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New Tesla pay package could make Elon Musk the richest man alive

If Elon Musk can turn Tesla into a $650 billion company over the next decade, he could become one of the richest men in the world. By far.

A new payment plan for the CEO was approved by Tesla(TSLA) shareholders Wednesday, a spokesperson confirmed.

The incentive-based package essentially states that if Musk hits a series of performance milestones between now and January 2028, and he drives his electric car company’s market value 12 times higher — taking it from $54 billion to $650 billion — he’ll become astronomically rich.

Musk currently has a stake in Tesla worth about $12 billion.

Now, if Musk does drive a 12-fold increase in Tesla’s market value, that doesn’t necessarily mean the price of a single share in the company will be 12 times larger. The company can do things like issue new stock that could dilute the value of existing shares.

But let’s assume Musk’s Tesla stock would grow at least 10 times more valuable. That would mean just the shares Musk owns today would be worth $120 billion.

Plus, reaching the agreed upon milestones means Musk would get additional stock awards.

According to the new compensation plan, Tesla estimates the value of the stock awards to be $2.6 billion, using accounting methods for estimating the cash value of stock options. But if Tesla’s market value balloons just as the payment plan hopes, those stock awards could be worth nearly $56 billion, according to a public filing.

However, the filing cautions that $56 billion is the maximum possible profit he could make on the stock options, and that it is likely to sell additional shares to the public that would limit their value.

But he doesn’t need to hit that $56 billion target to pass the current $132 estimated net worth of Jeff Bezos, who is the wealthiest man on the planet. That maximum value of his options would take the value of his Tesla stake as high as $176 billion and that’s not taking into account Musk’s stake in his rocket company, SpaceX.

There are no guarantees, however, that Musk can hit the those targets and become the richest person on Earth.

Bezos, the Amazon(AMZN) chief, is likely to keep getting wealthier in the years to come as well.

And there’s a big kicker: If Musk fails to hit the goals laid out in his pay package, Tesla won’t pay him at all.

It hasn’t been smooth sailings for the company as of late. The rollout of its first mass market car, the Model 3, has been hamstrung by one manufacturing delay after another.

CNBC added to the bad news when it reported last week that Tesla is producing a large number of flawed parts and vehicles, requiring expensive fixes.

The Model 3 is considered key to transforming Tesla from a niche luxury automaker into a prolific brand in the vein of Ford(F) or General Motors(GM).

Tesla is also a stock that Wall Street loves or hates. While it’s notorious for attracting droves of short sellers, or investors who bet its stock price will lose value, Tesla shares have also performed extremely well over the long term. It’s up more than 778% over the past five years.

–CNN’s Paul La Monica contributed to this report.

Published at Thu, 22 Mar 2018 00:05:34 +0000

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From Wall Street to weed: How the financial crisis lit up the pot industry

From Wall Street to weed: How the financial crisis lit up the pot industry

NEW YORK (Reuters) – As a senior vice president at Wachovia and then Morgan Stanley during the dark months of the 2008 and 2009 financial crisis, Derek Peterson watched as colleagues lost their jobs and life savings and wondered if he was next.

At the time, he was managing approximately $120 million in client assets, but was growing disenchanted with what he saw as a U.S. stock market driven by high-frequency trading and algorithms rather than fundamentals. He started looking for other opportunities, and soon stumbled on some of the first legal medical marijuana dispensaries that had opened in the San Francisco Bay Area.

“I started looking at this through a finance guy’s eyes and saw that maybe there was something going on here,” he said.

He soon discovered that dispensaries were bringing in sales of more than $4,000 per square foot, a rate higher than any U.S. retailer but Apple Inc , and more than 12 times the average $325 per square foot among all companies in the sector.

“You had places the size of Starbucks bringing in $15 million a year, which is absurd,” Peterson said.

He quit his day job at Morgan Stanley in late 2010, and in 2012 became chief executive officer and president of Terra Tech Corp, which is now a $247 million company that cultivates medical marijuana and whose shares trade on the over-the-counter market, making it one of the few publicly traded pot stocks.

Peterson is not alone in the jump from Wall Street to weed.

Ten years after the start of the financial crisis, what was once the province of shady stoners and drug cartels is now a thriving industry, with recreational marijuana legal in states ranging from California to Massachusetts. (Map:

Powering the expansion of the industry are former Wall Street executives like Peterson that hail from such staid firms as BlackRock Inc , Goldman Sachs Group Inc and Prudential Financial Inc, all of whom say that they might not have ever left traditional finance if not for the lingering damage of the 2008 crisis.

There are few reliable numbers on how many former Wall Street professionals who now work in the cannabis industry, though those in the sector say that they expect the migration to accelerate as revenue growth continues to attract talent.

Companies in the U.S. marijuana market posted revenues of approximately $6 billion in 2017, a 500 percent increase from the roughly $1 billion in 2011, according to estimates from Marijuana Business Daily, a trade publication.

FILE PHOTO: A billboard advertising marijuana in advance of the upcoming legalization of recreational marijuana in San Francisco, California, U.S., December 29, 2017. REUTERS/Jim Christie/File Photo

Approximately 250,000 people work in the sector, and both jobs and revenues are expected to double or triple over the next four years, the publication estimates.

“The financial crisis and the stagnation of many industries in the U.S. in its aftermath have led many people to consider this a viable career,” said Chris Walsh, editorial vice president at Marijuana Business Daily.

Slideshow (2 Images)


Despite the growth prospects, many financial professionals are still too leery of federal law, which considers marijuana an illegal drug, to take a job in the industry until there are clear signals from Washington or a change in the makeup of government, said Ruth Epstein, a partner at San Francisco-based BGP Advisors, a business advisory firm that focuses on companies in the cannabis sector.

In January, the Justice Department reversed a policy from the Obama administration which allowed states to legalize marijuana without fears of a federal crackdown. That has had a “chilling effect” on recruiting within the industry, Epstein said.

“People have really been scared away from investing and to a large extent that same mentality is keeping the talent away,” said Epstein, a Harvard Business School graduate who spent nearly 10 years on the corporate finance desk at Goldman Sachs. That, in turn, has “created a massive opportunity for someone who understands finance and is willing to be out on the vanguard,” she added.

Morgan Paxhia, co-founder of San Francisco-based Poseidon Asset Management, a $25 million hedge fund that focuses exclusively on the marijuana sector, was a trader on the municipal debt desk at UBS in New York during the financial crisis. He would pass by the Lehman Brothers building each day on the way to work, and it felt as if “the building were just cratering around you,” he said.

He was laid off on March 9, 2009, the day that the U.S. stock market finally bottomed out. He spent a few years at a registered investment adviser before starting Poseidon with his sister, Emily, in 2013, attracted by the possibility of growth at a time when financial companies seemed to be overly cautious, he said.

“If the financial crisis never happened we would have banks in this industry already, but they won’t push this industry forward because they’re too afraid,” he said. “It’s opened up huge opportunities for those who are willing to come in and capitalize it.”

Peterson, the Terra Tech CEO, said that he now routinely fields calls from employees of large banks and investment firms who are looking to enter the industry. That is a steep change from his first few years in the pot sector, when it was still largely ruled by black-market growers and questionable outfits.

“When I first started out, the fact that I had worked on Wall Street made me seem like a real outsider, to the point where people would ask, “Are you a narc?’” he said, referring to a federal narcotics officer. “It’s in the last two years that we’ve seen a tremendous influx of people from traditional business backgrounds.”

Reporting by David Randall; Editing by Jennifer Ablan and Lisa Shumaker

Published at Tue, 20 Mar 2018 10:25:14 +0000

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A decade later, three lessons from the financial crisis

by geralt from Pixabay

A decade later, three lessons from the financial crisis

By Chris Taylor

NEW YORK (Reuters) – It is difficult to describe to someone who did not live through the financial crisis of 2008-09 how it felt at the time.

But Perry Rahbar will give it a shot. He was 26 and a managing director in the mortgage division of Wall Street legend Bear Stearns, where he worked his way up from intern. He ran a large trading book and had a glittering future.

Then, in the space of about a week – exactly 10 years ago – Bear Stearns blew up in spectacular fashion, before being picked up for next-to-nothing by J.P. Morgan.

That was the opening salvo in a crisis that would bring many of the nation’s largest financial institutions to their knees, eventually claiming the scalp of Lehman Brothers, which was driven into bankruptcy.

“It was like being punched in the face and getting knocked out,” recalls Rahbar, now founder at dv01, a hub that links lenders and capital markets. “Then you wake up and go: ‘What the hell just happened?’ “

For a while, it seemed like the entire financial system – the lenders who owned your mortgage, the banks and brokerages who held your accounts, the ATMs that gave you cash – was coming apart at the seams. And if it did, what then?

In retrospect, of course, we identified the primary culprits: Complex derivatives, often comprised of subprime mortgages, which were torpedoed by the housing bust. When people were no longer able to pay off their homes, these highly rated securities turned out to be little more than junk, which blew up the balance sheets of much of Wall Street.

We talked to a few traders who were in the trenches at the time and the many crises that followed. These are the three lessons they took away from those months of financial shock-and-awe:


Most of the time, the stock market lulls you into a comforting sense of security. For instance, with the current bull market into its ninth year, most investors expect that pleasant run to continue. That is called “recency bias” – the expectation that what you have seen recently, will extend into the future.

Not so. Cataclysmic, unforeseen events – so-called ‘black swans’ – have happened before, and they will happen again.

“When you see that kind of once-in-a-lifetime event, it makes you appreciate that anything can happen at any moment,” says Rahbar. “I was sitting in a Fortune 100 company one day, and the next day the rug was pulled from underneath us like we were some random startup.”


During the crisis, Saeed Amen was on the London foreign exchange desk of Lehman Brothers, and had a front-row seat as the Titanic headed for the iceberg. What did it all boil down to for him? Too much risk taken in products that most people, even seasoned market professionals, did not fully understand.

Amen subsequently wrote a book, “Trading Thalesians: What the Ancient World Can Teach Us About Trading Today”, about the various market tumults of human history.

His conclusion: Economic booms-and-busts have happened for time immemorial and will continue in future. Investors take on too much leverage, get slammed, eventually forget about it, and then another boom-and-bust happens in yet another asset class.

What we can do as investors is be aware of our natural tendency to roll the dice, properly measure the risk in our portfolios and put adequate controls in place to stop things getting out of hand.


Rich Marin was a famed character at Bear Stearns, head of asset management and colloquially known as “Big Rich.” His advice to all, 10 years on: Do not invest in what you do not know, and do not think you are talented enough to outsmart everybody else.

For investment pros, that means staying away from securities that are so complex and arcane that barely anyone knows how to value them, let alone desires to bid on them – which can trap you and take away liquidity.

For mom-and-pop investors, it means listening to Vanguard’s Jack Bogle, a fan of low-cost, passive index funds, and calling it a day.

“The little guy has almost no chance of beating the market, and he shouldn’t even try,” Marin says. “Do what Warren Buffett does: Invest in what you know and stay in for the long haul.”

Editing by Lauren Young and Bernadette Baum

Published at Fri, 16 Mar 2018 15:36:28 +0000

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Lawler: “New Long-Term Population Projections Show Slower Growth than Previous Projections but Are Still Too High”

by skeeze from Pixabay

Lawler: “New Long-Term Population Projections Show Slower Growth than Previous Projections but Are Still Too High”

by Bill McBride on 3/15/2018 04:22:00 PM

CR Note: A key takeaway from this excellent analysis by Tom Lawler is that annual household growth will be much lower than previously expected.

From housing economist Tom Lawler: Census: New Long-Term Population Projections Show Slower Growth than Previous Projections but Are Still Too High; Projections Overstate Growth in all Age Groups Save the Very Young and the Very Old

This week the Census Bureau released new projections of the US population, and to the surprise of no one reading this report the new projections show substantially slower population growth than the last set of projections, released at the end of 2014. Virtually all of the slower projected population growth stemmed from a sharp decline in projected net international migration. The new projections show average annual growth in the total US population from 2017 to 2020 (I’m only focusing on the short-term projections) of 2.355 million (compound annual growth rate (CAGR) of 0.72%), down by 271 thousand from the 2.626 million annual projected increase (CAGR of 0.80%) in the 2014 population projections. The latest projection shows average annual Net International Migration (NIM) from July 1, 2017 to July 1, 2020 of 1.006 million, compared to the unrealistically high 1.267 million per year in the 2014 projection. This reduced forecast for NIM reflected recent trends, and did not reflect any possible policy changes.

One of the biggest surprises to folks who follow various demographic data was the projection for deaths in the latest Census report. While data on deaths from the National Center for Health Statistics (NCHS) showed SIZABLE increases in US deaths and death rates over the past few years – with alarmingly increases in death rates for the 15-44 year old age groups – the latest Census projections showed almost no increase in projected US deaths from 7/1/2017 to 7/1/2020 (2.745 million per year in the latest projections vs. 2.721 in the 2014 projections). Provisional data from the NCHS show that US “age-adjusted” death rates continued to increase last year, and these provisional data suggest that US death on the 12 month period ending last June were a staggering 97 thousand higher than those shown in the latest projections.

Before analysts start plugging these new population projections – especially with respect to age – into their various models, they should look at the key assumptions about the components of change that drive these projections, which are deaths, births, and net international migration, to assess whether they seem “reasonable.: These assumptions are available by age and ethnicity in the “datasets” on the Census Population Projections website. With respect to deaths, it is quite clear that the latest Census population projections do not pass the “sniff test” for reasonableness.

Below is a table comparing the Census 2017 Population Projections’ (C2017) assumptions about deaths for selected age groups for the 12-month period ending June 30, 2017 compared to the National Center for Health Statistics tally of US deaths for 2016 (calendar year).

Age Group Census 2017 Projections
2016 (Calendar Year)
<1 39,741 23,161 16,580
1-4 8,482 4,045 4,437
5-9 2,422 2,490 -68
10-14 2,883 3,013 -130
15-24 23,543 32,575 -9,032
25-34 43,981 57,616 -13,635
35-44 62,599 77,792 -15,193
45-54 151,976 173,516 -21,540
55-64 330,420 366,445 -36,025
65-74 493,422 512,080 -18,658
75-84 619,610 636,916 -17,306
85+ 909,723 854,462 55,261
N/A 137 -137
Total 2,688,802 2,744,248 -55,446

A few things jump out from this table. First, the Census 2017 Projections (C2017) show a massively larger (and unrealistically high) number of “new-born” infant deaths than that compiled by the NCHS. I pointed this out to Census analysts, and they are aware of this “issue.” (I actually sent the Population Division this table.). Second, the C2017 assumptions show a massively smaller number of deaths for the 15-84 year age groups combined than does the NCHS, with especially large % differences for the 15-44 year age groups. And finally, the C2017 assumptions show significantly more deaths for the very elderly than does the NCHS.

As I showed in an earlier report, death rates as compiled by the NCHS increased sharply in the 15-44 year old age groups over the past several years, and I have no clue why the C2017 projections do not incorporate this increase. Moreover, the C2017 projections assume that death rates for these age groups will decline from the “too low” 2017 levels over the forecast period.

If in fact death rates remain near recent levels – or even if they gradually reverted to 2014 levels – the number of deaths in these age groups would be massively higher than those shown in the C2017 projection, which the number of deaths of the very elderly (85+ years) would be lower (aggregate death would be higher).

What this means, of course, is that if one were to incorporate the higher “actual” death rates the US has recently experienced into population projections over the next several years, the result would be substantially lower projections in the size of the “working age” population and somewhat higher projection for the very elderly and very young.

To give one an idea of how important death rate assumptions are to the near-term population outlook, below is a table of what the C2017 population projections might be if death rates by age were similar to what was experienced. I kept the net immigration assumptions by age from C2017, though are issues with these as well (that’ll be later). I also show the population projections from C2014. (Note: the starting point for C2017 was “Vintage 2016,” and population estimates were revised upward slightly in “Vintage 2017,” which will also be subject to revision next year. Also, note population numbers are as of July 1.)

Census 2014 Population Projections (000s)
2016 2017 2018 2019 2020 2016-2020
Total 323,996 326,626 329,256 331,884 334,503 10,508
0-14 61,037 61,176 61,314 61,435 61,577 539
15-24 43,613 43,352 43,202 43,125 43,107 -506
25-34 44,865 45,490 46,018 46,561 46,890 2,025
35-44 40,578 40,930 41,477 42,035 42,628 2,050
45-54 42,864 42,443 41,860 41,239 40,842 -2,022
55-64 41,619 42,180 42,619 42,931 43,019 1,401
65-74 28,747 29,825 30,743 31,860 33,075 4,328
75-84 14,267 14,739 15,461 16,083 16,639 2,373
85+ 6,407 6,491 6,562 6,615 6,727 320
25-54 128,306 128,863 129,356 129,836 130,360 2,053


Census 2017 Population Projections (000s)
2016 2017 2018 2019 2020 2016-2020
Total 323,128 325,489 327,849 330,205 332,555 9,427
0-14 60,975 61,071 61,162 61,235 61,325 350
15-24 43,511 43,222 43,051 42,962 42,938 -573
25-34 44,677 45,253 45,727 46,216 46,491 1,814
35-44 40,470 40,781 41,286 41,802 42,352 1,882
45-54 42,787 42,329 41,710 41,051 40,615 -2,172
55-64 41,463 42,002 42,421 42,714 42,783 1,319
65-74 28,630 29,668 30,547 31,620 32,789 4,159
75-84 14,234 14,697 15,406 16,015 16,561 2,328
85+ 6,380 6,468 6,539 6,590 6,701 321
25-54 127,934 128,363 128,723 129,068 129,458 1,524


Updated Projections Assuming 2016 NCHS Death Rates, C2017 NIM (000s)
2016 2017 2018 2019 2020 2016-2020
Total 323,128 325,438 327,703 329,920 332,090 8,962
0-14 60,975 61,091 61,202 61,294 61,402 427
15-24 43,511 43,213 43,034 42,938 42,907 -604
25-34 44,677 45,239 45,699 46,173 46,431 1,754
35-44 40,470 40,766 41,256 41,755 42,287 1,817
45-54 42,787 42,309 41,666 40,981 40,520 -2,267
55-64 41,463 41,967 42,342 42,585 42,594 1,131
65-74 28,630 29,649 30,492 31,540 32,669 4,039
75-84 14,234 14,681 15,380 15,959 16,455 2,222
85+ 6,380 6,523 6,631 6,696 6,824 444
25-54 127,934 128,314 128,621 128,908 129,238 1,303

Census’ 2014 Projections, total population from 2016 to 2020 was forecast to rise by 10.508 million, compared to 9.427 million in the latest projection and 8.962 million if the latest projection held 2016 NCHS death rates constant. The so-called “prime-age” working population was project to rise by 2.053 million in C2014 Projections, compared to 1.524 million in the C2017 Projection and 1.303 million if the C2017 has assumed constant 2016 death rates.

Annual Growth Rate, 25-54 Year Old Population
C2014 C2017 Adjusted
C2017 *
2017 0.43% 0.34% 0.30%
2018 0.38% 0.28% 0.24%
2019 0.37% 0.27% 0.22%
2020 0.40% 0.30% 0.26%
CAGR, 2016-2020 0.40% 0.30% 0.25%
*Assumes 2016 NCHS Death Rates

Obviously, an updated population projection from those from 2014 produces slower projections for labor force growth, and significantly slower if one uses “realistic” growth rates. Similarly, household projections using 2014 projections are a LOT higher than those using updated assumptions and realistic death rates. E.g., from mid-2018 to mid-2020 a reasonable projection for annual household growth using the 2014 population projections of about 1.455 million. Using the “raw” 2017 projections would, using similar headship rates, produce an annual household growth forecast of about 1.345 million. Adjusting the 2017 projections for more realistic death rates, however, would (using same headship rates) result in an annual household growth forecast over the next two years of about 1.245 million, or about 210,000 a year less than one would get using the old C2014 projections.

I’ll have more on the topic of population projections later.

Published at Thu, 15 Mar 2018 20:22:00 +0000

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Microsoft Reversal Could Signal Greater Downside

Microsoft Reversal Could Signal Greater Downside

By Alan Farley | March 14, 2018 — 10:08 AM EDT

Shares of Dow component Microsoft Corporation (MSFT) bounced with other big tech stocks following the broad-based decline but failed to break out above the Feb. 1 high, reinforcing range resistance that could signal the next stage of an intermediate correction. Market players will be watching the $91 level closely, with a breakdown exposing a volatile trip back to the Feb. 9 low.

The Nasdaq-100 rallied to a new high on March 9 while other benchmarks lagged badly, reversing this week at or below bull market highs posted in late January. It will take little selling pressure at this point for the tech-heavy index to fail the breakout and join weaker indices in range-bound action that could eventually post lower lows in a correction lasting well into the second quarter. (See also: Why a 20% Plunge in Tech Stocks Is a Buying Opportunity.)

MSFT Long-Term Chart (1999 – 2018)

A multi-year uptrend topped out near $60 in December 1999, giving way to a painful decline that relinquished nearly 40 points into the end of 2000. Microsoft stock tested that price level in 2002 and posted a double bottom reversal, but the uptick into 2006 failed to reach the .382 Fibonacci sell-off retracement level, stalling near $30. A final buying surge into 2007 ended below the 50% retracement, giving way to intense selling pressure that broke the prior lows, dumping the stock to an 11-year low in the mid-teens.

(To learn more about Fibonacci retracements, check out Chapter 6 of the Technical Analysis course on the Investopedia Academy)

The plunge into 2009 marked a historic buying opportunity, ahead of a recovery wave that reached the 2008 high in 2013. Microsoft shares broke out into 2014, carving a strong uptrend that finally mounted the prior century’s high in the fourth quarter of 2016. Buying pressure escalated through 2017, posting the most prolific gains in decades before topping out a few points below $100 in February 2018.

The stock entered a narrow rising channel in October 2016, holding within those boundaries into an October 2017 breakout that demonstrated unusual relative strength. Price action hasn’t the touched the 50-week exponential moving average (EMA) since the middle of 2016, pointing to unsustainable technical conditions that could generate a steep correction. Meanwhile, the October 2017 gap between $79 and $83 remains partially unfilled, offering a magnetic target if sellers break the February low. (For more, see: Behind Microsoft’s 127.4% Rise in 10 Years.)

MSFT Short-Term Chart (2017 – 2018)

A Fibonacci grid stretched across the last wave of the long-term uptrend organizes recently volatile price action, placing the .786 retracement level right at the Feb. 9 bounce. The decline tested the 50-day EMA, matching August, September and December pullbacks, but pierced the moving average by more than four points before a strong reversal. This penetration could signal a major change in character, presaging steeper downside.

The 50-day EMA has now lifted to $91, establishing a conflict zone that could test the resolve of newly minted bulls. The March 2 swing low has aligned perfectly with this support level, suggesting an ample supply of sell stops between $90 and $91. As a result, a breakdown would expose the February low, with the moving average offering resistance for the first time since the middle of 2016.

On-balance volume (OBV) topped out in the last quarter of 2014, well below the 2007 and 2010 peaks. Committed buyers returned in the second half of 2016, but the indicator has just lifted above the prior high, even as the stock has nearly doubled in price over the same period. This signals a bearish divergence that could amplify downside pressure if the forces of mean reversion take control of intermediate price action. (See also: Why Amazon, Microsoft, Netflix Pose a Risk to Stock Market.)

The Bottom Line

Microsoft stock has reversed sharply after lifting above the Feb. 1 high, signaling a failed breakout that could mark the next stage in an intermediate correction lasting well into the second quarter. (For additional reading, check out: Microsoft to Gain on New Enterprise Buying: Bulls.)


Published at Wed, 14 Mar 2018 14:08:00 +0000

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For most workers, the tax cut windfall will disappear

For most workers, the tax cut windfall will disappear

Millions of workers have received a small cut of Corporate America’s tax cut bonanza. Unfortunately, the windfall for most workers will be fleeting.

53% of the investments in workers announced by Russell 1000 companies have been one-time bonuses, according to an analysis shared exclusively with CNNMoney by the nonprofit group JUST Capital.

In other words, most of the benefit to workers will beshort-lived.

Another 6% of the worker windfall has been in the form of one-time contributions to employee 401(k) plans, JUST Capital found after examining announcements by 93 companies in the Russell 1000. The index is home to 1,000 of the largest US public companies.

Less than one-third of the investment in workers will be permanent. JUST Capital found that 29% of the money is going toward wage hikes, while another 2% is being set aside for ramping up 401(k) programs by raising matching contributions.

“A permanent wage increase sends a stronger signal of investing in your workforce than a one-time bonus,” said Martin Whittaker, CEO of JUST Capital, which fights for equal treatment of workers. The nonprofit was founded in 2013 by a group that includes hedge fund billionaire Paul Tudor Jones, Arianna Huffington and Deepak Chopra.

“If you’re struggling to make ends meet stacking shelves at Home Depot, would you rather get a one-time bonus or a permanent wage increase?” Whittaker said.

Home Depot(HD) is among dozens of major companies that announced $1,000 tax cut bonuses for workers after the tax cut became law in late December. Bank of America(BAC), Verizon(VZ), Comcast(CCZ) and Pfizer(PFE) did the same.

Goldman Sachs CEO Lloyd Blankfein recently told CNN the one-time bonuses won’t make a lasting difference for workers.

“I think a lot of it is symbolic and making a statement,” Blankfein said. “We’re dealing in a world of sentiment. Symbolism matters.”

President Trump pointed to these one-time bonus payments during his State of the Union address as evidence that the tax cuts are trickling down to workers.

Other companies, such as Wells Fargo, FedEx(FDX) and JPMorgan Chase(JPM), have opted for a more lasting benefit in the form of higher wages. And some companies including Starbucks(SBUX), Walmart(WMT) and PNC Financial(PNC) handed out one-time bonuses as well as pay raises.

About 10% of the worker investments announced so far aregeneral benefits such as improved vacation policy, health care policies or skills training. For instance, Boeing(BA) announced plans to spend $200 million on retraining and other worker benefits.

Of course, any benefit from employers is on top of personal tax cuts Americans have seen from the tax law.

The nonpartisan Joint Committee on Taxation has estimated that in 2019, more than half of filers making $40,000 and up will see an average tax cut of more than $500.

Still, the biggest winners from the tax law so far are companies and shareholders.

companies spending tax windfall chart

Companies in the Russell 1000 are distributing 61% of their tax savings to shareholders via fatter dividends and booming share buybacks, JUST Capital found in a recent analysis.

Only 6% of the windfall is going directly to workers, while another 20% is being set aside for jobs. The rest is being allocated for customers, products and communities.

JUST Capital wrote a letter to the CEOs of all 1,000 companies in the Russell 1000 requesting estimates on their tax windfall and plans to spend it.

“Companies will hopefully realize that people are taking notice of what they’re doing with their money. They would be advised to be thoughtful about how they allocate it,” Whittaker said.

Critics of the tax law complain that Wall Street is cleaning up while workers are getting the scraps.

“That tax cut was made on the promise that money would be used for wages,” former Labor Secretary Robert Reich told CNN.

Wells Fargo(WFC), Cisco(CSCO) and many more companies have showered Wall Street with $214 billion worth of stock buyback announcements so far this year, according to research firm TrimTabs.

When companies buy back their own stock, it raises the stock price for shareholders because fewer shares are available. But stock buybacks do little to create jobs or reduce America’s inequality problem.

“Stock buybacks are purely for the shareholder,” said Ian Winer, head of equities at Los Angeles-based Wedbush Securities. “It is very difficult to argue buybacks are good for the overall economy or average worker.”

— CNN’s Jeanne Sahadi contributed to this report.

Published at Thu, 08 Mar 2018 16:13:06 +0000

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National Treasures: First jobs of America’s diplomats

By kellepics from Pixabay

National Treasures: First jobs of America’s diplomats

NEW YORK(Reuters) – (The writer is a Reuters contributor. The opinions expressed are his own.)

Think of 2018 as one big game of diplomatic Whack-a-Mole. Take care of one seemingly impossible challenge, and another one just pops up in its place.

Behind the scenes, largely unheralded, are the men and women trying to keep the world from blowing up. But how did they end up in those very important back rooms?

For the latest in Reuters’ “First Jobs” series, we talked to some of America’s foremost diplomats about how they got their starts in life.

Susan Rice

Former U.S. ambassador to the United Nations and national security adviser

First job: Congressional page

When I was 14, after my freshman year in high school, I was a summer page in the House of Representatives. That basically meant I ran letters and packages all over the Capitol. The advantage of it was that I could interact face-to-face with members of Congress, and sometimes watch proceedings on the House floor.

It was a pretty rude awakening to Congress, warts and all. Also, we were a largely unsupervised group of teenagers, enjoying a lot of freedom, with all that entails. In that sense as well, it was pretty eye-opening.

Even when I was 14, I was interested in the workings of government, so I was lucky that I got to experience it firsthand. I still know my way around Capitol Hill pretty well, and can find my through all the bowels and basements and hidden hallways.

Thomas Pickering

Former U.S. ambassador to the United Nations, Russia, and India

First Job: Forklift driver

This was in Bloomfield, New Jersey, in a plant which manufactured steel casings for fire extinguishers. I had to move big pallet-loads of steel around, which had to be pressed in gas-fired ovens. Luckily I’m still here, and didn’t kill anybody.

I remember there was no air conditioning, and this was summertime, so it was hot as hell.

I think there were some lessons for diplomats in that job. It was hard work, very dangerous, and you always had to think about next steps. It was serious business that was potentially injurious to many people, and so you had to be extremely careful at every moment.

Karen Hughes

Former under secretary of state for public diplomacy and public affairs

First job: McDonald’s

My first real job was working at McDonald’s. The same day I got my driver’s license, I asked to borrow the family car (we only had one) and my mom recalls that I came home and announced that I had a job. They had always taught me that all work was valuable, and I looked forward to earning my own spending money.

Several days a week in the early evenings, after swim practice, I worked behind the counter filling people’s orders. McDonald’s has great training programs and I learned the value of precision. It also gave me an early taste of the critical importance of customer service.

I can still say “two all-beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun” in less than a couple seconds.

Bill Richardson

Former U.S. ambassador to the United Nations and governor of New Mexico

First job: Landscaper

When I was 17, I was a pitcher in the Cape Cod baseball league. But I had to pay for my own room and board, so in the mornings before games, I was a landscaper in Cotuit, Massachusetts. I would mow lawns, and use tractors to clear brush, and get paid something like $2 an hour. This was back in the late ‘60s.

I remember being so tired, and then after my shift I had to go pitch baseball games. I was a relief pitcher, had a creditable ERA, and would come in to mop up games. I knew I was not going to be a major leaguer, because I was a curveball pitcher, and at age 21 my arm just went dead. At that time they didn’t have Tommy John surgery, so that was it.

They had big lawns on Cape Cod, and plenty of wealthy people, so I always had a lot of work to do. To this day, when I see some guy mowing a lawn, I say: Hat’s off to him. Because it’s not an easy job.

Editing by Jonathan Oatis

Published at Wed, 07 Mar 2018 17:47:47 +0000

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Pushback on Trump tariffs gathers steam, Mexico rejects bid to split NAFTA

by RonnyK from Pixabay

Pushback on Trump tariffs gathers steam, Mexico rejects bid to split NAFTA

WASHINGTON/MEXICO CITY (Reuters) – Republican lawmakers stepped up calls for President Donald Trump to pull back from proposed tariffs on steel and aluminum imports as key trading partner Mexico rejected a bid by Washington to drive a wedge between it and Canada in talks to renegotiate the North American Free Trade Agreement.

Few details have emerged from the White House over the scope and timing of Trump’s tariffs – 25 percent on steel imports and 10 percent on aluminum – after a surprise announcement by the president last week.

Financial markets have rallied off their lows on expectations the measures may be watered down in the face of an intense lobbying effort from leading Republicans, although so far Trump has stuck to his guns in public.

On Tuesday, Representative Mark Meadows, the head of the Freedom Caucus, a staunchly conservative Republican grouping in Congress, raised concerns about the impact of the tariffs on American manufacturing and agriculture. Agriculture is a potential target for retaliatory tariffs from China if Trump pushes ahead.

Meadows, who spoke to reporters after a closed-door meeting with House Republicans, said he had heard little support for the tariffs. “Most of the conversation I heard was not in support of that particular decision.”

Those comments came after sharp criticism of the tariffs from House Speaker Paul Ryan and Representative Mark Walker who both on Monday issued statements critical of the proposals. Walker heads the Republican Study Committee, which has about 150 members, a majority of the party’s lawmakers in the House.

Legislators and industry groups opposed to the duties have warned that the proposed tariffs would cause more damage to American companies and workers than they would help. They also note that the move would hit key allies such as Canada hardest, rather than having a direct impact on global dumping of steel and aluminum by China.

“We fear that the proposed tariff may do more harm than good, hurting rather than helping the 97 percent of aluminum industry jobs in mid-and-downstream production processes,” the Aluminum Association said in a statement on Tuesday.

Members of the administration have repeatedly said that the cost of the tariffs will be minimal for American consumers. Commerce Secretary Wilbur Ross said they would add less than $200 to the cost of a car, for example.

Opponents have fought back, saying that consumers would end up paying more for a wide range of goods from cars, to canned beer and canned soup.


Washington on Monday said that if Canada and Mexico agreed to their demands in the NAFTA talks, they could be exempted from the proposed steel and aluminum tariffs. The trilateral talks have gone on for six months with few signs of progress.

Mexico’s Economy Minister Ildefonso Guajardo raised the prospect of reprisals if Washington pushed ahead with tariffs and insisted NAFTA remain “a trilateral accord” in response to a U.S. proposal to hold talks with Canada and Mexico separately.

“There’s a list (of U.S. products) that we are analyzing internally, but we won’t make it public, we’re going to wait,” Guajardo told the Televisa network in an interview.

Canada has also said it would take counter-measures over the steel and aluminum tariffs, without specifying what it would do. The European Union has identified industries it would target, including Harley Davidson motorbikes, which are made in Wisconsin, Paul Ryan’s state.

Despite the pressure, Trump and the administration have stood firm in public comments. They say that exemptions for specific countries to the tariffs would only allow China – whose huge plant expansions have driven a global glut of steel and aluminum – to skirt the duties by exporting through third countries.

Trump has vowed to cut America’s trade deficit and accuses countries like China of cheating. He has launched an investigation into intellectual property abuses by China, a move that could dwarf any impact of the steel and aluminum proposals and trigger a sharp response from Beijing.

Fred Bergstein, who has held top economics posts in a series of U.S. administrations and is a senior fellow at the Peterson Institute for International Economics thinktank, warned on Tuesday that the proposed tariffs would undermine Washington’s efforts to rein in China by alienating potential allies.

“President Trump’s recent trade actions, especially the announced plans to impose tariffs on steel and aluminum, will have little effect on China. In fact, they will make confronting China with an alliance of trading partners much harder,” he said.

Additional reporting by Jason Lange, Lisa Lambert and Richard Cowan; Writing by David Chance; Editing by Susan Thomas

Published at Tue, 06 Mar 2018 19:42:37 +0000

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A Trump trade war would hit red states hard

Did Trump start a trade war America will lose?
Did Trump start a trade war America will lose?

A Trump trade war would hit red states hard

President Trump’s tariffs — and the trade war they could start — may hurt the very states that sent him to the White House.

Car plants from Michigan to South Carolina could pay more for the steel used to make engines and auto parts. Retaliatory action by the European Union could hurt bourbon distilleries in Kentucky and Harley-Davidson factory workers in Wisconsin.

Farmers across the Midwest would be a prime target for China, the biggest buyer of some American crops.

“Coming from an agriculture state that supported Trump, it’s certainly a disappointing development for Montana and the rest of rural America,” says Herb Karst, a grain farmer in Billings, Montana, and a representative of Farmers for Free Trade, an advocacy group.

“It just seems that agriculture is going to be paying the price for the protection of the steel and aluminum industries,” he said.

Trump said last week that he plans to impose a 25% tariff, or tax, on imported steel, and a 10% tariff on imported aluminum.

American manufacturers buy a lot of that imported steel and aluminum to make products including cars, kitchen appliances, baseball bats and medical equipment. Tariffs would raise their costs. Companies typically pass those costs on to their customers, which can cool sales and lead to job cuts.

The top five states that depend the most on manufacturing, based on employment, all voted for Trump in 2016: Alabama, Indiana, Iowa, Michigan and Wisconsin.

Some of these states alsoemploy workers in the steel and aluminum industries. Theycould benefit from tariffs because their companies would face less foreign competition. And it may encourage more foreign investment.

But overall, manufacturers would probably face higher costs. They would struggle against foreign competitors that don’t have the same trade barriers. For example, if a foreign-made car is cheaper and roughly the same quality, consumers abroad will likely lean toward Volkswagen over Ford, GM or other US car brands.

South Carolina is one red state that could be vulnerable in a trade war. The state has hung its economic hopes on manufacturing and trade. Those two industries make up about 30% of the state’s jobs, according to Labor Department figures.

Experts say the tariffs could cut two, drastically different ways.

On one hand, they could benefit the state by forcing foreign companies to increase investment in the United States, says Douglas Woodward, an economics professor at the University of South Carolina. The state has already positioned itself as an attractive hub for foreign investment. Samsung recently opened a plant there.

Trade barriers can encourage foreign companies to invest in the United States if the cost of exporting becomes too onerous and the companies still want to sell to Americans. When President Ronald Reagan imposed a limit on Japanese cars in the 1980s, Toyota and some other automakers moved production to Kentucky.

But if other countries retaliate against Trump’s tariffs, the benefits could be negated for states like South Carolina.

“It could really have a big impact on a trade-dependent state like ours,” Woodward says. “That’s the big risk here, we could get retaliation, we could get a trade war … that could be damaging.”

One in every 11 jobs in South Carolina depends on the state’s four seaports, where shipping containers move in and out, according to the South Carolina Ports Authority. In total, 187,000 South Carolina jobs depend on trade at the ports.

On the other side of the state, the largest BMW plant in the worldemploys 9,000 workers in Spartanburg. BMW is the state’s largest manufacturer by employment — and it exports more cars from the United States, by value, than any other auto company.

Boeing is another major employer in South Carolina, with roughly 7,500 employees in North Charleston. It uses less aluminum for its new plane models than it used to, but Boeing sells a lot of planes overseas. More than half its revenue comes from abroad, and that could be subject to retaliation. Another alternative is that airlines and governments could buy planes from European makers such as Airbus.

Trump hasnot exempted any countries from the tariffs. Boeing’s top foreign markets are China, Canada and Japan. The first two have promised to retaliate if Trump goes through with the tariffs.

South Carolina also produces soybeans, and China is the No. 1 buyer of American soy. The crop stands to be one of the first targets if China and other countries retaliate.And it’s not just soy farmers who will feel it.

Karst, the grain farmer in Montana, doesn’t grow soy, but he’s worried that soy will be targeted. If Americans can’t sell soy to China, he argues, that will create a glut in the United States. And he says a glut of one crop tends to lower prices for others.

“That’s just devastating,” says Karst, 69. As for Trump’s tariffs, they’re “counterproductive to his stated goal of making sure America wins.”

Published at Mon, 05 Mar 2018 20:51:15 +0000

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Trump’s relationship with big business hits another speed bump

Former commerce secretary on tariffs: There will be retaliation
Former commerce secretary on tariffs: There will be retaliation

 Trump’s relationship with big business hits another speed bump

President Trump prides himself on being a business-friendly leader.

“We are freeing our businesses and workers so they can thrive and flourish as never before,” Trump told corporate titans at the World Economic Forum in Davos, Switzerland, in January.

But for the CEO president, the reality is much more complicated.

Yes, Trump enacted major tax cuts for businesses and has begun to tear down regulations. Those moves have been cheered by Corporate America — and, of course, the stock market.

Yet Trump is now planning to impose aluminum and steel tariffs that businesses have warned are a terrible idea. Even The Wall Street Journal editorial page condemned Trump’s tariff plan as the “biggest policy blunder of his presidency.”

Trump’s tweets sound like he’s itching for a trade war, an outcome that would scare any CEO.

It’s not just tariffs. Trump has repeatedly taken positions that put him at odds with business, including on immigration reform, DACA, the Trans-Pacific Partnership, NAFTA, the Paris climate accord and race.

That’s not to mention Trump’s attacks on executives like Merck(MRK) CEO Ken Frazier and American corporate icons like Apple(AAPL) and Ford.

Trump’s tax cuts and deregulatory agenda may have been a boon to business. But on so many other issues, he is hardly business-friendly.

Trade war fears

Trump’s tariff plans caught Wall Street off guard and started a sell-off. He announced them without warning at ahastily arranged meeting with executives, providing a fresh reminder of the unpredictability corporate leaders must grapple with in the Trump era.

Trump’s plan for a 25% tariff on imported steel and 10% on foreign aluminum raised fears of retaliation that could devolve into a trade war.

While American steel and aluminum executives cheered the idea, it was roundly criticized by trade groups and even some of the president’s allies.

Larry Kudlow, Art Laffer and Stephen Moore, three conservative economists who advised Trump during the campaign, warned in a CNBC op-ed that “steel and aluminum users and consumers will lose.” They blasted Trump’s tariffs a “regressive tax on low-income families” and called the plan a “crisis of logic.”

The Business Roundtable, a powerful lobbying group chaired by JPMorgan Chase(JPM) CEO Jamie Dimon, said Trump’s tariff plan will “hurt the U.S. economy and American companies, workers and consumers.”

Trade groups representing American oil companies, auto dealers, beer makers, chemicals companies and retailers also slammed the tariffs.

Even Hershey(HSY), which uses aluminum in the foil for its chocolate Kisses, warned of a “negative impact on the entire U.S. economy.”


One of Trump’s first acts as president was to kill the Trans-Pacific Partnership, a would-be12-nation trade deal that had the strong support of the Chamber of Commerce, a vocal representative of business interests.

Trump has repeatedly threatened to withdraw the United States from NAFTA, a trade alliance with Canada and Mexico that is firmly embedded within the economy and supply chains. The Chamber of Commerce estimates that NAFTA supports about 14 million American jobs. Trump’s tariffs on aluminum and steel could hinder already fragile talks to renegotiate NAFTA.

Dreamers and the travel ban

Business leaders including the CEOs of Amazon(AMZN), Apple, Wells Fargo(WFC) and Best Buy(BBY) have urged Trump and Congress to protect their employees who are Dreamers.

Yet Trump decided in September to end the Deferred Action for Childhood Arrivals program, whichprevents Dreamers from being deported. Trump punted to Congress, giving lawmakers six months to reach a solution.

Trump’s six-month deadline came on Monday, but court rulings against the administration effectively rendered that deadline meaningless. Still, millions of Dreamers remain in limbo as Congress debates the issue., an immigration advocacy organization, argues that Dreamers are part of America’s “global competitive advantage” that allows the economy to grow and create jobs. The group has said that the U.S. economy could lose $460 billion if DACA is not resolved.

Recall that Trump’s travel bans early in 2017 were criticized by a broad range of business leaders that included the CEOs of JPMorgan, Amazon, Ford(F) and General Electric(GE).

Corporate America has long pushed for comprehensive immigration reform, an outcome that looks unlikely under Trump.

Paris climate accord

Over the objections of hundreds of major American businesses, Trump announced plans last year to yank the United States from the Paris climate accord. The deal had the backing of companies from ExxonMobil(XOM) to Starbucks(SBUX) and Nike(NKE).

The Paris decision prompted a rebuke from Goldman Sachs(GS) boss Lloyd Blankfein, who sent his first tweet to slam it as a “setback” for American leadership. Elon Musk and Robert Iger, the leaders of Tesla(TSLA) and Disney(DIS), immediately quit Trump’s CEO councils.


Trump’s ties with Corporate America frayed further last summer after he insisted that both sides were to blame for violence at a white nationalist rally in Charlottesville, Virginia.

Executives scrambled to cut ties with Trump, and the two CEO councils disbanded.

Trump responded to the exodus by lashing out at Frazier, the Merck CEO and one of America’s most prominent black CEOs. Trump wrote on Twitter that Frazier’s resignation would give Frazier “more time to LOWER RIPOFF DRUG PRICES!”

Attacks on American icons

Before and after the election, Trump has unleashed his Twitter cannon on major businesses based in the United States.

Last year he warned General Motors(GM) to make its Chevy Cruze in the United States or face a heavy tax. During the campaign he repeatedly accused Ford(F) of shipping jobs from Michigan to Mexico — claims that Ford has said were wrong.

Trump also took aim at Boeing for “out of control” costs for Air Force One. At one point in early 2016 Trump even called for a boycott of Apple unless the company helped the FBI break into the iPhone of a San Bernardino shooter.

Trump’s standoffs with business typically have had little impact on the stock market. Until now. The steel and aluminum tariffs clearly spooked Wall Street last week.

Corporate America is hoping this negative reaction in the stock market — Trump’s favorite barometer of success — will force him to back down.

Published at Mon, 05 Mar 2018 21:45:50 +0000

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Your Money: You can do better financially by doing good

Your Money: You can do better financially by doing good

NEW YORK (Reuters) – It stands to reason that getting involved in your community helps others. But what if it helped your own bottom line, as well?

That is the finding of a new survey from financial giant MassMutual, which discovered that nearly half of the Americans surveyed in the 2018 Financial Wellness and Community Involvement Study believe that community involvement helped their own pocketbooks – not just their emotions or their sense of belonging, but their actual money.

Community can mean different things to different people, but wherever you happen to sink your roots, being connected to others appears to improve financial behaviors and decision-making. To wit, the MassMutual survey found that those who are community-minded are better at tracking their spending: 80 percent do it every month, compared with 61 percent of people who are not involved in the community.

They are also superior at putting money in an emergency fund every month (45 percent versus 30 percent), measuring their financial progress (56 percent versus 36 percent), and directing money into retirement savings (45 percent versus 29 percent).

Beside these enhanced money behaviors, there are also concrete ways that community involvement can power-boost your career and finances:

* It helps you get a job.

In one study by the Corporation for National and Community Service, researchers found that volunteering led to 27 percent higher odds of employment. And for those without a high school degree, it actually boosts your odds of finding work by an astonishing 51 percent.

* It provides a stream of new leads and business opportunities.

When 47-year-old Santa Monica financial planner Mitchell Kraus got involved with his local Rotary Club around 10 years ago, he found that the usual networking meet-and-greets did not lead to much.

But when he jumped into the club’s volunteer activities – from planting greenery to reading books to local elementary schools – he experienced a surprising byproduct: He started getting business referrals left and right.

Krause said he has had more than two dozen clients sent his way over the past decade by other attorneys and accountants in the club who volunteered right alongside him.“Opportunities started to open up when people saw I wasn’t just there to get business, but to give back to the community,” Kraus says.

* It acts as an informal social safety net.

If you are down on your luck, it helps if you have circles of supporters to turn to – whether that happens to be your cousins, your coworkers, or fellow parishioners.

In the MassMutual survey, more than half said they have supported others in their community during periods of financial stress. The reverse is also true: A quarter of people say their communities have kept them financially afloat, when they needed help the most.

* It helps you make better financial decisions.

If you are a butcher or a baker, you might not know a whole lot about what percentage to save, in what accounts to put that money, or what specific investments to consider. But if you were a member of Mitchell Kraus’ Rotary Club — and you find yourself surrounded by a group of financial planners, accountants and attorneys who like you and want you to succeed – that is a lot of financial advice you can tap.

Not only are those resources available to you, but you are likely modeling the financial habits of the successful people who surround you. That’s a financial win-win.

(The writer is a Reuters contributor. The opinions expressed are his own.)

Editing by Beth Pinsker and Jonathan Oatis

Published at Thu, 01 Mar 2018 20:22:48 +0000

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Dual Banking System

What is a ‘Dual Banking System’

A dual banking system is the system of banking that exists in the United States in which state banks and national banks are chartered and supervised at different levels. Under the dual banking system, national banks are chartered and regulated under federal law and standards, and supervised by a federal agency. State banks are chartered and regulated under state laws and standards, which includes supervision by a state supervisor.

BREAKING DOWN ‘Dual Banking System’

The dual banking system in the U.S. was born during the Civil War period. President Abraham Lincoln’s Treasury Secretary, Salmon Chase, led the effort to create the National Bank Act of 1863, whose main objective was to raise money for the North to defeat the South. This had to be done via the issuance of a common currency at the national level. Up to that point, state bank notes were in circulation. The 1863 Act created competition to state banks, and the legislators went a step further the next year by passing an amendment to tax the issuance of state bank notes. The number of state banks dropped dramatically, but a key innovation by state banks — demand deposits — in response to that existential threat led to a strong comeback in the number of state banks, so much so that within 10 years of the 1864 amendment to tax state bank notes, state banks claimed more customer deposits than national banks.

The Dual Banking System Today

Today, the dual banking system allows for the co-existence of two different regulatory structures for state and national banks. This translates into differences in how credit is regulated, legal lending limits and variations of regulations from state to state. The dual structure has withstood the test of time and most economists agree that it is necessary for a sound and vibrant banking system. National banks offer efficiencies that come from economies of scale and product and service innovations derived from the application of greater resources. State banks, on the other hand, are more nimble and flexible to respond to the unique needs of customers in their own states. Their product and service advancements, subject to approval in a more timely manner by state regulators who have the interests of their residents in mind, could find their way to other states if they are value-added for bank customers.

Published at Mon, 05 Mar 2018 02:50:00 +0000

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Asia steel exporters seek more info on U.S. tariffs amid trade war fears

Asia steel exporters seek more info on U.S. tariffs amid trade war fears

SEOUL/TOKYO (Reuters) – Asian steel exporting nations took a wait-and-see approach to plans announced by U.S. President Donald Trump to impose hefty tariffs on steel and aluminum, saying they would talk to U.S. officials and see details of the plans before responding.

Fears of an escalating trade war, hit the share prices of Asian steelmakers and manufacturers supplying U.S. markets particularly hard on Friday following a rough night on Wall Street.

Trump said the duties of 25 percent on steel and 10 percent on aluminum would be formally announced next week, although White House officials later said some details still needed to be ironed out.

Steel has become key focus for Trump, who pledged to restore the U.S. industry and punish what he sees as unfair trade practices, particularly by China.

Although China only accounts for 2 percent of U.S. steel imports, its massive industry expansion has helped produce a global glut of steel that has driven down prices.

“The impact on China is not big,” said Li Xinchuang, vice secretary-general of the China Iron and Steel Association.

“Nothing can be done about Trump. We are already numb to him.”

South Korea, the third-largest steel exporter to the United States after Canada and Brazil, said it will keep talking to U.S. officials until Washington’s plans for tariffs are finalised.

South Korean trade minister Kim Hyun-chong has been in the United States since Feb. 25, the trade ministry said. Kim has met U.S. Commerce Secretary Wilbur Ross and other officials to raise concerns over the so-called Section 232 probe and consider a plan that would minimize the damage to South Korean companies.


Of most concern to Asian producers and exporters is the risk that any U.S. tariffs will trigger retaliation by other countries that spread beyond metal markets into a full blown trade war.

Asian steelmakers also fear U.S. tariffs could result in their domestic markets becoming flooded with steel products that have no where else to go.

The Trump administration also cited national security interests for its action, saying the United States needs domestic supplies for its tanks and warships.

Contrary to the action announced by Trump on Thursday, the Department of Defense had recommended targeted steel tariffs and a delay in aluminum duties.

“We are aware of President Trump’s statement but the details of the measures including which nations will be targeted have yet to be announced,” said Japanese Trade and Industry Minister Hiroshige Seko.

“We continue to seek clarification. I don’t think exports of steel and aluminum from Japan, which is a U.S. ally, damages U.S. national security in any way, and we would like to explain that to the U.S.“

Trump believes the tariffs will safeguard American jobs but many economists say the impact of price increases for consumers of steel and aluminum, such as the auto and oil industries, will be to destroy more jobs than they create.

Japan’s Toyota Motor Corp said the tariffs would substantially raise costs and therefore prices of cars and trucks sold in America.

News of the tariffs hit sentiment on Wall Street due to the potential impact of higher costs on consumers and the potential for damaging tit-for-tat retaliation by affected countries.

“The decision by the U.S. to raise tariffs on aluminum and steel products is a clear step in the wrong direction that risks further escalating global trade tensions,” said Innes Willox Chief Executive of the Australian Industry Group, representing the industrial sector’s interests, in a statement.

Asian steelmakers suffered with shares in South Korea’s POSCO and Japan’s Nippon Steel & Sumitomo Metal Corp down more than 3 percent.

Reporting by Jane Chung in SEOUL, Kaori Kaneko in TOKYO; Additional reporting by Tom Westbrook in SYDNEY, Tom Daly in BEIJING, Minami Funakoshi, Chang-Ran Kim and Yuka Obayashi in TOKYO; Writing by Lincoln Feast; Editing by Simon Cameron-Moore

Published at Fri, 02 Mar 2018 03:15:04 +0000

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Social Security fumbles duty to help widows maximize benefits

Social Security fumbles duty to help widows maximize benefits

CHICAGO (Reuters) – (The opinions expressed here are those of the author, a columnist for Reuters.)

Social Security is underpaying widows and widowers – sometimes by large amounts.

In cases where widows are eligible to claim their own retirement benefits or those of a deceased spouse, the agency often fails to inform of options that would increase their payments. That is the troubling finding of a report issued last month – on Valentine’s Day, no less – by Social Security’s Office of the Inspector General (OIG).

The OIG reviewed cases of so-called dual eligible beneficiaries, and found that in 82 percent of cases, Social Security had failed to follow its own procedures for laying out options for maximizing benefits. That is bad enough – but even worse, this failure disproportionately impacts women, who tend to outlive men and face greater challenges meeting their financial needs in retirement.

Dual-eligible widows have some claiming choices that are not available via the Social Security spousal benefit. They are entitled to receive their own benefit or that of a deceased spouse, whichever is higher. But they also can make a strategic choice to take the lower amount first, and wait to switch to the higher amount later. That approach helps the higher benefit grow even more as it accrues credits for delayed filing, generally 8 percent per year, plus cost-of-living adjustments during the delay and all the ensuing years.

“You can really increase your lifetime payout by timing how you file the two claims for the two different payments,” said Andy Landis, a former Social Security Administration employee and author of “Social Security: The Inside Story,” one of the best guides to the program’s benefits. The book, recently updated with a new edition, contains a chapter on the ins and outs of survivor benefits.

The most unique feature of the widow’s benefit is that she (or he) can receive 71.5 percent of a deceased spouse’s benefit starting at age 60. If she is caring for any of their children under age 16, that amount rises to 75 percent. If she is filing at her own full retirement age, she can receive 100 percent of her spouse’s benefit. The benefit is computed using the deceased worker’s Primary Insurance Amount (PIA), which is the amount a beneficiary would receive if she files at her full retirement age for widow’s benefits (around 66). In many situations, these rules also apply to divorced surviving spouses.

An SSA representative said the agency is looking in to the problem of underpaying widows and developing a plan of action.


Big dollars can be at stake here.

I asked Social Security Solutions, which advises individuals and financial planners on how to optimize benefits, to run a couple of scenarios illustrating how much money might be left on the table. (In both cases, no cost-of-living adjustments have been applied – they illustrate “today’s dollars” scenarios)

In the first example, Barbara is a 60-year-old widow with a $1,600 PIA. Her husband Ron passed away at 63 before claiming his benefits; his PIA is $2,000. She can claim her own reduced retirement benefit of about $1,200 at 62 and switch to the widow’s benefit of $2,000 at her full retirement age for widows.

Or, at 60, Barbara can claim a reduced widow’s benefit of $1,430 (71.5 percent of Ron’s PIA). She then waits for her own benefit to grow through delayed claiming; at 70 she claims her own benefit, which has now grown to $2,112. If she lives to age 89, Barbara will have collected $45,000 more in benefits lifetime.

In the second example, Joan is a 60-year-old widow with a PIA of $1,100. Her husband Jim died at age 63 before claiming, and his PIA is $2,000. She can claim the reduced widow’s benefit of $1,430 at age 60, but she would receive that amount for the remainder of her life since her own benefit is too small to exceed the widow’s benefit by delaying her own claim.

Instead, she claims her own benefit early at age 62, collecting $825 per month. At 66, she claims the widow’s benefit of $2,000. That yields a lifetime gain of $101,000, assuming she lives to age 89.

”All widows or widowers need to assess two possible switching strategies to determine which is better for their situation,” said Bill Meyer, CEO of Social Security Solutions. “In some cases, it will make sense to take the survivor benefit right away at age 60, and switch to your own benefits at 70. But in other cases, it makes more sense to take your own benefit at 62 and switch to a survivor benefit at your full retirement age.”

The OIG studied a random sample of 13,564 widows and widowers who are currently receiving survivor benefits and who were dually eligible; it found that 11,123 would have been eligible to receive a higher benefit had they delayed their retirement application until age 70.5.

The report calls on the SSA to take action to correct benefit underpayments for the people it has already underpaid, and that it “remind employees” of the need to discuss delaying strategies. The OIG’s report said in an appendix that the SSA agreed with the recommendations.

Action cannot come soon enough. Widows have it hard enough without being short-changed by Social Security.

Editing by Matthew Lewis

Published at Thu, 01 Mar 2018 15:28:51 +0000

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GM Korea to slash executive numbers, talks with union make little progress

FILE PHOTO – The GM logo is seen in Warren, Michigan, U.S. on October 26, 2015. REUTERS/Rebecca Cook/File Photo

GM Korea to slash executive numbers, talks with union make little progress

Hyunjoo Jin

SEOUL (Reuters) – General Motors’ South Korean unit plans to slash the number of its executives, an internal letter seen by Reuters showed – the latest step by the U.S. automaker as it attempts a politically contentious restructuring of the loss-making business.

GM, which has some 16,000 employees in South Korea, also asked staff to “actively consider” a previously announced voluntary redundancy plan which has a Friday deadline, a separate letter showed.

The automaker this month shocked South Korea when it said it would shut one of its factories in the country and decide the fate of three remaining plants in the coming weeks.

The letters underscore the difficulties GM faces as it tries to wrangle concessions on wages from an angry labor union and win financial support from a South Korean government that is set to conduct due diligence on what it has called GM Korea’s “opaque” management.

Although talks with unions have come much earlier than expected with union leaders under pressure to make concessions to prevent more factory closures, a union official told Reuters that initial discussions on Wednesday had not made any progress.

According to one of the letters sent to staff, GM Korea plans to cut the number of executives ranked managing director or more senior by 35 percent and reduce the number of directors and team leaders by 20 percent.

A GM Korea spokesman confirmed the plan, noting that the unit had around 150 executives and hundreds of team leaders.

“Changing our leadership structure is another of many initiatives to move forward the viability of the company,” he said.

The unit also plans to shrink the number of so-called “international service personnel” executives, who have been dispatched from GM headquarters and other affiliates overseas, by 45 percent.

In particular, generous packages for the 36 such ex-pats which include support for housing, cars and payment of school fees for their children have come under fire from GM Korea’s labor union.

The changes will start immediately and with all set to be in place by the third quarter of this year, the letter said, which added that a freeze was being put on executive promotions.

In a separate letter, GM Korea stressed to employees that they only had till Friday to apply for the redundancy program and urged them to apply. It is offering South Korean workers three times their annual base salary, money for college tuition and more than $9,000 toward a new car as part of the redundancy proposal.

In talks with the union, GM is proposing a base wage freeze and no bonuses this year along with a suspension of some benefits such as the payment of university tuition for employees’ children and gold medals for long-serving workers.

The talks on Wednesday ended after just a couple of hours, the union official said.

“Management is demanding unilateral sacrifice by the union, but the company should come up with a turnaround plan,” he said, adding that demands by the union for executives’ wages to be disclosed had been rejected.

Reporting by Hyunjoo Jin; Editing by Edwina Gibbs

Published at Wed, 28 Feb 2018 04:33:34 +0000

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Wells Fargo accused of preying on black and Latino homebuyers in California

Wells Fargo draws bipartisan anger from Congress
Wells Fargo draws bipartisan anger from Congress

Wells Fargo accused of preying on black and Latino homebuyers in California

Wells Fargo discriminated against black and Latino homebuyers in Sacramento, California, by pushing them into more expensive mortgages than white borrowers, according to a federal lawsuit that cites former employees.

The city of Sacramento accused Wells Fargo(WFC) of a “long-standing pattern and practice” of illegal lending in minority and low-income communities that reduced home values, limited property tax revenue and drove up foreclosures.

“Wells Fargo’s discriminatory lending practices place vulnerable, underserved borrowers in loans they cannot afford,” said the lawsuit, which was filed Friday.

The city said that four anonymous former mortgage employees at Wells Fargo confirm that the bank “intentionally steered minority borrowers into higher cost loans because of their race or ethnicity.”

Black Wells Fargo borrowers in Sacramento with creditscores above 660 are 2.8 times more likely to receive a high-cost or high-risk loan than comparable white borrowers, the lawsuit said. Latino borrowers were 1.8 times more likely, the suit said.

The lawsuit comes just weeks after the Federal Reserve rocked Wells Fargo with an unprecedented punishment for “widespread consumer abuses,” including the infamous fake account scandal. The tough sanctions prevent Wells Fargo from growing until the Fed believes the bank has cleaned up its act.

The latest black eye for Wells Fargo hits close to home. Sacramento is the capital of California, Wells Fargo’s home state for the past 166 years. Now the city is seeking undisclosed monetary damages to recover “significant” injuries it claims Wells Fargo inflicted.

Wells Fargo said in a statement that Sacramento’s allegations “do not reflect how we operate in the communities we serve” and that the bank plans to “vigorously defend” its lending record.

“We deeply value our relationship with Sacramento,” the bank said, “and are working diligently and consistently with customers, credit counselors, non-profit organizations and government agencies to expand homeownership across the credit spectrum.”

Sacramento is not the first city to point the finger at Wells Fargo.

Last year, Philadelphia filed a similar lawsuit, citing former employees who alleged the bank encouraged workers to push the use of higher-cost loans to minorities. Baltimore and Miami have also accused Wells Fargo of discriminatory mortgage lending.

Sacramento argued that Wells Fargo has a long history of steering minority borrowers into mortgages that had higher costs and were riskier than more favorable loans provided to similarly situated white borrowers.

The lawsuit cited confidential witnesses who previously made or underwrote mortgages in Sacramento for Wells Fargo.

The former Wells Fargo employees said they were instructed to offer “lender credits” to borrowers in minority neighborhoods. These credits increase the cost of a loan in exchange for the bank paying closing costs, making the overall cost of the mortgage more expensive.

One of the former Wells Fargo workers said in the lawsuit that he was not required to explain to borrowers that their higher interest rate would last beyond the point that the closing costs were repaid.

Wells Fargo loan officers were likely to charge a higher rate to borrowers with Mexican names, another former bank employee said in the lawsuit.

The lawsuit also claimed that Wells Fargo took advantage of the language barrier with Spanish-speaking borrowers. It quoted a former employee who said that while Wells Fargo advertised for mortgages in Spanish, it did not produce translated paperwork to sign — even when the transaction was handled in Spanish.

“Wells Fargo deliberately created an incentive program that induced minority borrowers to take higher cost loans under terms that they did not understand,” the lawsuit said.

The city also accused Wells Fargo of “refusing to extend credit to minority borrowers” who wanted to refinance their more expensive mortgages.

Sacramento argued that Wells Fargo’s misconduct “directly caused an excessive and disproportionately high number of foreclosures.”

Published at Tue, 27 Feb 2018 18:25:08 +0000

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Nike Stock Hits All-Time High Ahead of March Report

By Alan Farley | February 27, 2018 — 8:38 AM EST

Dow component Nike, Inc. (NKE) shares surged to an all-time high on Monday, rallying above resistance at the December 2015 high. Speculation about March 22 earnings could add to gains between now and then, but the stock has a tendency to shake out buyers after the news, forcing market players to choose their entry prices wisely. Even so, the stars are aligning for a historic breakout that could lift the apparel giant into Dow leadership for the first time since 2014.

The company beat fiscal second quarter EPS and revenue estimates in December’s report but fell more than four points after the news, signaling caution ahead of the March confessional. North American sales growth declined 5% in the prior quarter, but impressive Asian and Latin American metrics made up the shortfall and should keep growth on the fast track throughout 2018. (See also: Inside Billionaire Bill Ackman’s $365 Million Nike Investment: 13F.)

NKE Long-Term Chart (1990 – 2018)

A multi-year uptrend ended out at a split-adjusted $2.82 in 1992, yielding a deep correction that found support at $1.35 in the fourth quarter of 1993. The stock turned sharply higher into the second half of the decade, reaching $9.55 in 1997 and pulling back in a rounded pattern that posted a deep low at $3.22 at the start of the new millennium. Nike shares traded in a narrow trading range during the internet bubble bear market, more than doubling in price but failing to reach the prior decade’s high.

The stock completed the round trip in 2004 and broke out, but momentum failed to develop, generating sideways action into 2006, when it took off in a trend advance. It topped out in the upper teens in 2008 and held up relatively well during the economic collapse, posting a two-year low at $9.56 in March 2009. A quick bounce to a new high in 2010 set the stage for an impressive uptrend that posted returns in excess of 300% into December 2015, when the stock topped out near $70.

Aggressive sellers took control into the second half of 2016, carving a volatile decline that held above the August 2015 low at $47.25. The March 2017 swing high completed the outline of a symmetrical triangle, ahead of a December breakout that has generated an impressive surge into 2015 resistance. This buying power has registered on relative strength indicators, lifting the monthly stochastics oscillator into the first overbought technical reading in more than two years. (For more, see: Nike Declares It Is a Growth Company.)

NKE Short-Term Chart (2016 – 2018)

The correction into 2017 generated four failed attempts to rally above $60, establishing a line in the sand that broke in December 2017. The stock rallied quickly into 2015 resistance and dropped into a small-scale inverse head and shoulders pattern ahead of this week’s buying surge. This classic pattern should resist selling pressure, but a pullback could trade as low as $63 without undermining the bullish long-term outlook.

On-balance volume (OBV) ended a three-year accumulation phase at the end of 2015 and rolled into a distribution phase that continued into October 2017. Buying pressure since that time has failed to reach the prior high and is now flashing a bearish divergence, signaling weak institutional sponsorship. This deficit may increase March volatility and shake out weak hands while adding a cautious note to the upcoming earnings report and its sell-the-news tendency.

Price action since December has carved a rising channel that is easier to visualize on a logarithmic scale chart than an arithmetic scale chart. This pattern establishes short-term support at $63 and short-term resistance at $72. Informed market players will be watching those levels into earnings to gauge buying power and to look for buying opportunities. Conversely, a decline through channel support would have bearish implications, possibly triggering a long-term double top. (See also: Why Netflix, Nike and Starbucks Are Breaking Out.)

The Bottom Line

Nike rallied to an all-time high this week and could gain additional ground ahead of a late March earnings release that may test the resolve of newly minted shareholders. (For additional reading, check out: 12 Stocks That Can Thrive as Economy Gains Speed: Goldman.)

Published at Tue, 27 Feb 2018 13:38:00 +0000

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10 Canadian Oil Companies Worth Your Attention

10 Canadian Oil Companies Worth Your Attention

By Greg McFarlane | Updated February 27, 2018 — 8:50 AM EST

Contrary to pop-culture opinion, Canada’s largest industry is neither hockey equipment production nor donut retailing. It’s energy, which isn’t surprising given the country’s vast area and its inhabitants’ expertise at exploiting its natural abundance. the country’s proven oil reserves are vast enough to meet its energy demands for 140 years at the current rate of production. Much of Canada’s oil reserves consist of oil contained in the oil sands of Alberta. However, other non-oil sands deposits are very popular across all of western Canada in what is known as the Sedimentary Basin. Provinces that will be of interest to energy investors across North America include Alberta, British Columbia, Manitoba, Saskatchewan and the Northwest Territories.

Energy companies dominate the Canadian stock market, and a few of them have grown into titans that could compete on any level, in any nation. Here are the 10 most dominant:

Suncor Energy

Suncor Energy Inc. (SU) is Canada’s equivalent of America’s Wal-Mart Stores., Inc. (WMT) – the nation’s largest company by revenue. Founded in 1919 as a subsidiary of what eventually became Sunoco Inc., Suncor is the one company more responsible than any other for developing the Athabasca tar sands, the New York State-sized area of crude oil deposits in northern Alberta that holds potentially trillions of barrels of petroleum: a supply that could last centuries.

But Suncor does more than hold claim over thousands of square miles of black gold. The company has upstream, midstream, and downstream operations, boasting four high-capacity refineries and 1,500 gas stations throughout Canada (under the Petro-Canada name). It’s estimated that the economic value of the ground beneath Suncor’s surface mining and in situ operations will total in the tens of billions of dollars over the next 30 years, which should keep the company at or near the top of this list. With its $57 billion market capitalization, Suncor is often viewed as the 800-pound gorilla of the Canadian energy sector.

Imperial Oil

Even more than a century after its breakup at the hands of U.S. regulators, John D. Rockefeller’s Standard Oil remains North America’s dominant player in production and refining. Its successors include Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), parts of British Petroleum plc (BP), and in Canada, Imperial Oil Ltd. (IMO). (For more, see: J.D. Rockefeller: From Oil Baron to Billionaire.)

Owned almost 70% by Exxon Mobil, Imperial also conducts both upstream (exploration, production) and downstream (distribution, marketing) businesses. Imperial has a huge presence in the stark but bountiful landscapes of western Canada. The company not only has significant interests in the Athabasca sands, but also in the Greater Sierra field of northeastern British Columbia and the southwest Northwest Territories.

Husky Energy

Like most of its counterparts in this vital and occasionally homogenous industry, Husky Energy Inc. (HSE) is integrated through every step of the process, from digging at the source to flowing into customers’ vehicles. Founded in the 1930s in Wyoming, Calgary-based Husky is the first entrant on our list with noteworthy operations outside the Dominion. Husky owns a large deepwater gas project in the South China Sea, and has 40% interest in a nearby subsea oil field. That’s in addition to Husky’s Atlantic Ocean developments, situated primarily off the coast of Newfoundland. (For more, see: Oil and Gas Industry Primer.)

Cenovus Energy

Spun out of the oil and gas operations of its former parent EnCana Corp. (ECA), Cenovus Energy Inc. (CVE) manages two rich projects in…well, you’ll never guess: the Athabasca sands. Our fourth-consecutive company headquartered in Calgary, Cenovus owns half of Foster Creek, a deposit about 1500 feet below the surface; and half of the Christina Lake reservoir, both in east central Alberta. The remaining half of each is the property of Houston-based ConocoPhillips Co. (COP). On the downstream side, Cenovus is itself a 50% partner with a ConocoPhillips spinoff, Phillips 66 (PSX) in two U.S. refineries — one outside of St. Louis, the other in the heart of the Texas panhandle. (For more, see: Digging Into Cenovus Energy.)

Canadian Natural Resources

One of the few organically homegrown and wholly Canadian oil companies on our list, Canadian Natural Resources Ltd. (CNQ) was founded in 1973 (in Calgary, naturally) and spent its first 20 years or so in relative obscurity. That changed almost overnight with the accelerated development of the Athabasca sands, which Canadian Natural was primed to capitalize upon. Not content with growing its operations merely in western Canada, the company generates billions in revenue from oil fields in the North Sea. But for every dollar the company earns in Europe, it earns several more from its light crude blocks in Africa. Canadian Natural has deepwater interests off the shores of Ivory Coast, Ghana and Gabon; in 2014, it took over drilling in the Southern Outeniqua basin, which is just 200 miles or so from the Cape of Good Hope. (For more, see: A Guide to Oil and Gas Plays in North America.)

Syncrude Canada

Syncrude Canada Ltd., as its name indicates, specializes in the synthetic crude oil which is essentially bitumen that’s been removed from the Earth and upgraded (distilled and thinned so it can be transported) but not yet refined. Syncrude operates exclusively in its home province of Alberta, producing enough low-sulfur oil to supply one-fifth of Canadians. (By the way, Syncrude’s corporate offices aren’t in Calgary, but rather Ft. McMurray — a good 460 miles north.) Another point of differentiation between Syncrude and its cohorts is that Syncrude doesn’t trade publicly. It’s not really a standalone company, but rather a consortium of seven major oil-and-gas players. The three largest partners — in descending order — are Canadian Oil Sands Ltd. (COS), Imperial and Suncor. They own 74% of the company. The remainder is the property of two Chinese state-owned enterprises, a Japanese firm and a smaller American one. (For more, see: Playing Athabasca’s Multiple Suitors.)


EnCana (ECA), the one-time parent company of Cenovus, is only slightly smaller than its rapidly growing spinoff. Since jettisoning Cenovus, EnCana has become primarily a natural gas company with projects in British Columbia, Alberta and off the coast of Nova Scotia. However, EnCana retains oil interests in its American operations. In fact, the Calgary-based company’s U.S. subsidiary is named EnCana Oil & Gas. Those particular operations are located across more than 4,000 square miles of visibly barren but clandestinely teeming soil throughout much of the United States. EnCana’s richest deposits are found in New Mexico’s San Juan Basin, the Tuscaloose Marine Shale of Louisiana and the DJ Basin, which covers parts of Nebraska, Wyoming and Colorado. (For more, see: EnCana Likes Long Term Natural Gas Fundamentals.)

Harvest Operations

Our list’s first wholly-owned subsidiary of a larger corporation is Calgary-based Harvest Operations, which was developed in the early 2000s and sold in the marketplace as an investment trust, thus enabling its owners to avoid double taxation. With wells dotting Alberta and Saskatchewan, and a refinery in Newfoundland, Harvest does business only in Canada (and the nearby waters of the North Atlantic.) Management at Korea National Oil Corp. knew a lucrative investment when they saw it, and in 2009 made a play for Harvest. The unitholders (the investment trust equivalent of shareholders) overwhelmingly said yes to the takeover bid, and since then Harvest has operated as a branch of Korea National.

Frontera Energy

What’s the largest independent oil company on the continent? That’d be Toronto-based Energy Corp. (TSXFEC), and if that sounds so surprising as to arouse suspicion, we didn’t say which continent. Founded in 1985 as Pacific Rubiales, the self-styled “low cost, exploration and production company” changed names in 2015, declared bankruptcy in 2016, and re-emerged and began trading once more as Frontera in 2017. It produces a huge portion of the crude oil in Peru and Colombia, and has a controlling interest in another large deposit in Guatemala. Despite its upheavals, Frontera has s a big advantage in a part of the world as yet unexplored by the company’s contemporaries. (For related reading, see: Canadian Oil Production Set To Grow Rapidly.)

Repsol Canada

We return to Calgary for a firm which began with a single gas station in London, Ontario, in 1925. Upon growing to multinational size, it was eventually bought by British Petroleum; sold off by the parent and taken public in 1992, it became Talisman Energy, a Canadian company with intercontinental reach. The Spanish company Repsol acquired it in mid-2015, boosting its total output by 75% to 680,000 barrels of oil equivalent per day (BOE/D). With approximately 1.1 million net acres of land in Western Canada, Repsol is a key player in the Canadian oil and gas industry. It’s focused on liquids and gas assets in the Greater Edson area of Alberta, conventional heavy oil western assets in the Chauvin area of Alberta/Saskatchewan, and liquids-rich gas assets in Alberta’s Duvernay play. Operations include four operated gas plants in the Edson area and an oil treatment facility in Chauvin.

The Bottom Line

When it comes to investing in oil companies and oil-related assets, one of the best options is to look to Canada. For investors interested in tapping into Canada’s oil-exploiting companies, there are several companies to consider (most trade on the U.S. stock exchanges) – and ETFs for retail investors who’d prefer a more diversified approach. The only thing better than accessibility is the fact they each of the companies is also nearing very significant levels of support, which equates to lucrative risk/reward ratio for those willing to look beyond the border. From oil sands and bitumen plays, to offshore drilling and international exploration and production, there are plenty of opportunities to play the oil riches of Canada and other nations. (For related reading, see: TransCanada Sits in Oil Pipeline Catbird Seat.)

Published at Tue, 27 Feb 2018 13:50:00 +0000

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Corporate America’s new dilemma: raising prices to cover higher transport costs

by Pexels from Pixabay

Corporate America’s new dilemma: raising prices to cover higher transport costs

SEATTLE/BOCA RATON, Fla. (Reuters) – The drive for cost cuts and higher margins at U.S. trucking and railroad operators is pinching their biggest customers, forcing the likes of General Mills Inc and Hormel Foods Corp to spend more on deliveries and consider raising their own prices as a way to pass along the costs.

Interviews with executives at 10 companies across the food, consumer goods and commodities sectors reveal that many are grappling with how to defend their profit margins as transportation costs climb at nearly double the inflation rate.

Two executives told Reuters their companies do plan to raise prices, though they would not divulge by how much. A third said it was discussing prospective price increases with retailers.

The prospect of higher prices on chicken, cereal and snacks costs comes as inflation emerged as a more distinct threat in recent weeks. The U.S. Labor Department reported earlier this month that underlying consumer prices in January posted their biggest gain in more than a year.

As U.S. economic growth has revved up, railroads and truck fleets have not expanded capacity to keep pace – a decision applauded by Wall Street. Shares of CSX Corp, Norfolk Southern, and Union Pacific Corp have risen an average 22 percent over the past year as they cut headcount, locomotives and rail cars, and lengthened trains to lower expenses and raise margins.

Quickening economic growth, a shortage of drivers and reduced capacity, and higher fuel prices have driven up transportation costs, prompting some companies to threaten to raise prices on goods ranging from chicken to cereal.

Cream of Wheat maker B&G Foods Inc, Cheerios maker General Mills and Tyson Foods Inc, owner of Hillshire Farms brand and Jimmy Dean sausage, said they will pass along higher freight costs to their customers.

Tyson Chief Executive Officer Tom Hayes told Reuters in an interview that its price increases ”should be in place for the second half” of its fiscal year, and that it has begun negotiating price increases with retailers and food service operators. The company declined to specify how much its freight costs increased in recent months, but a spokesman said they are up between 10 to 15 percent for the total industry.

General Mills informed convenience store and food service customers of the price increases directly, a spokeswoman told Reuters in an emailed statement, declining to provide specifics. Chief Executive Officer Jeff Harmening cited logistic costs and wage inflation as factors.

”It feels to me like an environment that should be beneficial for some pricing,” he said in a presentation at last week’s Consumer Analyst Group of New York conference.

Hormel Foods, the maker of Skippy peanut butter and SPAM, has been talking with retailers about raising prices, according to Chief Executive Jim Snee.

“We don’t believe we’re going to recoup all of our freight cost increases for the balance of the year,” Snee told Reuters in an interview, noting operating margin sank to 13.2 percent, from 15.6 percent due to higher costs – including freight – in the most recent quarter.

Confectionary and snack company Mondelez International Inc halted operations over a weekend late last month at its Toledo, Ohio wheat flour mill – the second-largest flour mill in the United States – because the plant could not get enough rail cars to carry flour to bakeries, a spokeswoman said.

She declined to comment on whether Mondelez would raise prices to cover any higher costs.

A new government regulation for drivers and truck availability are pushing up freight costs at JM Smucker Co. “We anticipate inflationary pressures likely to cause upward price movements in a variety of categories,” Chief Financial Officer Mark Belgya said last week at an analyst conference.

To be sure, transportation costs are just a sliver of the price consumers pay at the grocery store. The U.S. Department of Agriculture estimates transportation represents just 3.3 cents of every dollar consumers spend.

But an increase in truck rates over the next 12 months implies a 15-to-18 basis point gross margin headwind for U.S. food companies on average, according to Bernstein analyst Alexia Howard.

“A lot of the consumer goods companies work on margin,” said Joe Glauber, a former USDA Chief Economist and a senior research fellow at the International Food Policy Research Institute. “They are going to be pushing those costs along” to retailers. Ultimately “consumers end up shouldering more of the burden,” he said.

That would be a change for consumers who have seen years of low-to-negative food inflation, he noted.


Prices of key commodity ingredients including corn, sugar and cocoa remain relatively low due to bumper harvests around the globe. But even as companies’ freight costs increase, their packaging costs are also rising, industry analysts said.

Global energy prices have risen sharply from 2016’s lows, driving up prices for not only diesel but also packing material like plastics, which are byproducts of crude and natural gas.

Others companies have blamed freight hikes for lower earnings forecasts for 2018, including U.S. oilfield services company Halliburton Co. It shaved ten cents per share from its earnings forecast last week due to delays in deliveries of sand used in fracking.

“They try to squeeze every dollar for profit rather than provide service,” said Robert Murray, the chief executive of Murray Energy Corporation, the largest privately-owned U.S. coal company which relies on CSX and Norfolk Southern to help transport its goods.

Murray said both CSX and Norfolk Southern have lacked rail cars and crew to haul 4 million tons of coal from mines in West Virginia and Ohio to the Port of Baltimore this year.

CSX spokesman Christopher Smith said its service has improved steadily over recent months and it was working with customers to solve problems. Norfolk Southern declined to comment.

At an analyst conference Thursday, Norfolk Southern Chief Financial Officer Cynthia Earhart said that the railroad was looking to raise prices on consumer goods and other truck-competitive freight it hauls in 2018. But she said it had no plans to increase headcount or move equipment out of storage, despite worsening train speeds and rail car idle times in the first quarter.

Earhart said the railroad was moving some employees to problem spots, like its terminal in Birmingham, Alabama, from other areas of its network.

Union Pacific has started pulling stored locomotives back into service and plans to bring back 600 employees in the first quarter 2018 to prevent rail cars from spending too much time in yards, said Union Pacific spokeswoman Raquel Espinoza.

The time UP rail cars were sitting idle in terminals rose to 32.5 hours in the fourth quarter from 29 hours in the year-ago period, and its overall workforce dropped during the last two quarters, according to company data.

Berkshire Hathaway’s BNSF said winter weather has impacted velocity and fluidity on portions of its primary route between the Pacific Northwest and Midwest, but said it has not been cutting crews and rolling stock.


U.S. truck fleets have not kept pace with growing demand for different reasons, industry executives said. The April 1 enforcement deadline for a federal regulation requiring drivers to electronically log their hours has effectively curtailed capacity, adding to a chronic shortage of people willing to drive trucks for the wages offered.

Tight capacity means trucking firms have leverage as they negotiate freight rates. Dry van shipping rates are expected to rise as much as 10 percent in 2018, while “spot” rates for last-minute cargo hit record levels in January before falling slightly, according to online freight marketplace DAT Solutions.

Chemical maker Chemours Company estimates 30 percent of its rail shipments have highly unpredictable delivery times, while automaker Toyota Motor Corp has struggled periodically to get rail cars for finished vehicles at plants served by the major railroads.

“If I was to ask for anything, it’s consistency,” said Lee Hobgood, general manager of Toyota’s transportation operations. “I am not feeling cuts. I am feeling imbalance at times.”

Agribusiness giant Cargill declined to quantify how much its freight costs are going up and whether it would pass costs on to its customers. But at a soybean processing plant near Lafayette, Ind., Cargill has had such long delays getting loaded railcars moved out, the company plans to buy its own Trackmobile railcar mover to relieve the congestion. One Trackmobile unit can cost at least $250,000.

Brad Hildebrand, Cargill’s Global Rail and Barge Lead, told Reuters the Lafayette plant otherwise could shut down.

“When we load a train at one of our eastern elevators it sits for an extended period of time before locomotive power and crews can come in,” Hildebrand said. “There is no slack in the system to handle weather problems or even a small uptick in demand.”

Editing by Vanessa O’Connell and Edward Tobin

Published at Mon, 26 Feb 2018 06:44:23 +0000

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With $116 billion cash, Buffett says Berkshire needs ‘huge’ deals

With $116 billion cash, Buffett says Berkshire needs ‘huge’ deals

NEW YORK (Reuters) – Warren Buffett on Saturday lamented his inability to find big companies to buy and said his goal is to make “one or more huge acquisitions” of non-insurance businesses to bolster results at his conglomerate Berkshire Hathaway Inc.

In his annual letter to Berkshire shareholders, Buffett said finding things to buy at a “sensible purchase price” has become a challenge and is a major reason Berkshire is awash with $116 billion of low-yielding cash and government bonds.

Buffett said a “purchasing frenzy” binge by deal-hungry chief executives employing cheap debt has made that task difficult. Berkshire typically pays all cash for acquisitions.

“Our smiles will broaden when we have redeployed Berkshire’s excess funds into more productive assets,” Buffett wrote. “Berkshire’s goal is to substantially increase the earnings of its non-insurance group. For that to happen, we will need to make one or more huge acquisitions.”

The letter was considerably shorter than in recent years, a little over 8,000 words compared with more than 14,000 last year, and did not discuss major Berkshire stock holdings such as Apple Inc and Wells Fargo & Co. Buffett often invests in stocks when he cannot find whole companies to buy.

It was also short on faulting excesses of Wall Street and Washington, and said nothing about Berkshire’s plan to create a healthcare company with Inc and JPMorgan Chase & Co.

At age 87, “he doesn’t want to make any enemies,” said Bill Smead, chief executive of Smead Capital Management in Seattle, a Berkshire investor.

Berkshire also posted a record $44.94 billion annual profit, though $29.1 billion stemmed from the slashing of the U.S. corporate tax rate, which reduced the Omaha, Nebraska-based conglomerate’s deferred tax liabilities. Book value per share, measuring assets minus liabilities, rose 23 percent in 2017.


It has been more than two years since Buffett made a major purchase, the $32.1 billion takeover of aircraft parts maker Precision Castparts Corp, and his advancing age gives him less time to find more of the “elephants” he prefers.

But he has given himself and longtime Vice Chairman Charlie Munger, 94, more freedom to focus on investing and allocating capital.

Neither has signaled any intention of stepping down soon, though Berkshire last month named two additional vice chairmen who could eventually succeed Buffett as chief executive.

Gregory Abel, who had run Berkshire Hathaway Energy, is now overseeing Berkshire’s non-insurance businesses such as the BNSF railroad and Dairy Queen ice cream, all of which employ 330,000 people, while insurance specialist Ajit Jain oversee the Geico auto insurer and other insurance businesses, employing 47,000.

“Berkshire’s blood flows through their veins,” Buffett wrote.


While the Wells Fargo investment has struggled in recent months because of scandals over how it treats customers, Apple has performed better.

Buffett revealed in his letter that Berkshire was sitting at year end on a $7.25 billion paper profit on what has become a 3.3 percent stake in the iPhone maker, worth $28.2 billion.

Some Berkshire stock investments are made by deputies Todd Combs and Ted Weschler, who Buffett said together manage about $25 billion, up from $21 billion a year ago.

Buffett also warned long-term investors including pension funds, college endowments and “savings-minded individuals” that even with U.S. stock prices near record highs, it would be a “terrible mistake” to assume bonds are safer.

“Often, high-grade bonds in an investment portfolio increase its risk,” he wrote.

Fourth-quarter net income quintupled to $32.55 billion, or $19,790 per Class A share, from $6.29 billion, or $3,823 per share, a year earlier.

Operating profit, which Buffett considers a better gauge of performance, fell more than analysts expected in the fourth quarter, and slid 18 percent for the year to $14.46 billion.

Full-year results suffered from Berkshire’s first full-year insurance underwriting loss since 2002, hurt by Hurricanes Harvey, Irma and Maria and wildfires in California.

Even so, insurance float, or premiums collected before claims are paid, and which give Buffett more money to invest, rose 25 percent last year, to $114.5 billion.

Reporting by Trevor Hunnicutt and Jonathan Stempel; Editing by Jennifer Ablan and Diane Craft

Published at Sun, 25 Feb 2018 15:15:56 +0000

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