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Blackstone backs ex-TPG-Axon executive’s new fund with seed investment: sources

Blackstone backs ex-TPG-Axon executive’s new fund with seed investment: sources

Svea Herbst-Bayliss

BOSTON (Reuters) – Blackstone Group has written the first check from its latest seeding fund, sources familiar with the matter said this week, committing $100 million in start-up capital to a new hedge fund run by a former TPG-Axon executive.

Blackstone is looking to use cash from its $1.5 billion Strategic Alliance Fund III, the first seeding fund it has raised since 2011, to bet new players can succeed in an industry that has struggled with years of investor withdrawals and sluggish returns.

The New York-based investor, one of the world’s biggest alternative asset managers, funded Keita Arisawa’s Hong Kong-based Seiga Asset Management earlier this month, the people said. The hedge fund, launched earlier in 2017, plans to make bets on Asian stocks.

A spokeswoman for Blackstone declined to comment as did Seiga’s chief operating officer Irene Law.

Fund III raised money from well-heeled investors like pension funds and endowments. The $1.5 billion compares with $2.4 billion raised in 2011 by Blackstone for Fund II and $1.1 billion raised for Fund I a decade ago.

Blackstone’s seeders take a 15 percent to 25 percent cut of the hedge fund’s business, people familiar with the terms said.

Blackstone Alternative Asset Management, run by Tom Hill, as a unit invests some $73 billion in hedge funds through direct investments, the seeding funds and other means.

The average hedge fund’s roughly 3 percent return last year fell far short of a 10 percent gain in the U.S. stock market, and investors pulled $111 billion in assets from the $3 trillion hedge fund industry, eVestment data showed.

Money has come back this year, according to eVestment, with investors preferring smaller funds and niche investments like bets on Asian markets, industry analysts have said.

Commitments of start-up capital from Blackstone, which has placed bets on industry stars like Daniel Loeb’s Third Point and Steven A. Cohen’s SAC Capital Advisors, before the government shut the hedge fund down amid insider trading charges, often prompt other investors to follow.

Now Blackstone plans to write checks to as many as 14 other managers in addition to Arisawa, the people familiar with the matter said.

Competition to be part of Blackstone’s stable is fierce. For Fund I, Blackstone executives reviewed some 250 applications before selecting eight managers, including Doug Silverman and Alexander Klabin’s Senator Group as well as Mick McGuire’s Marcato Capital Management, people familiar with the process said.

Blackstone is not alone in the seeding business, with rivals like Paloma Partners, Protégé Partners and Reservoir Capital Group also making start-up investments in newcomers.

To be sure, not all Blackstone seedlings go on to success. John Wu’s Sureview Capital as well as Mark Black’s Raveneur Investment Group, which received start-up capital from Fund II in 2014, have both shut down.

But for hedge funds just starting out, partnering with someone like Blackstone can provide the help needed to get their businesses up and running.

Some seeders have offered help in the form of tips on how to structure funds, finding real estate and acting as a sounding board on strategies, fund managers have said.

Arisawa ran Asian operations for Dinakar Singh’s TPG-Axon from Hong Kong and left last year when Singh pulled back operations to New York, closing both his Tokyo and Hong Kong offices. Before arriving at TPG-Axon roughly a decade ago, Arisawa worked at Goldman Sachs.

Reporting by Svea Herbst-Bayliss; Editing by Meredith Mazzilli

Published at Wed, 19 Jul 2017 20:39:03 +0000

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Apple, Google and Microsoft are hoarding $464 billion in cash

Apple, Google and Microsoft are hoarding $464 billion in cash

Apple, Google and Microsoft are sitting on a mountain of cash — and most of it is stashed far away from the taxman.

Those three tech behemoths held a total of $464 billion in cash at the end of last year, according to a Moody’s report published Wednesday.

Apple(AAPL, Tech30) alone had a stunning quarter-trillion dollars of cash thanks to years of gigantic profits and few major acquisitions. That’s enough money to buy Netflix(NFLX, Tech30) three times. It’s also more cash than what’s sitting on the balance sheet of every major industry except tech and health care.

All told, non-financial U.S. companies studied by Moody’s hoarded $1.84 trillion of cash at the end of last year. That’s up 11% from 2015 and nearly two and a half times the 2008 level.

Roughly $1.3 trillion — 70% of the total — is being held overseas, where the money isn’t subject to U.S. taxes. Apple, Google owner Alphabet(GOOGL, Tech30), Microsoft(MSFT, Tech30), Cisco(CSCO, Tech30) and Oracle(ORCL, Tech30) hold 88% of their cash overseas.

Moody’s said the tower of money stashed abroad reflects the “negative tax consequences of permanently repatriating money to the U.S.”

The Trump administration has proposed a one-time tax holiday to encourage companies to bring that cash home.Treasury Secretary Steven Mnuchin said in March that the fact Apple has “all this cash” is a symptom of the high U.S. corporate tax rate relative to foreign rates.

“Why would they bring cash back onshore and pay huge amounts of money?” Mnuchin said at an Axios event at the time.

top us cash hoarders

That American companies are flush with cash shows how much healthier they’ve become since the Great Recession.

But corporations’ reluctance to spend that money is holding the recovery back. Cash sitting on the balance sheet is money that isn’t being put to work on job-creating investments like new factories.

Despite their swelling coffers, capital spending by U.S. companies plunged by 18% last year to $727 billion, according to Moody’s.

Much of that decline was because of a downturn in the oil industry, which forced energy companies to preserve cash by delaying investments.

Spending on dividends, stock buybacks and even acquisitions also declined last year, Moody’s said.

Wall Street is hoping Congress will go along with the administration and give companies an incentive to bring their huge sums of overseas cash back to America.

Proponents of a tax holiday argue that bringing the money home could unleash the U.S. economy by promoting hiring and investment. Critics say Main Street wouldn’t feel the effect because many companies would opt to reward shareholders with dividends and stock buybacks.

Of course, tax reform would be extremely complicated given the countless competing interests and the gridlock in Washington. The challenge is only more complicated by this week’s collapse of Senate Republicans’ plan to repeal and replace Obamacare.

Some analysts say a deal between President Trump and Congress on tax reform now appears less likely.

“The health care failure increases the level of desperation. But it makes the process, policy, and politics harder … of an already really hard issue,” Chris Krueger, senior policy analyst at Cowen Washington Research Group, wrote in a report on Wednesday.

So the mountain of cash companies like Apple have been hoarding may continue to grow.

Published at Wed, 19 Jul 2017 14:12:04 +0000

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Rite Aid Corporation (RAD) Stock Is a No-Brainer Buy. Seriously.

Rite Aid Corporation (RAD) Stock Is a No-Brainer Buy. Seriously.

Richard Saintvilus
InvestorPlace

Despite the punishment Rite Aid Corporation (NYSE:RAD) stock has taken due to the blocked $17.2 billion merger with larger rival Walgreens Boots Alliance, Inc. (NASDAQ:WBA), owning RAD stock today not can pay off in the long run.

Rite Aid Corporation (RAD) Stock Is a No-Brainer Buy. Seriously.
Rite Aid Corporation (RAD) Stock Is a No-Brainer Buy. Seriously.

Source: Mike Mozart via Flickr

In fact, to steal a phrase from billionaire investor Carl Icahn, it looks like a “no-brainer.”

Where Rite Aid is Today

Shares of the U.S. drugstore chain, which closed Monday at $2.31, have fallen 72% year-to-date and 68% over the past year. Consider that in January, Rite Aid was valued at more than $8.5 billion, versus a valuation of around $2.4 billion today.

Investors should ask themselves this: Other than market expectations and Walgreens’ decision to end its merger attempt, what has drastically changed for the worse in six months?

Plus, with Walgreens instead deciding to buy roughly half of Rite Aid’s stores, from which the latter can use proceeds to pay down debt, Rite Aid’s fundamental metrics can drastically improve. In fact, Rite Aid is actually up 7% on Tuesday morning after it released some pro forma information about the pending $4.9 billion sale of stores and other assets to Walgreens. The information showed that EBITDA after the sale was $743 million despite selling roughly half its stores. It was $1.137 billion before the sale.

Yet RAD stock has been trading on the assumption that the company will cease to exist without the full buyout from Walgreens. That’s just not the case.

Based on Monday’s closing price, versus the consensus price target of $4, RAD stock presents potential premiums of more than 73%. That’s on the low end.

As such, I see an opportunity here for investors to make some strong gains, especially since there is now evidence that RAD stock has bottomed. The important short-term price target to watch today is the $2.50 level — an important psychological threshold.

And for the longer-term?

Where Rite Aid Will Be a Year From Now

All told, there are now more buyers than there are sellers as the market begins to assess what the “new Rite Aid” will look like a year from now, given that the new proposed Walgreens deal would acquire 2,186 Rite Aid stores. And here’s the thing: The new deal comes with Walgreens offering to pay some $5.2 billion in cash to Rite Aid, which to me is the biggest factor that is being overlooked.

Why is that important?

Rite Aid’s $7.24 billion in debt as of the most-recent quarter has been the biggest overhang to RAD stock. Assuming the company uses the $5.2 billion in cash it receives from Walgreens to pay down debt, the debt burden not only would fall to around $2.5 billion, but it would drastically reduce the interest expense Rite Aid pays on the balance. The savings could then fuel cash flow, thereby stabilizing operations.

What’s more, terms of the new deal with Walgreens gives Rite Aid a 10-year window to buy prescription drugs through Walgreens, paying the same price that Walgreens pays. Assuming Rite Aid management is able leverage these advantages, RAD stock could be a potential turnaround candidate for the next 12 to 18 months.

Not to mention, during that period, there’s still the possibly of another suitor can step in and take out Rite Aid.

Will Amazon Buy Rite Aid?

Lead by billionaire founder and CEO Jeff Bezos, Amazon.com, Inc. (NASDAQ:AMZN) continues to push the envelop on what is possible at the intersection of retail and tech. With Amazon wanting to be a part of all facets of people’s lives, analysts now believe Bezos’ next target could be the remaining Rite Aid stores that Walgreens won’t buy.

Back in May CNBC reported that Amazon had hired a business lead to help the company enter the lucrative pharmacy market, where an estimated 4 billion prescriptions are filled annually, while Americans spent some $300 billion on prescription drugs in 2015.

Analyst David Larsen of Leerink Partners believes the pharmacy market is primed for Amazon to want to disrupt. “Following the [Whole Foods Market, Inc. (NASDAQ:WFM)] acquisition, we estimate [Amazon] will still have a net cash balance of [about $100 million to $200 million] and a negative leverage ratio,” Larsen noted. “This leaves room for an additional debt-funded deal which could be either a pharmacy chain such as [Rite Aid] or a pharmacy benefit manager if the company chose not to expand its internal offering.”

Bottom Line for RAD Stock

There’s no guarantee that Amazon — or any other suitor, for that matter — will buy the remnants of Rite Aid. But that doesn’t change the narrative that RAD, as a new company, looks better than it did a year ago. The company now has many levers it can pull to create value for shareholders.

And from a risk-versus-reward perspective, RAD stock is a no-brainer. Expect shares to trade between $4 and $6 per share a year from now.

As of this writing, Richard Saintvilus was long RAD.

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Health Carrier Stocks Need to Hold These Levels

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Health Carrier Stocks Need to Hold These Levels

By Alan Farley | July 19, 2017 — 11:39 AM EDT

Dow component UnitedHealth Group Incorporated (UNH) shook off selling pressure following strong second quarter earnings results, undermined by the collapse of the Senate’s healthcare reform bill. Sector players do not seem to mind the growing uncertainty, expecting that any solution will benefit their bottom lines given the business-friendly Trump administration. However, UnitedHealth Group is better positioned than its rivals, pulling out of Affordable Care Act (ACA) coverage well before the current crisis.

Those rivals sold off on Tuesday, posting limited losses, and have bounced into mid-week. It is a perfect time to review the technicals on these market-leading instruments in light of recent threats to let the ACA system collapse in the coming months. It’s tough to visualize how top industry players can sustain high profit levels if those threats become reality, raising the odds for long-term topping patterns that will demand timely exits from trading and investment accounts. (See also: 5 Things You Need to Know About Obamacare.)

UnitedHealth Group stock rallied above the 2005 high at $64.61 in 2013 and began a powerful trend advance that is now entering its fifth year. A 19-month rising wedge pattern generated a late 2016 breakout, intensifying the rally’s trajectory into the third quarter of 2017. The stock has added more than 30 points since that time, solidifying its position as the fourth strongest component in the Dow Jones Industrial Average.

The uptrend has exceeded logical and harmonic price targets, tripling since the 2013 breakout. This is a two-edged sword for sidelined market players because price action has not carved a major pullback since the fourth quarter of 2016, generating extremely overbought technical readings could trap late-to-the-party shareholders. Even so, a reversal should generate red flags before selling momentum escalates, with the first bearish signal going off when a decline reaches the mid-$170s. (For more, see: UnitedHealth Beats on Q2 Earnings, Guides Up for 2017.)

Aetna Inc. (AET) shares topped out at $60 in December 2007 and sold off to the mid-teens during the 2008 economic collapse. The stock completed a round trip into the prior decade’s high in 2013 and broke out, entering a healthy uptrend that stalled at $134.40 in June 2015. A broad correction followed, dropping the stock into multiple support tests in the lower $90s, ahead of a strong recovery wave that completed a cup and handle breakout in May 2017.

That buying impulse generates a measured move target near $170, while Aetna stock is currently trading just above $150, offering plenty of upside if bullish technical patterns hold up. However, the stock is overbought and in need of a multi-week pullback, while on-balance volume (OBV) is flashing a bearish divergence because it is situated well below the 2015 and 2016 highs. Even so, the technical tone will remain bullish as long as the stock holds the 50-day exponential moving average (EMA), which is now rising toward $150. (See also: Aetna Settles on New York for New Headquarters in 2018.)

Anthem, Inc (ANTM) stock broke out with its rivals in 2013, entering a strong uptrend that topped out at $173.59 in 2015. It posted a series of lower lows into the fourth quarter of 2016, bottoming out at a two-year low near $115. The subsequent bounce reached 2015 resistance in March 2017, ahead of an April breakout that has added about 17 points. The stock sold off within two points of the 50-day EMA in Tuesday’s downturn.

This health carrier is performing poorly compared with its rivals, trading much closer to support at the 50-day EMA, which marks the dividing line between the uptrend and an intermediate correction. In addition, OBV for Anthem looks even worse than that of Aetna, slumping near lows from 2016, when the stock was trading nearly 70 points lower. This red flag could signal an impending reversal, but shareholders can hang tough until support in the $180s breaks down. (For more, see: Watching for Buying Signals Near Trendline Support.)

The Bottom Line

Health carriers are holding close to multi-year highs despite the threat of a collapsing ACA system. Even so, technical cracks are starting to appear, telling informed shareholders to pay close attention to price action at intermediate support levels in the coming weeks. (For additional reading, check out: Top 3 Healthcare Stocks for 2017.)

(Why?)

Published at Wed, 19 Jul 2017 15:39:00 +0000

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Americans want U.S. goods, but not willing to pay more: Reuters/Ipsos poll

Painted wheelbarrow buckets arrive at the end of the assembly line at the AMES Companies factory, the largest wheelbarrow factory in the world, in Harrisburg, Pennsylvania, U.S. on June 29, 2017. Picture taken on June 29, 2017.

 

Americans want U.S. goods, but not willing to pay more: Reuters/Ipsos poll

HARRISBURG, Pa. (Reuters) – Americans say they love U.S.-made goods. They are less enthusiastic, however, about paying a premium for them.

At the AMES Companies Inc factory here, the wheelbarrows coming off the assembly line once every six seconds cost the company more to make in the United States than abroad, but U.S. retailers generally will not charge more for them because consumers would balk, AMES President Mark Traylor said.

Nearly all U.S. manufacturers face the same squeeze.

A Reuters/Ipsos poll released on Tuesday found 70 percent of Americans think it is “very important” or “somewhat important” to buy U.S.-made products.

Despite that sentiment, 37 percent said they would refuse to pay more for U.S.-made goods versus imports. Twenty six percent said they would only pay up to 5 percent more to buy American, and 21 percent capped the premium at 10 percent.

U.S. President Donald Trump rode into office on promises of bringing back manufacturing jobs and boosting economic growth, and has criticized companies that move production overseas.

Trump has also been quick to promote U.S.-made goods, and on Monday released a state-by-state “Made in America Product Showcase” that included AMES wheelbarrows.

Lower-income Americans were the most enthusiastic about buying U.S. goods, the poll showed, despite being the least able to afford paying extra for them.

Indeed, the biggest U.S. retailer is well aware of the priority buyers place on price above all else. A spokesman for Wal-Mart Stores Inc said customers are telling them “that where products are made is most important second only to price.”

(GRAPHIC – Price of Patriotism, click tmsnrt.rs/2veSOVN)

Eye on Quality

The good news for U.S. factories is that Americans like the quality of many domestic goods.

Thirty-one percent in the poll said American-made cars are the best in the world. German cars were voted best by 23 percent of respondents. And thirty-eight percent said U.S.-made clothes were best.

Still, domestic manufacturers could be in trouble if they fail to capitalize on perceptions about the quality of their products while also keeping a tight lid on costs.

In order to compete, companies like AMES have to find ways to offset their disadvantage

“We don’t have to be as cheap as imports,” says Traylor, who estimated he sells his wheelbarrows to U.S. retailers for about 10 percent more than importers.

Factors like cheaper domestic freight and a desire among retailers to carry lower inventories can help make up some of the cost differential.

AMES is also better positioned than overseas suppliers to help retailers be agile. When spring comes early, for example, AMES can respond quickly to ship goods to stores, Traylor said, something importers with longer lead times on orders struggle to do.

Traylor said another secret to success for U.S. manufacturers is investing in technology to cut costs.

AMES, a subsidiary of New York-based Griffon Corp, is pouring $50 million into upgrades at several locations. The Harrisburg factory, built in 1921, is dotted with aged machinery that has been fitted with robotic attachments to reduce reliance on human labor.

AMES’ annual sales are $514 million.

A production line employee works at the AMES Companies shovel manufacturing factory in Camp Hill, Pennsylvania, U.S. on June 29, 2017. Picture taken on June 29, 2017.Tim Aeppel?

The company said it recently convinced a major retailer, who they did not want to identify, to switch from Mexican-made wheelbarrows to carry their product.

AMES also said business is so strong that it is hiring 100 employees across its five Pennsylvania locations, including the Harrisburg factory.

Traylor says AMES wants to bring more work back from overseas. But that can be difficult.

And the production of certain components may prove impossible to ever bring back to U.S. soil.

In late April, Trump marked his 100th day in office with a visit to the AMES plant. With workers chanting “USA, USA,” Trump asked if every part of the wheelbarrows was made in America.

Everything, he was told, except the Chinese-made tires.

U.S. manufacturers stopped large-scale production of air-filled tires for garden equipment years ago, and the cost of setting up production now would be hard to justify for the low-margin product.

Slideshow (4 Images)

Some rubber makers still manufacture solid rubber tires in the United States, but the last time AMES bought any they cost nearly twice the roughly $7 they pay for a Chinese tire, a big added cost for a wheelbarrow that often retails for less than $100.

“Is it feasible to get U.S.-made tires?” asked Mark D’Agostino, the company’s vice president for supply chain. “We don’t know yet.”

American Premium

To be sure, some manufacturers can command a big premium for American-made products.

Klein Tools Inc, a privately held company based outside Chicago with annual sales of $500 million, makes hand tools that are highly sought after by electricians and other workers.

A pair of 9-inch Klein pliers sells for about 30 percent more than a comparable import.

But betting on the allure of American-made goods can be risky.

In 2012, High Point, North Carolina-based Stanley Furniture Co brought back production of cribs and other baby furniture from China to a U.S. plant, wagering that parents worried about a string of Chinese factory quality scandals would pay $700 for cribs nearly identical to imports selling for $400.

Customers refused to bite, however, and the High Point factory closed in 2014.

Still, Stanley Chief Executive Glenn Prillaman said the Trump administration’s emphasis on American-made goods is a hopeful sign that resonates with “people that work for a living,” because they can see how it impacts their own jobs.

“The lower-end consumers certainly care, and that’s a good thing,” he said. “But they’re also not in a position to pay the premium.”

The Reuters/Ipsos poll was conducted online in English throughout the United States from May 24 to May 31. It gathered responses from 2,857 people, including 593 adults who made less than $25,000 per year, 1,283 who said they earned between $25,000 and $74,999, and 805 people who earned more than $75,000.

The poll has a credibility interval, a measure of accuracy, of 2 percentage points for the entire group, 5 points for the low-income respondents, 3 points for the middle-income respondents and 4 points for the high-income respondents.

(Reuters/Ipsos poll data: tmsnrt.rs/2u686NT)

Reporting by Timothy Aeppel; Editing by Joe White and Meredith Mazzilli

Published at Tue, 18 Jul 2017 17:54:40 +0000

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Former $2 billion private equity fund now nearly worthless: WSJ

 

Former $2 billion private equity fund now nearly worthless: WSJ

(Reuters) – Wells Fargo (WFC.N) and a number of other lenders are negotiating to take control of a hedge fund previously valued at more than $2 billion that is now worth close to nothing, according to a report from the Wall Street Journal.

EnerVest Ltd., a Houston private equity firm that focuses on energy investments, manages the private equity fund that focused on oil investments. The fund will leave clients, including major pensions, endowments and charitable foundations, with at most pennies on the dollar, WSJ reported.

The firm raised and started investing money beginning in 2013 when oil was trading at around $90 a barrel and added $1.3 billion of borrowed money to boost its buying power. West Texas Intermediate crude prices closed at $46.54 a barrel on Friday.

“We are not proud of the result,” John Walker, EnerVest’s co-founder and chief executive, wrote in an email to the Journal.

Only seven private-equity funds worth more than $1 billion have ever lost money for investors, according to data from investment firm Cambridge Associates LLC cited in the report. Among those of any size to end in the red, losses greater than around 25 percent are extremely rare, though there are several energy-focused funds in danger of doing so, according to public pension records.

Clients included the J. Paul Getty Trust, John D. and Catherine T. MacArthur and Fletcher Jones foundations, which each invested millions in the fund, according to their tax filings, the Journal reported. Michigan State University and a foundation that supports Arizona State University also disclosed investments in the fund.

The Orange County Employees Retirement System was also an investors and has reportedly marked the value of its investment down to zero.

Reporting by Dion Rabouin; Editing by Sandra Male

Published at Sun, 16 Jul 2017 19:29:50 +0000

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Wells Fargo Stock Falls to Key Support Levels

Wells Fargo Stock Falls to Key Support Levels

Wells Fargo & Company (WFC) shares fell more than 1% in early trading on Friday after the bank reported mixed second quarter financial results. The move follows similar declines in other banking stocks, including JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C), although these stocks recouped much of their early losses by mid-day Friday. Investors are concerned that higher interest rates could have a negative impact on interest margins moving forward.

During the second quarter, Wells Fargo reported revenue of $22.17 billion – missing consensus estimates by $300 million – although earnings per share of $1.07 beat consensus estimates by six cents per share. The market is also concerned about further enforcement action from regulators looking into the bank’s cross-selling scandal, as well as downward pressure in future months after competitors cast a weak outlook. (See also: Wells Fargo Tops Q2 Earnings Estimates, Costs Flare Up.)

Technical chart showing the performance of Wells Fargo & Company (WFC) stock

From a technical standpoint, the stock moved lower from its reaction highs at around $56.00 to trendline and pivot point support at $54.36. The relative strength index (RSI) is neutral at about 51.29, but the moving average convergence divergence (MACD) may be at risk of reversing its uptrend dating back to early June. Traders should maintain a bullish bias given the stock’s strong support levels, but the bearish second quarter report could lead to a breakdown.

Traders should watch for a rebound from trendline and pivot point support levels to upper trendline and R1 resistance at $57.65. If the stock breaks down, shares could move to S1 support at $52.11 or lower trendline support at $51.00. Traders should keep an eye on the evolving regulatory situation, especially after Federal Reserve Chairwoman Janet Yellen indicated earlier this week that the bank could face further consequences. (For additional reading, see: Citi, JPMorgan and Wells Show Reliance on D.C.)

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

Published at Fri, 14 Jul 2017 19:42:00 +0000

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Tale of two factories: hope, anguish ahead of Trump’s steel tariff call

by MichaelGaida from Pixabay

 

Tale of two factories: hope, anguish ahead of Trump’s steel tariff call

David Lawder

GRANITE CITY, Ill. (Reuters) – The blast furnaces and slab casters at United States Steel Corp’s Granite City Works have been idle for 18 months, and laid-off workers here are pinning their hopes on President Donald Trump imposing broad new restrictions on imported steel.

Yet just across the Mississippi River, some manufacturers worry that new tariffs and curbs Trump is weighing under a “Section 232” national security review will raise their cost and make it harder to compete with foreign rivals.

The inherent conflict between suppliers and buyers is at the heart of a debate inside the administration that lobbyists and lawmakers say could delay or weaken any protections recommended by the U.S. Commerce Department. The review’s findings, originally expected by the end of June, could be unveiled in the coming weeks.

The Cold War-era law that allows the president to restrict imports of goods deemed critical to national defense pits an iconic industry that has been struggling with imports for decades against those that have benefited from China flooding the world steel market with excess production. (Graphic: tmsnrt.rs/2oPeo1z)

According to Bureau of Labor Statistics data compiled by the libertarian Cato Institute, steel mills and steel product factories now employ about 140,000 people, compared to 6.5 million at steel-reliant manufacturers ranging from autos and appliances to machinery.

Hopes and Concerns

In Granite City, where about 1,200 of the U.S. Steel plant’s 1,800 workers remain laid off despite the recent restart of some rolling mill operations, there is an air of keen anticipation.

“We’re waiting on the 232 to get us back to work,” said Chris Bragg, who was laid off in November 2015 when steel imports surged and oil prices cratered, slashing demand for the mill’s main product, hot-rolled steel for oil and gas drilling pipe.

The 46-year-old father of three has been working in home construction since then, making less than half of the $55,000 he earned in his last year working on U.S. Steel’s basic oxygen furnace, which melts iron and alloys into steel.

There were few dinners out, no vacations and no high school graduation presents for Bragg’s twin sons last year.

TJ’s Place, a bar across the street from a plant gate, canceled its fish fries and taco nights and could close if more workers are not called back, said bartender Diane Valerius. “If that mill shuts down, this town is dead.”

Idled steelworkers Reuters interviewed in this factory suburb see the “Section 232” probe as a key test of Trump’s commitment to campaign promises to revive U.S. manufacturing and curb imports from China and South Korea.

“I voted for Trump because the Democratic Party was going to kill the coal industry and the steel industry in one fell swoop,” said Bill Wiley, 50, a laid-off apprentice millwright. “Somebody has to stick up for us. We’re just asking for a level playing field.”

Across the Mississippi in north St. Louis, factory managers at Bachman Machine Co worry new tariffs and curbs could raise steel prices, putting the 90-year-old maker of stamped steel auto parts at a disadvantage against Mexican suppliers.

“Anything that is out of the norm in terms of a price change is going to be a negative factor for us. If we can’t pass that on, then that hurts us,” said Jerry Ernsky, Bachman’s head of sales and marketing.

The 100-employee company buys from steel distributors and often does not know the origin of the steel it uses to make parts for seats, airbags, door mechanisms and other components, Ernsky said. These are sold to larger auto suppliers such as Toyoda Gosei in Perryville, Missouri, and ultimately find their way to the U.S. assembly plants of Toyota, Honda, Ford and other automakers.

Historic building exterior at U.S. Steel Corp’s Granite City Works in Granite City, Illinois, U.S. on July 5, 2017.David Lawder

Kei Pang, chief executive of Ferguson, Missouri-based Nidec Motor Corp, the former Emerson Electric motors unit now owned by Japan’s Nidec Corp, warned Commerce Secretary Wilbur Ross in a letter that import curbs on certain electrical steels “would cause serious and material harm to our companies, our employees, and our customers.”

AK Steel is the only remaining U.S. manufacturer of electrical steel, a specialty product with precise magnetic properties used in transformers and motors. It has argued that it needs protection because domestic supplies are needed to safeguard the U.S. electrical grid.

Tubular Target

In similar public comments, U.S. Steel has called for import restrictions on tubular goods for the oil and gas industry as a way of safeguarding U.S. energy independence, a critical national security goal.

Foreign steelmakers now supply half the oil and gas drilling and extraction pipe used in the United States.

Slideshow (8 Images)

Direct imports from China were largely cut off by successful anti-dumping cases in recent years, only to be replaced by pipe imports from South Korea, which since April have been subject to increased duties.

But as U.S. energy firms boost production, foreign-made steel pipes are still flooding into U.S. ports. Based on June import permit data, The American Iron and Steel Institute estimates that imports of steel pipes for the oil and gas industry are up 237 percent in the first half of 2017 from a year earlier.

Ross, the Commerce chief, has indicated he might support protection for U.S. makers of pipes and their suppliers. He told a congressional hearing in June that steel was a “genuine national security issue” and pointed out how a U.S. tubular mill made the body of the massive conventional bomb dropped on Islamic State militants in Afghanistan in April.

The 79-year-old billionaire is best known for his work restructuring several bankrupt U.S. steel companies in the early 2000s, selling them to what is now Arcelor Mittal.

He is formulating trade policy alongside U.S. Trade Representative Robert Lighthizer, a veteran trade lawyer who represented U.S. Steel in anti-dumping cases.

On the other side of the argument, steel users have enlisted dozens of industry trade groups to make the case against broad steel import restrictions.

The American Petroleum Institute and 10 other oil and gas trade groups urged Commerce to narrowly define national security and “to consider the potential negative effects of U.S. tariffs or quotas or other measures that would raise the cost of steel inputs for the oil and natural gas industry.”

It remains unclear what actions Ross will recommend, whether Trump will implement that.

U.S. Steel has not indicated how the Trump administration’s review may alter its production plans, saying in a statement that it was “interested to review the results of the 232 investigation.”

Idled workers say the uncertainty is gnawing at them.

“There’s nothing that Trump’s done as of yet” for steelworkers, said Paul Morris, 55. “All we can do is sit back and wait.”

Reporting by David Lawder; Editing by David Chance and Tomasz Janowski

Published at Thu, 13 Jul 2017 14:05:13 +0000

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Fed’s Beige Book: “Slight to Moderate “expansion, Labor markets “Tightened Further”

 

Fed’s Beige Book: “Slight to Moderate “expansion, Labor markets “Tightened Further”

by Bill McBride on 7/12/2017 02:04:00 PM

Fed’s Beige Book “This report was prepared at the Federal Reserve Bank of Kansas City based on information collected on or before June 30, 2017.”

Economic activity expanded across all twelve Federal Reserve Districts in June, with the pace of growth ranging from slight to moderate. In addition, the majority of Districts expected modest to moderate gains in the months ahead. Consumer spending appears to be rising across a majority of Districts, led by increases in nonauto retail sales and tourism. However, many Districts noted some softening in consumer spending, particularly in auto sales which declined in half of the Districts. Manufacturing and nonfinancial services activity continued to grow, with most Districts reporting modest to moderate gains since the last report. Loan demand was steady to increasing in most Districts. Residential and nonresidential construction activity was flat to expanding in most Districts. Most Districts cited low home inventory levels in certain market segments which were constraining home sales in many areas.

Employment across most of the nation maintained a modest to moderate pace of expansion, although the Atlanta and St. Louis Districts noted flat employment levels. Labor markets tightened further for both low- and high-skilled positions, particularly in the construction and IT sectors. Contacts across a broad range of industries reported a shortage of qualified workers which had limited hiring. Wages continued to grow at a modest to moderate pace in most Districts, and many firms attributed these wage gains to tighter labor market conditions. Wage pressures generally trended with employment conditions, and rising wage pressures were noted among both low- and high-skilled positions. A few Districts also reported rising costs of benefits and variable pay.
emphasis added

And a few excerpts on real estate:

New York: Housing markets across the District have strengthened somewhat. Sales volume has picked up throughout the New York City area–particularly for moderately-priced, single-family homes in outlying areas. In contrast, sales activity has slowed a bit in parts of upstate New York, restrained by a lack of homes on the market.

A real estate contact in upstate New York State reported continued escalation in home prices, with homes in more sought-after areas often selling for above the list price. …

San Franciso:

Published at Wed, 12 Jul 2017 18:04:00 +0000

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IBM Lags in Artificial Intelligence: Jefferies

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IBM Lags in Artificial Intelligence: Jefferies

By Donna Fuscaldo | July 12, 2017 — 5:16 PM EDT

At a time when all sorts of technology companies are getting accolades for their artificial intelligence prowess, International Business Machines Corp. (IBM) is apparently struggling, leading Wall Street investment firm Jefferies to lower its price target on the stock.

Citing checks that show a slow AI adoption rate, Jefferies analyst James Kisner cut his price target on Big Blue to $125 from $135 a share, implying the stock could fall more than 18%. In a research note to clients, the analyst called IBM “outgunned” in the war for AI talent and argued that it’s a problem that will only get worse. (See also: The Other Side of IBM’s Watson AI Solution.)

What’s Up With Watson?

“Our checks suggest that IBM’s Watson platform remains one of the most complete cognitive platforms available in the marketplace today. However, many new engagements require significant consulting work to gather and curate data, making some organizations balk at engaging with IBM,” wrote the analyst in the research report covered by 24/7 Wall Street.

What’s more, the analyst said that with a lot of companies making significant investments in AI and a slew of startups splashing on the scene, IBM is having a hard time luring top talent to the company. Kisner poured over job listings and found that Amazon.com Inc. (AMZN) has 10 times more for AI professionals than IBM. It doesn’t help that businesses have lots of AI options, which is why the company reduced the pricing for Watson Conversations by 70% last October, the analyst argued. (See also: How Much Money Would You Have if You Followed Buffett into IBM?)

Watson + Einstein

While Jefferies thinks IBM is behind when it comes to AI, that doesn’t mean the company hasn’t been making strides to grow that side of the business. In March it announced a strategic deal with Salesforce.com (CRM) to jointly provide AI services and data analytics offerings that help businesses make faster and smarter decisions. Watson is a cognitive system capable of learning from earlier interactions, garnering knowledge and value over time, and thinking like a human. It works by combining AI and advanced analytical software for analysis of various forms of data, thereby providing optimal responses based on reasoning and interacting like a “question-answering” machine.

Salesforce Einstein is the core AI technology that powers the Salesforce CRM platform by using data mining and machine learningalgorithms. It aims to proactively spot trends across sales, services and marketing systems. The system is designed to forecast behavior that could spot up-sale prospects and opportunities, or identify crisis situations in advance. Under the deal, IBM’s Watson and Salesforce’s Einstein will be integrated to offer intelligent customer engagement across various functions like sales, service, marketing and e-commerce.

Published at Wed, 12 Jul 2017 21:16:00 +0000

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Goldman Sachs: Oil prices could plunge below $40

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Summer gas prices dip to 12-year low
Summer gas prices dip to 12-year low

Goldman Sachs: Oil prices could plunge below $40

  @mattmegan5

The oil market could be in trouble if OPEC doesn’t come to the rescue with deeper production cuts soon.

Goldman Sachs warned on Tuesday that crude oil could plunge below $40 a barrel “soon” if the massive U.S. oil glut persists and OPEC fails to take further action.

“The market is now out of patience,” Damien Courvalin, head of energy research at Goldman Sachs, wrote in a research report.

The oil market is notoriously hot and cold. Concerns about excess supply from U.S. shale producers sent crude into a bear market last month, postinga decline of more than 20%

Oil prices then rebounded, rising for eight straight days. That was oil’s longest winning streak in more than seven years. Citigroup even argued a “bottom” in oil prices is “likely near.”

But Goldman Sachs doesn’t sound so sure that crude has stopped plunging. It warned that oil could sink below $40 a barrel due to the glut.

The problem is the same one that has gripped the market for the past three years: there’s more oil than the world needs right now. That’s why crude has plunged 16% this year to $45 a barrel on Tuesday.

Oil prices 2017

 

OPEC tried to fix the supply glut by teaming up with Russia to cut production. But that only encouraged U.S. shale producers, especially in the Permian Basin of West Texas, to ramp up their output.

The closely-watched Baker Hughes oil rig count has climbed 24 out of the past 25 weeks, signaling increased confidence among shale drillers. Analysts at JBC Energy think the rig count would have to decline 20% by February to fix the supply glut.

The other problem is that OPEC pumped more oil in June than in May. That’s because Libya and Nigeria, which aren’t subject to the output cuts, have been able to ramp up production more than many expected.

Goldman Sachs suggested there’s a chance OPEC could swoop in and ease the glut by making even deeper cuts.

“This should be done in a ‘shock and awe’ manner, with little public announcement,” Goldman wrote.

If not, look for crude to come under further pressure.

“Any rally towards $50 has a decent chance of being a good selling opportunity,” JBC wrote in a report on Tuesday.

Published at Tue, 11 Jul 2017 19:56:58 +0000

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New Features Can’t Save Snap Falling Below IPO Price

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New Features Can’t Save Snap Falling Below IPO Price

By Shoshanna Delventhal | July 10, 2017 — 7:50 PM EDT

Social messaging giant Snap Inc.’s (SNAP) shares were steadily edging toward their initial public offering (IPO) price before falling below the mark on Monday, closing down 1.1% at $16.99 per share. (See also: Snap May Soon Fall Below its IPO Price: Analysts.)

The social media app, popular among Millennials​ around the world, saw one of the most-anticipated IPOs of the past few years, hitting the public market in March at $17 per share and reflecting a market cap of mor than about $20 billion. The 6-year-old company’s IPO marked the largest on a U.S. exchange since that of Chinese internet giant Alibaba Group (BABA) in 2014.

Dip Not Unusual for Young Stocks

While on average, companies that have gone public between 2014 and 2016 have outperformed the S&P 500 in that calendar year, Snap’s investors are now looking at a loss. The dip shouldn’t be too much of a shock considering that 45% of U.S.-listed companies that have gone public in 2017 have slipped below their IPO prices at some point, reports The Wall Street Journal. Facebook Inc. (FB), which has secured a higher than 300% return since its public debut in 2012, fell below its $38 IPO price on its second day of trading and did not surpass that level until about one year later.

SNAP has also proved resistant to the media company’s recent announcements regarding a new feature for advertisers and a few new features for users. The Venice, Calif.-based firm has launched a maps feature that allows users to see where their friends are and drop into popular events that the company pinpoints on the map. The maps features will give Snapchat the opportunity to sell location-based advertising. Users can now also add links to their picture and video messages and select objects in a photo to remove or highlight against pre-programmed backgrounds. (See also: Is Snapchat Sabotaging Its New Revenue Model?)

Published at Mon, 10 Jul 2017 23:50:00 +0000

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Are Amazon and DISH the Next Big Partnership?

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Are Amazon and DISH the Next Big Partnership?

By Donna Fuscaldo | July 6, 2017 — 4:33 PM EDT

Satellite cable provider DISH Network Corp. (DISH) and Amazon.com Inc. (AMZN) may make unlikely bedfellows, but the two companies, both run by eccentric billionaires, could soon become partners.

That’s according to a report in The Wall Street Journal that cited people familiar with the matter as saying Amazon Chief Executive Jeff Bezos and DISH Network head Charlie Ergen have become friendly over the past year and are now discussing a wireless partnership. One of the ideas being bandied about is Amazon partially funding a network the satellite cable provider is building to focus on the Internet of Things, or devices that are connected to the internet and can talk to each other. With a IoT network, the idea would be that products Amazon sells, be it drones or bicycles, can have internet connectivity wherever they are. Another potential business idea is that Amazon would be able to offer Prime members to pay extra each month for a internet or phone plan. (See also: How Amazon Is Winning—at Your Expense.)

Beyond Amazon

The Wall Street Journal noted a deal is not imminent, and it’s not clear as of now if a partnership will come to fruition, noting that DISH has held talks with other technology companies about becoming a so-called founding partner in its IoT network. One source told the paper Amazon is “is taking a walk vs. a run approach with Dish.” The paper noted an acquisition of DISH by Amazon isn’t likely despite the partnership discussions. (See also: New DISH Ad Campaign Aims to Woo Back Customers.)

The talks between the two comes at a time when the telecommunications and cable industries are looking for ways to move beyond offering voice, cable and internet services. With consumers increasingly cutting the cord and using smartphones and mobile device to access internet content, they are all looking for new ways to grow. The IoT market is attractive for th companies given that it’s set to explode. Market research firm Gartner predicts worldwide spending on IoT devices and services will hit $2 trillion this year, up from $737 billion in 2016. For Amazon, hooking up with DISH to create a wireless network could further the company’s push into new areas as well as give it control over the connectivity for Amazon Dash buttons, a feature that lets users reorder household goods via its Echo speakers, which are powered by Amazon’s voice-activated virtual assistant Alexa, noted the Journal.

Published at Thu, 06 Jul 2017 20:33:00 +0000

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IBM Buyers’ Strike Predicts a Rough Quarter

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IBM Buyers’ Strike Predicts a Rough Quarter

By Alan Farley | July 6, 2017 — 1:11 PM EDT

Dow component International Business Machines Corporation (IBM) ended a 14-month recovery wave in April 2017, dropping more than eight points in a single session after reporting the 20th consecutive quarterly decline in year-over-year revenues. It took a second hit a few weeks later following news that legendary investor Warren Buffett had sold one-third of his $11 million stake, his second 2017 sale.

The stock bottomed out near $150 on May 10 but has failed to gain ground in the past two months, despite a historic tech rally that has lifted many components to all-time highs. IBM stock has also failed to trade back into the broken 200-day exponential moving average (EMA), a major line-in-the-sand between bull and bear markets. This limp action tells observant market players to expect a weak quarter and lower prices when the company reports second quarter results on July 18. (See also: Who Is Driving IBM’s Management Team?)

IBM Long-Term Chart (1993 – 2017)

This old-school tech behemoth ground sideways for more than 25 years into the 1990s, selling off repeatedly into long-term support near $10.00. IBM stock entered a historic rally at that level in 1993, powered by the embryonic World Wide Web and silicon chip processing breakthroughs. The stock rose nearly 1,400% during this fruitful period, while splitting twice during an ascent into the 1999 high at $138.35.

The stock tested that resistance level repeatedly into the start of 2002 and plunged, breaking four-year support in the mid-$80s before finding support at $54.01 in October 2002. Weak action persisted through the mid-decade bull market, with the stock failing to mount the 2004 high in the mid-$90s until a 2007 rally burst failed at 1999 resistance. IBM relinquished those gains during the 2008 economic collapse, posting a six-year low at support in the $70s in November. (For more, see: Behind IBM’s 87.6% Rise in 10 Years.)

A bounce into 2009 gained traction, reaching the prior high at the start of 2010, ahead of a breakout that generated the most prolific returns since the 1990s. That uptick stalled above $200 in 2012, yielding a topping pattern that broke down in 2014, generating a steep decline to a six-year low near $115. The stock bounced through 2016, posted a lower high above $180 in February 2017 and fell more than 30 points into the May 2017 low near $150.

The monthly stochastics oscillator entered a sell cycle three months ago and has now reached the deepest oversold level since 2002. This lopsided reading could inhibit third quarter selling pressure while energizing remaining bulls if the company surprises to the upside. Even so, the monthly pattern continues to advertise even lower prices due to the April rejection at 50-month EMA resistance. (See also: Why IBM Will Go On Forever.)

IBM Short-Term Chart (2013 – 2017)

The final wave of the three-year downtrend started at $198 in April 2014, generating an 81-point decline. The bounce into February 2017 stalled at the .786 Fibonacci sell-off retracement, which has a nasty reputation for generating lower highs within topping patterns. An impulsive selling wave ended at $150, followed by a bear flag that filled the May 11 gap. This progressive structure predicts that sellers will return soon and generate even lower lows.

On-balance volume (OBV) peaked in 2012 and stair-stepped lower into 2016, signaling steady institutional abandonment. A bounce into 2017 failed to end the five-year string of lower indicator highs, while the downturn into the third quarter needs little selling pressure to reach the downtrend low. A breakdown at that level would set off a wave of sell signals, possibly signaling revenue contraction into the next decade as well as a secular decline in stock value. (For more, see: Technology Stocks: Do They All Deserve to Fall?)

The Bottom Line

IBM has failed to find new ways to grow in the current bull market cycle and is underperforming other high-technology components. Long-term technical deterioration has now entered its sixth year and could accelerate when benchmarks finally signal the top of this bull market cycle. (For related reading, check out: IBM’s Turnaround Story Hits a Dead End.

Published at Thu, 06 Jul 2017 17:11:00 +0000

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Tesla shares dive 7 percent; still above analysts’ target price

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Tesla shares dive 7 percent; still above analysts’ target price

Tesla Inc shares slid more than 7 percent on Wednesday, their biggest percentage decline in more than a year, on poorer-than-expected delivery numbers, yet the luxury electric carmaker’s stock price remained above analysts’ median target.

Silicon Valley-based Tesla overtook General Motors in April to become the U.S. carmaker with the largest market capitalization.

On Wednesday, its shares fell 7.2 percent to $327.09, its lowest in more than a month. Its biggest daily percentage fall since June 22, 2016, followed a 2.5 percent decline on Monday, when first-half deliveries of Tesla electric sedans and SUVs came in the lower end of its forecast.

Tesla said a “severe shortfall” of new battery packs had constrained vehicle manufacturing, and said second-half deliveries of the Model S sedan and Model X sports utility vehicle should exceed those of the first half.

“We see Tesla shares as an over-valued show-me story that has traded as a concept stock given the dislocation between share price performance and our/consensus estimates,” analysts at Cowen and Company said in a note.

Even after the sharp losses, Tesla shares remained up about 53 percent this year.

Even after the two-day slide, the stock remained about 7 percent above the median price target of $309.50. Less than 20 S&P 500 Index constituents can top that.

On average, S&P 500 stocks trade between 7 percent and 9 percent below the Street’s target, according to Thomson Reuters data.

While Tesla has been trading above the median target price for months, that margin mushroomed in June with the stock trading as much as 25 percent above the median target.

Some 14 of the 21 analysts who cover Tesla have a sell or hold rating on the shares.

Zhejiang Geely Holding Group-owned Volvo said all car models it launches after 2019 will be electric or hybrids, making it the first major traditional automaker to set a date for phasing out vehicles powered solely by the internal combustion engine.

While the Volvo announcement could be seen as validation for Tesla CEO Elon Musk’s vision, it also highlights the intense competition Tesla is likely to face, Barclays analyst Brian Johnson said in a research note.

On Wednesday, Goldman Sachs cut its six-month price target on Tesla to $180 from $190. Andrew Left of short seller Citron Research told CNBC in a phone interview that he thinks that is fair in the short term.

(Reporting by Saqib Iqbal Ahmed in New York and Parikshit Mishra in Bengaluru; editing by David Gregorio)

 

Published at Wed, 05 Jul 2017 22:49:24 +0000

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Tesla Only Worth Half Its Share Price: Goldman

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Tesla Only Worth Half Its Share Price: Goldman

By Shoshanna Delventhal | July 5, 2017 — 5:15 PM EDT

American auto manufacturer Tesla Motors Inc. (TSLA) saw its shares plummet 7.2% on Wednesday as weaker-than-expected quarterly sales were dragged down by a production shortfall.

While investors were still digesting news that the Palo Alto, Calif.-based company would start production on the mass-market Model 3 earlier than expected, Tesla announced it had delivered 22,000 cars in the recent quarter, coming in at the low end of guidance.

Weaker-Than-Expected Q2 Production and Deliveries

Goldman analyst David Tamberrino and team responded to the pair of news by slashing Tesla’s price target to $180 from $190, compared to Wednesday close at $327.09. “We remain Sell rated on shares of TSLA where we see potential for downside as the Model 3 launch curve undershoots the company’s production targets and as 2H17 margins likely disappoint (we now forecast auto gross margin of approx. 16% vs. FactSetconsensus of approx. 24.5% from Model 3 dilution),” wrote Tamberrino.

Goldman suggests that demand for Tesla’s established production, including its Model S and Model X, appears to be plateauing slightly below a 100k annual run rate. The analysts also indicate that “cash burn should intensify” throughout 2017, though they forecast the next capital raise in 1H18.

‘More Questions Than Answers’

On the bull side, analysts at Guggenheim contend that the Model 3 launch will outweigh the lighter deliveries last quarter. The analysts reiterated a buy rating and increased their price target on TSLA to $430 from $380.

Taking a more moderate position, Bernstein’s Toni Sacconaghi and Daniel Chen suggest that “Tesla’s Q2 production and deliveries report raised more questions than answers, particularly about the Model S and Model X.” Analysts were skeptical regarding certain factors such as the timing of the release after market close on the eve of a holiday and the fact that the company left out a figure for in-transit vehicle sales. (See also: Why Tesla’s Stock May Defy The Skeptics.)

Published at Wed, 05 Jul 2017 21:15:00 +0000

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GE Just Became the 2nd Largest Oil Services Co.

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GE Just Became the 2nd Largest Oil Services Co.

By Shoshanna Delventhal | July 5, 2017 — 3:10 PM EDT

Multinational conglomerate General Electric Co. (GE) has announced the completion of the merger between GE Oil & Gas and Baker Hughes Inc. (BHI) in a deal that will secure the company’s spot as the world’s No. 2 oilfield service provider.

Industrial conglomerate General Electric saw its shares jump 2% on Monday on the announcement of the megadeal, as BHI stock soared 5.8% on its last day of trading to the top of the S&P 500.

Weathering Industry Cycles

The American industrial giant is bullish its ability to bring together the companies’ “capabilities across the full value chain of oil and gas activities—from upstream to midstream to downstream.”

GE’s decision to double down on its petroleum-related operations comes amid a historic decline in crude oil prices. However, Chief Executive officer (CEO) Jeffrey Immelt suggests that the deal, expected to close mid-2018, will result in a diversified portfolio spanning oilfield services, equipment manufacturing and technology that can “weather the cycles better than anybody.”

A One-Time Dividend Payment

Analysts at RBC believe the transaction enhances Baker Hughes’ competitive position. “We remain positive on BHI’s combination with GE O&G and are encouraged by the potential for revenue upside from digital integration and shifting focus to products and technology,” wrote analyst Kurt Hallead.

GE owns 62.5% of the newly combined entity trading under the ticker BHGE, while Baker Hughes and its shareholders own a 37.5% stake. All shares traded under the previous BHI ticker have been converted to BHGE, while a one-time dividend payment of $17.50 per share. Due to the special dividend, BHGE opened on Wednesday at $40.80, down 29.13% from BHI’s close on Monday.

Shares of Boston-based GE are trading down about 0.6% on Wednesday afternoon at $27.28, reflecting an approximate 10.4% decline over the most recent 12-month period and a 13.4% dip year-to-date (YTD). (See also: General Electric to Merge Oil and Gas Business With Baker Hughes.

Published at Wed, 05 Jul 2017 19:10:00 +0000

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Brazil’s turmoil to boost M&A pipeline after a quiet quarter, bankers say

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Brazil’s turmoil to boost M&A pipeline after a quiet quarter, bankers say

By Tatiana Bautzer and Guillermo Parra-Bernal| SAO PAULO

 

Escalating political turmoil and a widening graft scandal are driving more Brazilian companies to sell businesses, promising a strong pipeline of mergers and acquisitions after dealmaking hit its slowest pace in a year in the second quarter, bankers said.

 

While stricter legal scrutiny related to the corruption scandal helped slow second-quarter M&A, bankers said funds and multinational firms were still seeking Brazilian assets. Despite economic and political headwinds, merger activity could be reignited by falling borrowing costs and an increasingly stable currency.

 

Pressure from creditors could also speed up asset sales by companies restructuring almost 180 billion reais ($56 billion) of debt, bankers said.

 

“M&A is relatively resilient to the macroeconomic and political environment as strategic players seek opportunities with long-term potential,” said Patricia Moraes, head of Brazil banking for JPMorgan Chase & Co, which topped Thomson Reuters local advisory rankings last quarter.

 

Uncertainty surrounding the timeframe for an economic recovery from Brazil’s worst recession on record, as well as concerns about the stability of President Michel Temer’s administration, have deterred some buyers and sellers from committing to deals.

 

Companies announced $7.052 billion worth of Brazil-related mergers last quarter, down 76 percent from the prior quarter, the rankings showed. A year earlier, when tougher due diligence procedures were implemented, announced M&A deals totaled $6.861 billion.

 

Last quarter, the number of announced deals fell to 132 from 141 in the prior three months and 135 a year earlier.

 

Brazilian markets tanked in mid-May after members of the billionaire Batista family accused Temer of seeking to obstruct the massive corruption probe known as Operation Car Wash. The market turmoil compounded the impact of Brazil’s recession, keeping buyers and sellers at odds over valuations.

 

Temer has called a corruption charge filed against him by Brazil’s top prosecutor a “fiction” as he faces possible removal from office.

 

Fallout from Operation Car Wash has led to increased due diligence concerning companies ensnared in the scandal, such as building group Odebrecht SA. Usual timeframes for such proceedings have doubled over the past year, to up to six months.

 

“Deals are going though an adjustment,” said Alessandro Farkuh, head of M&A for Banco Bradesco BBI SA. “There’s a lot of work but, because of the country’s situation, M&A negotiations are taking place in an unusual way.”

 

CONSOLIDATION

 

More assets are on the block as companies seek to cut debt or improve their capital and tax structures, said Eduardo Miras, co-head of Brazil investment banking at Morgan Stanley & Co, Brazil’s No. 1 M&A bank this year.

 

“Some companies are being forced to sell,” Miras said. “Opportunistic buyers and strategic players with a long-term view find themselves with a flurry of good Brazilian assets.”

 

Car Wash-related M&A deals include J&F Investimentos SA’s planned sale of a dairy producer and the maker of the popular Havaianas flip flops, Alpargatas. Members of the Batista family, which controls J&F, admitted to bribing 1,893 politicians.

 

Roderick Greenlees, global head of investment banking at Itaú BBA SA, said he expected deals to pick up in the third and fourth quarters amid growing interest from multinational firms and buyout funds, which are more likely to meet buyers’ prices for attractive companies.

 

“Some premium assets are being sold because of the current situation, which in general keeps us excited about the dealflow ahead,” Greenlees said.

 

JPMorgan and Morgan Stanley topped value rankings for the second quarter and the first half, respectively. JPMorgan worked on Itaú’s $2 billion purchase of a minority stake in brokerage XP Investimentos SA.

 

Itaú BBA led the rankings for the number of deals after working on seven transactions last quarter and 18 this year.

 

In the first six months, the total of 273 Brazilian M&A-related transactions was worth $36.177 billion, more than three times the amount recorded in the same period of last year, the data showed.

 

For years, investment banks have derived nearly half of their annual Brazil revenues from M&A advisory. As dealmaking suffers, banks have turned to structured lending, transactional banking or, in some cases, securities trading.

 

Following is a table with Brazil M&A ranking for the second quarter and the first six months. Numbers are expressed in U.S. dollars, unless specified.

 

(Editing by Phil Berlowitz)

 

(Why?)

Published at Wed, 05 Jul 2017 12:13:58 +0000

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Stocks recover as eyes shift to Fed minutes

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Stocks recover as eyes shift to Fed minutes

By Patrick Graham| LONDON

 

Stock markets rode out the latest rise in tensions around North Korea on Wednesday, main markets in both Europe and Asia inching higher as attention moved to minutes from the U.S. Federal Reserve’s last meeting.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3 percent, regaining half the losses it saw on Tuesday when North Korea fired a missile into Japanese waters.

The organization’s global shares index gained 0.1 percent, helped by early gains for most of Europe’s major markets.

A shift towards more hawkish language by several major central banks has dominated the past week and left markets unsure of how much longer emergency stimulus in Europe will continue to support global asset prices.

For now investors seem to be giving policymakers the benefit of the doubt that the global economy can take any tightening of monetary policy, although the latest data on Wednesday was mixed – strong in Europe and weaker in China.

The Fed minutes will be searched by investors for signs of more concern among policymakers about a downturn in inflation and activity in the United States.

“North Korea has rattled markets but central bankers are more important,” said Kathleen Brooks, research director at City Index in London.

“While North Korea’s military ambitions are a background threat for markets, we don’t think that this particular geopolitical event is at the stage yet where it will cause a spike in volatility.”

South Korea’s main index rebounded by 0.36 percent and Japan’s Nikkei ended up 0.25 percent.

Shanghai stocks rose more than 1 percent, despite a drop in the Caixin/Markit services purchasing managers’ index (PMI) to 51.6 in June, from 52.8 in May.

IHS Markit’s final composite Purchasing Managers’ Index for the euro zone was 56.3 in June, down from May but comfortably beating a flash estimate, chalking up the best performance last quarter in over six years.

Currency markets were in limbo, the euro trading just over half a cent below last week’s 14-month highs against the dollar.

The dollar and yen were the main victims of the shift in language last week, but many analysts wonder whether the European Central Bank will be able to rein in money-printing later this year if the euro keeps gaining.

“I meet a lot of people while I talk to clients who think the ECB simply won’t be able to escape its current policy setting because a stronger currency is too damaging,” said Societe Generale strategist Kit Juckes.

“The thought the ECB will resist pressure…is still leading many … to look for cheaper levels to buy euro.”

The dollar was less than 0.1 percent higher against the basket of currencies used to measure its broader strength and 0.1 percent lower at $1.1353 per euro.

(Editing by Richard Balmforth)

Published at Wed, 05 Jul 2017 08:47:26 +0000

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8 Ways To Fly First Class For Cheap

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8 Ways To Fly First Class For Cheap

By Tim Parker | Updated June 28, 2017 — 1:43 PM EDT

Nowadays, it’s a lot harder to fly at the front of the plane without paying serious money.

Want to fly in first or business class seats without breaking your wallet? Read on for some tips.

Business vs. First Class

If you’re wondering about the difference between first and business class, the answer is that it depends on the airline, the specific aircraft and the route. For some airlines, there is no difference. For others, first class is a step above business class. Especially on international flights, first class customers often don’t have a person sitting next to them, they have better service, higher quality food and drinks, and access to the most exclusive airport lounges.

But first class seats can be pricey. In some parts of the world, a ticket could cost you thousands or even tens of thousands of dollars. A first class ticket from New York to Singapore on Singapore Airlines could cost as much as $12,000. This gets you an exclusive suite on the plane.

Unless you’re truly in the financial stratosphere, it’s difficult to justify the cost of a first class seat if business class is available. The perks are similar, especially on domestic flights. (See also, Top 5 Differences Between Business and First Class)

8 Cost-Effective Ways to Get the Seats

On domestic flights, you’re more likely to see business class seats than first class. In either case, how do you get them without paying a fortune to upgrade?

1. Don’t Book Them. Business class can cost as much as five times more than a coach ticket. Although business class is a better experience, it’s not five times better. In most cases, you can get them more cheaply using other means.

2. Remain Loyal. Airline loyalty programs aren’t what they used to be. Even if you’re a frequent traveler, the perks you receive aren’t nearly what they once were. All the same, those miles will add up and eventually you can use them for a free upgrade. But watch the expiration dates and make sure to read all e-mails that come from the airline. Don’t let points expire.

3. Easy Up. Andy Abramson, CEO of Comunicano, Inc. – he was named a Business Traveler of the Year for 2014 by Business Traveler magazine – says to make use of easy-up fares. “The way you do this is you purchase an upgradeable coach or premium economy fare and then apply your points to get into first class/business class.”

4. Use Elite or Airline Credit Cards. Some of the mid-tier cards offer travel rewards, but the elite travel cards are where to find the real perks. Cards such as American Express Platinum, Chase Sapphire Preferred, and some of the co-branded cards like the Delta SkyMiles American Express card or the United MileagePlus Explorer Card offer big bonuses if you sign up and spend a certain amount within a short period of time.

Rosemarie Clancy, editor in chief of RewardExpert.com, says, “Once you pick an airline, the best advice is to get that airline’s co-branded card. Many offer 50,000 mile sign-up bonuses, which is more than half the miles needed to get to Europe in first class for instance. That is United’s current offer.”

She continues, “Once you meet your minimum spend, which is usually around $3,000, think about getting a second card for your business, spouse or even yourself, especially one with transferable points like American Express Membership Rewards or Chase Ultimate Rewards. The Chase card offers 40,000 miles on sign-up so that would be enough when combined with a 50,000 mile bonus on an airline card for one first-class round-trip ticket to London or Paris.”

If you travel a little more frequently than the average vacationer, the annual fee associated with cards like the American Express Platinum pays for itself quickly in perks and rewards.

5. Buy the Points. There are plenty of websites that allow you to buy and sell points, but steer clear since major airlines don’t allow it, and it may result in you losing your miles or not being able to use the miles you purchased.

Instead, purchase them directly from the airline. They usually cost 2.5 cents per mile, but watch for promotional pricing. Whether it results in paying less for your first class seat depends on many variables, so crunch the numbers before you purchase.

6. Fly When Business Travelers Aren’t. Business travelers fly all week. The last thing they want to do is fly on the weekends. That’s why you won’t see as many people flying in business suites on Saturdays and Sunday mornings. That might leave more business class seats up for grabs.

7. Watch for the Open Seat. If your coach seat is towards the front of the plane, listen for the cabin door to shut. If there’s an open first class seat, ask the flight attendant if you can move. Of course, it always helps if you took the time to say hi and strike up a conversation with the attendant when you first boarded the plane.

8. Upgrade at Check-In. If you really want an upgraded seat, don’t have the miles to get it free and, don’t want to gamble on a free upgrade at the gate, purchase an upgrade at check-in. If there are seats available, airlines will often offer them at a discounted rate during online check-in.

If you don’t mind the gamble, ask the gate attendant what they’re charging for the upgrade. It might be even cheaper than the reduced online rate.

The Bottom Line

Abramson says, “In the old days status fliers would get upgraded at the gate. That’s possible on long hauls when there’s plenty of first and business class inventory on the plane, but these days we have smaller planes and less seats to fill up.”

It’s not going to be easy to get the upgrade for cheap. In most cases, you will have to pay something, but especially for longer flights, it might be well worth the cost.

Published at Wed, 28 Jun 2017 17:43:00 +0000

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