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Where’s my raise? Wage growth still sluggish

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U.S. unemployment rate falls to 16-year low
U.S. unemployment rate falls to 16-year low

Where’s my raise? Wage growth still sluggish

  @lamonicabuzz

More Americans are finding jobs, and the unemployment rate is at a 16-year low. That is undeniably good news.

But there is one number in the jobs report that remains frustratingly subpar: wage growth.

The government said Friday that average hourly earnings for workers rose 2.5% over the past 12 months, to $26.36 an hour. That is good, but not fantastic.

Many economists, including members of the Federal Reserve, feel that wage growth of 3% to 3.5% a year is healthier. That allows consumers to better keep up with inflation.

Wages were growing about 3% a year just before the Great Recession began at the end of 2007, but they have cooled since then. That could pose a problem for the economy.

Without higher wages, Americans may pull back on spending — regardless of whether tax cuts are coming from President Trump and the Republican-led Congress.

“Despite a roaring U.S. labor market, average wage growth remains stubbornly muted,” said Dr. Andrew Chamberlain, chief economist with job search site Glassdoor, in a report.

“Until that trend reverses, the gains from today’s economy will not be translating into improved paychecks for the average American worker,” Chamberlain added.

Usually, employers start to offer higher pay as the economy improves and workers become harder to find. One reason that’s not happening may be that employers are hiring workers who were left behind during the recession and are happy to be finding jobs at all.

When employers realize they don’t need to offer big salaries to attract the workers they need, that keeps a lid on wages.

“It is clear that employers need to do little to attract and retain the workers they want and any significant signs of labor shortages are simply not showing up,” Elise Gould, senior economist with the Economic Policy Institute, wrote in a report.

Still, others think that the modest increase in wages will be good enough to keep Americansin a good mood.

Doug Duncan, chief economist at Fannie Mae, said in a report that it would be a mistake to “nitpick” the gain in wages, adding that the steady rise over the past year “isn’t too shabby.”

It’s also worth noting that many companies in some lower-paying sectors, such as restaurants, leisure and hospitality, are starting to hire more workers.

That may be holding down wages overall, but it’s still a good sign that people are able to find work.

“Low-wage industries grew fastest in July,” said Jed Kolko, chief economist with job search site Indeed, in a report.

“That’s helping the least-educated Americans get back to work. The recovery is now strong and long enough to lift many of the people hurt most by the recession,” Kolko added.

And at least one economist thinks the tide might be turning for all job-seekers. Wage growth should eventually pick up and return to more normal levels as the overall labor market improves.

“It’s simple logic … that as the job market further tightens, workers will be able to demand higher salaries or take their skills to a competitor that will pay a higher wage,” Ameriprise senior economist Russell Price wrote in a report.

“Over time, there’s little doubt that as the labor market gets tighter and tighter, wages and salaries will eventually rise. Workers will start changing jobs to move to the highest bidder,” Price added.

 Published at Fri, 04 Aug 2017 16:30:12 +0000

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Toyota and Mazda to build $1.6 billion factory in the U.S.

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Toyota's space-age concept car for 2030
Toyota’s space-age concept car for 2030

The Japanese automakers said in a statement Friday that the facility would be operational by 2021, but did not specify where it would be built.

Mazda plans to build new crossover vehicles for the U.S. market at the plant, while Toyota will produce its Corolla model there.

The move is likely to be seen as a win for President Trump, who attacked Toyota earlier this year over its plans to build a new factory in Guanajuato, Mexico. He threatened to slap a “big border tax” on Toyota cars if the plant isn’t built in the U.S.

Toyota had intended to build Corollas — the world’s best-selling car — at the plant in Mexico. On Friday, the Japanese firm said it now plans to produce Tacoma pickup trucks at the plant in Mexico instead of the Corolla.

Trump welcomed the news, describing it on Twitter as a “great investment in American manufacturing.”

 

All Corollas currently sold in the U.S. are made in Ontario, Canada or Mississippi. Toyota also has plants in Indiana, Kentucky and Texas. Mazda has not made cars in the U.S. since a joint partnership with Ford unraveled earlier this decade.

The prospect of a new factory in the U.S. could set off a competition among states over its location. State and local governments are likely to offer subsidies and tax incentives to land the factory, which could produce as many as 300,000 vehicles a year.

Toyota has said it plans to invest $10 billion in the U.S. over the next five years.

Toyota(TM) and the much smaller Mazda(MZDAF) also announced a new business partnership on Friday — the latest example of consolidation in the auto industry. Toyota will pay about $450 million for a 5% stake in Mazda as part of the deal, while Mazda will buy a stake of the same value in Toyota.

In addition to the new factory in the U.S., the automakers said they would collaborate on safety and technology for electric vehicles.

Toyota lost its title as the world’s top automaker to Volkswagen(VLKAF) in 2016 after four consecutive years of dominance. General Motors(GM) last won the title in 2011. The traditional industry kings also now face a challenge from a rival alliance anchored by Renault(RNLSY) and Nissan(NSANF).

Toyota president Akio Toyoda made the case Friday that industry consolidation is needed because automakers face increased competition from tech firms including Apple(AAPL, Tech30), Amazon(AMZN, Tech30) and Google(GOOGL, Tech30) that are developing self-driving cars.

“New players from totally new business are challenging us,” he said at a press conference. “That’s why I feel it has become increasingly important for us automakers to gather new partners without seeing things in confrontational perspectives.”

 Published at Fri, 04 Aug 2017 14:17:14 +0000

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Wells Fargo to pay U.S. $108 million over veterans’ loans

 

Wells Fargo to pay U.S. $108 million over veterans’ loans

(Reuters) – Wells Fargo & Co (WFC.N) will pay the U.S. government $108 million to settle a whistleblower lawsuit claiming it charged military veterans hidden fees to refinance their mortgages, and concealed the fees when applying for federal loan guarantees.

The third-largest U.S. bank on Friday said the accord resolved claims that its Interest Rate Reduction Refinance Loans should have been ineligible for guarantees under a U.S. Department of Veterans Affairs loan guaranty program.

Such claims were raised in a lawsuit filed in 2006 and made public in 2011, in which Georgia mortgage brokers Victor Bibby and Brian Donnelly sought reimbursement for losses that the government suffered on guaranteed loans that went into default.

Similar claims were brought against other lenders, including Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N), and sought to recoup millions of dollars of taxpayer funds used to cover the losses. Some of these lawsuits have been settled.

“We are committed to serving the financial health and well-being of veterans,” Wells Fargo Chief Executive Tim Sloan said in a statement. “Settling this longstanding lawsuit allows us to put the matter behind us and continue to focus on serving customers and rebuilding trust with our stakeholders.”

Wells Fargo has in the last 11 months been addressing fallout from other practices, including a scandal over its creation of unauthorized customer accounts, and its charging of borrowers for auto insurance they did not want or need.

In 2011, it reached a $10 million settlement in a separate class-action lawsuit claiming it imposed excessive closing costs on about 60,000 refinancing loans for veterans.

Friday’s settlement is also notable because the government declined to help Bibby and Donnelly pursue their lawsuit under the federal False Claims Act. Such intervention often results in larger settlements.

James Butler, a lawyer for Bibby and Donnelly, declined immediate comment.

False Claims Act lawsuits let private whistleblowers sue on behalf of the government, and share in recoveries.

The case is U.S. ex rel. Bibby et al v Wells Fargo Bank NA et al, U.S. District Court, Northern District of Georgia, No. 06-00547.

Reporting by Jonathan Stempel in New York; Editing by Bill Rigby and Grant McCool

Published at Fri, 04 Aug 2017 16:54:32 +0000

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Q&A: Canada tries trading marijuana in new ETF

 

Q&A: Canada tries trading marijuana in new ETF

NEW YORK (Reuters) – You can smoke it or eat it, and now in Canada, you can trade it in your stock portfolio.

The $120 million Horizons Marijuana Life Sciences ETF (HMMJ.TO) – the first exchange traded fund in North America that focuses on the legal marijuana market – launched in April on the Toronto Stock Exchange. There are no U.S. competitors, at least initially, as federal law prohibits the drug, making it difficult to set up a fund.

Canada is on track to legalize recreational marijuana by July 2018 after the government put forward legislation in April that will allow it to regulate production but leaves the details of how the drug will be sold up to the provinces.

At least one detail of the new ETF has already changed: in June, its Canadian-based fund sponsor dropped “medical” from the fund’s name in anticipation that recreational marijuana will soon be legal in Canada.

With positions including marijuana grower Aurora Cannabis Inc (ACB.TO), medical marijuana companies such as GW Pharmaceuticals Plc (GWPRF.PK), and fertilizer company Scotts Miracle-Gro Co (SMG.N), the fund attempts to capture the full extent of the Canadian marijuana industry, which Deloitte expects could grow to $22.6 billion if the recent bill to legalize recreational use is successful.

Reuters spoke with Horizons Exchange Traded Funds President and Co-Chief Executive Officer Steve Hawkins recently about what is next for the firm’s marijuana ETF.

Q: With few pure plays for medical or recreational marijuana, how do you decide what goes into the fund?

A: We didn’t want to make this one actively managed, even though we are the biggest provider of actively managed ETFs in Canada. This is more index-rules based. It’s a very new and growing industry and we expect to add new constituents with every quarterly rebalance. With the full legalization news in Canada, there’s a lot of strong growth prospects for this industry.

We worked with Solactive, a German index provider, to create an index that fits in all aspects of the industry. Scotts Miracle-Gro is a part of it because they have been extremely public about their investment in the growth of the marijuana industry going forward with respect to hydroponics and specialized fertilizer. Then there are biopharm companies which are not specifically marijuana growers or distributors but are involved directly or indirectly in a derivative.

Q: Do you have as sense of the fund’s ownership base? Is it mostly Canadian, or are there U.S.-based investors as well?

A: More than 95 percent of the fund unit owners are Canadian. It’s very difficult for Americans to trade Canadian ETFs. That’s just the way that the SEC (U.S. Securities and Exchange Commission) set things up.

Q: Do you expect to launch a U.S.-listed fund?

A: We do have a sister company in the U.S. and we are looking at it but there are number of regulatory issues. It’s only at the state level in the U.S. where marijuana is approved and it creates a lot of legal concerns with respect to banks and stock exchanges. The fact that no large U.S. stock exchange has listed a marijuana stock is very telling. How could we list a marijuana ETF if they won’t list a marijuana stock?

Q: The fund is trading about 8 percent below its level in April. How do you expect to attract more investors to the fund?

A: We launched very quickly and raised $120 million in the first week and a half. Unfortunately from there we saw marijuana stocks themselves take a substantial hit from a performance perspective. We haven’t really seen any outflows from the fund. We are extremely pleased with the progress of the fund.

Editing by Beth Pinsker and Matthew Lewis

 

Published at Thu, 03 Aug 2017 16:01:52 +0000

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What Does the Move to GAAP Reporting Mean for Microsoft?

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What Does the Move to GAAP Reporting Mean for Microsoft?

By Daniel Liberto | August 4, 2017 — 7:14 AM EDT

Microsoft (MSFT) has confirmed that it will move to all-GAAP​ (generally accepted accounting principles) reporting in its new fiscal year, following in the footsteps of other technology companies including Alphabet’s Google (GOOGL), Facebook (FB) and Workday (WDAY).

During a conference call, the Redmond, Washington-based giant outlined its plans to switch to the preferred accounting standard, warning listeners that the changes will materially impact its financial results. To assist in the process, Microsoft provided some insight into how the new revenue recognition rules will impact its numbers. That included restating financial results for the fiscal years 2016 and 2017 to make it easier for investors to understand how GAAP accounting alters previously reported figures, as well as providing a platform to compare future results.

Microsoft’s move to GAAP came several months before it will become compulsory. By January 1, 2018, all public companies will be required to adopt the new method, which is being introduced to create uniformity in how listed firms recognize revenue in financial statements.

In many cases, customers tend to pay more in the later years of contracts. However, under the new accounting practices, companies will be forced to account for future revenues more evenly, spreading them out over the full period of the contract. This generally means that companies will report higher sales earlier, lifting revenues and profits in the short-term.

During the conference call, Microsoft claimed that the impact of GAAP on its revenues will be material, particularly as license fees for Windows 10, which are spread out over a number of years, are recognized upfront. Microsoft previously used non-GAAP​ adjusted figures to ease the impact of software revenue deferrals.

Amazon (AMZN) has emerged as another company that will soon be forced to recognize some of its revenues sooner. Under the new accounting rules, the company said that sales of electric devices from non-Amazon stores, together with partially unused gift cards, will now have to be recognized earlier, according to the Financial Times.

The Financial Times article, which featured a quote from Zuora CEO Tien Tzuo warning that Wall Street analysts might have difficulty correctly analyzing restated numbers, added that GAAP accounting will have a different impact on car-booking services such as Lyft and Uber. (See also: Uber Loses, Amazon Wins Under New Financial Rules.)

Uber’s revenues are predicted to fall by more than half when it adopts the new standards, as the ride-hailing service will only be able to calculate commissions from regular and carpool rides as revenue. Based on these changes, Uber’s first quarter revenue of $3.4 billion would fall to $1.5 billion. (See also: Uber Is Considering GE CEO Jeff Immelt for Top Role.)

 

Published at Fri, 04 Aug 2017 11:14:00 +0000

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Alibaba to Sell Cars Via Vending Machines

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Alibaba to Sell Cars Via Vending Machines

By Donna Fuscaldo | August 3, 2017 — 11:41 AM EDT

Alibaba Group (BABA) is getting into the vending machine business, but they won’t be stocked with soda or bags of chips. Rather consumers in China will be able to purchase a brand new car.

Yu Wei, the general manager of the automotive division on Alibaba’s Tmall ecommerce platform told the Financial Times that as soon as next year users will be able to shop for new cars on their mobile devices and pick them up from a massive vertical vending machine. Wei said purchasing a car via the internet has arrived in the automotive industry and that its vending machine will make purchasing a car as easy as buying a can of Coke, reported the FT. With the service, consumers who have good credit from Alibaba’s Sesame Credit will be required to put 10% down for their new vehicle and make monthly payments via its Alipay digital payment service. (See also: Alibaba Pushes Dual Strategy With New Stores.)

Flashy Car Flash Sales

Consumers in China have are already comfortable with purchasing cars over the internet. The FT pointed to Maserati, which was able to sell 100 vehicles in only 18 seconds during a Tmall flash sale. Meanwhile, Alfa Romeo, the Italian car company ran a similar sale and sold 350 Giulia Milano cars in 33 second, reported the FT, citing data from Alibaba. For the last 10 years, China has been the largest auto market with car sales totaling 28 million in 2016. (See also: Alibaba Aims to Become World’s Fifth Largest Economy by 2036.)

The move on the part of Alibaba to sell cars via vending machine is part of its offline-online retail vision in which the new buzzword signifies the ability of mobile platforms to facilitate the interaction between traditional offline business and their customers online through mobile apps. The business strategy draws customers into the physical offline premises via online transactions and relies on big data to make that possible. Its ability to harness data to entice consumers to shop more has drawn interest from Wall Street, which has been growing increasingly bullish on the company.

In June, HSBC upped its price target on the company to $162 from $145 a share. In a research note to clients at the time, HSBC said the company is in the beginning stages of “data-driven growth.” The Wall Street firm has a buy rating on the stock. But Alibaba isn’t the only company that is relying on vending machines to sell new vehicles. Carvana, a startup out of Phoenix, offers a similar service in a couple of states in the U.S.

 

Published at Thu, 03 Aug 2017 15:41:00 +0000

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Herbalife Sinks as FTC Regulation Stands to Thwart Growth

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Herbalife Sinks as FTC Regulation Stands to Thwart Growth

By Shoshanna Delventhal | August 2, 2017 — 4:35 PM EDT

Shares of multilevel marketing giant Herbalife Ltd. (HLF) started the day off on Wednesday down over 5% despite the firm posting better-than-expected second-quarter earnings results and lifting its full-year guidance after the closing bell on Tuesday.

The decline represents a win for the hedge fund Pershing Square Capital Management and a growing number of HLF short sellers as the company’s guidance renews concerns that a settlement with federal regulators will hamper future growth. (See also: Herbalife Scrambles, Hires New Lawyer as Short Interest Booms.)

Forecast: Revenue to Decline as Much as 5%

Herbalife’s Q2 earnings of $1.51 per share well surpassed the Street’s $1.12 consensus estimate and the company’s guidance of $1.05 at the midpoint. Yet since the Federal Trade Commission (FTC) forced the company to revamp its U.S. operations and cough up $200 million to refund its distributors, investors have been keeping a close eye on indicators that new regulations could present a roadblock for the Los Angeles-based firm. As part of the ruling, Herbalife must prove that a majority of its U.S. revenue comes from consumers instead of its distributors, who are trying to reach income payouts.

Investors were disappointed with weak current-quarter guidance, in which sales are expected to come in flat, or down as much as 5%. The Q3 earnings forecast for $0.75 per share at the midpoint also fell short of the $1.20 consensus estimate by a wide margin.

Herbalife’s latest Q2 report and subsequent sell-off provides some relief to Pershing Square’s billionaire hedge fund manager William Ackman, who has been waging a war against the nutritional supplement and weight loss company since 2012. Ackman has bet $1 billion on short selling HLF, indicating that the global corporation is an illegal pyramid scheme that wrongfully takes advantage of lower socioeconomic groups and minorities. Trading down 1.3% on Wednesday afternoon at $65.59 per share, HLF reflects an approximate 1.7% decline over the most recent 12-month-period and a 36.5% return year-to-date (YTD). (See also: William Ackman’s Crusade to Take Down Herbalife.)

 

Published at Wed, 02 Aug 2017 20:35:00 +0000

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Tesla Price Levels to Watch After Earnings

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Tesla Price Levels to Watch After Earnings

By Alan Farley | August 2, 2017 — 11:31 AM EDT

Tesla, Inc. (TSLA) earnings take center stage on Wednesday evening, providing a long overdue reality check into the Model 3 rollout after months of flamboyant marketing by controversial CEO Elon Musk. It will be tough for quarterly metrics to live up to the hype, but shareholders are likely to forgive growing pains because it could be months or years before Wall Street analysts can gauge the long-term demand for the Model 3.

Tesla stock is not cheap by any stretch of the imagination, holding a higher market capitalization than rivals General Motors Company (GM) and Ford Motor Company (F). Even so, Tesla has attracted the type of euphoric coverage usually reserved for market icons like Apple Inc. (AAPL), speaking to a new generation in language often misunderstood by older demographics. Even so, high levels of skepticism are warranted due to the lack of actual sales in recent years. (See also: Opinion: Right Now, Tesla Is More Than Ever a Carmaker.)

TSLA Long-Term Chart (2010 – 2017)

The company came public at $19 in June 2010 and carved a short-term trading range between $15 and $30.50. The stock broke out in November, but buying pressure faded quickly, yielding broader range-bound action between the low $20s and mid-$30s. Those levels held in place for more than two years, ahead of a 2013 breakout that caught fire, drawing in a large supply of momentum capital.

The stock rose nearly fivefold between May and October 2013, carving one of the strongest uptrends of the current bull market cycle. The rally’s trajectory eased when it neared $200, but continued buying pressure finally pierced that level in 2014, ahead of the September top at $291.42. That peak signaled the start of an intermediate correction that posted a two-year low at $141 in the first quarter of 2016, ahead of an April 2017 breakout and rally to $387 in June. (For more, see: The Case Against Tesla.)

The monthly stochastics oscillator ended a six-month sell cycle in November 2016, with a new buy cycle supporting the early 2017 breakout. The indicator hit the overbought level in June and has now crossed into a fresh sell cycle that predicts relative weakness for the rest of 2017. In turn, this raises the odds that the June rally high will also mark the 2017 high ahead of weaker performance into 2018.

TSLA Short-Term Chart (2015 – 2017)

July 2015 and April 2016 breakout attempts ran into aggressive selling pressure, while a slow-motion pullback into November 2016 improved the technical tone ahead of an April 2017 breakout that added about 100 points into June. The subsequent decline shook out a sizable population of weak hands, while the bounce into last week exhibited strong sidelined interest looking for relative bargains. (See also: Elon Musk Says He Might Be Bipolar.)

The early July decline into $302 marked the first test at new support generated by the April breakout. The stock has been sitting on the 50-day exponential moving average for the past two weeks, failing to bounce back to the rally high while signaling a holding pattern that should yield a sizable trend swing following this week’s earnings report. Weekly and monthly cycles favor lower prices following the release, but it is really a toss-up given relatively narrow trading ranges in place since May.

Short-term levels generated by July price action should be watched for clues following the release. The July 5 gap established new resistance at $350 that held firm last week, triggering a reversal at $347. On the flip side, the July low at $303 marks the top of a breakout support zone between $280 and $300 that needs to hold at all costs to keep the long-term uptrend intact. (For more, see: Tesla’s Model 3: Musk Warns of ‘Manufacturing Hell’.)

The Bottom Line

Tesla entered a holding pattern after hitting an all-time high at $386.99 on June 23, while intermediate and long-term cycles have flipped from bullish to bearish. This cycle shift lowers the odds for a strong buy-the-news reaction following this week’s earnings report, but downside remains limited given the solid technical tone. (For additional reading, check out: Tesla Stock Is at Risk of a Major Breakdown.)

(Disclosure: The author held no positions in the aforementioned securities at the time of publication.)

 

Published at Wed, 02 Aug 2017 15:31:00 +0000

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Apple Stock Unlikely to Break Multi-Year Resistance

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Apple Stock Unlikely to Break Multi-Year Resistance

By Alan Farley | August 1, 2017 — 10:34 AM EDT

Tech icon and Dow component Apple Inc. (AAPL) reports fiscal third quarter earnings after Tuesday’s closing bell, with the confessional gathering the customary undivided attention of Wall Street and the trading public. However, the news is unlikely to please long-term bulls or bears because the focus has already shifted into this fall’s iPhone 8 release, offering a timely excuse if Apple fails to meet expectations while reducing upside potential if it issues a solid report.

The stock reached four-year channel resistance in May and dropped into a trading range that could mark a long-term top. Price action since that time has been inconclusive, but the failure to post new highs since May 15 waves a red flag that supports the topping thesis while telling long-term shareholders to take defensive measures to protect profits ahead a potential decline that could reach $110. It is possible that the fall iPhone rollout will generate bearish catalysts for that decline. (See also: Apple in ‘Panic’ Mode Due to iPhone 8 Software Bugs: Report.)

AAPL Long-Term Chart (1987 – 2017)

The stock topped out at a split-adjusted $2.13 after the 1987 crash and entered a long period of underperformance, drifting sideways for more than a decade ahead of an ill-timed 1999 breakout that stalled at $5.37 in March 2000. The dotcom bubble then burst, dumping the price back within multi-year range resistance in the second half of the year and into a sideways drift that persisted into a 2004 breakout.

Apple stock reached 2000 resistance a few months later and took off in a powerful trend advance that surprised many market watchers of that era, lifting in multiple waves into the 2007 top at $29.00. A double top into 2008 yielded a breakdown that coincided with the economic collapse, but the stock held up relatively well compared with its peers, holding support in the low teens. That decline marked the first of three support tests in nine years at the 50-month exponential moving average (EMA). (For more, see: If You Had Purchased $100 of Apple in 2002.)

The subsequent uptrend exceeded the 2007 high in 2010, allowing the market leader to continue the string of higher highs and higher lows in place since 2003. A correction starting in 2012 reached 50-month EMA support for the second time in 2013 while completing the outline of a broad ascending channel that is still in force more than four years later. The 2015 high and 2016 low also reversed at channel boundaries, reinforcing a long-term pattern that now predicts another steep downturn.

AAPL Short-Term Chart (2015 – 2017)

The uptrend topped out near $130 in the first half of 2015, giving way to a correction that tested the will and pocketbooks of long-term shareholders, grinding lower in a volatile pattern that tested support at $90 four times in nine months. A bounce into the second half of 2016 caught fire following the presidential election, lifting the stock above 2015 resistance and into a series of new highs that peaked at $156.65 in mid-May. It then reversed at channel resistance, carving a trading range that still shows no signs of yielding a new trend wave – higher or lower. (See also: Apple Stock Could Fall to $110 in Coming Months.)

On-balance volume (OBV) topped out in May 2017 at the same time as price and entered a minor distribution phase that shook out weak hands into early July. The bounce into August has attracted healthy buying interest, but the price and the indicator have failed to reach their second quarter peaks, signaling a holding pattern that may not break higher or lower following this week’s quarterly report. (For more, see: Thinking About Apple’s Upcoming Results.)

The Bottom Line

Apple CEO Tim Cook could announce the date of the iPhone 8 release during this week’s earnings report, shifting attention away from second quarter results. Bulls and bears may need to lower their expectations, given this deflection, because the news might not attract the buying or selling power needed to lift the stock above multi-year channel resistance at $160 or drop it though two-month range support at $140. (For additional reading, check out: Why You Can’t Be Emotional About Apple Stock.)

Published at Tue, 01 Aug 2017 14:34:00 +0000

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Groupon, Grubhub Shares Climb on Partnership

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Groupon, Grubhub Shares Climb on Partnership

By Donna Fuscaldo | August 1, 2017 — 7:26 AM EDT

On Monday, deal website Groupon (GPRN) and food delivery service Grubhub (GRUB) inked a new strategic partnership that will allow U.S. customers to order food delivery from Grubhub’s 55,000 restaurant partners on the Groupon platform.

Grubhub will acquire certain assets in 27 company-owned OrderUp food delivery markets from Groupon and will power the food ordering and delivery capabilities of Groupon’s To Go markets.

“We’re thrilled to join forces with Grubhub to vastly expand the number of food delivery options available through our marketplace,” said Rich Williams, CEO, Groupon in a statement. “This partnership connects two of the biggest players in local commerce and is a win for both consumers and restaurants by providing people with more savings and access to the food they want, when they want it.”

Investors seem enthused as shares of Groupon and Grubhub were 3% and 2% higher, respectively, in pre-market trading.

In addition to being able to order food from one of the restaurants Grubhub delivers for via the Groupon platform, users will eventually be able to redeem deals. Grubhub’s Chief Executive Matt Maloney also touted the partnership in a press release, saying it is always looking for ways to make it easier for people to eat and that Groupon’s “massive, active mobile audience – and great savings opportunities – will help drive new customers and more order volume for our restaurant partners.” (See also: Groupon Stock Rises on Alibaba M&A Rumor)

Groupon has long offered discounts at local restaurants as part of its service, and its deal with Grubhub is a part of its effort to boost its U.S. business. But for Grubhub it may be a saving grace with concerns mounting about the impact Amazon (AMZN) will have on its business once it completes its deal for Whole Foods Market (WFM). (See also: 5 Companies Amazon Is Killing)

It is worries about new competition that sent shares of Grubhub down nearly 10% late last month. In a research report, Morgan Stanley analyst Brian Nowak warned that the online delivery service could face stifling competition from the ecommerce giant and cut his rating on the stock to equal weight from overweight and lowered his price target to $43 from $47. He sees the food delivery app’s marketing costs surging even higher as its piece of the pie slips and Amazon ramps up its own restaurant delivery service. Further, Nowak expects Amazon to leverage its base of 59 million Prime service subscribers along with operations at Whole Foods. Nowak says that while “GRUB’s food delivery awareness continues to rise (up 500bp​ yoy) and is still ~2x larger than everyone else, the gap is narrowing.”

Published at Tue, 01 Aug 2017 11:26:00 +0000

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Why Snap Stock Looks a Lot Like Facebook Right Now

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Why Snap Stock Looks a Lot Like Facebook Right Now

John Parmigiani, CMT, CRCP July 31, 2017

Published at Mon, 31 Jul 2017 18:50:00 +0000

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Facebook Stock’s 3-Year Breakout Predicts Higher Prices

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Facebook Stock’s 3-Year Breakout Predicts Higher Prices

By Alan Farley | July 27, 2017 — 10:10 AM EDT

Shares of Facebook, Inc. (FB) rallied more than 11 points ahead of Thursday’s opening bell after beating second quarter earnings and revenue estimates. More importantly, overall quarterly revenue rose an astounding 44.8% year over year, while ad revenue grew 47%. The company expects growth to decelerate in the coming quarter, but lower capital expenditure guidance should ease that shortfall, underpinning bottom-line results.

The stock pushed against three-year channelresistance for three months heading into this week’s report and surged higher following the news, clearing that significant barrier in a show of strength that should open the door to prices of $200 and beyond in the coming months. This breakout should also increase the four-year uptrend’s rally trajectory – a remarkable achievement for a maturing technology company – while establishing new support above $150. (See also: Facebook’s Q2 Earnings and Revenues Surpass Estimates.)

FB Weekly Chart (2012 – 2017)

The company came public in May 2012 in the mid-$30s, making headlines in a controversial offering that peaked on the first trading day, ahead of a two-legged decline that dropped the stock to an all-time low at $17.55 in September. It built a four-month base with resistance at $25 and broke out in December, entering an uptrend that stalled below the post-IPO high in February 2013. A higher low into June set the stage for a buying wave that finally reached that resistance level three months later. (For more, see: If You Had Invested Right After Facebook’s IPO.)

The stock broke out quickly, entering a high-volume uptrend that topped out in the lower $70s in the first quarter of 2014. Price action then eased into a broad rising channel that remained in force until this week’s powerful breakout. The majority of pullbacks held support at the 50-week exponential moving average during the channel’s dominance, while at least 10 attempts to break the upper trendline​ failed to generate rally momentum until this week’s euphoric buying event.

The weekly stochastics oscillator has carved a highly bullish pattern since entering a buying cycle in November 2016. It is typical for these cyclical upswings to last eight to 12 weeks and flip over, but the stock shook off multiple sell signals between February and May, allowing the indicator to turn higher in July and zoom back to the overbought level. It could now hold at this extreme level for a number of additional weeks while the breakout gathers strength. (To learn more, check out: Stochastics: An Accurate Buy and Sell Indicator.)

FB Daily Chart (2015 – 2017)

The August 2015 mini flash crash signaled the start of a tough period characterized by higher-than-average volatility, expanding traditionally narrow ranges while the stock carved a rising wedge within the channel. It tested channel and wedge resistance seven times into October 2016 and sold off in a decline that attracted a number of bearish topping calls. Channel support held through three tests between November 2016 and January 2017, completing a triple bottom reversal ahead of a strong recovery wave into May 2017.

More than two months of narrow sideways action at resistance signaled resilience ahead of this week’s highly bullish event. The breakout establishes new support at the top of the range between $152 and $155, with pullbacks into that price zone now offering low-risk buying opportunities. Traders should look for volume to match growing enthusiasm in coming weeks, with already positioned institutional players adding exposure while the relatively small supply of sidelined players finally takes the plunge. (See also: Facebook Short Interest Is at a Record Low.)

The Bottom Line

Facebook reported an outstanding quarter that signals continued rapid growth and social media dominance. Improved operating margins and escalating mobile ad revenues ensure the stock’s Nasdaq-100​ leadership role, perhaps well into the next decade. In addition, the stock has now broken out above three-year channel resistance, establishing a solid support level above $150 that should offer a platform for substantially higher prices into 2018. (For additional reading, check out: Why This Is the Best Year for Tech Stocks Since 2008.)

(Disclosure: The author held no positions in the aforementioned securities at the time of publication.)

Published at Thu, 27 Jul 2017 14:10:00 +0000

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Amazon plows ahead with high sales and spending; profit plunges

An employee works at Amazon’s Prime Now fulfillment centre in Singapore July 27, 2017. REUTERS/Edgar Su

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Amazon plows ahead with high sales and spending; profit plunges

Jeffrey Dastin and Rishika Sadam

(Reuters) – Amazon.com Inc on Thursday reported a jump in retail sales along with a profit slump, as its rapid, costly expansion into new shopping categories and countries showed no sign of slowing.

The world’s largest online retailer posted second-quarter revenue of $38 billion, up 25 percent from a year earlier. The breakneck growth stood in contrast to the fate of many brick-and-mortar rivals, who have struggled to find their footing as more people shop online.

Yet Seattle-based Amazon posted a 77 percent drop in quarterly income, and even said it could lose up to $400 million in operating profit during the current quarter. Beyond reflecting retail’s notoriously thin margins, the forecast signaled Amazon would invest heavily to maintain its dominance.

Shares – up nearly 40 percent this year – fell 3.2 percent to $1,012.68 in after-hours trading. The company had earned 40 cents per share instead of $1.42 as analysts had expected, according to Thomson Reuters I/B/E/S.

“Q3 is generally a high investment period,” Chief Financial Officer Brian Olsavsky said on a call with reporters, citing spending on fulfillment and hiring to prepare the company for the Christmas holiday rush. He added, “Our video content spend will continue to grow, both sequentially and quarter over quarter.”

Indeed, investing in faster shipping and video has become a refrain of sorts for the company. While some expected Amazon’s spending in these areas – stepped up since last year – to ease, the company is plowing ahead to reinforce its fast-shipping club Prime.

Olsavsky said video content included with Prime membership has helped Amazon retain subscribers and persuade those on a free trial to sign up for $99 per year in the United States. A cornerstone of the company’s strategy, Prime encourages shoppers to buy more goods, more often from Amazon.

Subscription sales including Prime fees rose 51 percent in the second quarter to $2.2 billion. Cowen & Co analysts have estimated that more than 50 percent of U.S. households will have Prime membership by the end of 2017.

“The fact that they are investing on so many fronts right now just speaks to the opportunity that they have before them,” said Edward Jones analyst Josh Olson. “We are giving them the benefit of doubt here because they have executed so well historically.”

New Frontiers and Costs

Amazon Prime Now delivery bags are seen in this illustration photo July 27, 2017.Thomas White/Illustration

Shares of Amazon had touched a record high of $1,083.31 earlier on Thursday, helping Chief Executive Officer Jeff Bezos briefly unseat fellow tech billionaire Bill Gates to become the world’s richest person, according to Forbes. His wealth has followed the meteoric rise of Amazon’s stock.

From its origins as an online bookseller, Amazon has jumped into areas that historically had barriers to e-commerce, from apparel to appliances. The specter of Amazon’s disruption now hangs over a dizzying array of industries.

Grocery is the latest to feel the threat. The company said last month it would buy Whole Foods Market Inc for $13.7 billion, pending regulatory approval.

FILE PHOTO: Amazon boxes are seen stacked for delivery in the Manhattan borough of New York City, U.S. January 29, 2016.Mike Segar/File Photo

Olsavsky declined to discuss in detail the company’s strategy for the upscale grocer but said, “We really think it will be a big boost for us as we expand our grocery and consumables offering.”

Amazon also announced its two-hour delivery service Prime Now in Singapore on Wednesday, part of its ongoing investment to be a major retail player in Asia. Amazon has committed to investing $5 billion in India and earlier this year said it would take on commerce in the Middle East by acquiring Dubai-based Souq.com.

Even excluding the proposed Whole Foods deal, Amazon forecast an operating income of between $300 million and a loss of $400 million for the current quarter. Analysts had expected $931 million, according to FactSet StreetAccount.

“You tend to expect companies like this to grow their expenses at a slower rate than their revenues,” said Michael Pachter, analyst at Wedbush Securities. “G&A up 50 (percent) is crazy,” referring to general and administrative costs in the second quarter.

Operating expenses rose 28.2 percent to $37.33 billion in the second quarter ended June 30. Costs for fulfillment, marketing and technology all rose.

Baird Equity Research analyst Colin Sebastian said in a note Amazon’s profit margin was “a bit mixed” but added, “accelerating growth in core retail and relatively steady growth in AWS underpin our positive long-term view.”

Sales from Amazon Web Services, the company’s cash cow and the biggest cloud-computing business in the world, rose 42 percent to $4.1 billion. The subsidiary will expand in France, Sweden and China in the near future, Olsavsky said.

Reporting by Jeffrey Dastin in San Francisco and Rishika Sadam in Bengaluru; Editing by Sriraj Kalluvila and Lisa Shumaker

Published at Thu, 27 Jul 2017 23:47:44 +0000

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U.S. Steel Stock Back in Rally Mode After Solid Quarter

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U.S. Steel Stock Back in Rally Mode After Solid Quarter

By Alan Farley | July 27, 2017 — 11:50 AM EDT

United States Steel Corporation (X) delivered surprisingly strong second quarter results, handily beating earnings and revenue estimates while substantially raising fiscal year 2017 guidance. The bullish news triggered a 7% rally that lifted the stock above the 200-day exponential moving average (EMA) for the first time since April 25 while reawakening speculative fervor throughout the underperforming industrial metals sector.

The steel group is caught in the crossfire of trade protectionist rhetoric that could yield tariffs and quotas in the coming months. While this sounds like a positive for U.S.-based operations, the sword cuts both ways, and regressive trade policy could trigger retaliation that closes off profitable foreign markets. As a result, sidelined market players need to consider geopolitical risks prior to taking exposure. (See also: The Basics of Tariffs and Trade Barriers.)

X Long-Term Chart (1991 – 2017)

U.S. Steel stock topped out at $46 in 1993 and entered a secular decline that continued into the 2003 low at $9.61. That low marked a superb bottom fishing opportunity, ahead of a strong uptrend that aligned perfectly with the mid-decade bull market. The rally reached the prior decade’s high in the fourth quarter of 2004 and broke out into 2005, generating a vertical trajectory that accelerated into a parabolic rally climaxing at the June 2008 all-time high near $200.

The shares plunged during the economic collapse, losing ground at a more rapid pace than the prior rally added points, giving up more than 90% of its value in just eight months. The subsequent recovery wave made little progress, stalling in 2010 at 50-month EMA resistance well below the .386 Fibonacci sell-off retracement level. Two breakout attempts into February 2011 also failed, building a triple top ahead of an August 2011 breakdown. (For more, see: U.S. Steel’s Q2 Earnings and Revenues Top Estimates.)

The subsequent decline reached the 2009 bear market low in 2013, triggering a bounce that reversed at 200-month EMA resistance while continuing the long string of lower highs off the prior decade’s parabolic peak. The bottom dropped out in 2015 when the stock broke long-term support and plummeted into the January 2016 all-time low at $6.15, ahead of a recovery wave that also reversed at the long-term moving average in February 2017.

X Short-Term Chart (2014 – 2017)

The rally off the 2014 low unfolded in multiple waves that stalled at the .786 Fibonacci sell-off retracement level in the first quarter of 2017, while the subsequent decline found support at the .618 rally retracement. The bounce failed to end the string of lower highs, keeping the long-term downtrend fully intact, while the harmonic turns have generated a complex resistance zone between the lower and upper $20s. (See also: Is It Time to Buy U.S. Steel?)

This price structure dovetails nicely with the huge April gap between $24 and $31. The stock entered this price zone following this week’s bullish earnings and is now attempting to fill the big hole. However, this is no-man’s land for long or short positions, vulnerable to multiple whipsaws and shakeouts until accumulation builds enough strength to carry bulls or distribution generates enough fear to benefit short sales.

On-balance volume (OBV) peaked in 2013 and entered a persistent distribution wave that continued into the first quarter of 2016. A steady uptick topped out at a multi-year high in December 2016, two months ahead of the price, while a decline into the third quarter stalled near the panel’s midpoint. It is too early to proclaim a new accumulation phase, indicating that intermediate and long-term positions taken at these levels carry relatively high risk for failure. (To learn more, see: Exploring Oscillators and Indicators: On-Balance Volume.)

The Bottom Line

U.S. Steel stock surged back above the 200-day EMA and entered the huge April sell gap after the company reported strong second quarter results and raised fiscal year guidance. This is a tough price zone for long or short position traders, who should leave the arena to the fast-fingered crowd until volume signals a winning side. (For additional reading, check out: Opinion: U.S. Steel Forges Best Argument Against Trade War.)

Published at Thu, 27 Jul 2017 15:50:00 +0000

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Data Storage Stocks in Retreat After Seagate Miss

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Data Storage Stocks in Retreat After Seagate Miss

By Alan Farley | July 26, 2017 — 12:00 PM EDT

Shares of data storage companies took a hit on Tuesday after Seagate Technology plc (STX) missed fiscal fourth quarter earnings and revenue estimates by a wide margin while lowering full-year guidance. A CEO replacement and restructuring plan that includes job cuts failed to stem intense selling pressure that dumped the stock more than 16%. Rival Western Digital Corporation (WDC) fared better, with shares gapping down more than three points but closing well off the early low ahead of the company’s July 27 report.

This specialty hardware sector has failed to keep pace with the strongest tech market in decades, held down by the continued implosion of PC sales as well as steep competition from foreign rivals that include Samsung Electronics Co., Ltd. (SSNLF). According to industry think-tank Gartner, worldwide PC sales fell 4.3% in the second quarter of 2017, continuing a multi-year exodus into mobile devices that favor flash storage manufacturers over traditional disk drive and SSD companies. (See also: Component Shortages Hurt PC Shipments in Q2.)

STX Weekly Chart (2011 – 2017)

A post-IPO rally topped out at $31.35 in 2003, yielding multiple breakout attempts that carved a triple top pattern into a 2008 breakdown. Selling pressure accelerated during the economic collapse, dropping the stock to an all-time low at $2.98 in January 2009, ahead of a bounce that broke out above the prior decade’s highs in 2013. That uptick caught fire, generating a multi-year rally that posted an all-time high at $69.40 in December 2014. (For more, check out: Top Mutual Fund Holders of Seagate.)

The stock lost ground through 2015, giving up two-thirds of its value into the May 2016 low in the upper teens. The subsequent recovery wave stalled at the .618 Fibonacci sell-off retracement level near $50 in the first quarter of 2017, allowing aggressive sellers to generate a steep downtick that has cut yearly gains in half while opening the door to a test of the downtrend low. At the same time, bearish price action has drawn a tough resistance zone in the $40s.

On-balance volume (OBV) offers hope for beaten-down bulls, entering an impressive 2016 accumulation phase that reached an all-time high just two months ago. This thrust generates a bullish divergence that indicates loyal institutional sponsorship despite meager performance so far in 2017. At a minimum, this impressive shareholder base predicts that the current downdraft will end quickly, ahead of a bounce that is likely to determine the stock’s long-term fate. (See also: Seagate Misses Q4 Earnings and Revenues, Appoints CEO.)

WDC Weekly Chart (2011 – 2017)

Western Digital stock topped out in the mid-$50s in 1997 and rallied within 15 points of that level in 2008, ahead of a steep decline that bottomed out at a four-year low near $11. The subsequent bounce unfolded at the same trajectory as the prior decline, carving a V-shaped pattern into the 2010 high just above $47. The stock spent the next three years hovering below multi-decade resistance, finally breaking out in 2013 and heading into a powerful trend advance that more than doubled the stock’s price into the December 2014 top at $115. (See also: What’s in Store for Western Digital in Q4 Earnings?)

A steep downtrend gathered force into 2016, finally hitting bottom at a three-year low in May, ahead of a persistent recovery wave that stalled within two points of harmonic resistance at the .786 Fibonacci sell-off retracement level in June 2017. Slightly higher highs since that time still have not tagged the magic level, which will be tough to break if its rival’s bearish results accurately reflect current business conditions.

Technically oriented market players looking for post-earnings guidance should watch the edges of a rising wedge pattern under construction for the past six months (red lines). A wedge breakout above $96.50 would open the door to the triple digits, while a wedge breakdown through $88 would also break a rising channel in place since October 2016, exposing continued downside into the 50-week exponential moving average in the upper $70s. (For more, see: Why Western Digital’s Soaring Stock May Stall.)

The Bottom Line

Seagate reported a weak quarter while reducing forward guidance, putting a dead weight on the data storage sub-sector, which has underperformed broad tech benchmarks in recent years. The bearish results could signal a long-term top for the group, ahead of cyclical declines that could post multi-year lows. (For additional reading, check out: 5 Chipmakers That Will Win as Smartphone Sales Slow.)(Why?)

Published at Wed, 26 Jul 2017 16:00:00 +0000

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FOMC Statement: No Change to Policy, Balance Sheet Change Coming “Relatively Soon”

 

FOMC Statement: No Change to Policy, Balance Sheet Change Coming “Relatively Soon”

by Bill McBride on 7/26/2017 02:02:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have been solid, on average, since the beginning of the year, and the unemployment rate has declined. Household spending and business fixed investment have continued to expand. On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

For the time being, the Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated; this program is described in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell.
emphasis added

Published at Wed, 26 Jul 2017 18:02:00 +0000

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Sale of Scaramucci’s firm to Chinese group is under regulatory review

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Scaramucci once called Trump a 'hack politician'
Scaramucci once called Trump a ‘hack politician’

Sale of Scaramucci’s firm to Chinese group is under regulatory review

  @mattmegan5

The sale of the firm founded by incoming White House communications director Anthony Scaramucci to a Chinese conglomerate is undergoing a regulatory review.

SkyBridge Capital agreed in January to sell itself for an undisclosed price to HNA Group, a deal-hungry Chinese company. The deal was struck as Scaramucci, who founded the hedge fund network in 2005, was preparing to join the Trump administration in a different role.

The SkyBridge sale was expected to close at the end of June, but it is still pending “regulatory approvals,” a SkyBridge Capital spokesperson said. “The close is proceeding as planned,” the spokesperson said, adding that SkyBridge is “confident” it will close this summer.

A person familiar with the matter told CNNMoney on Monday that the final hurdle the deal needs to clear is a review by the Committee on Foreign Investment in the United States.

Known as CFIUS, this inter-agency committee is charged with evaluating sales of U.S. businesses to foreign entities to determine the impact on America’s national security.

CFIUS often reviews deals that give a foreign investor control of a U.S. business. It has reviewed everything from the acquisition of Sprint Nextel by Japan’s SoftBank to Chinese acquisitions of Smithfield Foods and the Chicago Stock Exchange.

The Treasury Department, which chairs CFIUS, declined to comment on whether the committee is reviewing the SkyBridge sale, citing laws that prevent disclosing such information.

A Treasury spokesman said the department takes its role in this process “very seriously” to ensure “national security concerns” posed by foreign investment are identified and addressed.

The news that CFIUS is reviewing the SkyBridge deal was previously reported by the Wall Street Journal, Bloomberg, Reuters and other news outlets.

A spokeswoman said in a statement that the White House “is treating Mr. Scaramucci the same as every incoming official and is carefully considering all aspects of his holdings and businesses as part of the incoming ethics and legal review process.”

HNA did not respond to a request for comment.

Lawyers who have worked on these national security exams, but who are not involved in the Skybridge sale, said deals involving buyers from certain countries can lead to prolonged reviews.

“Countries not considered allies of the United States generate more scrutiny and those CFIUS reviews tends to take longer,” said Jeremy Zucker, co-chair of Dechert’s International Trade and Government Regulation practice.

Zucker said that there appears to be a “growing number of Chinese transactions that encounter resistance with CFIUS.” However, he added that can at least partially be explained by the surge of Chinese investment into the United States.

China’s foreign direct investment in the United States spiked to $46.2 billion in 2016, tripling from the year before, according to research firm Rhodium Group.

HNA Group has been deeply involved in the Chinese M&A bonanza.

Its parent company has announced nearly $17 billion of foreign investments since the beginning of 2016, according to Dealogic, a research firm that tracks corporate mergers. Almost half of those foreign deals, or $8.1 billion, have been in the United States.

Up until now, HNA’s biggest splash in America was a $6.5 billion purchase last October of a stake in Hilton Worldwide(HLT) from private-equity giant Blackstone Group(BX).

HNA showed its interest in Western financial firms earlier this year when it surpassed the Qatari royal family to become the largest shareholder in Deutsche Bank(DB).

The European Central Bank, which regulates banks, is considering whether the Deutsche Bank stakes held by HNA Group and Qatar will have a significant influence on the bank and its management, a person familiar with the matter told CNNMoney. If the answer is yes, the ECB would launch an investigation to understand more about each investor, the person said.

The ECB declined to comment on the matter.

National security reviews by CFIUS of Chinese deals pay particular attention to how close the buyer is to the Chinese government, experts in the review process say. That can be a complex task.

“The extent of government ownership of key sectors of the Chinese economy guarantees that many deals will receive extra scrutiny,” said John Reynolds, a partner at Davis Polk & Wardwell, a law firm that handles CFIUS cases.

HNA Group has faced questions about its ownership structure and relationship with the government. In response, this week HNA revealed that more than 50% of the company is controlled by two charities: Hainan Cihang Charity Foundation Inc. and Hainan Province Cihang Foundation.

Besides the treasury secretary, CFIUS includes the heads of various national security and economic agencies, including the Departments of Justice, Homeland Security, Defense, State, Commerce and Energy.

During a 30-day review process, CFIUS members look at the transaction for potential national security risks. The review focuses on not only the foreign buyer, but how sensitive the asset being purchased is. Sometimes the buyers agree to certain conditions to ease national security concerns.

After that initial review is completed, CFIUS can then sign off on the deal or launch an investigation that must be completed within 45 days. In very rare cases, the decision on whether to approve a transaction is left up to the president.

In 2014, the most recent year for which stats are available, CFIUS reviewed 147 transactions and launched subsequent investigations into 52 of them. Just one of those applications was rejected, while 12 were withdrawn during the process.

National security concerns caused China National Offshore Oil Company, or CNOOC, to drop its 2005 bid to acquire oil explorer Unocal, which was later purchased by Chevron(CVX).

Treasury Secretary Steven Mnuchin said in June that the Trump administration is working with Congress on potential “fixes” to the CFIUS process, according to Bloomberg News.

“We want to keep CFIUS as a national security review and we want to deal with economic issues separately. We don’t want to confuse those issues,” Mnuchin said at the time.

Commerce Secretary Wilbur Ross said in June that “CFIUS is weak” when it comes to dealing with joint ventures and smaller foreign buyers, according to Politico. “There’s a lot of talk within the administration about trying to build it up,” Ross said.

Scaramucci said he has worked with the Office of Government Ethics to remove potential conflicts of interest related to his business.

“My start date is going to be in a couple of weeks so that it’s 100% totally cleansed and clean. And I don’t see an issue with it,” Scaramucci told reporters on Friday.

–CNNMoney’s Alanna Petroff, Donna Borak, Daisy Lee and Shen Lu contributed to this report.

Published at Tue, 25 Jul 2017 19:11:31 +0000

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Amazon, Alphabet, Facebook Earnings Will Make or Break Tech’s Bull Run

Amazon, Alphabet, Facebook Earnings Will Make or Break Tech’s Bull Run

By Aaron Hankin | July 24, 2017 — 11:20 AM EDT

After a bumper start to 2017, the three biggest internet companies face their biggest test of the year: second quarter earnings. This week, Alphabet Inc (GOOG), Facebook Inc (FB) and Amazon.com Inc (AMZN) all report second-quarter earnings, and there is pressure for the numbers to back up stock performance. With the S&P 500 tech index now above the dotcom bubble highs, sentiment among tech investors has never been higher, putting more pressure on this week’s numbers.

Alphabet, the parent company of Google, kicks off the week reporting second-quarter earnings after the bell Monday. According to FactSet, analysts are expecting Alphabet to report earnings per share (EPS) of $8.36 on sales of $20.96 billion. Shares in Alphabet have climbed 24 percent year-to-date, and while many continue to see further upside for the internet giant, with a price-to-earnings (P/E) ratio of 33.6, well above the industry average, any disappointment could spark a sell-off. (See also: Goldman Sachs: 5 Trends to Watch in 2Q Earnings.)

Sell-offs after earnings are familiar to Facebook whose stock has fallen the day after its last three earnings calls. However, the sell-offs have become short lived. Year-to-date the Menlo Park-based social media conglomerate is higher by 40 percent, making an all-time high of $165 a share last week. According to FactSet, Facebook is expected to report full year EPS of $4.87 per share. As social media platforms continue to shift to video, investors will be tuning in for updates on Facebook Live data. “Over the past year, daily watch time for Facebook Live broadcasts has grown by more than four times,” Mark Zuckerberg, CEO and founder of Facebook said after its first-quarter earnings. (See also: Why Facebook’s Value Is Best Among FAANGs.)

Amazon, arguably the biggest story among tech firms in 2017, rounds out the week, reporting earnings after the bell Thursday. Highlighted by its acquisition of Whole Foods, Amazon has added 34 percent to investors pockets in 2017 and taken CEO Jeff Bezos to number two on the list of worlds richest people. Amazon is expected to report quarterly EPS of $1.40 on sales of $37.2 billion, according to FactSet.

With a combined market cap of $1.65 trillion, the three internet giants highlight what will be the biggest week of the second quarter earnings calendar. All three have made double digit gains in 2017 and remain high on investors Buy lists. However, with valuations at such stretched levels, the argument could be made that the risk this time around is to the downside.

Speaking to the Financial Times with regards to tech sector earnings, Jan Dawson of Jackdaw Research said, “there’s a lot more potential for a short-term correction than a steepening of the trajectory.”

Published at Mon, 24 Jul 2017 15:20:00 +0000

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‘Made in Germany’ faces new test as antitrust claims are leveled at automakers

 

Made in Germany’ faces new test as antitrust claims are leveled at automakers

  @MarkThompsonCNN

Germany’s biggest industry is again facing tough questions about how it does business.

Still dealing with the “dieselgate” scandal sparked by Volkswagen’s admission in 2015 that it rigged engines to appear cleaner than they were, the country’s top car manufacturers now stand accused of operating a huge cartel since the 1990s.

News magazine Der Spiegel dropped the bombshell on Friday, citing a letter it said Volkswagen(VLKAY) had written to German antitrust officials last summer in which it admitted to possible anti-competitive behavior.

The article alleges that hundreds of executives from Volkswagen(VLKAY) (and its subsidiaries Audi and Porsche), Mercedes-Benz owner Daimler(DDAIF), and BMW(BMWYY) had participated in 60 secret industry working groups over decades.

The alleged aim? To suspend competition in everything from vehicle development and engines, to suppliers and diesel emissions systems.

European antitrust officials, who are responsible for ensuring that big business plays fair in the European Union, were quick to respond to the report.

“The European Commission and the Bundeskartellamt [German cartel office] have received information on this matter, which is currently being assessed by the Commission,” the European Commission said in a statement on Saturday. “It is premature at this stage to speculate further.”

The German cartel office has declined to comment.

There’s a huge amount at stake. If EU officials ultimately find that the carmakers broke competition law, they could fine them billions of euros.

Shares in all three companies slumped on Friday, and lost more ground Monday. Volkswagen and BMW traded nearly 3% lower, while Daimler stock fell by 3.7%.

The potential for damage goes way beyond the companies. The industry employs 800,000 people in Germany, where it accounts for 20% of total industry revenue,

It’s also a powerful ambassador for Europe’s biggest economy. One in every five cars worldwide carries a German brand, and their reputation for engineering excellence has helped “Made in Germany” products become No.1 with consumers worldwide.

Volkswagen and Daimler have declined to comment since the news broke Friday. Volkswagen’s supervisory board will hold an extraordinary meeting Wednesday “due to the current situation,” a spokesman said. He would not comment on the details of the agenda.

In a statement on Sunday, BMW said its diesel emissions system differed significantly from others in the market, and none of its vehicles were manipulated to pass emissions tests.

“We compete to provide the best exhaust treatment system,” it said in a statement.

A BMW spokesperson declined to comment on the broader cartel allegations arising from the Spiegel article.

german carmakers ceos
Daimler CEO Dieter Zetsche, BMW CEO Harald Krueger and Volkswagen CEO Matthias Mueller at an industry conference in 2016.

 

BMW also said Sunday it was offering owners of at least 350,000 diesel cars a voluntary software upgrade free of charge to incorporate “knowledge gained in the field over the last years to realize further improvements in emissions.”

The Munich-based carmaker said the move was part of a comprehensive plan to improve air quality in Germany’s cities while avoiding “across-the-board driving bans.”

Like other carmakers, it will take part in a “diesel summit” with German politicians on August 2.

Daimler last Tuesday announced a voluntary recall of more than 3 million Mercedes vehicles in Europe amid mounting questions over its diesel engines. It is offering European owners a service upgrade to reduce emissions.

At the same time, it said it had created a new line of diesel engines with “exemplary emissions” that would be introduced rapidly across the company’s entire range.

And on Friday, Audi said it would retrofit 850,000 diesel cars to improve their emissions in “real driving conditions.”

(Why?)

Published at Mon, 24 Jul 2017 13:42:18 +0000

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U.S. attempt to limit Wall Street bonuses fizzles out quietly

 

U.S. attempt to limit Wall Street bonuses fizzles out quietly

(This July 20 story corrects name to National Association of Federally-Insured Credit Unions in paragraph ten)

By Lisa Lambert

WASHINGTON (Reuters) – The regulatory agenda released by the Trump administration on Thursday contained a signal that the U.S. government has halted its work on restricting Wall Street executives’ bonuses and other pay incentives.

The 2010 Dodd-Frank Wall Street reform law called for federal banking and securities regulators to create limits on incentive-based compensation at big financial companies and prevent executives from receiving outsized rewards for overly risky gambles.

Last year those regulators, many appointed by former President Barack Obama, a Democrat, rolled out a 500-page rule over many weeks that would require senior executives to return bonuses earned by making decisions that materially hurt their banks.

But in the biannual White House agenda on regulation, the rule was listed under the heading “long-term action,” instead of one denoting regulators were making progress toward a final version. In Washington-speak that meant the rule was dead.

The move followed President Donald Trump’s campaign pledges to lighten federal regulations that hurt liquidity and strangled business.

“They’re not even working on it,” said Lisa Gilbert, who closely tracks Dodd-Frank implementation for the liberal-leaning public interest group Public Citizen.

She added that the rule was labeled “pending” in previous agendas. By law it was supposed to be completed by 2011.

Agencies working on the proposed rule declined to comment.

Regulators neglected last year’s proposal, which addressed many concerns raised about a 2011 draft, even though Obama pushed them to finish it before he left office.

“We kind of knew it was on the back-burner,” said Alexander Monterrubio, director of regulatory affairs for the National Association of Federally-Insured Credit Unions trade group. “The unified agenda confirmed that thought.”

Each agency had a different view on regulating incentive-based compensation, making progress difficult, Monterrubio said.

Congress wanted a way to hold top executives accountable after the 2007-09 financial crisis, when some banks experienced major losses partly due to risky decisions made by their leaders. The call for a rule was renewed when regulators rapped Wells Fargo & Co. for an incentive method that pushed employees to open thousands of phantom accounts in customers’ names.

But it was politics that likely proved the rule’s downfall.

Agencies give the White House lists of their regulatory priorities, which makes changes based on the president’s goals and then publishes what is called the “unified agenda.”

Monterrubio said of the rule: “It wasn’t going to happen under President Trump.”

Additional reporting by Pete Schroeder; editing by Andrew Hay

Published at Fri, 21 Jul 2017 17:23:40 +0000

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