana in September, Trump attacked “the crushing, the horrible, the unfair estate tax,” describing apparently hypothetical scenarios in which families are forced to sell farms and small businesses to cover estate tax liabilities; the 40% tax only applies to estates worth at least $5.49 million. According to TPC, 5,460 estates are taxable under current law in 2017. Of those, just 80 are small businesses or farms, accounting for less than 0.2% of the total estate tax take.

The estate tax mostly targets the wealthy. The top 10% of the income distribution accounts for an estimated 67.2% of taxable estates in 2017 and 87.8% of the tax paid.

Opponents of the estate tax – some of whom call it the “death tax” – argue that it is a form of double taxation, since income tax has already been paid on the wealth making up the estate. Another line of argument is that the wealthiest individuals plan around the tax anyway: Gary Cohn reportedly told a group of Senate Democrats earlier in the year, “only morons pay the estate tax.”

Carried Interest

The bill would not eliminate the carried interest loophole, though Trump promised as far back as 2015 to close it, calling the hedge fund managers who benefit from it “pencil pushers” who “are getting away with murder.” Hedge fund managers typically charge a 20% fee on profits above a certain hurdle rate, most commonly 8%. Those fees are treated as capital gains rather than regular income, meaning that – as long as the securities sold have been held for at least a year – they are taxed at a top rate of 20% rather than at 39.6%. (An additional 3.8% tax on investment income, which is associated with Obamacare, also applies to high earners.)

Corporate Taxes

In his Indiana speech Trump said that cutting the top corporate tax rate from 35% to 20% would cause jobs to “start pouring into our country, as companies start competing for American labor and as wages start going up at levels that you haven’t seen in many years.” The “biggest winners will be the everyday American workers,” he added.

The next day, Sept. 28, the Wall Street Journal reported that the Treasury Department had deleted a paper saying the exact opposite from its site (the archived version is available here). Written by non-political Treasury staff during the Obama administration, the paper estimates that workers pay 18% of corporate tax through depressed wages, while shareholders pay 82%. Those findings have been corroborated by other research done by the government and think tanks, but they are inconvenient for the institution that produced them. Treasury Secretary Steven Mnuchin is selling the Big Six proposal in part through the assertion that “over 80% of business taxes is borne by the worker,” as he put it in Louisville in August.

A Treasury spokeswoman told the Journal, “The paper was a dated staff analysis from the previous administration. It does not represent our current thinking and analysis,” adding, “studies show that 70% of the tax burden falls on American workers.” The Treasury did not respond to Investopedia’s request to identify the studies in question. The department’s website continues to host other papers dating back to the 1970s.

Can Tax Reform Be Done?

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The Republican push to overhaul the tax code has proceeded at a slower rate than the Trump administration initially promised. Mnuchin said in February that a bill would be passed and signed before Congress’ August recess. In September he shifted that target to the end of the year.

Byrd Is the Word

A string of efforts to repeal and – ideally – replace the Affordable Care Act (ACA or “Obamacare”) set the GOP’s tax reform push back in a number of ways. The White House and congressional Republicans decided to pursue healthcare legislation first because, by cutting funding for premium and cost-sharing subsidies and programs such as Medicaid, they could create some room to introduce tax legislation that is not strictly revenue-neutral: the Senate’s Better Care Reconciliation Act, for example, would have shaved an estimated $321 billion from the federal deficit over a decade.

Fiscal prudence aside, Republicans felt a procedural need to balance the books, since they control only 52 of 100 seats in the Senate. Without the 60 seats needed to defeat a Democratic filibuster, they will have to use a fast-track process called reconciliation, which only requires 50 votes (plus Vice President Pence’s tie-breaker). Reconciliation must be authorized by a budget resolution; the Senate passed one on Oct. 19, and the House, in an unusual move, voted on the same resolution rather than drafting their own. The resolution passed the lower chamber on Oct. 26 by a narrow margin, 216 votes to 212. No Democrats supported the resolution, and 20 Republicans voted “no” to signal their opposition to plans (since abandoned) to eliminate the state and local tax deduction entirely.

Bills passed through reconciliation must also comply with the 1985 Byrd Rule, which limits the budget effects fast-tracked bills can have over a 10-year period. The budget resolution authorizes the Senate Finance Committee to draft a bill that would raise the deficit by $1.5 trillion over that period (the deadline to present a bill is Nov. 13). Citing the Joint Committee on Taxation, Brady said on Nov. 2 that the bill’s provisions would add $1.51 trillion to the deficit over 10 years.

Traditionally the party of fiscal responsibility – with exceptions – Republicans are taking pains to pay for their proposals. The budget resolution instructs the Senate Energy and Natural Resources Committee to achieve $1.0 trillion in savings; a likely route would be to allow oil and gas drilling in the Arctic National Wildlife Refuge, which is located in committee chair Sen. Lisa Murkowski’s (R-Alaska) home state. (Murkowski voted against multiple Obamacare repeal bills over the summer.) The party is also arguing that well-designed tax reform would more than pay for itself. Mnuchin told NBC’s “Meet the Press” at the beginning of October:

“On a static basis our plan will increase the deficit by a trillion and a half. Having said that, you have to look at the economic impact. There’s 500 billion that’s the difference between policy and baseline that takes it down to a trillion dollars, and there’s two trillion dollars of growth. So with our plan we actually pay down the deficit by a trillion dollars and we think that’s very fiscally responsible.”

Supply-side economics, an influential idea in the GOP, contends that tax cuts increase government revenue through the relationship described by the Laffer curve: lower taxes encourage higher rates of investment, spurring economic growth and ultimately increasing the government’s tax take. Republicans have also proposed scrapping a number of tax breaks and loopholes. The state and local tax deduction (skip to section) is the most controversial item under negotiation.

The Congressional Budget Office, however, “doesn’t always measure all the dynamic effects,” Diana Furchtgott-Roth, a Trump transition team member and Labor Department chief economist under George W. Bush, told Fox Business in March. Even if it did, Congress’ research arm would be unlikely to share Mnuchin’s optimism. The CBO released a study of the budgetary effects of a hypothetical 10% across-the-board tax cut in 2005. It estimated that a shift in the economic growth rate would make up for perhaps 28% of the resulting budget shortfall or, in the worst-case scenario, exacerbate it by 3%.

Maya MacGuineas, president of the fiscally hawkish Committee for a Responsible Federal Budget (CRFB), doubts that the GOP’s tax cuts can pay for themselves. In a statement emailed to reporters on Nov. 2, she said the bill “continues to rely on unrealistic economic growth assumptions to justify its cost.” She was less critical of the proposal than she was of the Big Six framework, which she called “fiscal fantasy”: “We are pleased to see the House put forward a number of serious pay-fors to help finance rate reductions,” she wrote. “But given the huge unpaid-for gap remaining, this plan does not constitute true comprehensive, revenue-neutral, and pro-growth reform.”

Trump has repeatedly asserted that gross domestic product (GDP) growth could exceed 3% per year following a tax overhaul; during the campaign he went as high as 6%, and speaking in Indiana following the release of the Republican framework he predicted that “everything takes off like a rocketship.”

What About the Democrats?

President Trump has openly flirted with Democrats when it comes to tax reform, reflecting his frustrations with Republicans in Congress after repeated Obamacare repeal failures, as well as a bipartisan desire to simplify the gargantuan tax code. The fact that his top tax negotiators, Mnuchin and National Economic Director Gary Cohn, are both former Democratic donors may also play some role in his attempts to woo the left.

In order to gain Democratic support, Trump has promised repeatedly not to cut taxes on the wealthy, but those promises may not square with the elimination of the estate tax and alternative minimum tax and the decrease in the pass-through rate.

Congressional Republicans have been less eager than Trump to reach across the aisle. McConnell said in August that his party intends to use reconciliation to pass tax reform, rebuffing an offer by 45 of 48 senators in the Democratic caucus to work with Republicans on the issue – albeit on Democrats’ terms, such as not lowering taxes on the rich.

Speaking on tax reform in Missouri at the end of August, Trump preemptively laid the blame for failure at Congress’ feet, saying, “I don’t want to be disappointed by Congress, do you understand me?” He referenced Republicans’ failed attempts to pass healthcare legislation and blamed congressional Democrats in particular, saying that Sen. Claire McCaskill (D-Mo.) should vote for tax overhaul or lose her seat.

Speaking North Dakota the following month, he invited another Democrat, Sen. Heidi Heitkamp (N.D.), to the stage; the gesture followed a deal struck the previous day between the president and Democratic senators, which raised the debt ceiling and provided relief for those affected by Hurricane Harvey. Heitkamp and McCaskill are among the 10 Democratic senators facing reelection in 2018 whose states went for Trump.

Internal Divisions

Before they can worry about the Democrats, however, Republicans must shore up support in their own party. As the healthcare battle showed, the priorities of the GOP’s moderate and Tea Party wings are difficult to reconcile, and proposals put forth by the leadership tend to alienate both camps – for diametrically opposed reasons. Given the thin Republican majority in the Senate, these tensions have so far prevented the passage of major legislation.

GOP factions clashed during the spring over border adjustment, a now-dead proposal that would have taxed imports and domestic sales but exempted exports. The fight pitted big importers, major Republican donors and the president, who all opposed the measure, against the House Republicans who proposed the measure and the prominent anti-tax crusader Grover Norquist, who supported it. The Big Six issued a statement in July saying they would drop border adjustment.

Since the release of the Big Six framework in September, a fight has been raging over the fate of the state and local tax deduction. According to a TPC analysis of IRS data, the ten jurisdictions where the highest share of returns claim the state and local tax deduction are Maryland, New Jersey, Connecticut, D.C., Virginia, Massachusetts, Oregon, Utah, Minnesota and California. Collectively they account for 35 Republican seats in the House – more than the GOP’s 23-seat majority.

New York Republican Chris Collins told the New York Times on Oct. 3 that Brady and House Majority Leader Kevin McCarthy (R-Ca.) had separately assured him, “it’s safe to say, we’re no longer going to be talking about a full repeal” of the state and local tax deduction. If Republicans ditch that idea, however, $3.6 trillion in savings will disappear over the first two decades after reform, according to TPC’s estimates. The Nov. 2 framework struck a compromise, allowing $10,000 in property tax deductions but scrapping other aspects of the state and local tax deduction.

A conflict is also brewing between Trump and Republicans in Congress. Sen. Bob Corker (R-Tenn.) is engaged in a full-blown feud with the White House, which he called an “adult day care center” in response to insults Trump tweeted in October. The spat has added acrimony to a policy disagreement: Corker said as the Big Six framework was released, “there is no way in hell I’m voting” for a bill that increases the deficit, as the bill released Nov. 2 likely would. Without Corker, the White House is left with one vote to lose. That vote could be Jeff Flake’s (R-Ariz.), who announced that he would not run for reelection on Oct. 24, while delivering a blistering rebuke of Trump on the Senate floor. He called the president’s behavior “reckless, outrageous and undignified,” as well as “dangerous to democracy,” earning him a barrage of revenge tweets from the White House. Speaking to CNBC, Sen. Rob Portman (R-Ohio) said both Flake and Corker would ultimately vote for the bill.

Trump has not displayed the political finesse that suggests he can work with a slim margin. Two tweets in particular indicate he does not understand the process ahead of him. The day after the Big Six proposal was released, he referred to the “great reviews” the “Tax Cut and Reform Bill” was receiving. There would not be a bill – at least one the public could see – for over a month.

Trump had perhaps alluded to that process two weeks earlier, but using odd language: “The approval process for the biggest Tax Cut & Tax Reform package in the history of our country will soon begin. Move fast Congress!” Members of Congress are unlikely to embrace the idea that they are engaged in an “approval process” for the executive branch.

The Voters

Polling on the bill released Nov. 2 is not available yet, but an NBC-Wall Street Journal poll published Nov. 1, only 25% of repsondents called Trump’s tax plan a “good idea” (though 54% of Republicans did so). Harry Enten, senior political writer at FiveThirtyEight, told Investopedia by email on Nov. 3 that voters “don’t just want the rich getting richer. And the problem is that they feel this tax bill is doing exactly that. That’s the issue, and it’s showing up in poll after poll.” Asked whether perceptions would change as the details of the latest bill percolated through the media, he said, “I tend to doubt that public opinion will move that much.”

Special Interests

In attempting to rework the tax code, Trump and Congress are picking their way through a minefield of vested interests. As the Economist put it, “Where once the passage of bills was smoothed by including federal money for pet projects in congressmen’s districts, tax breaks are now the preferred lubricant.”

This trend has created a difficult situation for would-be reformers of either party: while the overall benefits of an overhaul would be enormous, they would be diffuse, with each household and firm saving some money and some time. For a few interest groups, on the other hand, particular carve-outs and loopholes are essential, meaning they are willing to expend significant time and money lobbying against reform. The last sweeping tax reform to pass Congress was called the Lobbyists’ Relief Act of 1986 in K Street circles; the New York Times reported in late September that companies and trade associations have submitted 450 filings to lobby on tax issues so far this year, far outstripping the total for 2016. In short, Trump’s promises to “drain the swamp” and to overhaul the tax code may not be compatible. (See also, Goldman Reduces Buyback Forecast After Trump Tax Reform Delay.)

One group is dependent not on any particular aspect of the complex tax system, but on the complexity itself: as NPR and ProPublica have reported, TurboTax maker Intuit Inc. (INTU) and H&R Block Inc. (HRB) lobby against bills that would allow the government to estimate taxes, saving much of the hassle on which the firms’ business depends. In addition to bills aimed at simplifying the filing system, tax-preparation firms may also oppose bills aimed at simplifying the tax code itself.

The Pledge

As of the previous (113th) Congress, only 16 Republicans in the House and six in the Senate have failed to sign Norquist’s pledge not to raise taxes. If Norquist decides that an aspect of a Republican proposal violates the pledge – or Republicans decide to invoke it to avoid a showdown with special interests – the bill could be dead on arrival.

That some American households would see their tax bills rise is not exactly a remote possibility, given the range of proposed changes: the bottom personal tax rate would rise, which may not be fully offset for all households by a higher standard deduction – particularly given the loss of the personal exemption.

The Bulls Weigh In

Despite the obstacles facing the tax reform efforts – fiscal constraints, a slim Republican majority, intra-party rifts, the “swamp” and a potentially inconvenient pledge – the market is bullish. A Bank of America Merrill Lynch team led by chief investment strategist Michael Hartnett wrote in a note on Oct. 5 that equities are “starting to anticipate tax reform,” which accounts for a string of all-time highs. On the other hand, the team notes, a correction “requires higher rates,” which the Fed would only deliver if stubbornly low inflation were to perk up – or Congress delivered tax reform.

What’s Wrong With the Status Quo?

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People on both sides of the political spectrum agree that the tax code should be simpler. Since 1986, the last time a major tax overhaul became law, the body of federal tax law – broadly defined – has swollen from 26,000 to 70,000 pages, according to the House GOP’s reform proposal. American households and firms spent $409 billion and 8.9 billion hours completing their taxes in 2016, the Tax Foundation estimates. Nearly three quarters of respondents told Pew in 2015 that they were bothered “some” or “a lot” by the complexity of the tax system.

An even greater proportion was troubled by the feeling that some corporations and some wealthy people pay too little: 82% said so about corporations, 79% about the wealthy. According to TPC, 72,000 households with incomes over $200,000 paid no income tax in 2011. ITEP estimates that 100 consistently profitable Fortune 500 companies went at least one year between 2008 and 2015 without paying any federal income tax. ​There is a widespread perception that loopholes and inefficiencies in the tax system – the carried interest loophole and corporate inversions, to name a couple – are to blame.

 

Published at Fri, 03 Nov 2017 19:54:00 +0000

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We Have A Bifurcated Metals Market

We Have A Bifurcated Metals Market

By: Avi Gilburt | Thu, Nov 2, 2017


First published on Sunday Oct 29 for members of ElliottWaveTrader.net

There is no doubt that the action we have experienced in the metals complex in 2017 has been exceptionally frustrating, especially as the market presented us with several break out set ups that did not follow through. And, when a larger bullish structure presents you with break out set ups, probabilities suggest you have to favor those set ups, as I did in 2017.

But, the market has simply refused to follow through on each set up, and has caused significant frustration to anyone who has been looking for those break out signals this past year, and especially me. And, even though each bottoming set up we noted in December of 2016, and in March, May and July of 2017 provided a rally that we expected, each rally invalidated the bigger break out set up each time through the year.

In fact, I will probably classify 2017 as one of the most challenging years I have dealt with in the metals complex since I have been providing my analysis to the public. When you consider that I began in 2011, and caught the top of the gold market within $6 of the high struck, and then caught the bottom of the market at the end of 2015, I really find 2017 to have been much more difficult than either of those years, or any of those in between. And, this is despite the fact that we have not even broken a single bottoming point we noted through the year, and still remain over even the July lows.

But, as I have been noting in my updates since we broke upper support in the market over a month ago and invalidated a direct break out, the metals market is in a region of uncertainty. In fact, I have been noting the potential for the GDX to drop down to the 17 region, as ABX was signaling a potential drop down to the 11 region.

As we saw this past week, ABX seems to have begun its run to those lower regions. Yet, both gold and silver have still held their respective support regions. So, for now, it seems the market is a bit bifurcated. While I still want to see how the next rally in the complex takes hold, my expectation remains that it will only be a corrective rally. And, even the ABX should begin a corrective rally within the next week or so.

However, GDX has now dropped below the 22.70 support region earlier than I had initially expected, and it places it in a further precarious position. As I noted in my mid-week update to our subscribers, should the GDX break 22.70 support, and drop down to the 22.30 region next, it suggests that it has already begun its wave 3 lower, in its most bearish set up towards the 17 region. And, this is my more likely scenario right now, despite GDX ending the week only 13 cents below the 22.70 support region.

Right now, GDX has minor support between 21.95-22.30. I would like to see this region hold, and finally provide us with that “bounce” I have wanted to see. My expectation is that the bounce will likely remain below the 24 region, and it may not even be able to exceed the .618 retracement of wave i of 3 down in the 23.30 region. Therefore, the main resistance region for this continued drop resides between 23.30-24. As long as the bounce is held in check within that resistance region, the set up remains quite bearish, and potentially pointing down towards the 17 region in the coming months.

Alternatively, if the GDX is able to rally through the 24 region in an impulsive fashion from over the 21.95 region, then, and only then, will I consider a more immediate bullish potential, as noted in yellow on the daily GDX chart. Again, the structure we are now seeing in the ABX suggests that the more immediate alternative bullish count represented in yellow is a much lower probability at this time for the GDX, as the ABX is a large component of the GDX.

Yet, both GLD and silver present a different potential as long as the current support region holds in both charts. Most specifically, silver has still held its 16.50 support region, and the technicals have barely held onto their divergences suggestive of a short-term bottoming. But, no doubt, it has been struggling down here this past week. Based upon the manner this diagonal is taking shape to the downside, I have to slightly modify silver’s support down by about 10 cents to the bottom of the channel in the 16.40 region. And, as long as it can maintain support within this ending diagonal downtrend channel, I will be looking for a strong reversal to take shape. But, note, the ideal structure still calls for one more lower low to complete this diagonal.

When silver is able to break out of this declining channel, and move strongly through 17, it signals the start of what I want to see as a (c) wave rally, which ideally should approach, or even slightly exceed the high made in September.

However, if silver were to break 16.40 strongly and follow down below 16.20, that would invalidate the upside set up now seen on the chart, and opens the trap door for silver to break down to a lower low below that seen in late 2015.

The issue with which we are trying to resolve in the metals right now is if we can see a larger degree b-wave rally take hold, which can then keep the metals in a more constructive bullish pattern going into year end, as presented on the silver and GLD charts. While it would still suggest we see a c-wave down into the end of the year, as you can see from the GLD and silver charts, it does make this much more bullishly-bent corrective action. However, should silver see a direct break of 16.20, that could open up that trap door for the metals, just as seen in the ABX of late.

Again, my overall expectation remains that the metals complex does not look ready to give us another break out set up just yet. When we broke the upper support back in September, it turned me quite cautious, and certainly opened the door for a larger drop before we are able to re-set the bigger break out set up, as I have been warning since we broke that upper support in September.

So, while I maintain a larger degree and longer term bullish bias in the complex overall into 2018, if the metals can hold this region of support in the coming week or two, and then provide us with a bigger b-wave rally, it will go a long way in maintaining an upper region of support from which we can begin to strong rally in 2018. But, a strong break of 16.40 in silver will provide a warning to an invalidation of this potential. So, please stay on your toes in the metals complex over the next two weeks, as I see it as a crucial turning point for the near-term action in the complex.

See charts illustrating the wave counts on the GDX, GLD & Silver (YI).

By Avi Gilburt of ElliottWaveTrader.net


Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.

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Published at Thu, 02 Nov 2017 11:28:00 +0000

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‘House of Cards’ made Netflix a powerhouse. What now?

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5 stunning stats about Netflix
5 stunning stats about Netflix

‘House of Cards’ made Netflix a powerhouse. What now?

  @lamonicabuzz

The fate of the Netflix hit show “House of Cards” is up in the air following the sexual abuse accusations lodged against Kevin Spacey, who stars as the manipulative Frank Underwood.

But no matter what happens next, the DC drama that also stars Robin Wright as Frank’s wife Claire is what made Netflixan entertainment powerhouse.

“House of Cards” transformed Netflix(NFLX, Tech30) from a company that relied mostly on other studios’ content and DVD rentals into a Hollywood juggernaut that makes its own buzzy, watercooler TV and Emmy and Oscar winning films, shows and documentaries.

The success of “House of Cards” helped legitimize Netflix and proved consumers were hungry for shows with shorter seasons (many Netflix shows have just 8-13 episodes) that they could view in a few sittings — a term we now all know as binge watching.

If not for Frank and Claire Underwood, Doug Stamper and the rest of those immoral Washington insiders, there may not have been “Orange is the New Black,” “The Crown,” “Stranger Things,” “Narcos” and more of the now legion of Netflix hits.

Heck, one could even argue that Netflix proved it was possible for Amazon(AMZN, Tech30), Hulu and other streaming giants to thrive as well.

So it’s fair to wonder if Netflix can continue to remain as relevant if it is forced to prematurely end “House of Cards” — which was based on a shorter British miniseries of the same name about a Machiavellian UK prime minister named Francis Urquhart.

Netflix has already said the sixth season will be its last, but production has now been suspended and there is already some chatter that Netflix may be looking to do some spin-offs of the show that don’t involve Spacey.

But Netflix may no longer need “House of Cards” — even if that’s what helped transform the company into what it is now.

Consider this:

When Netflix reported its fourth quarter of 2012 results on January 23, 2013, days before “House of Cards” debuted, the company had 33 million streaming subscribers. Its quarterly sales were less than $1 billion. The company’s market value was $5.7 billion.

Today, Netflix has 109 million subscribers, quarterly revenue of nearly $3 billion and a market value of $85 billion. To put that last number in perspective, Netflix is now worth more than established Hollywood giants Fox(FOXA), CBS(CBS) and Viacom(VIAB) — combined.

netflix house of cards stock

Netflix accurately predicted the shift in how we watch TV before “House of Cards” debuted. Check out what the company said in its fourth quarter 2012 earnings letter to shareholders.

“When it comes to highly serialized TV series, Netflix offers an amazingly better experience than any other alternative as members can start right from season one, episode one and watch episodes how and when they feel like it.”

The company also had this to say.

“Imagine if books were always released one chapter per week, and were only briefly available to read at 8pm on Thursday. And then someone flipped a switch, suddenly allowing people to enjoy an entire book, all at their own pace.”

“That is the change we are bringing about. That is the future of television. That is Internet TV. ”

Well, the notion of calling it Internet TV never really caught on. But watching an entire season of a show in a weekend only to wait a year or more for the next installment of new episodes, has.

And so far, it doesn’t seem that the company is too concerned about the uncertainty surrounding “House of Cards” — or even looming competition down the road from major media companies. particularly Disney(DIS).

The House of Mouse plans to set up its own streaming service in a few years, and that network will eventually be home to Disney’s library of Marvel, Pixar and Lucasfilm (i.e. Star Wars) movies.

But Netflix still has a relationship with Disney that is helping to boost its subscriber base, namely the Marvel shows featuring Luke Cage, Iron Fist, Jessica Jones, Daredevil and The Punisher characters from Marvel.

And Netflix is planning tons of new shows for the post-Disney world. The company said in its most recent earnings release that it will spend as much as $8 billion on its own programming in 2018.

“While we have multi-year deals in place preventing any sudden reduction in content licensing, the long-term trends are clear,” Netflix said.

“Our future largely lies in exclusive original content that drives both excitement around Netflix and enormous viewing satisfaction for our global membership and its wide variety of tastes,” the company added.

Investors aren’t too worried about Netflix potentially losing some of its Hollywood partners either. Shares of Netflix are up 60% this year and are not far from an all-time high. Disney shares, on the other hand, are down 5%.

 

Published at Wed, 01 Nov 2017 16:04:04 +0000

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Fannie Mae: Mortgage Serious Delinquency rate increased in September

 

Fannie Mae: Mortgage Serious Delinquency rate increased in September

by Bill McBride on 11/01/2017 02:42:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate increased to 1.01% in September, from 0.99% in August. The serious delinquency rate is down from 1.24% in September 2016.

The increase in September is probably due to the hurricanes.

These are mortgage loans that are “three monthly payments or more past due or in foreclosure”.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

By vintage, for loans made in 2004 or earlier (4% of portfolio), 2.75% are seriously delinquent. For loans made in 2005 through 2008 (7% of portfolio), 5.83% are seriously delinquent, For recent loans, originated in 2009 through 2017 (89% of portfolio), only 0.33% are seriously delinquent. So Fannie is still working through poor performing loans from the bubble years.

In the short term – over the next several months – the delinquency rate will probably increase slightly due to the hurricanes.  After the hurricane bump, maybe the rate will decline another 0.3 percentage points or so to a cycle bottom, but this is pretty close to normal.

Note: Freddie Mac reported earlier.

Read more at http://www.calculatedriskblog.com/2017/11/fannie-mae-mortgage-serious-delinquency.html#c2WvrRfX1PhZ3QM0.99

 

Published at Wed, 01 Nov 2017 18:42:00 +0000

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First coal bankruptcy of Trump era

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Here's what Trump has said about bringing back coal jobs
Here’s what Trump has said about bringing back coal jobs

President Trump has declared an end to the “war on coal.” But coal country continues to grapple with powerful market forces that have crushed the mining industry.

More evidence of coal’s challenges came on Tuesday as Armstrong Energy, a western Kentucky coal company, filed for bankruptcy protection.

Armstrong Energy is the first coal company to succumb to bankruptcy since Trump was elected nearly a year ago, according to the Institute for Energy Economics and Financial Analysis, an environmentally focused research group.

It joins a long list of coal companies that have collapsed due to plunging demand caused mostly by cheap natural gas.

Armstrong declined to say how many people it employs, but last month it warned it would lay off some of the 110 people that work at two of its facilities.

Despite the bankruptcy filing, Armstrong said it’s committed to “being a good employer” and will continue mining operations throughout the process.

As part of the bankruptcy, Armstrong plans to transfer most of its assets to a new business owned by Illinois coal company Knight Hawk.

Armstrong produces thermal coal, which has seen its demand drop due to power plants switching to cheap natural gas as well as renewable energy options like solar.

Trump has sought to reverse that trend by ripping up environmental regulations and withdrawing the U.S. from the Paris climate accord. The Armstrong bankruptcy comes just a day after Trump cheered rising U.S. coal production on Twitter with the hashtag “#EndingWarOnCoal.”

Rather than Trump’s deregulation, analysts say a recent uptick in coal production has been driven by higher exports to Asia and natural gas prices that have stopped plunging.

In June, a coal mine in western Pennsylvania opened up, an achievement Trump celebrated at the time. Longer term, those who follow coal remain skeptical about Trump’s ability to fix what are largely market-driven, not regulatory, challenges.

“Him saving coal jobs was smoke and mirrors,” said Andrew Cosgrove, senior analyst on global metals & mining at Bloomberg Intelligence. “It was never going to happen because low natural gas prices are the main problem. That will continue to cap any upside for coal.”

The abundance of cheap natural gas, thanks to the shale revolution, is the main culprit for the decline in domestic U.S. coal consumption since 2011, according to an in-depth Columbia University analysis published in April.

“It’s not surprising coal continues to struggle because the decline wasn’t driven by environmental regulations that this administration wants to scrap,” said Jason Bordoff, a former Obama energy adviser who is now director of Columbia University’s Center on Global Energy Policy.

Armstrong may not be the last coal bankruptcy in the Trump era. In August, Murray Energy CEO Robert Murray pleaded with the White House to issue an emergency order protecting coal-fired power plants from being closed. Failure to do so would spark the bankruptcy of his company, Murray said.

“Our time is running out,” Murray, a Trump supporter, wrote.

Trump’s has promised to undo the Clean Power Plan, an Obama-era regulation that aimed to cut carbon emissions from power utilities, one of the largest sources of greenhouse gases.

However, Bordoff argued it will take considerable time to cancel the Clean Power Plan, defend the deregulation in court and replace it with something else.

Meanwhile, renewable energy keeps getting cheaper, creating more headaches for coal.

The cost of electricity from solar has already cratered by nearly 75% since 2009, according to Bloomberg New Energy Finance.

“Coal will continue to decline, even if you don’t have the Clean Power Plan in place,” said Bordoff.

 

Published at Wed, 01 Nov 2017 19:12:50 +0000

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