Wed 22 February, 2017
Countless observers have noted the obvious fact that the corporate media’s all-encompassing obsession with anti-Russia hysteria is partly just a shameless campaign to prevent change within the Democratic Party by blaming its loss on an outside enemy as opposed to the oligarch-coddling, corrupt disaster it nominated. While true, the strategy is far bigger than that. So called Western elites have failed miserably across the globe, and the only way to retain their undeserved positions of power (many should be in jail), is to create and promote a mindless, highly emotional, non-domenstic distraction. Enter Russia.
Ken Wilber perfectly articulated the failure of our discredited status quo in his recent ebook, which I quoted extensively from in my recent post, How a Breakdown in Liberal Ideology Created Trump – Part 1. He noted:
The problem very quickly became what Integral Metatheory calls a “legitimation crisis,” which it defines as a mismatch between Lower-Left (or cultural) beliefs and the Lower-Right systems (or actual background realities, such as the techno-economic base). The cultural belief was that everybody is created equal, that all people have a perfect and equal right to full personal empowerment, that nobody is intrinsically superior to others (beliefs that flourished with green). Yet the overwhelming reality was increasingly one of a stark and rapidly growing unequality—in terms of income and overall worth, property ownership, employment opportunity, healthcare access, life satisfaction issues. The culture was constantly telling us one thing, and the realities of society were consistently failing to deliver it—the culture was lying. This was a deep and serious legitimation crisis— a culture that is lying to its members simply cannot move forward for long. And if a culture has “no truth,” it has no idea when it’s lying—and thus it naturally lies as many times as it accidentally tells the truth, and hence faster than you can say “deconstruction,” it’s in the midst of a legitimation crisis.
Naturally, those in power can never admit their historically epic failure on all fronts, so they’re increasingly rallying around the Russia meme in order to distract the public and hopefully hang on to their plum positions within society.
In that regard, Robert Parry has written an excellent article published in Consortium News titled, NYT’s Fake News about Fake News. Here are some key excerpts:
A front-page Times article on Tuesday, citing “fake news” as a threat to Europe, contains what arguably is “fake news” itself by claiming that many of the purported 2,500 stories “discredited” by the European Union’s East Stratcom operation have “links to Russia” although the Times doesn’t identify those links.
The article by Mark Scott and Melissa Eddy then goes on to blur these two separate concepts: “In a year when the French, Germans and Dutch will elect leaders, the European authorities are scrambling to counter a rising tide of fake news and anti-European Union propaganda aimed at destabilizing people’s trust in institutions.”
But it is this mushing together of “fake news” and what the Times describes as “anti-European Union propaganda” that is so insidious. The first relates to consciously fabricated stories; the second involves criticism of a political institution, the E.U,, which is viewed by many Europeans as elitist, remote and disdainful of the needs, interests and attitudes of average citizens.
Whether you call such criticism “propaganda” or “dissent,” it is absurd to blame it all on Russia. When it comes to “destabilizing people’s trust in institutions,” the E.U. — especially with its inept handling of the Great Recession and its clumsy response to the Syrian refugee crisis — is doing a bang-up job on its own without Russian help.
Yet, rather than face up to legitimate concerns of citizens, the E.U. and U.S. governments have found a convenient scapegoat, Russia. To hammer home this point — to make it the new “groupthink” — E.U. and U.S. leaders have financed propaganda specialists to disparage political criticism by linking it to Russia.
Even worse, in the United States, the Times and other mainstream publications – reflecting the views of the political establishment – have editorialized to get giant technology companies, like Facebook and Google, to marginalize independent news sites that don’t accept the prevailing conventional wisdom.
There is an Orwellian quality to these schemes — a plan for a kind of Ministry of Truth enforced by algorithms to weed out deviant ideas — but almost no one whose voice is allowed in the mass media gets to make that observation. Even now, there is a chilling uniformity in the endless denunciations of Russia as the root of all evil.
Though the Times’ article treats the E.U.’s East Stratcom operatives as 11 beleaguered public servants sticking their fingers in the dike to protect the citizenry from a flood of Russian disinformation, “stratcom” actually is a euphemism for psychological operations, i.e., the strategic use of communications to influence the thinking of a target population.
In this case, the target populations are the European public and – to an ancillary degree – the American people who get to absorb the same propaganda from The New York Times. The real goal of stratcom is not to combat a few sleazy entrepreneurs generating consciously false stories for profit but to silence or “discredit” sources of information that question the E.U. and U.S. propaganda.
NATO has its own Stratcom command based in Latvia that also is assigned to swat down information that doesn’t conform to Western propaganda narratives. The U.S. Agency for International Development and the U.S.-funded National Endowment for Democracy also pour tens of millions of dollars into media operations with similar goals as do major Western foundations, such as currency speculator George Soros’s Open Society. Last December, the U.S. Congress approved and President Obama signed legislation to create an additional $160 million bureaucracy to combat “Russian propaganda.”
If you aren’t up to speed on the machinations of the U.S. Agency for International Development (USAID), make sure to read the following:
In other words, the West’s stratcom and “psychological operations” are swimming in dough despite the Times’ representation that these “anti-disinformation” projects are unfairly outgunned by sinister forces daring to challenge what everyone-in-the-know knows to be true.
If these “stratcom” operations were around in 2002-2003, they would have been accusing the few people questioning the Iraq-has-WMD certainty of putting out “fake news” to benefit Saddam Hussein. Now, journalists and citizens who don’t buy the full-Monte demonization of Russia and its President Vladimir Putin are put into a similar category.
Disturbingly, the leading forces in this suppression of skepticism are the most prestigious newspapers in the United States and Europe. Even after the disastrous experience with the Iraq War and the bogus WMD groupthink, Western news outlets that were party to that fiasco have virtually excluded well-reported articles and documentaries that question the U.S. and E.U. narratives of the New Cold War.
For instance, there has been almost no presentation in the mainstream Western media of an alternative – and I would argue more complete and accurate – narrative of the Ukraine conflict, taking into account the country’s complex history and deep ethnic divisions.
It is essentially forbidden to refer to the violent overthrow of elected President Viktor Yanukovych three years ago as a “coup” or a “putsch” or to cite evidence of a U.S.-backed “regime change,” such as an intercepted phone call between U.S. Assistant Secretary of State Victoria Nuland and U.S. Ambassador to Ukraine Geoffrey Pyatt in which they discussed how “to glue” and how “to midwife” the installation of a new leadership in Kiev.
In the supposedly “free” West, you can only refer to the post-coup events in Crimea, in which the people of the largely ethnic Russia area voted overwhelmingly to secede from Ukraine and rejoin Russia, as a “Russian invasion.” No skepticism is allowed even though there were no images of Russian troops wading ashore on Crimea’s beaches or Russian tanks crashing across borders. The “invasion” supposedly happened even though no invasion was necessary because Russian troops were already in Crimea under the naval basing agreement at Sevastopol.
Amid the West’s current hysteria about “Russian propaganda,” U.S. and E.U. citizens are not even given the opportunity to watch well-reported documentaries about key moments in the New Cold War, including an eye-opening investigative report debunking the Western propaganda myth constructed around the death of Russian accountant Sergei Magnitsky or a well-produced historical account of the Ukraine crisis.
Western news outlets and governments even take pride in blocking such dissenting views and contrary information from reaching the American and European publics. Like East Stratcom — the E.U.’s Brussels-based 11-member team of diplomats, bureaucrats and former journalists — establishment institutions see themselves bravely battling “Russian disinformation.” They see it as their duty not to let their people hear this other side of the story.
One of the really important, but potentially overlooked, observations made by Robert relates to the potential use of algorithms to censor non-official perspectives. He noted:
There is an Orwellian quality to these schemes — a plan for a kind of Ministry of Truth enforced by algorithms to weed out deviant ideas — but almost no one whose voice is allowed in the mass media gets to make that observation.
With that in mind, I want to highlight a really important report published by the Pew Research Center on the topic titled, Code-Dependent: Pros and Cons of the Algorithm Age. Here are a few excerpts:
Algorithms are aimed at optimizing everything. They can save lives, make things easier and conquer chaos. Still, experts worry they can also put too much control in the hands of corporations and governments, perpetuate bias, create filter bubbles, cut choices, creativity and serendipity, and could result in greater unemployment.
Algorithms are instructions for solving a problem or completing a task. Recipes are algorithms, as are math equations. Computer code is algorithmic. The internet runs on algorithms and all online searching is accomplished through them. Email knows where to go thanks to algorithms. Smartphone apps are nothing but algorithms. Computer and video games are algorithmic storytelling. Online dating and book-recommendation and travel websites would not function without algorithms. GPS mapping systems get people from point A to point B via algorithms. Artificial intelligence (AI) is naught but algorithms. The material people see on social media is brought to them by algorithms. In fact, everything people see and do on the web is a product of algorithms. Every time someone sorts a column in a spreadsheet, algorithms are at play, and most financial transactions today are accomplished by algorithms. Algorithms help gadgets respond to voice commands, recognize faces, sort photos and build and drive cars. Hacking, cyberattacks and cryptographic code-breaking exploit algorithms. Self-learning and self-programming algorithms are now emerging, so it is possible that in the future algorithms will write many if not most algorithms.
Algorithms are often elegant and incredibly useful tools used to accomplish tasks. They are mostly invisible aids, augmenting human lives in increasingly incredible ways. However, sometimes the application of algorithms created with good intentions leads to unintended consequences.
The use of algorithms is spreading as massive amounts of data are being created, captured and analyzed by businesses and governments. Some are calling this the Age of Algorithms and predicting that the future of algorithms is tied to machine learning and deep learningthat will get better and better at an ever-faster pace.
While many of the 2016 U.S. presidential election post-mortems noted the revolutionary impact of web-based tools in influencing its outcome, XPrize Foundation CEO Peter Diamandis predicted that “five big tech trends will make this election look tame.” He said advances in quantum computing and the rapid evolution of AI and AI agents embedded in systems and devices in the Internet of Things will lead to hyper-stalking, influencing and shaping of voters, and hyper-personalized ads, and will create new ways to misrepresent reality and perpetuate falsehoods.
Analysts like Aneesh Aneesh of Stanford University foresee algorithms taking over public and private activities in a new era of “algocratic governance” that supplants “bureaucratic hierarchies.” Others, like Harvard’s Shoshana Zuboff, describe the emergence of “surveillance capitalism” that organizes economic behavior in an “information civilization.”
Now here’s a chart presenting the “major themes about the algorithm era”:
Finally, here’s an important quote highlighting some of what needs to be done in order to ensure algorithms work for us, as opposed to against us.
To create oversight that would assess the impact of algorithms, first we need to see and understand them in the context for which they were developed. That, by itself, is a tall order that requires impartial experts backtracking through the technology development process to find the models and formulae that originated the algorithms. Then, keeping all that learning at hand, the experts need to soberly assess the benefits and deficits or risks the algorithms create. Who is prepared to do this? Who has the time, the budget and resources to investigate and recommend useful courses of action? This is a 21st-century job description – and market niche – in search of real people and companies. In order to make algorithms more transparent, products and product information circulars might include an outline of algorithmic assumptions, akin to the nutritional sidebar now found on many packaged food products, that would inform users of how algorithms drive intelligence in a given product and a reasonable outline of the implications inherent in those assumptions.
If you enjoyed this post, and want to contribute to genuine, independent media, consider visiting Liberty Blitzkrieg's Support Page.
Last September, when the price of oil was well below where it had been trading for the bulk of the past several years, we reported that NY Attorney General Eric Schneiderman was probing why Exxon Mobil hasn’t written down the value of its assets, two years into a pronounced crash in oil prices. The complaint was simple: out of the 40 biggest publicly traded oil companies in the world, Exxon - then still led by now Secretary of State Rex Tillerson - was the only one that hasn’t booked any impairments in the prior 10 years.
As the WSJ wrote at the time, "since 2014, oil producers world-wide have been forced to recognize that wells they plan to drill in the future are worth $200 billion less than they once thought, according to consultancy Rystad Energy. Because the fall in prices means billions of barrels cannot be economically tapped, such revisions have become a staple of oil-patch earnings, helping to push losses to record levels in recent years." And yet, Exxon had - until the later half of 2016 - declined to take any write-downs, the only major oil producer not to do so, which has led some analysts to question its accounting practices.
Maybe the NYAG was on to something?
To be sure, the company had played down the criticism, saying it is extremely conservative in booking the value of new potential fields and wells. That reduced its exposure to write-downs if the assets later prove to be worth less than expected. Then again, not even the most "conservative" company could have factored in oil crashing from $100 to $42 without that impacting the balance sheet.
Needless to say, avoiding reality and Exxon’s "ability" to avoid write-downs, and the massive losses that come with them, had been the main factors helping the company outperform rivals since prices began falling in mid-2014. Exxon shares had fallen by about half of the average of top peers Chevron, Royal Dutch Shell, Total and BP. Since 2014, those companies have booked more than $50 billion overall in write-downs and impairments. But not Exxon.
Then-CEO Rex Tillerson has an unusual explanation why Exxon has refused to write down assets so far: Rex told trade publication Energy Intelligence in 2015 that the company has been able to avoid write-downs because it places a high burden on executives to ensure that projects can work at lower prices, and holds them accountable.
“We don’t do write-downs,” Mr. Tillerson told the publication. “We are not going to bail you out by writing it down. That is the message to our organization.”
All of that changed this afternoon, when Exxon, now ex-Tillerson, disclosed the deepest reserves cut in its history as the ongoing rout in oil prices erased the value of a $16 billion oil-sands investment and other North American assets. In a press release filed after the close, Exxon announced that "proved reserves were 20 billion oil-equivalent barrels at year-end 2016, inclusive of a net reduction of 3.3 billion oil-equivalent barrels from 2015. Reserves changes in 2016 reflect new developments as well as revisions and extensions to existing fields resulting from drilling, studies, analysis of reservoir performance and application of the methodology prescribed by the U.S. Securities and Exchange Commission."
As a result of very low prices during 2016, certain quantities of liquids and natural gas no longer qualified as proved reserves under SEC guidelines.
In other words, after years of denials, and claims that "we don't do write-down", Exxon just concluded the biggest reserve cut on record, as 3.3 billion barrels of crude was removed from the company's "proved reserves" category. The revisions were triggered when low energy prices made it mathematically impossible to profitably harvest those fields within five years. The massive 3.5-billion barrel Kearl oil-sands development in western Canada accounted for most of the hit, with another 800 million oil-equivalent barrels in North America did not qualify as proved reserves, "mainly due to the acceleration of the projected economic end-of-field life."
Following the reserve cut, the company's total reserves dropped to 20 billion, the lowest in two decades.
As Bloomberg adds, the oil-sand mines in northern Alberta are among the costliest types of petroleum projects to develop because the raw bitumen extracted from the region must be processed and converted to a thick, synthetic crude oil. As such, they have been particularly hard hit by the worst oil slump in a generation.
The reductions were partially offset by reserves additions of oil and natural gas totaling approximately 1 billion barrels of oil equivalent in the U.S., Kazakhstan, Papua New Guinea, Indonesia and Norway, which replaced 65% of production and were the result of acquisitions, improved asset performance and a decision to fund an expansion of the Tengiz project in Kazakhstan.
According to Bloomberg calculations, the 19 percent drop amounts to the largest annual cut since at least the 1999 merger that created the company in its modern form. That includes 1.5 billion barrels of reserves that were pumped from wells. The previous record cut was a 3 percent reduction taken during the height of the global financial crisis in 2008.
Proved Reserves are among the most important metrics watched by investors because they are an indicator, along with commodity prices, of future cash flow. When the 2008 reserves cut was announced in February 2009, Exxon shares lost more than 4 percent in a single day, wiping out almost $17 billion in market value.
Today, after the biggest reserve write down in history, the shares gained 0.2% to $81.08 in after-hours trading as of 5:46 p.m. in New York on Wednesday, after closing at $80.93, suggesting that either the market does not care about fundamentals, or had largely priced in the announcement. As noted above, Exxon was facing an SEC probe into how it valued its portfolion, and signaled in October and again last month that the revision was probably coming, which may explain the lack of reaction.
On Tuesday, ConocoPhillips engaged in a similar reserve reduction when it removed the equivalent of 1.15 billion barrels of oil-sands crude from its books as part of a 21 percent cut that pushed the Houston-based company’s reserves to a 15-year low.
Under SEC rules, proved reserves can only include oil fields that can be produced economically within the next half decade. Price trends from the previous 12 months are compared against the estimated cost to harvest crude and gas in determining which reserves are counted.
In 1935 the government passed Social Security into law setting up a government managed retirement plan for the majority of US workers. To fund the plan, they passed the Federal Insurance Contribution Act (FICA). The law mandates that employers withhold a portion of the worker’s salary (contribution) and requires the employer to match the contribution.
It was sold to the public as a form of annuity, with each worker’s contributions and benefits based on their income. While Social Security has features similar to an annuity (paying lifetime benefits), in many ways it is different.
In 1960 the Supreme Court (Flemming v. Nestor) ruled, “that no one has an accrued property right to benefits from Social Security.” Contributions are now taxes with an indirect correlation to benefits.
An annuity with a private insurance company is a legally binding contract. The insurance company must honor the agreement or risk being sued for breach of contract.
With Social Security the government is the insurer holding all the power.
Social Security is nothing more than a government promise that can be unilaterally modified or broken.
The government has made many modifications since 1935.
There is a “Social Security Trust Fund” which many feel has been raided. While there may be a fund, allegedly $2.6 trillion, it consists of Treasury IOU’s. It was great for the government when the amount of social security taxes collected exceeded benefits being paid. Today baby boomers are retiring at a rate of 10,000 per day and benefits paid exceed current taxes. The government must borrow to make up the difference – in addition to the normal government borrowing to support their deficit spending.
US government debt roughly doubled from $10 to $20 trillion from 2009-2016. Debt will continue to escalate unless there are radical changes in taxes and spending. Raising taxes and cutting spending is politically unpopular, creating class warfare, while politicians pander to their political base.
Young people today must understand what Social Security is, and is not. A portion of their salary will be taxed, with a government promise to pay them benefits for their lifetime once they retire. How much those benefits will be, when they can retire, and the correlation of benefits to their personal wealth is undetermined.
Workers will probably get something; however it’s likely the promises will be modified many times. The government will jerk them around like The Wild Mouse roller coaster before the end of their ride. Benefits are nothing more than political promises.
The negotiation games are beginning
Yahoo Finance published the First Draft of the GOP’s Plan to Overhaul Social Security. Rep. Sam Johnson (R-TX), Chair of the House Ways and Means Subcommittee on Social Security, drafted the plan and has now introduced it as a bill.
A second group chimed in:
“…Rep. Tom Cole of Oklahoma, an influential House Republican, and Rep. John Delaney of Maryland, a moderate Democrat, renewed their support for a plan to create a bipartisan, 13-member panel to recommend to Congress ways to prevent the massive trust fund from running out of money …”
Remember a camel is a horse designed by a committee. A bipartisan committee of politicians produces a camel the size of a giant blow up balloon in a Macy’s parade! It is jam packed with compromises to satisfy everyone to the point it is unlikely to come close to the original objective.
Here are highlights in the current bill in the House of Representatives:
- Gradually increasing the retirement age for full benefits from age 67 to 69.
- Adopting a less generous Cost of Living Adjustment (COLA) Formula.
- Means testing, reducing benefit payments to wealthier retirees.
- Eliminate COLA increases for wealthier individuals.
- Increase the minimum benefit for lower-income workers.
The article summarizes, “Johnson’s proposal … is little more than an opening bid in a much larger conversation about entitlement reform in the coming year.”
The government is broke and eventually changes will be made. Everyone will bear some burden of “entitlement reform.” Young workers will see higher taxes. Increasing benefits for low-income workers, benefits based on means testing and eliminating COLA adjustments for wealthier individuals is turning Social Security into a wealth redistribution program.
Inflation – the elephant in the room!
The impact of COLA changes will have major negative effects on baby boomers and retirees.
Prior to the high inflation Carter presidency, retirees had a fixed monthly check. Congress occasionally voted to increase benefits. The elderly cheered – the benevolent Uncle Sam gave them a raise. Historically the increases did not come close to keeping up with inflation.
Future inflation risk cannot be accurately calculated. During the five-year period, 1977-1981, accumulated inflation amounted to 59.9%. If a person retired on 1/1/77 and received $1,000 per month, five years later they would need $1,599 per month to have the same buying power.
Will we experience high inflation in the future? The way the government is creating trillions out of thin air, there is a high probability. No worker, young or old wants to bet his or her future financial survival on low inflation for the next several decades. Inflation is the government’s friend and stated goal. They want inflation to sneak up on seniors, unlike the double-digit increases like the Carter years.
The deck is stacked. Younger workers will find their taxes increasing and their retirement date pushed back, while seniors and savers will see reduction in the buying power of their benefits.
What’s missing from the plan?
If the Hon. Representative Sam Johnson (R-TX) wants his bill passed he needs more public appeal. How about a provision calling for immediate elimination of all pensions for current and former federal elected officials? Congress should be on Social Security, just like the rest of us. The public is fed up with the elites. Put all elected officials under Social Security and Medicare like most Americans and then address changes.
While it is fun to dream, putting congress on the same plan with everyone else is for our emotional benefit. The system is broken and expecting politicians to fix it is foolhardy.
What should all workers do now?
1. Recognize Social Security for what it is and work around it. Social Security was designed to provide supplemental income for retirees based on their income. It’s now another typical government “entitlement program” redistributing the wealth of the nation. The working class may end up with something; however the benefits will have little correlation to your contributions.
2. Maximize your savings, particularly your 401(k). Workers cannot depend on Social Security to protect their lifestyle. The proposed changes are designed to punish savers; the wealthier you become the more your benefits will be reduced. Workers will have to go head on into the incoming tide and move forward. Maximize your savings in 401(k) type accounts – particularly if you have some sort of employer matching. You have the benefit of reducing your current taxable income and accumulating wealth on a tax-deferred basis.
3. Invest your 401(k) wisely. Having your investment income tax deferred is a good benefit but only if you grow your wealth. Don’t just make contributions and ignore where it is invested. If you need professional help to guide you, it is money well spent.
4. Increase your inflation hedge. The most buying power a retiree will have will be their first monthly check. By design, the buying power of each additional monthly check will decrease. For the “wealthy” the process will be faster. In addition to maxing out your 401(k), continue to regularly buy gold. Only Gold provides historical gold prices. On 1/1/77 the gold price was priced at $133.77/oz. On 12/31/81 the price rose to $400/oz. During the Carter years gold almost tripled in value, appreciating well ahead of the inflation rate. Buy and accumulate well past your normal retirement age. Your social security check will not keep up with inflation. Eventually retirees will have to sell small amounts to make up the difference to pay the bills.
5. Think before deciding to defer benefits. The government offers higher benefits to those who defer taking them when they are eligible. Making the wrong decision could cost thousands of dollars. The decision about when to draw benefits is different for each individual. Not only do you need to “run the numbers”, realize you are making a bet with the government on how long you will live. How much do you trust the government not to change things?
6. Can Americans really depend on Social Security? It depends on your definition of depend! Retirees need “income certainty” – having enough money to pay the bills regardless of what happens in the markets, inflation increases or any other unexpected economic changes – without having to worry. Should means testing and reduced COLA adjustments become part of the revision, income certainty will be replaced with worry. Retirees can depend on the government to send them something every month, but they cannot depend on it to continue to pay all the bills it may have covered in the past.
A government big enough to give you everything you want, is strong enough to take everything you have. – Thomas Jefferson
President Donald Trump's former senior trade adviser told Business Insider the border-adjustment tax proposal being discussed in Washington could help solve what he believes are major issues with the North American Free Trade Agreement.
Dan DiMicco, the former Nucor CEO and Coalition for a Prosperous America board member who ran Trump's trade transition team, said a border-adjustment tax plan on imports from Mexico could help balance the Mexican value-added tax on exports into the country.
Trump has previously chided the trade situation, saying in a September debate: "When we sell into Mexico, there's a tax. ... When they sell into us, there's no tax. It's a defective agreement."
Mexico has a 16% value-added tax American companies must pay on exports in Mexico, and there is no corresponding tax on Mexican companies importing into the US. However, Mexican companies have to pay the same tax on products sold within the country.
Trump and DiMicco's viewpoint is shared by Peter Navarro, the head of the newly formed White House National Trade Council, and Wilbur Ross, Trump's nominee to lead the Commerce Department. The proposal has been shot down by economic experts who say it's a misunderstanding of how the VAT system works.
Additionally, the border-adjustment tax on imports would likely be passed onto consumers in the form of higher costs at the point of purchase of imported goods to help offset losses.
DiMicco outlined other issues he saw with NAFTA, many of which were related to "exorbitant" Mexican duties.
But what about Canada?
During a recent meeting at the White House between Trump and Canadian Prime Minister Justin Trudeau, the pair of leaders answered questions related to NAFTA and Trump's promises to renegotiate the deal.
Asked about the Canadian end of the agreement, Trump said the deal's effect on US-Canada trade relations is "a much less severe situation than what's taken place on the southern border."
DiMicco concurred with Trump, saying Mexico "has got a lot more issues than Canada has."
"But they both have some issues," he said.
While campaigning and in public statements following his electoral victory, Trump promised a renegotiation of the trade agreement within his first 100 days in office. However, under the Fast Track Trade Promotion Authority, Trump missed the deadline to give notice to Congress to be able to start a renegotiation within that timeframe. In order to begin the renegotiation within the first 100 days of his administration, Trump had to give Congress notice by January 31.
DiMicco, who said he still informally advises the administration, said the delaying the confirmations of Trump's cabinet — particularly as it relates to Ross and Robert Lighthizer, Trump's choice for US trade representative — has made it increasingly difficult to "get the current details" on Trump's trade agenda.
"Yeah, so nobody is willing to talk," DiMicco said was a result of the delayed confirmations. "You can't get the current details because the Democrats have held up the whole damn process!"
A $3.7 billion hedge fund firm has some insight on how to hire top talent: Look for malleable people.
In an investor letter this month, Tourbillon Capital Partners' Jason Karp wrote that his firm had looked at dozens of experienced candidates in recent months. The exercise was not particularly fruitful, however.
"There are a lot of bad values and habits out there that have been learned from this last regime," Karp wrote in the letter, a copy of which Business Insider saw.
Instead, the New York firm is looking to hire more "malleable" recruits. Two MBA interns from the summer of 2016 are joining full time this summer, and the firm has just hired two more interns for the summer of 2017, according to the letter.
Hedge funds have long raced to find top talent. Legendary investor Steve Cohen said last year that he had trouble finding solid recruits. The billionaire's family office, Point72 Asset Management, has been running a training program for recent college grads.
Here's an excerpt from the Tourbillon letter:
"Fortunately, we have found that some of this hedge fund tumult has created a ripe environment for talent. As such, we have interviewed and met with several dozen candidates in all areas of our investment team. We have found, however, that there are a lot of bad values and habits out there that have been learned from this last regime and consequently, we are focusing much more time on identifying malleable individuals."
The Tourbillon Global Master Fund returned -9.2% last year after posting a -1.8% drop for the fourth quarter of 2016, according to the letter.
"This was the worst year in my 18-year career," Karp wrote, adding that most of the underperformance was attributable to the first quarter.
Karp wrote that the firm's flagship fund posted a 8.1% return with a 13.5% net market exposure from the second quarter through the end of the year — making the period "one of our better three quarter alpha periods since inception."
The firm manages about $3.7 billion, according to a person familiar with the matter who declined to be named because the information is private.
NOW WATCH: Apolo Ohno: Here's Why Talented People Fail
During his campaign, Trump vowed to America's middle class that he would get rid of (since then the phrase has been amended to "repeal and replace" for various reasons) Obamacare as soon as he got into office. Well, Trump is out of his 30 day honeymoon, and the confusion and chaos over the future of Obamacare has never been greater, to a large extent due to growing pushback he has been getting in Congress.
Below is an update of the latest developments and progress, or lack thereof, regarding the repeal and replace, or perhaps repair and rename, of Obamacare.
In a nutshell, Congressional Republicans hope to pass legislation by April to repeal and at least partially replace the health insurance coverage expansion under the Affordable Care Act. However, none of the several approaches that have been floated appear able to win a majority in the Senate.
One base case, pitched by Goldman Sachs, is that Congress will enact ACA legislation in Q2 that modifies the tax credits under the law for health insurance coverage and increases state flexibility under Medicaid.
However, this process is likely to take longer than expected, which is likely to delay the upcoming debate over tax reform; this in turn will have adverse consequences for the market, which has already largely priced in substantial passage of Trump's tax reforms even if no details are known yet. More importantly, as Goldman writes in an overnight note, the difficulty the Republican majority is having addressing a key political priority suggests that lawmakers might ultimately need to scale back their ambitions in other areas as well, such as tax reform.
Here are the details on why Trump may have suddenly found himself trapped on next steps when it comes to both Obamacare, and tax reform, courtesy of Goldman's Alec Phillips:
The outcome of congressional Republican plans to repeal and replace the Affordable Care Act (ACA) is as hard to predict as any legislative issue we can recall. For the last several years, congressional Republicans have sought to repeal the law, and now have the potential to do so. However, despite holding a majority in both chambers of Congress, Republicans appear to lack a majority for any particular option currently under consideration. The disagreement relates to substance—whether to continue the expansion of subsidies under the ACA but in different form or to substantially reduce subsidized benefits to the pre-ACA level—and process—whether to repeal first and enact a replacement program later, or to do both in the same legislation.
The original Republican strategy was to address the law in two phases. The first phase was to repeal most of the fiscal provisions via the reconciliation process, which allows passage in the Senate with only 51 votes, and therefore potentially only with Republican support. These provisions would take effect with a delay, preserving the status quo for perhaps two years. In the second phase, Congress would enact a replacement program to provide some continuation of the coverage provided under the ACA, with the details to be determined during the two-year transition period.
This two-stage approach would theoretically have two advantages over addressing the issue in one piece of legislation.
- First, it would have allowed congressional Republicans and President Trump to quickly follow through on a key campaign priority, without spending much of the first year of the new term, when political momentum is greatest, sorting out the details of any replacement.
- Second, it would have allowed repeal to pass via the reconciliation process with only 51 votes—presumably only Republican votes—but the replacement to pass under regular order with 60 votes. This would allow for changes to insurance market regulation and other non-fiscal policies that cannot be addressed via the budget reconciliation process.
Some centrist Republicans, particularly in the Senate, have signaled support for a substantial continuation of expanded benefits and have called for at least some elements of the replacement program to be included in the repeal legislation. By contrast, some conservative lawmakers support repeal of the law with limited replacement of the current subsidies. Republican leaders have taken a position that is in between these approaches.
Exhibit 1 contrasts the current program with three proposals: the legislation that Congress passed and President Obama vetoed in 2015; legislation introduced by Republican Sens. Cassidy (R-LA), Collins (R-ME), Isakson (GA), and Moore-Capito (WV), and the approach that House Republican leaders outlined on February 16.
Source: DHHS, Congressional Budget Office, House Ways and Means Committee, Office of Sen. Collins
The outcome of this debate is hard to predict, but certain changes appear more likely than others:
- Coverage mandates are likely to disappear. The mandates on individuals to obtain health insurance and on employers to provide it look very likely to be repealed. Most Republican proposals would repeal them, and the Internal Revenue Service (IRS) has already announced that they will not enforce the penalties as a result of President Trump's recent executive order.
- Tax hikes and tax credits are likely to change, but timing and details remain unclear. There is general agreement among congressional Republicans that most if not all of the new taxes used to fund part of the cost of the coverage expansion should be repealed. However, it is unclear whether these taxes will be repealed retroactively for 2017 or prospectively. It is also possible that at least one of the taxes—the so-called Cadillac tax—might be modified rather than repealed entirely; instead of imposing a 40% excise tax on high-cost employer-sponsored health insurance plans starting in 2020, Republican leaders appear to be contemplating capping the exclusion for employer-sponsored benefits instead. This would have a similar effect to current law, which should reduce the offer of high-cost plans to employees and increase their taxable wages instead, but changes in how the tax is applied could affect the incidence of the tax and the amount of tax revenue it generates.
- Changing the Medicaid expansion is likely to be the hardest to pass, but “repeal” may not be able to pass without addressing the issue. 20 Republican senators represent states that have expanded Medicaid eligibility, and many of them support allowing “expansion states” to continue to receive 90% of the cost of covering the new population, as the ACA calls for. However, 32 Republican senators represent states that did not expand, and many of them object to the spending increase. Ultimately, the way out of this political impasse may be to provide states additional flexibility to use federal Medicaid funds, with a gradual equalization in funding for expansion and non-expansion states.
- Regulatory changes and Medicare reimbursement cuts are off the table in the near term, we believe. For entirely different reasons, two areas of the ACA are likely to remain unchanged in the near term, at least as far as Congress is concerned. First, the cuts to Medicare reimbursement that were used to offset part of the cost of coverage expansion look very likely to be maintained, with neither party seemingly interested in repealing them. Regulatory changes, such as the 3:1 limitation on variation in premiums based on factors like age, are unlikely to change as a result of near-term legislative efforts, since they are politically popular and, more importantly, probably cannot be addressed via the reconciliation process because they do not directly affect federal spending or revenues.
For the health care sector, the current political debate reinforces the view that most of the current health subsidies are likely to be maintained regardless of the specific changes that Congress agrees upon. As noted above, it seems likely that Medicaid subsidies will be largely maintained over the near term and, while tax credits for private insurance plans will be modified, we would be surprised if the overall amount of subsidy spending declines considerably. In fact, it is possible that overall ACA-related spending could increase slightly, if Congress tries to increase support among non-expansion states by temporarily increasing their subsidies to the level that expansion states receive. It is also worth noting that if congressional Republicans pass ACA repeal legislation along party lines, some other policy changes that might be the subject of congressional horse-trading would be less likely, such as initiatives to control pharmaceutical prices, would be less likely since bipartisan support would not be needed.
More broadly, the difficulty congressional Republicans are having in addressing the ACA raises two important issues for the rest of the agenda, and fiscal policy in particular. First, the longer this debate takes to resolve, the less capacity congressional Republicans will have to address other issues such as tax reform or infrastructure. Not only will lawmakers need to set priorities in order to focus political attention, but the same committees responsible for much of the ACA legislation—the House Ways and Means Committee and the Senate Finance Committee—are also responsible for tax reform and potentially infrastructure if financed through the tax code.
Here is the part where traders should tune in:
Delays in addressing health legislation are also likely to set back tax reform procedurally. The ACA repeal/replace bill is being addressed as part of the FY2017 budget resolution, which would have normally passed last year but which Congress passed several weeks ago in order to create a procedural pathway for passage of ACA repeal legislation via the budget reconciliation process, which allows it to pass with only 51 votes in the Senate. Once the ACA legislation is enacted, congressional Republicans hope to pass the FY2018 budget resolution, which will lay out tax and spending plans for the coming ten years and provide a second set of reconciliation instructions, this time for tax reform. Since Congress follows whatever budget resolution has passed most recently, passing the FY2018 resolution before the ACA bill has passed would remove the procedural protections from the repeal/replace bill, subjecting it to a 60 vote threshold in the Senate.
Congressional leaders hope to pass ACA repeal/replace legislation by April, which would allow them to stay nearly on track with the usual timing of the annual budget resolution—that process usually starts in March and ends in April or May—and would allow them to try to provide some clarity to health insurers ahead of May when they need to indicate their intent to provide benefits in the health exchanges in 2018. Passage in April could also increase the support for additional funding or other changes to stabilize the health exchanges for 2018; the most likely vehicle for such changes is the upcoming appropriations legislation, which needs to pass by April 28 to avoid a government shutdown.
If ACA legislation does not pass by April or so, congressional leaders have several other options. One option is simply to delay the FY2018 budget resolution until the ACA repeal bill has passed, whenever that occurs. This is the simplest strategy, but resolving differences among Republicans could take several more months. An alternative would be to use the current reconciliation instructions to pass tax reform, and the FY2018 instructions to address the ACA, flipping the sequencing of the current approach. However, for technical reasons it would be difficult to use the current reconciliation instructions to pass tax reform, in our view, so congressional leaders might consider this only as a last resort. Another third possibility would be to roll ACA repeal/replace together with tax reform creating one bill that could be passed via the FY2018 reconciliation process. While this is procedurally possible, the complexity of combined ACA and tax reform legislation would reduce the probability of substantial changes in either area, in our view.
* * *
Beyond the issues of timing and process, the current situation highlights the difficulty that congressional Republicans are likely to encounter in trying to make significant structural reforms on a party-line basis. If legislation addressing a longstanding political priority like Obamacare repeal is having difficulty attracting 51 votes in the Senate, it suggests Republican leaders will need to scale back their ambitions on other issues too, including tax reform. Ultimately, we continue to expect an expansion of the deficit of around 1% of GDP, with nearly all of this coming in the form of tax cuts. However, as we noted recently, the current debate suggests that tax legislation might not be finalized until late 2017 or early 2018. Along with the potential for a phased-in tax cut, this would likely spread the growth effects between 2018 and 2019.
Treasury secretary Steven Mnuchin said that the stronger US dollar is a good thing and signals investors' confidence in America, according to a new interview in the Wall Street Journal.
Mnuchin, the former Goldman Sachs banker and hedge fund manager, commented on the dollar's strength in the interview with the Journal's Rebecca Ballhaus.
"I think the strength of the dollar has a lot to do with kind of where our economy is relative to the rest of the world, and that the dollar continues to be the leading currency in the world, the leading reserve currency, and a reflection of the confidence that kind of people have in the US economy," Mnuchin told the Journal, adding its appreciation was a "good thing."
While this statement lines up with Mnuchin's position expressed during his Senate confirmation hearing, it does contradict some statements made by President Donald Trump.
Trump told the Journal in January that the dollar is too strong and it is hurting US companies.
"Our companies can’t compete with [Chinese companies] now because our currency is too strong," said Trump. "And it’s killing us."
The strong dollar has been the number one complaint of S&P 500 companies for over a year according to data compiled by FactSet.
Mnuchin's position does line up, however, with the views of Treasury secretaries in previous administrations.
Former Treasury secretary Jack Lew echoed similar sentiments in January after Trump's interview saying that a strong dollar is "good for the US" and "good for the world."
Hope is in short supply these days, while despair and hate are enjoying an enormous surplus.
To give an example, there are currently two types of stories that fill my news feed.
The first are about politics and the perpetual horrors it unleashes on the world: there’s a new scandal every day, and war, protectionism, and nationalism are on the rise, with staggering human costs to pay as a result. Now, in a way, it makes sense that these stories dominate most people’s attention, as they represent widespread problems that deeply influence our lives. However, this attention has brought with it a kind of despair. Many people are falling silent or are ending long-time friendships simply because they want to avoid the onslaught of bad news—along with vicious fighting and personal conflict—that appears day after day.
But there’s a second kind of story I’ve seen lately: stories about amazing new technologies and enterprises that are, or soon will be, available to the public. Social media is full of stories that show how apps and drones and 3D printed devices can save our lives, or reinvent them, or simply make them a bit more convenient. These wonders are designed by young people: DIY geniuses, tech visionaries, social entrepreneurs, and many others with a passion for creating value for others.
The contrast between these two kinds of stories could not be starker. The first are assaults on justice as well as economic sense, while the second demonstrate the extraordinary benefits of social cooperation. They represent innovative ways not just to make money, but to make peace. But in a small way, the second group offers something more, something absolutely vital for our everyday lives: hope.
When faced with bad news week after week, it’s easy to despair of humanity’s future. But we can’t let the evils of politics convince us that change for the better is impossible. We have to hope.
That in turn means we have to make a conscious effort not to become victims of political events and of the news that surrounds them. It’s not just that focusing too narrowly on government distorts one’s view of the political process and of justice, although it certainly does that: politics also has a profound effect on our spirits, because it teaches us to believe that there is no life outside of it, while there’s simultaneously no hope to be found within it. We feel as if we’re all shackled to a sinking ship.
However, by resisting the forces that pull us into the black hole of politics, we can remind ourselves of the enormous and often wonderful world in which we’re fortunate to live. Letting go of politics and its many evils produces a fundamental change in our worldview. In fact, just taking a moment to watch a cheerful video can be a powerful remedy for the misery and destruction that we see in so much of the world. In this day and age, such simple resistance to political news is an almost revolutionary act.
We need to disengage from politics and the neurosis it causes, and reengage with the real world. We can’t change the nature of politics, but we can change our own lives and the lives of those around us through peaceful action, especially through commerce and entrepreneurship. Our hope doesn’t lie in politics or presidents or kings and the hate that they breed, but in the recognition of our mutual social interests.
Yes, things in the political world are bad, and are likely to get worse before they get better. Yet consider that just three centuries ago in Western Europe, it must also have also seemed as if there was no hope. In fact, economic development was so minimal, and people had so little exposure to the world of ideas that the concept of hope must have made little sense: hope for what? A better life? The idea must have been alien to most ordinary people of the time. Hence it was easy for millions of individuals to think of themselves as a part (namely, the bottom) of a “natural” social hierarchy dictated to them from birth. The evils wrought by kings and other monarchs must have seemed inescapable. And yet, from this economic and social stasis grew the greatest flourishing of human life and prosperity in history.
In order words, even though things are bad now, human beings have survived worse. But it took the rise of classical liberalism and its values of liberty and commercial society to do it. Today, it’s likely that we’ll need another such revolution in ideas to overturn the rising tide of statism that threatens us from both the left and right. Yet although winning this battle might seem impossible, there is hope, but only if we refuse to let evil, hatred, and melancholy conquer our lives, and set ourselves to the task of improving the world rather than passively accepting its decline. Mises’s personal motto and example come to mind.
I think the idea of hope is summed up beautifully in the great film The Lion in Winter:
Henry II: We’re in the cellar and you’re going back to prison and my life is wasted and we’ve lost each other… and you’re smiling.
Eleanor: It’s the way I register despair. There’s everything in life but hope.
Henry II: We’re both alive… and for all I know that’s what hope is.
The New York-based College Board said the steps include reducing the number of times the test is given outside the United States and increasing the auditing of test centers. As Reuters reported last year, the College Board has failed to stop a widespread and known security problem. Asian test-preparation companies are gathering questions and reading passages from past SAT exams, and then giving their clients that material to practice upon.
President Donald Trump's plans for a tax on goods imported to the US has caused anxiety among small businesses around the country, and his strict stance on immigration and border control has immigrants and industries that rely on them worried as well.
Across the border, Trump's economic and immigration policies have triggered fear for the future of businesses and the workers they employ — not just about their jobs, but over the stability some of those communities have only recently reattained.
"Now we can't take anything for granted," Luis Diaz, a businessman in Ciudad Juarez, just across the border from El Paso, Texas, who has 17 years of experience and 200 employees in his charge, told Spanish newspaper El País.
Diaz fears losing up to 50% of his business if Trump follows through on plans to erect a border wall and redo or undo the NAFTA trade deal that binds Mexico, the US, and Canada.
In the 23 years since NAFTA went into effect, Ciudad Juarez has become a center of industry, as businesses and factories there pair up with counterparts in El Paso and supply consumers throughout the US.
Mexican workers flocked to Juarez's factories — called maquiladoras — for higher-paying jobs. Others migrated there for work as industries like agriculture were undercut by more capable and better subsidized American producers.
"People who had survived on little, tiny plots of land growing corn and beans and other kinds of staple crops, they could no longer survive by doing that, and so many of those people were displaced and they moved to the cities," Molly Molloy, a professor and librarian at New Mexico State University, told Business Insider in December.
"And the idea was that these folks would find work in the manufacturing sector and that the free-trade agreements would also sort of spur growth in the manufacturing sector," Molloy said.
International firms set up shop in Mexico, where labor was cheaper and regulations looser. Manufacturing, especially of goods like textiles, electronics, and auto parts, grew. (Incomes haven't seen a similar increase, and the proportion of Mexicans in poverty — about half — is mostly unchanged since the pre-NAFTA days.)
Currently, Mexico sends about 80% of its imports north, and this focus on the US as a trading partner has made Trump's proposal to slap a 20% tax on imports especially troublesome. But in Ciudad Juarez, where almost 70% of GDP comes from trade with the US, such a plan was more disturbing.
"There is worry; it is undeniable," Mario Hernandez, associate in charge of manufacturing for KPMG in Mexico, told El País.
Isaac Sanchez, an economics professor at the Autonomous University of Ciudad Juarez, told the Spanish newspaper that the effects of the restrictions on trade imposed by the Trump administration could vary. In a moderate scenario, Juarez's growth could fall to 4.1% this year from 6.3% last year. Foreign direct investment fell to $1.1 billion from $1.2 billion last year.
In an extreme scenario, GDP would contract 3.5% and foreign investment would fall to just $300 million — an outcome that would mean a recession in a city heavily reliant on capital flows.
In September, Mexico's central bank chief likened a potential Trump election victory to a hurricane hitting the country. With Trump now in the driver's seat, Hernandez echoed that sentiment: "The situation that confronts Juarez could end up being a perfect storm."
These concerns are not limited to Juarez.
In Tijuana, where maquiladoras predate NAFTA by three decades, Trump's plans have sent a wave of trepidation through businesses, many of which have reportedly put projects or other initiatives on hold.
Official numbers indicate over 200,000 jobs in Tijuana are directly linked to the cross-border economy, though other estimates put that figure more than twice as high.
Scrapping NAFTA could turn Tijuana into a "ghost town" as firms relocate to Asia, Alejandra Mier y Teran, who was born in Tijuana and now heads a local Chamber of Commerce in San Diego, told NPR.
While maquiladoras in Tijuana and Juarez rely on the permeability of the border for their goods to flow north, they also depend on the solidity of the frontier to keep their workers in place.
They "take advantage of cheap labor and less regulation on the Mexican side," Patrik Iber, a professor at the University of Texas at El Paso, told Business Insider in January.
In Juarez, Molloy said, jobs at maquiladora are highly prized, but the pay is relatively low, leading families in which both parents work to send their children into the workforce as soon as they're able, usually in their teens.
As a consequence, disrupting the manufacturing industry there could ripple through families and have an outsized social impact.
In Juarez, which was stricken by horrific drug-related violence between 2008 and 2012, this many mean an influx of people into the drug trade.
The city has long been a vital corridor for narcotics flowing north, and, Molloy told Business Insider, at times people in the city's drug trade have "earned at least as much as they could earn working in a factory."
Given that drug-related violence in the city has picked up in recent months, driven by cartels competing for control of the area, more people willing to work in the drug trade would almost certainly mean more people slain in the city as well.
"And historically, bad economic times in Mexico have corresponded with increased migration to the U.S. from desperate economic migrants," Iber said.
"At the moment, net migration with Mexico is near zero. But if Trump's policies force Mexico into a depression, we're likely to get more undocumented immigration to the U.S., not less."
Tesla reported fourth-quarter earnings on Wednesday, and after posting a profit for the third quarter, the automaker went back to losing money in Q4 — although it lost less than analysts had expected.
What was interesting about Tesla's investor letter this time around was the notable departure from providing guidance on vehicle deliveries for the coming year.
Last year, Tesla guided to 80,000 to 90,000 deliveries and fell short, getting only about 75,000 vehicles to customers.
For 2017, the company said it would "deliver 47,000 to 50,000 Model S and Model X vehicles combined in the first half of 2017, representing vehicle delivery growth of 61% to 71% compared with the same period last year."
Tesla also said that it expects to produce 5,000 of its forthcoming Model 3 mass-market vehicles "at some point in the fourth quarter and 10,000 vehicles per week at some point in 2018."
A little back-of-the-envelope calculation suggests that Tesla should deliver something like 150,000 vehicles in 2017 — if it can make those numbers.
This means Tesla would need to significantly increase its deliveries to meet CEO Elon Musk's pledge to deliver 500,000 vehicles annually by 2018.
Tesla didn't immediately respond to requests for comment on its deliveries guidance.
But after softly rolling back guidance in 2016 when the 80,000 to 90,000 vehicles for the full year became 50,000 for the second half, Tesla appears to be preemptively dialing back on its ambitious deliveries targets ahead of the Model 3 launch.
However, if taking a breather on Musk's guidance goals means Tesla will launch the Model 3 on schedule, investors may reward the company's caginess on deliveries. Tesla shares were trading up about 2% after hours, to $278.
Analysts and traders alike were looking forward to today's "black box" earnings from Tesla as it would be the first consolidated report that combined Tesla Motors operations with those from cash-bleeding monstrocity SolarCity following the pair's merger, to wit: "with the acquisition of SolarCity, we have created the world’s only integrated sustainable energy company, from generation to storage to transportation."
And, as usual, Elon Musk managed to fool all those who were only focusing on the headline numbers, which were surprisingly good. In fact, TSLA beat on both the bottom and top line, reporting 4Q loss per share of $0.69 far better than the consensus estimate loss of $1.14, on revenue of $2.28 billion, also better than consensus of $2.13 billion. However, much of this "beat" was thanks to "energy generation and storage" revenues. Pure automotive revenue was down 7% QoQ from $2.15BN to $2.0BN.
It is worth noting that Tesla's Q4 financial statements include the results of SolarCity’s operations only from the close of the acquisition on November 21 to December 31, 2016.
For the quarter, Tesla reported 22,252 vehicle deliveries, down 10% from the prior quarter's 24,821, on production of 24,882 vehicles, also down 1% from the prior quarter. Discussing the much anticipated Model 3, Tesla said that the "program is on track to start limited vehicle production in July and to steadily ramp production to exceed 5,000 vehicles per week at some point in the fourth quarter and 10,000 vehicles per week at some point in 2018."
Tesla also reported an automotive gross margin excluding SBC and ZEV credit (non-GAAP), of 22.2% in the quarter, up from 19.7% a year ago, but down from 25.0% in Q3. This was a big miss to expectations of 26.1%. The company admitted that "service and other gross margin was affected by negative vehicle service gross margin in the quarter, as we ramp up our service capability ahead of the launch of Model 3."
The company also reported that during Q4, customers asked it to repurchase 3% of vehicles eligible for buy back under its resale value guarantee program: "pre-owned vehicle sales drove most of the increase in Q4 Services and other revenue."
Looking at the future, Tesla said it expects to deliver 47,000 to 50,000 Model S and Model X vehicles combined in the first half of 2017, representing vehicle delivery growth of 61% to 71% compared with the same period last year. In addition, it hopes that both GAAP and non-GAAP automotive gross margin should recover in Q1 to Q3 2016 levels and then continue to expand in Q2 2017.
The company also expects to invest between $2 billion and $2.5 billion in capex ahead of the start of Model 3 production and continues "to focus on capital efficiency while also investing in battery cell, pack and energy storage production at Gigafactory 1. It also forecast that both Model 3 and solar roof launches are on track for the second half of the year.
For those who are concerned about Tesla's cash burning ways, the following disclosure will be troubling: in addition to Gigafactory 1, the company is planning to finalize locations for Gigafactories 3, 4... and 5.
Model 3 vehicle development, supply chain and manufacturing are on track to support volume deliveries in the second half of 2017. In early February, we began building Model 3 prototypes as part of our ongoing testing of the vehicle design and manufacturing processes. Initial crash test results have been positive, and all Model 3-related sourcing is on plan to support the start of production in July. Installation of Model 3 manufacturing equipment is underway in Fremont and at Gigafactory 1, where in January, we began production of battery cells for energy storage products, which have the same form-factor as the cells that will be used in Model 3. Later this year, we expect to finalize locations for Gigafactories 3, 4 and possibly 5 (Gigafactory 2 is the Tesla solar plant in New York).
Which means many billions more in sunk costs.
Something else interesting about this investor letter is that this time the company failed to provide guidance on vehicle deliveries for the coming year. Last year, Tesla guided to 80,000-90,000 deliveries and fell short, getting only about 75,000 vehicles into customers' hands. For 2017, the company said that it would "deliver 47,000 to 50,000 Model S and Model X vehicles combined in the first half of 2017, representing vehicle delivery growth of 61% to 71% compared with the same period last year. In addition, both GAAP and non-GAAP."
Extrapolating deliveries, would imply roughly 150,000 vehicles in 2017, if it hopes to make its numbers, which suggests that Tesla will be well below plan to meet Musk's pledge to deliver 500,000 vehicles annually by 2018. As of this moment, that isn't happening.
So on to liquidity where Tesla had a lot to say, starting with: "In Q4, we increased cash by $309 million. Cash used in operating activities was unusually high as we paid down trade payables and had an elevated number of vehicles-in-transit at quarter end. As designed, our funding arrangements scaled with our operating cash flow needs as receipts from our bank leasing partners and draws on our asset-backed line and credit facility increased our liquidity position. We also received $214 million in cash from the acquisition of SolarCity."
And then there was the ongoing massive CapEx spend:
We invested $522 million in capital expenditures for Model 3 manufacturing capacity, Gigafactory 1, and expanded customer support infrastructure. Our capital expenditures came in below plan as we continue to negotiate more favorable payment terms with our capital equipment suppliers, pushing some payments closer to the start of Model 3 production and some payments beyond the start of production.
Finally, Tesla is now adding even more credit facilities:
During the quarter, we added three new lender commitments under our asset-backed line and vehicle lease warehouse credit facility, increasing our credit agreements by $500 million, for a total of $1.80 billion in commitments. At quarter end, we had $1.36 billion drawn against these commitments.
In all, Tesla generated a whopping $1.4 billion in cash from financing activities. We hope its banks are well colalteralized.
Finally, here are the results visually, first Revenue:
Then EPS, both GAAP and non-GAAP:
Finally, the most important chart of all: cash burn, which nearly hit $1 billion as a result of $448 million in cash burn from operations coupled with $522 million in CapEx.
The Dow just did something it hasn't done since 1987.
On Wednesday, the Dow closed up by 0.2% at 20,775.60 — marking the ninth consecutive all-time high.
This is the first time the index has done that since January 1987, according to Ryan Detrick, senior market strategist at LPL Financial.
Stocks have rallied following the November election of President Donald Trump as investors considered the possibility of deregulation, fiscal stimulus, and tax cuts.
The index then pushed through 20,000 on January 25, 2017, during a busy week for earnings, and has continued climbing.
For what it's worth, back on January 8, 1987, the Dow crossed 2,000 for the first time ever.
The chief of staff of French far-right leader Marine Le Pen was put under formal investigation on Wednesday after a day of questioning over the alleged misuse of EU funds to pay parliamentary assistants, a judicial source said. Catherine Griset was taken into custody for questioning along with Le Pen's bodyguard Thierry Legier, who was later released without being put under investigation, according to the source. In reaction to the news, Le Pen said that she formally denied any wrongdoing in a case that she said was being used to undermine her campaign.
While OPEC compliance remains key, it appears fundamental over-supply fears are mounting once again. Against expectations of a crude build and gasoline draw, API reported a surprise crude draw but smaller than expected gasoline draw. Cushing also saw a major drawdown and Distillates saw the biggest draw since Oct 2014. WTI and RBOB prices were marginally higher on the print.
- Crude -884k (+3.3m exp)
- Cushing -1.7mm
- Gasoline -893k (-1.5mm exp)
- Distillates -4.229mm
This surprise draw ends the 6 week streak of builds in crude. While gasoline did draw, it was smaller than expected, but Distillates saw the biggest draw since Oct 2014...
As a reminder, US crude inventories are already at a new record high...
As are gasoline inventories...
Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone. "We’re expecting the API and EIA to report another supply build. The focus is returning to the reality that fundamentally we’re oversupplied."
WTI was lower (despite weaker dollar post-Fed) and RBOB higher heading into the inventory data but both gained as the drawdowns hit. No panic-buying algo though.
“The big question is, will the Saudis cut even more to maintain the price,” James Williams says, an economist at London, Ark.-based energy-research firm WTRG Economics.
Alice laughed. “There’s no use trying,” she said. “One can’t believe impossible things.”
“I dare say you haven’t had much practice,” said the queen. “When I was your age, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”
–Alice in Wonderland
We live in an age when the level of deceit and propaganda is at an all-time high. Joseph Goebbels, Vladimir Lenin, and others did their best to force-feed propaganda to the masses, but they were rank amateurs compared to the spin doctors employed by the political leaders of today. They’re masters at convincing people of impossible things.
Whenever I listen to Americans discuss their country, I find people that are eager for more news and information, yet most, without even knowing it, accept much of the dogma they’ve been fed on a daily basis by their government and the media, even if, to outsiders, the assumptions are preposterous. Only those who make a concerted, ongoing effort to see through the smokescreen seem to keep clear.
Here are seven impossible things that many seem to have little trouble accepting as reality.
1. Yes, the country’s in a mess, but that’s because of opposition-party meddling. If the party I favour could get a majority, they’d sort things out.
This seems to have been a popular belief for decades. It’s believed by Democrats and Republicans alike. But, in 2001, the Republicans held both houses of Congress, plus the presidency, yet even then they failed to deliver on what they claimed were their party’s fundamental goals. Between 2009 and 2011, the Democrats controlled all three, yet they, too, failed to deliver. If the electorate were to step back and look at the history of who is in power vs. changes in policy, they’d find that the government’s central programme of welfare/warfare continues unabated, regardless of who controls the Congress and White House. The primary policies of the US are determined independently of who has been elected. As American writer Mark Twain stated correctly, “If voting made any difference they wouldn’t let us do it.”
2. We’re on the road to economic recovery. We just have to be patient.
The US is deeper in debt, by far, than any country ever has been in the history of the world. The level of debt is so great at present that it’s impossible to pay back. The reaction by the US government has been to increase that debt, pumping more heroin into the body of the addict. There’s no possibility for this to end well; all that can be achieved is to postpone the inevitable, thus ensuring that the final outcome will be even worse. The final tab will be picked up, not by the political class, but by the electorate.
3. I don’t like government bailing the banks out, but if they don’t, the system will collapse.
Bank failures have existed for as long as banks have existed. Under a laissez-faire system, a bank that’s behaved recklessly with lending, to the point that it becomes insolvent, collapses. Depositors are harmed and sometimes financially ruined. Often, there’s a brief economic downturn, but the culling of the bad bank actually strengthens the economy in the long run. However, in the last century, the major banks in the US have become so powerful with regard to government policy that they can now act recklessly, then be bailed out by the government, then act recklessly again. (Ultimately, this trend will result in a crash of epic proportions – an event that may come quite soon.)
4. There’s no problem raising the debt ceiling. All that’s necessary is to print more money to pay for it.
Unfortunately, it doesn’t work that way. Dramatic printing of currency generally leads to higher prices. Inflation robs people of their wealth. Hyperinflation can utterly destroy it. And, as regards foreign debt, trading partners don’t take kindly to having the debtors degrade their debt. At some point, they’re likely to sell back their debt into the debtor’s economy. It would only take a fraction of the US debt held by the rest of the world to be sold back into the US for the US economy to collapse.
5. I don’t like war, but the attacks on Ukraine and the Middle East are necessary to make the world safe for democracy.
Since the end of World War Two, the US has regarded itself as the world’s policeman – a role that most of us outside the US consider to be quite an arrogant one for any nation to take. Even more puzzling for us is the general belief in the US that American invasions of countries actually result in democratisation. From Vietnam to Afghanistan, to Iraq, to Libya (the list goes on), there has been little evidence that US invasions have led to stable, democratic rule. In most cases, they have led to increased chaos. America is seen, not as the policeman, but the world’s foremost aggressor. This is not conducive to long-term American hegemony.
6. I realise that the US has passed considerable legislation lately that’s taken away my basic freedoms, but it’s been necessary in fighting terrorism.
Beginning with the Patriot Act of 2001, the US government has gone mad with the passage of a plethora of legislation that has trashed the US Constitution (often regarded by the outside world as the finest founding document that any country has ever produced.) As a result, even many Third World countries now enjoy greater individual freedom than can be found in the US.
7. This is still the best country in the world.
By almost every standard, this has, over recent decades, ceased to be the case. Before the world wars, the UK was the most powerful country in the world. Britons managed somehow to equate this fact to the belief that the UK was the “best” in every way. This was never entirely true, but most Brits accepted it anyway. Today, the methadone has finally taken effect and most of us accept that the dew is very much off the vine. This suggests that it will be a long time, possibly generations, before Americans come to realise that the glory days of empire are over and the decline is in process.
Alice had the right idea. As a young person not yet programmed by her government and the media to believe impossible things, she had a greater ability to see the world as it was. The rest of us have to work quite a bit harder to see through the smokescreen that governments and the media create. By the 1960s, it was apparent to the world that Britain had become a shell of its former self, but many Brits weren’t ready to accept that the party was over. (Today, 70 years after the war, the message has sunk in.) Now it’s America’s turn and it will be equally hard for them. For most, the standard of living and quality of life will diminish.
Those who will be the most likely to do well will be those who choose to recognise that, as America declines, there are some countries that are on the upswing. Those few who choose to diversify themselves beyond American shores will not only increase their objectivity, but, very likely, will assure themselves a freer, more prosperous future.
* * *
Unfortunately, most people have no idea what really happens when an economy collapses, let alone how to prepare… We think everyone should own some physical gold. Gold is the ultimate form of wealth insurance. It’s preserved wealth through every kind of crisis imaginable. It will preserve wealth during the next crisis, too. But if you want to be truly “crisis-proof,” there’s more to do… How will you protect yourself in the event of a crisis? We just released a PDF guide that will show you exactly how. Click here to download it now
The Federal Reserve still hasn't made its mind up about President Donald Trump's policies.
Based on the central bank's most recent communication — the Fed minutes for the January/February meeting released on Wednesday — the members of the FOMC are still undecided about the ultimate effect of Trump's economic agenda, particularly fiscal stimulus, or if it will even happen at all.
"Participants again emphasized their considerable uncertainty about the prospects for changes in fiscal and other government policies as well as about the timing and magnitude of the net effects of such changes on economic activity," said the minutes.
It appears that while some members noted that a proposed $550 billion infrastructure plan and other stimulus moves from Trump could be a boon for economic growth, other members were concerned about the ultimate impact.
"In discussing the risks to the economic outlook, participants continued to view the possibility of more expansionary fiscal policy as having increased the upside risks to their economic forecasts, although some noted that several potential changes in government policies could pose downside risks," said the Fed's minutes.
In fact, while the Fed officials debated the outcome of the policies they noted that the possibility of the fiscal stimulus had been a contributor to the recent all-time highs in stocks. They did warn, however, that the markets may not be fully pricing in the risks from the Trump proposals.
"They also expressed concern that the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook for such policy initiatives," said the minutes.
Some members cited the possibility of increased inflation from the policies, which is good unless the rate of price increases overshoots the Fed's 2% target. A large fiscal stimulus package with the labor market so tight would, in theory, kick inflation into a higher gear.
Interestingly, the minutes also include multiple references to "other policies" that could be passed under Trump and their uncertain impact on the economy.
"Members agreed that there was heightened uncertainty about the effects of possible changes in fiscal and other government policies, but that near-term risks to the economic outlook appeared roughly balanced," said the minutes.
Fed Chairwoman Janet Yellen answered questions on two of Trump's seemingly non-economic policies during her testimony to the Senate Banking Committee: curtailed immigration and the repeal of the Affordable Care Act.
Both of these policies, said Yellen, could produce drags on the US economy and would factor into the decisions regarding monetary policy for the Fed as their effect became clearer.
In the end, however, much of the economic impact is uncertain to the Fed and how it will impact their policy remains unclear. Especially, as the FOMC members noted, since they don't know what policies are coming at all.
Said the Fed, "A few participants commented that the recent increase in equity prices might in part reflect investors’ anticipation of a boost to earnings from a cut in corporate taxes or more expansionary fiscal policy, which might not materialize."
When Philadelphia became the first US city to pass a soda tax last summer, city officials were eagerly looking forward to the surplus-tax funded windfall to plug gaping budget deficits (and, since this is Philadelphia, the occasional embezzlement scheme). Then, one month ago, after the tax went into effect on January 1st we showed the tax applied in practice: a receipt for a 10 pack of flavored water carried a 51% beverage tax. And since PA has a sales tax of 6% and Philly already charges another 2%, the total sales tax was 8%. In other words, a purchase which until last year came to $6.47 had overnight become $9.75.
What happened next? Precisely what most expected would happen: full blown sticker shock, and a collapse in purchases.
According to Philly.com reports, two months into the city’s sweetened-beverage tax, supermarkets and distributors are reporting a 30% to 50% drop in beverage sales and - adding insult to injury - are now planning for layoffs.
One of the city's largest distributors told the Philadelphia website it would cut 20% of its workforce in March, and an owner of six ShopRite stores in Philadelphia says he expects to shed 300 workers this spring. “People are seeing sales decline larger than anything they’ve seen up to this point in the city,” said Alex Baloga, vice president of external relations at the Pennsylvania Food Merchants Association.
Since all of this is taking place as previewed in a recent post: "The 'Soda Police' Just Learned A Valuable Lesson About Taxes", we doubt it would come as a surprise to anyone, although we are confident that Philadelphia city workers will be amazed by these unexpected developments.
Sure enough, in response instead of admitting the tax was a bad decision, the city lashed out by launching the latest "fake news" campaign, when it questioned the legitimacy of the early figures and predicted that customers responding to the initial sticker shock by shopping outside the city would return. “We have no way of knowing if their sales figures and predicted job losses are anything more than fear-mongering to prevent this from happening in other cities,” said city spokesman Mike Dunn.
Mayor Kenney harshly rebuked reports of coming layoffs late Tuesday night.
"I didn't think it was possible for the soda industry to be any greedier," Kenney said in an emailed statement. “…They are so committed to stopping this tax from spreading to other cities, that they are not only passing the tax they should be paying onto their customer, they are actually willing to threaten working men and women's jobs rather than marginally reduce their seven figure bonuses."
The 1.5-cent-per-ounce tax on sweetened and diet beverages is funding nearly 2,000 pre-K seats this year as well as several community schools, and the city hopes will bring in $92 million per year for the education programs and to in part fund renovated parks and recreation centers. To hit its annual target, the city needs to collect $7.6 million a month in tax revenue. The first collection was due Feb. 21 but collection information won’t be available until next month. Early projections from the city's quarterly manager's report predict only $2.3 million will come through in the first collection. Dunn says that figure is expected to rise and the city still anticipates hitting its goal for the year.
The city predicted a 27% sales decline industry-wide as a result of the tax but early returns from some beverage sellers show far higher losses, fueling a resurgence of the anti-soda tax coalition that fought vigorously against the tax last summer.
Bob Brockway, chief operating officer of Canada Dry Delaware Valley, which distributes about 20 percent of the city’s soft drinks, said sales were down 45 percent in Philadelphia. The company will lay off 20 percent of its workforce the first week in March. The distributor is a subsidiary of Honickman Affiliates, owned by Harold Honickman, who helped lead the opposition to the tax last summer. The 35 jobs on the line include managers, sales people, and drivers, Brockway said. Sales are up about 20 percent in the suburbs, but that hasn’t helped the business break even, he said.
On the whole, the company’s sales are down about 30 percent, Brockway said: “We don’t anticipate people coming back.”
The situation is worse at other outlets.
Jeff Brown, CEO of Brown's Super Stores, which manages six ShopRite stores in the city, said beverage sales were down 50 percent from Jan. 1 to Feb. 17 compared with the same period in 2016.
Again, that was to be expected, but what was more troubling is a 15% dip in overall sales at city stores, meaning that instead of merely reallocating funds, the tax has resulted in a net loss of purchasing power. “People didn’t change what they drink," Brown said. "They changed where they’re buying it.” And the biggest loser: the city of Philadelphia.
But it gets even worse: since January, Brown said, he has had to cut 6,000 employee hours, he said. He said he suspects he will lose about 300 people, which amounts to one-fifth of his total workforce voluntarily and through layoffs in coming months. To keep customers, Brown has ordered more tea and lemonade powders, which are tax-exempt. He’s stocking shelves with lower-quantity sugary drinks, which are easier to sell than the two-liter bottles or 12-packs.
Day’s Beverages, an independent soft-drink distributor, has seen a steep decline in Philadelphia offset by a 50 percent boost in Camden, Wilmington, and Bensalem, owner David Day said. Day also distributes to 18 other states, but Philadelphia makes up 30 percent of his market. His carry-out business has ballooned since the tax, he said.
Day is a registered distributor with the city and required to remit a monthly payment on any taxed beverages that go on to be sold in Philadelphia. He sent payment in last week for deliveries he made throughout Philadelphia. But Day doesn’t tax people coming in to buy soda directly from his warehouse.
“We’re one block out of Philadelphia, in Delaware County, and you can’t imagine how many stores are coming to our warehouse and picking up our soda. I don’t care what they do -- they're coming here as a cash-and-carry. Our doors are open to everyone,” he said. “We don’t police where it’s going.”
Another loser: labor unions. Danny Grace, head of the Teamsters union, representing many of the drivers, said members have seen pay cut by as much as 70 percent because they’re moving fewer products. “Many of them have quit as a result,” Grace said. He did not provide specific figures.
Not surprisingly, legal challenges against the soda tax persist. The Pennsylvania Food Merchants Association, in conjunction with movie theaters, restaurants, and supermarkets, is mounting a new "Ax the Bev Tax” campaign this week. Participating businesses will hang up signs encouraging people to call their elected representatives. Some legislators in Harrisburg weighed in this month, with an amicus brief calling on the court to overturn the tax. Within City Hall, legislators are taking a wait-and-see approach. Some Council members have encouraged patience.
“Initially people are upset and drive over the city line, but then they do the math and realize the cost of gas or the pure inconvenience doesn’t make it worth it,” Dunn said.
J. Del Conner is one of the 210 distributors registered with the city. He owns Dr. Physick soda, a tiny beverage-maker that sells about 500 cases a year. The soda is named after Conner’s great-great-great-grandfather, a Philadelphia pharmacist who introduced carbonated water into fruit syrup as a way to help relieve gastric disorders.
Conner usually sells about 10 cases a month in winter but didn’t send any money to the city this month.
“So far in January and February we’ve had no sales,” he said. “Zero.”
Tesla on Wednesday reported a smaller-than-expected loss for the fourth quarter and topped expectations for revenues.
The electric-car maker lost $0.69 per share on an adjusted basis, less than Wall Street's expectation for a loss of $1.04, according to Bloomberg. Its revenues totaled $2.28 billion ($2.13 billion forecast.)
This was the first earnings release since shareholders approved the electric-car maker's acquisition of SolarCity — a $2.6 billion deal that merged the two companies CEO Elon Musk oversaw.
Tesla forecast that it will deliver between 47,000 and 50,000 Model X vehicles in the first half of the year. It said the Model 3 and solar-roof launches remains on track for the second half of this year, and it is considering up to five gigafactories.
Amid competition, Tesla continued to burn through cash, losing $448 million from operating activities in the fourth quarter.
Tesla's stock has been on a tear of late, rising 43% in the three months through Wednesday's market close. They gained up to 3% in extended trading following the earnings release.
Paramount Pictures CEO Brad Grey announced his resignation on Wednesday in a company-wide memo.
Grey resigns following one of the worst years in the studio's history, with losses nearing $450 million, according to The Hollywood Reporter.
There will likely be other major changes coming to the studio's parent company, Viacom, as Shari Redstone, daughter of titan Sumner Redstone, is now in full control of the conglomerate.
Grey, who has run Paramount since 2005, wrote in his memo obtained by Business Insider, that "it has been my honor to work with a group of wildly talented storytellers. The core of our successes has always been their unique ability to entertain and inspire people around the world."
While searching for a replacement, the studio will be run by an interim committee that will report to new Viacom CEO Bob Bakish.
The complete Grey memo is below:
I am writing to let you know that I am leaving Paramount. I will hand over most of my duties effective today, but will remain engaged in the coming weeks to support a smooth transition.
It has been my privilege to be a part of Paramount’s storied history, and I am grateful to Sumner Redstone for giving me this opportunity. I want to wish Shari, Bob and their entire team the best as they embark on Viacom’s next chapter.
From the moment I came to Paramount in 2005, I saw myself as a steward of an iconic institution. I never could have dreamed that privilege would last more than 12 years.
In that time, it has been my honor to work with a group of wildly talented storytellers. The core of our successes has always been their unique ability to entertain and inspire people around the world.
Above all, I am indebted to all of you, the wonderful people here at Paramount. Your creativity, professionalism and integrity are second to none. I am grateful to everyone who helped me along the way and I look forward to new adventures.
Quick... look over there..
The Dow was the only major to close green today... (DD and MMM created 35 points of The Dow's 32 point gain)
The Dow has notched its 9th record close in a row - the longest streak since Jan 1987...
The US equity market and VIX have now been decoupled for 8 trading days... (closing higher with stocks for the 2nd day in a row)
Lots of excitement today about the fact that The Dow closed more than 2000 points above its 200-day moving average...
But realistically this is less than 10% - well below the 12-14% spread level that has been historically an omen for weakness. Technical analysts at Strategas Research Partners, led by Chris Verrone, pointed to the S&P’s climb relative to its moving average in a Wednesday note, suggesting that while the deviation is large, it hasn’t reached the 12%-to-14% range that marks a “statistically significant overbought signal.”
Notably the yield curve flattened, dollar dropped, and bonds/bullion were bid after The Fed Minutes (and rate hike odds dropped) - a big 'fail' given their recent efforts to jawbone March hike odds higher...
The Dollar dumped...
And The Yield Curve...
Only 2Y yields are higher on the week after today's post-Fed rally...
The Dollar dumped after the minutes pushing it negative on the week with CAD surging...
PMs pushed back into the green for the week on dollar weakness but crude faded ahead of tonight's API data...
After starting Wednesday on strong footing, stocks dropped following the release of the latest Fed minutes.
All three major indices finished little changed for the day, with the S&P 500 and the Nasdaq slightly in the red.
Still, for the ninth consecutive trading day, the Dow once again managed to claw its way to a fresh all-time high.
This marks the first time since January 1987 that the Dow made 9 new all-time highs in a row, according to Ryan Detrick, senior market strategist at LPL Financial.
First up, the scoreboard:
- Dow: 20,775.60, +32.60, (+0.16%)
- S&P 500: 2,362.82, -2.56, (-0.11%)
- Nasdaq: 5,860.63, -5.32, (-0.09%)
- US 10-year yield: 2.413%, -0.016
- WTI Crude: $53.59 per barrel, -0.74, 1.36%
1. The Fed plans to raise rates "fairly soon" if the economy remains on track, according to minutes from the January 31/February 1 policy meeting released Wednesday. The Fed would like to see more progress towards its target of 2% inflation, and even more evidence that the labor market is improving.
2. Existing-home sales jumped to a 10-year high. Sales of existing condos, co-ops, townhomes, and single-family houses increased by 3.3%, at a seasonally adjusted annual rate of 5.69 million, the highest since February 2007, according to the National Association of Realtors.
3. Republicans face wrath at town-hall events. "I'm on Obamacare. If it wasn't for Obamacare, we wouldn't be able to afford insurance," said Chris Peterson, a farmer from Sen. Chuck Grassley's home state of Iowa. "Don't repeal Obamacare — improve it."
4. The Russian ruble tumbled against the US dollar. The petro-currency was down by 1.1% at 58.0443 per dollar in the late afternoon. Earlier, data showed that Russian retail sales fell by 2.3% year-over-year in January, better than forecasts.
5. President Donald Trump is considering adding two former employees of controversial mortgage lender OneWest to his administration, according to reports from the Wall Street Journal and CNBC. OneWest, which was purchased under the name IndyMac by Treasury Secretary Steven Mnuchin's investment firm, has been criticized by Democrats and advocacy groups for aggressive foreclosure processes following the financial crisis.
6. Bitcoin approached an all-time high. Buying early on in US trade has run bitcoin up 1.4%, or almost $16, to $1,123 a coin. Wednesday's bid has the cryptocurrency higher for a ninth straight session and threatening its all-time high of about $1,161.88.
7. Papa John's tumbles after same-store sales miss big. The American pizza company announced fourth-quarter earnings that increased from last year and beat analysts expectations, however, same-store sales growth fell short.
Henry Kravis is a Wall Street legend.
The firm he founded with his cousin George Roberts in 1976, KKR, now manages $130 billion. It has just under 1,000 investors, many of which are state and municipal pension funds, and its portfolio of companies stands at more than 100.
The firm has done several huge deals, including the acquisition of RJR Nabisco in the firm's early years and more recent deals for the likes of Alliance Boots, First Data, and Clear Channel.
Kravis is estimated to have a personal net worth of close to $5 billion, according to Forbes.
However, that doesn't mean that he hasn't made mistakes. In an interview with Kip McDaniel at Institutional Investor, Kravis was asked to identify a mistake he repeated during his 40 years at KKR. His answer was pretty brutal, but it gets to a classic Wall Street concept: knowing when to cut your losses.
Here's what Kravis had to say:
"We might have been too slow in changing out some CEOs of companies we had, keep thinking that he or she will get a lot better. I can pretty well tell you that what you see up front is pretty much what you'll see in the end. You can help around the edges, but people don't change that much.
"Waiting is a lost opportunity, and we used to wait. And we didn't do it just once — we did it a number of times because we kept thinking, 'OK it's not the right time. We don't have the right person.'
"I think today we move much faster than we ever did."
The Federal Reserve plans to raise interest rates "fairly soon" if the economy remains on track, according to minutes from the January 31/February 1 policy meeting released Wednesday.
At that meeting, the Federal Open Market Committee voted to leave its benchmark interest rate unchanged, just as markets had expected.
The Fed would like to see more progress towards its target of 2% inflation, and even more evidence that the labor market is improving.
Its staff's assessment of the economy in Wednesday's minutes included several references to "downside risks" to the economy. However, the meeting was held before data releases on jobs and inflation early in February that crushed estimates.
The next rate hike is unlikely to be in March even after recent hawkish commentary from several Fed officials including Chair Janet Yellen. It has raised rates from zero twice since the end of the recession but is patiently normalizing rates because of continuing risks to the economy including the uncertainty of policy outcomes from the Trump administration.
According to Bloomberg, futures traders priced in a 38% chance of a rate increase at the March 14-15 meeting, and a 62.7% chance of one at the gathering in June after the minutes crossed.
There's renewed interest in how the Fed plans to shrink its balance sheet. After the recession, the Fed launched bond-buying programs to help keep interest rates low and expanded its holdings to about $4.5 trillion as a result.
"The shrinking of the balance sheet may start in the not too distant future," said Neel Kashkari, the Minneapolis Fed president, on Tuesday. Yellen was similarly vague during congressional testimony on Valentine's Day, saying the Fed would gradually unwind its balance sheet when the process of normalizing rates is well underway.
"It is clear that policymakers have not reached a consensus on the particulars of the Fed's reinvestment policy at this point," said Deutsche Bank economists in a note on Tuesday. Economists at BNP Paribas forecast that the Fed will start trimming its balance sheet once rates are in the 1%-1.5% range; the benchmark fed funds rate is in a range of 0.50%-0.75%.
The minutes announced that Fed staffers' quarterly economic projections will include fan charts showing the ranges of possibilities around its central forecasts. As this was considered last year, the Fed worried that the charts might confuse people.
Here's the full text of the minutes:
Illustration of Uncertainty in the Summary of Economic Projections
Participants considered a revised proposal from the subcommittee on communications to add to the Summary of Economic Projections (SEP) a number of charts (sometimes called fan charts) that would illustrate the uncertainty that attends participants' macroeconomic projections. The revised proposal was based on further analysis and consultations following Committee discussion of a proposal at the January 2016 meeting. Participants generally supported the revised approach and agreed that fan charts would be incorporated in the SEP to be released with the minutes of the March 14-15, 2017, FOMC meeting. The Chair noted that a staff paper on measures of forecast uncertainty in the SEP, including those that would be used as the basis for fan charts in the SEP, would be made available to the public soon after the minutes of the current meeting were published, and that examples of the new charts using previously published data would be released in advance of the March meeting.
Developments in Financial Markets and Open Market Operations
The SOMA manager reported on developments in U.S. and global financial markets during the period since the Committee met on December 13-14, 2016. Financial asset prices were little changed since the December meeting. Market participants continued to report substantial uncertainty about potential changes in fiscal, regulatory, and other government policies. Nonetheless, measures of implied volatility of various asset prices remained low. Emerging market currencies were generally resilient in recent weeks, reportedly benefiting from investors' anticipation of stronger global economic growth, after depreciating significantly against the dollar during the previous intermeeting period. Market expectations for the path of the federal funds rate were little changed over the intermeeting period.
The deputy manager followed with a briefing on developments in money markets, market expectations for the System's balance sheet, and open market operations. In money markets, interest rates smoothly shifted higher following the Committee's decision at its December meeting to increase the target range for the federal funds rate by 25 basis points, and federal funds subsequently traded near the center of the new range except on year-end. Although year-end pressures in U.S. money markets were similar to past quarter-ends, some notable, albeit temporary, strains appeared over the turn of the year in foreign exchange swap markets and European markets for repurchase agreements. The Open Market Desk's surveys of dealers and market participants pointed to some change in expectations for FOMC reinvestment policy, with more respondents than in previous surveys anticipating a change in policy when the federal funds rate reaches 1 to 1-1/2 percent. The higher level of take-up at the System's overnight reverse repurchase agreement facility that developed following the implementation of money market fund reform last fall generally persisted. The staff also briefed the Committee on plans for small-value tests of various System operations and facilities during 2017 and for quarterly tests of the Term Deposit Facility.
By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period.
Staff Review of the Economic Situation
The information reviewed for the January 31-February 1 meeting indicated that real gross domestic product (GDP) expanded at a moderate rate in the fourth quarter of last year and that labor market conditions continued to strengthen. Consumer price inflation rose further above the slow pace seen during the first half of last year, but it was still running below the Committee's longer-run objective of 2 percent.
Recent indicators generally showed that labor market conditions continued to improve in late 2016. Total nonfarm payroll employment increased at a solid pace in December. The unemployment rate edged up to 4.7 percent but remained near its recent low, while the labor force participation rate rose slightly. The share of workers employed part time for economic reasons decreased further. The rates of private-sector job openings and of hiring were unchanged in November, while the rate of quits edged up. The four-week moving average of initial claims for unemployment insurance benefits was still low in December and early January. Measures of labor compensation continued to rise at a moderate rate. The employment cost index for private industry workers rose 2-1/4 percent over the 12 months ending in December, and average hourly earnings for all employees increased almost 3 percent over the same 12-month period. The unemployment rates for African Americans, for Hispanics, and for whites were close to the levels seen just before the most recent recession, but the unemployment rates for African Americans and for Hispanics remained above the rate for whites.
Total industrial production edged down in the fourth quarter as a whole. Mining output expanded markedly, but manufacturing production advanced only modestly. The output of utilities declined, as the weather was unseasonably warm, on average, during the fourth quarter. Automakers' assembly schedules suggested that motor vehicle production would be a little lower early this year, but broader indicators of manufacturing production, such as the new orders indexes from national and regional manufacturing surveys, were consistent with modest gains in factory output in the near term.
Real personal consumption expenditures (PCE) rose at a moderate pace in the fourth quarter. Consumer expenditures for durable goods, particularly motor vehicles, increased considerably. However, consumer spending for energy services declined markedly, reflecting unseasonably warm weather. Recent readings on some key factors that influence consumer spending--including further gains in employment, real disposable personal income, and households' net worth--were consistent with moderate increases in real PCE in early 2017. In addition, consumer sentiment, as measured by the University of Michigan Surveys of Consumers, moved up to an elevated level in December and January.
Real residential investment spending rose at a brisk pace in the fourth quarter after decreasing in the previous two quarters. Building permit issuance for new single-family homes--which tends to be a reliable indicator of the underlying trend in construction--advanced solidly. Sales of existing homes increased modestly in the fourth quarter, although new home sales declined.
Real private expenditures for business equipment and intellectual property (E&I) expanded at a moderate pace in the fourth quarter after declining, on net, over the preceding three quarters. Recent increases in nominal new orders of nondefense capital goods excluding aircraft, along with improvements in indicators of business sentiment, pointed to further moderate increases in real E&I spending in the near term. Real business expenditures for nonresidential structures declined in the fourth quarter after rising in the previous quarter. The number of crude oil and natural gas rigs in operation, an indicator of spending for structures in the drilling and mining sector, continued to increase through late January. The change in real inventory investment was estimated to have made an appreciable positive contribution to real GDP growth in the fourth quarter.
Real total government purchases rose somewhat in the fourth quarter. Federal government purchases for defense decreased while nondefense expenditures increased. State and local government purchases increased modestly, as the payrolls of these governments expanded slightly and their construction spending advanced somewhat.
The U.S. international trade deficit widened in November for the second consecutive month. After declining in October, nominal exports fell again in November as decreases in exports of capital goods more than offset increases in exports of industrial supplies. Nominal imports in November rose to their highest level of the year, led by imports of industrial supplies and materials. The Census Bureau's advance trade estimates for December suggested a narrowing of the trade deficit in goods, as imports increased less than exports. Altogether, the change in real net exports was estimated to have made a substantial negative contribution to real GDP growth in the fourth quarter.
Total U.S. consumer prices, as measured by the PCE price index, increased a little more than 1-1/2 percent over the 12 months ending in December, partly restrained by decreases in consumer food prices last year. Core PCE price inflation, which excludes changes in food and energy prices, was 1-3/4 percent over those same 12 months, held down in part by decreases in the prices of nonenergy imports over part of this period. Over the same 12-month period, total consumer prices as measured by the consumer price index (CPI) rose a bit more than 2 percent, while core CPI inflation was 2-1/4 percent. Survey-based measures of median longer-run inflation expectations--such as those from the Michigan survey and from the Desk's Survey of Primary Dealers and Survey of Market Participants--were unchanged, on net, over December and January.
Foreign real GDP growth appeared to slow somewhat in the fourth quarter from its relatively strong third-quarter pace. Nevertheless, recent data on foreign industrial production and trade seemed to be stronger than private analysts had anticipated and were consistent with moderate economic growth abroad. Economic growth in both the euro area and the United Kingdom continued at relatively solid rates. In the emerging market economies (EMEs), GDP growth remained robust in China but slowed elsewhere in the Asian EMEs and in Mexico, while the pace of economic contraction appeared to lessen in South America. Inflation in the advanced foreign economies (AFEs) continued to rise, largely reflecting the pass-through of earlier increases in crude oil prices into retail energy prices. Inflation also rose in many EMEs, in part because of rising food and fuel prices; however, inflation fell notably in much of South America.
Staff Review of the Financial Situation
Domestic financial conditions were mostly little changed, on balance, since the December FOMC meeting. Broad equity price indexes fluctuated in a relatively narrow range and ended the intermeeting period about unchanged. Nominal Treasury yields moved up across most maturities in the days following the December FOMC meeting but subsequently reversed and ended the period little changed on net. Measures of inflation compensation based on Treasury Inflation-Protected Securities (TIPS) rose somewhat on balance. Amid notable volatility, the broad dollar index declined slightly on net. Meanwhile, financing conditions for nonfinancial businesses and households remained generally accommodative.
Although the FOMC's decision to raise the target range for the federal funds rate to 1/2 to 3/4 percent at the December meeting was widely anticipated in financial markets, contacts generally characterized some of the communications associated with the FOMC meeting as less accommodative than expected. In particular, market commentaries highlighted the upward revision of 25 basis points to the median projection for the federal funds rate at the end of 2017 in the SEP. Nonetheless, the expected path of the federal funds rate implied by futures quotes was little changed, on net, since the December meeting. Market-based estimates indicated that investors saw the probability of an increase in the target range for the federal funds rate at the January 31-February 1 FOMC meeting as very low, and the estimated probability of an increase in the target range at or before the March meeting was about 25 percent. Consistent with readings based on market quotes, results from the Desk's January Survey of Primary Dealers and Survey of Market Participants indicated that the median respondent assigned a probability of about 25 percent to the next increase in the target range occurring at or before the March FOMC meeting. Market-based estimates of the probability of an increase in the target range at or before the June meeting were about 70 percent.
Yields on nominal Treasury securities increased across most maturities following the December FOMC meeting, but they fell, on balance, over the remainder of the intermeeting period. While market commentary suggested that a number of factors contributed to the decline, a clear catalyst was difficult to identify. Treasury yields ended the period about unchanged and remained significantly higher than just before the U.S. elections in November. TIPS-based measures of inflation compensation edged up over the intermeeting period.
Broad U.S. equity price indexes fluctuated in a relatively narrow range and were little changed, on net, over the intermeeting period. However, equity prices remained notably higher than just before the November elections, apparently reflecting investors' expectations that fiscal and other policy changes would boost corporate profits and economic activity in the medium term. Implied volatility on the S&P 500 index edged down since the December meeting and remained relatively low. Corporate bond spreads for both investment- and speculative-grade firms continued to narrow over the intermeeting period and were near the bottom of their ranges of the past several years.
Money market rates responded as expected to the change in the target range for the federal funds rate. The effective federal funds rate was 66 basis points--25 basis points higher than previously--every day following the change, except at year-end. Conditions in other domestic short-term funding markets were generally stable over the intermeeting period. Assets under management by money market funds changed little, with government funds experiencing modest net outflows and prime fund assets remaining about flat.
Financing conditions for nonfinancial businesses continued to be accommodative overall. Corporate bond issuance by nonfinancial firms rebounded in December to about its robust average pace of the past few years, and issuance of syndicated leveraged loans was strong. Gross equity issuance was solid in November and December. Meanwhile, after a slowdown in the third quarter, the growth of commercial and industrial (C&I) loans on banks' books picked up in the fourth quarter, although the pace remained slower than earlier in the year. The January Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) indicated that banks left C&I lending standards for large and middle-market firms and for small firms unchanged, on balance, in the fourth quarter. On net, banks expected to ease their standards for C&I loans somewhat in 2017.
Credit continued to be broadly available in the commercial real estate (CRE) sector, although results from the January SLOOS indicated that banks continued to tighten their lending standards in the fourth quarter and expected to tighten them somewhat further in 2017. CRE loans on banks' balance sheets continued to grow in the fourth quarter, although at a somewhat slower rate than earlier in the year, while issuance of commercial mortgage-backed securities (CMBS) was solid over the period, in part because issuers tried to complete deals before the implementation of new risk retention rules in late December. The delinquency rate on CMBS moved up further in November and December; the increase largely reflected delinquencies on loans originated before the financial crisis.
Credit conditions for residential mortgages were little changed, on net, over the intermeeting period. Mortgage credit was broadly available to households with average to high credit scores, while credit remained tight for borrowers with low credit scores, hard-to-document income, or high debt-to-income ratios. According to the January SLOOS, banks reportedly left lending standards unchanged, on net, on most categories of home-purchase loans. The interest rate on 30-year fixed-rate mortgages moved about in line with rates on comparable-maturity Treasury securities, rising notably after the November elections but retracing part of that increase since mid-December. The pace of purchase originations was little changed in recent months despite higher mortgage rates, while refinance originations fell sharply. Bank lending for residential mortgages was solid in the fourth quarter, and the issuance of mortgage-backed securities was robust.
Financing conditions in consumer credit markets remained generally accommodative, although lending standards for credit cards continued to be tight for subprime borrowers. Respondents to the January SLOOS indicated that, over the previous three months, they had tightened standards and terms on auto and credit card loans, and that they expected to tighten standards further in 2017. Consumer loan balances increased at a robust rate through November, with credit card loans, student loans, and auto loans all expanding at a similar pace. Measures of consumer credit quality were little changed, on net, in the fourth quarter.
Foreign economic data that were better than expected and perceptions of an ebbing of some potential downside risks in Europe appeared to contribute to an improvement in investor sentiment in global financial markets. Importantly, a large euro-area bank reached a settlement with the U.S. Department of Justice on issues related to mortgage-backed securities, and the Italian government approved a funding package and other measures to support struggling banks. Reflecting the improved sentiment and positive economic news, global equity prices and longer-term sovereign yields in most AFEs increased moderately over the period. Yield spreads on EME sovereign bonds narrowed somewhat, and flows into EME mutual funds turned positive. The broad dollar index increased immediately after the December FOMC meeting but subsequently retraced its gains and ended the period slightly lower. In contrast, the dollar strengthened further against the Mexican peso over the intermeeting period.
The staff provided its latest report on potential risks to financial stability, indicating that it continued to judge the vulnerabilities of the U.S. financial system as moderate on balance. The staff's assessment took into account the increase in asset valuation pressures since the November elections, the overall low level of financial leverage, the strong capital positions at banks, and the subdued growth of debt among households and businesses. In addition, with money market fund reforms in place, the vulnerabilities from maturity and liquidity transformation were viewed as being somewhat below their longer-run average.
Staff Economic Outlook
In the U.S. economic projection prepared by the staff for this FOMC meeting, the near-term forecast was little changed from the December meeting. Real GDP growth in the fourth quarter of last year was estimated to have been a little faster than the staff had expected in December, and the pace of economic growth in the first half of this year was projected to be essentially the same as in the fourth quarter. The staff's forecast for real GDP growth over the next several years was little changed. The staff continued to project that real GDP would expand at a modestly faster pace than potential output in 2017 through 2019. The unemployment rate was forecast to edge down gradually through the end of 2019 and to run below the staff's estimate of its longer-run natural rate; the path for the unemployment rate was little changed from the previous projection.
The staff's forecast for consumer price inflation was unchanged on balance. The staff continued to project that inflation would increase over the next several years, as food and energy prices, along with the prices of non-energy imports, were expected to begin steadily rising either this year or next. However, inflation was projected to be marginally below the Committee's longer-run objective of 2 percent in 2019.
The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as similar to the average of the past 20 years. The risks to the forecast for real GDP were seen as tilted to the downside, primarily reflecting the staff's assessment that monetary policy appeared to be better positioned to offset large positive shocks than substantial adverse ones. However, the staff viewed the risks to the forecast from developments abroad as less pronounced than in the recent past. Consistent with the downside risks to aggregate demand, the staff viewed the risks to its outlook for the unemployment rate as tilted to the upside. The risks to the projection for inflation were seen as roughly balanced. The downside risks from the possibility that longer-term inflation expectations may have edged down or that the dollar could appreciate substantially further were seen as roughly counterbalanced by the upside risk that inflation could increase more than expected in an economy that was projected to continue operating above its longer-run potential.
Participants' Views on Current Conditions and the Economic Outlook
In their discussion of the economic situation and the outlook, meeting participants agreed that information received over the intermeeting period indicated that the labor market had continued to strengthen and that economic activity had continued to expand at a moderate pace. Job gains had remained solid, and the unemployment rate had stayed near its recent low. Household spending had continued to rise moderately, while business fixed investment had remained soft. Measures of consumer and business sentiment had improved of late. Inflation had increased in recent quarters but was still below the Committee's 2 percent longer-run objective. Market-based measures of inflation compensation remained low; most survey-based measures of inflation compensation were little changed on balance.
Participants generally indicated that their economic forecasts had changed little since the December FOMC meeting. They continued to anticipate that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace, labor market conditions would strengthen somewhat further, and inflation would rise to 2 percent over the medium term. They also judged that near-term risks to the economic outlook appeared roughly balanced. Participants again emphasized their considerable uncertainty about the prospects for changes in fiscal and other government policies as well as about the timing and magnitude of the net effects of such changes on economic activity. In discussing the risks to the economic outlook, participants continued to view the possibility of more expansionary fiscal policy as having increased the upside risks to their economic forecasts, although some noted that several potential changes in government policies could pose downside risks. In addition, several viewed the downside risks from weaker economic activity abroad as having diminished somewhat. But several indicated that they continued to be concerned about the downside risks to economic activity associated with the possibility of additional appreciation of the foreign exchange value of the dollar or financial vulnerabilities in some foreign economies, together with the proximity of the federal funds rate to the effective lower bound. Regarding the outlook for inflation, some participants continued to be concerned that faster-than-expected economic growth or a substantial undershooting of the longer-run normal unemployment rate posed upside risks to inflation. However, several others continued to see downside risks to the inflation outlook, citing still-low measures of inflation compensation and inflation expectations or the possibility of further appreciation of the dollar. Participants generally agreed that the Committee should continue to closely monitor inflation indicators and global economic and financial developments.
Regarding the household sector, consumer spending posted a moderate increase in the fourth quarter, and participants generally anticipated that further gains in consumer spending would contribute importantly to economic growth in 2017. They expected that, although interest rates had moved higher, household spending would continue to be supported by rising employment and income as well as high levels of household wealth. The recent improvement in consumer sentiment was also viewed as a potentially positive factor in the outlook for spending, although several participants cautioned that an elevated level of sentiment, even if it was sustained, was likely to make only a small contribution to household spending beyond those from income, wealth, and credit conditions.
Recent indicators of activity in the housing sector were generally positive. Starts and permits for single-family housing and sales of existing homes rose moderately in the fourth quarter, and real residential investment bounced back after two quarterly declines. A couple of participants commented that supply constraints might be holding back new homebuilding. In addition, a few participants noted that prospects for residential investment would also depend on whether household formation picked up and how housing market activity responded to the recent rise in mortgage interest rates.
The outlook for the business sector improved further over the intermeeting period. Business investment in E&I, which had been contracting earlier in 2016, increased at a moderate rate in the fourth quarter. In addition, new orders for nondefense capital goods posted widespread gains in recent months. The available reports from District surveys of activity and revenues in the manufacturing and services industries were very positive. Moreover, a number of national surveys of sentiment among corporate executives and small business owners as well as information from participants' District contacts indicated a high level of optimism about the economic outlook. Many participants indicated that their business contacts attributed the improvement in business sentiment to the expectation that firms would benefit from possible changes in federal spending, tax, and regulatory policies. A few participants indicated that some of their contacts had already increased their planned capital expenditures. However, participants' contacts in some Districts, while optimistic, intended to wait for more clarity about federal policy initiatives before adjusting their capital spending and hiring. In addition, contacts in some industries remained concerned that their businesses might be adversely affected by some of the government policy changes being considered. Activity in the energy sector continued to improve, with District contacts reporting an increase in capital spending, better access to credit, and a pickup in hiring. However, reports from a couple of Districts indicated that the agricultural sector was still weak, with low commodity prices continuing to put financial pressure on farm-related businesses.
The labor market continued to strengthen in recent months. Monthly gains in nonfarm payroll employment averaged 165,000 over the period from October to December, a pace that, if it continued, would be expected to increase labor utilization over time. At 4.7 percent in December, the unemployment rate remained close to levels that most participants judged to be consistent with the Committee's maximum-employment objective. Some participants cited other indicators confirming the strengthening in the labor market, such as a decline in the broader measures of labor underutilization that include workers marginally attached to the labor force, the rise in the quits rate, and faster increases in some measures of labor compensation. Moreover, several participants' business contacts reported shortages of workers in some occupations or the need for training programs to expand the supply of skilled workers. Several other participants thought that some margins of labor underutilization remained, citing the still-high rate of prime-age workers outside the labor force, the elevated share of workers who were employed part time for economic reasons, or the potential for further firming in labor force participation. However, a couple of participants pointed out that the uncertainty attending estimates of longer-run trends in part-time employment and labor force participation made it difficult to assess the scope for additional increases in labor utilization. Most participants still expected that if economic growth remained moderate, labor markets would continue to tighten gradually, with the unemployment rate running only modestly below their estimates of the longer-run normal rate. However, several participants projected a more substantial undershooting.
Information on inflation received over the intermeeting period was broadly in line with participants' expectations and was consistent with a view that PCE inflation was moving closer to the Committee's 2 percent objective. The 12-month change in headline PCE prices increased further, to 1.6 percent in December, as the effects of the earlier declines in consumer energy prices waned. The 12-month change in core PCE prices stayed near 1.7 percent for a fifth consecutive month. A few participants noted that other measures provided additional evidence that inflation was approaching the Committee's objective; for example, the 12-month changes in the headline and core CPI, the median CPI, and the trimmed mean PCE price index had also moved up from year-earlier levels. The available information on pricing from District business contacts varied, with a couple of participants reporting that firms were experiencing rising cost pressures from input costs or had been able to raise their prices, while a few other participants said that firms in their Districts were not experiencing price pressures or that the appreciation of the dollar was continuing to hold down import prices. Most survey-based measures of longer-term inflation expectations had been little changed in recent months. The median response to the Michigan survey of longer-run inflation expectations moved back up to 2.6 percent in January, in line with the average of readings during 2016, and the measure at the three-year horizon from the Federal Reserve Bank of New York's survey rose slightly in December; the measures calculated by the Federal Reserve Bank of Cleveland had been stable over the preceding three months. Some market-based measures of inflation compensation had turned up noticeably in late 2016, but a number of participants noted that they remained relatively low. Most participants continued to expect that inflation would rise to the Committee's 2 percent objective over the medium term. Some saw a risk that inflationary pressures might develop more rapidly than currently anticipated as resource utilization tightened, while several others thought that progress in achieving the Committee's inflation objective might lag if further appreciation of the dollar continued to depress non-energy commodity prices or if inflation was slow to respond to tighter resource utilization.
Financial conditions appeared to have changed little, on net, in recent months: Equity prices had risen and credit spreads had narrowed, but longer-term interest rates had increased and the dollar had appreciated further. In their discussion, participants considered how recent developments had affected their assessment of the stability of the U.S. financial system. Overall, valuation pressures appeared to have risen for some types of assets, while financial-sector leverage remained low and risks associated with maturity and liquidity transformation had declined. A few participants commented that the recent increase in equity prices might in part reflect investors' anticipation of a boost to earnings from a cut in corporate taxes or more expansionary fiscal policy, which might not materialize. They also expressed concern that the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook for such policy initiatives.
Recent reforms had diminished the risk of runs on or by prime money market funds. However, it was noted that other risks to financial stability might arise as the structure of funding markets evolved or if real estate asset values declined sharply. More broadly, it was pointed out that an environment of low interest rates and a relatively flat yield curve, if it persisted, had the potential to boost incentives to take on leverage and risk. Several participants emphasized that the increased resilience of the financial system since the financial crisis had importantly been the result of the key safety and soundness reforms put in place in recent years. However, having additional macroprudential tools could prove useful in addressing problems that could arise in real estate financing or in the shadow banking sector.
Participants discussed whether their current assessments of economic conditions and the medium-term outlook warranted altering their earlier views of the appropriate path for the target range for the federal funds rate. Participants generally characterized their economic forecasts and their judgments about monetary policy as little changed since the December meeting. Against this backdrop, they thought it appropriate to maintain the target range for the federal funds rate at 1/2 to 3/4 percent at this meeting.
Most participants continued to judge that, while the outlook was subject to considerable uncertainty, a gradual pace of rate increases over time was likely to be appropriate to promote the Committee's objectives of maximum employment and 2 percent inflation. Some participants viewed a gradual pace as likely to be warranted because inflation was still running below the Committee's objective or because the proximity of the federal funds rate to the effective lower bound placed constraints on the ability of monetary policy to respond to adverse shocks to the aggregate demand for goods and services. In addition, it was noted that the downward pressure on longer-term interest rates exerted by the Federal Reserve's asset holdings was expected to diminish in the years ahead in light of an anticipated gradual reduction in the size and duration of the Federal Reserve's balance sheet. Finally, the view that gradual increases in the federal funds rate were likely to be appropriate also reflected the assessment that the neutral real rate--defined as the real interest rate that is neither expansionary nor contractionary when the economy is operating at or near its potential--was currently quite low and was likely to rise only slowly over time.
Participants emphasized that the Committee might need to change its communications regarding the anticipated path for the policy rate if economic conditions evolved differently than the Committee expected or if the economic outlook changed. They pointed to a number of risks that, if realized, might call for a different policy trajectory than they currently thought most likely to be appropriate. These included upside risks such as appreciably more expansionary fiscal policy or a more rapid buildup of inflationary pressures, as well as downside risks associated with a possible further appreciation of the dollar or financial vulnerabilities in some foreign economies, together with the proximity of the federal funds rate to the effective lower bound. Moreover, most participants continued to see heightened uncertainty regarding the size, composition, and timing of possible changes to fiscal and other government policies, and about their net effects on the economy and inflation over the medium term, and they thought some time would likely be required for the outlook to become clearer. A couple of participants argued that such uncertainty should not deter the Committee from taking further steps in the near term to remove monetary policy accommodation, because fiscal and other policies were only some of the many factors that were likely to influence progress toward the Committee's dual-mandate objectives and thus the appropriate course of monetary policy. However, other participants cautioned against adjusting monetary policy in anticipation of policy proposals that might not be enacted or that, if enacted, might turn out to have different consequences for economic activity and inflation than currently anticipated.
In discussing the outlook for monetary policy over the period ahead, many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the Committee's maximum-employment and inflation objectives increased. A few participants noted that continuing to remove policy accommodation in a timely manner, potentially at an upcoming meeting, would allow the Committee greater flexibility in responding to subsequent changes in economic conditions. Several judged that the risk of a sizable undershooting of the longer-run normal unemployment rate was high, particularly if economic growth was faster than currently expected. If that situation developed, the Committee might need to raise the federal funds rate more quickly than most participants currently anticipated to limit the buildup of inflationary pressures. However, with inflation still short of the Committee's objective and inflation expectations remaining low, a few others continued to see downside risks to inflation or anticipated only a gradual return of inflation to the 2 percent objective as the labor market strengthened further. A couple of participants expressed concern that the Committee's communications about a gradual pace of policy firming might be misunderstood as a commitment to only one or two rate hikes per year and stressed the importance of communicating that policy will respond to the evolving economic outlook as appropriate to achieve the Committee's objectives. Participants also generally agreed that the Committee should begin discussions at upcoming meetings about the economic conditions that could warrant changes in the existing policy of reinvesting proceeds from maturing Treasury securities and principal payments from agency debt and mortgage-backed securities, as well as how those changes would be implemented and communicated.
Committee Policy Action
In their discussion of monetary policy for the period ahead, members judged that the information received since the Committee met in December indicated that the labor market had continued to strengthen and that economic activity had continued to expand at a moderate pace. Job gains had remained solid, and the unemployment rate had stayed near its recent low. Household spending had continued to rise moderately, while business fixed investment had remained soft. Measures of consumer and business sentiment had improved of late. Inflation had increased in recent quarters but was still below the Committee's 2 percent longer-run objective. Market-based measures of inflation compensation remained low; most survey-based measures of longer-term inflation expectations were little changed on balance.
With respect to the economic outlook and its implications for monetary policy, members continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market conditions would strengthen somewhat further. Members agreed that there was heightened uncertainty about the effects of possible changes in fiscal and other government policies, but that near-term risks to the economic outlook appeared roughly balanced. Many members continued to see only a modest risk of a scenario in which the unemployment rate would substantially undershoot its longer-run normal level and inflation pressures would increase significantly. These members expressed the view that inflation was likely to rise toward 2 percent gradually, and that policymakers would likely have ample time to respond if signs of rising inflationary pressures did begin to emerge. Other members indicated that if the labor market appeared to be tightening significantly more than anticipated or if inflation pressures appeared to be developing more rapidly than expected as resource utilization tightened, it might become necessary to adjust the Committee's communications about the expected path of the federal funds rate. One member noted that, even if incoming data on the economy and inflation were consistent with expectations, taking the next step in reducing policy accommodation relatively soon would give the Committee greater flexibility in calibrating policy to evolving economic conditions.
At this meeting, members continued to expect that, with gradual adjustments in the stance of monetary policy, inflation would rise to the Committee's 2 percent objective over the medium term. This view was reinforced by the rise in inflation and increases in inflation compensation in recent months. Against this backdrop and in light of the current shortfall in inflation from 2 percent, members agreed that they would continue to closely monitor actual and expected progress toward the Committee's inflation goal.
After assessing current conditions and the outlook for economic activity, the labor market, and inflation, members agreed to maintain the target range for the federal funds rate at 1/2 to 3/4 percent. They judged that the stance of monetary policy remained accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation.
The Committee agreed that, in determining the timing and size of future adjustments to the target range for the federal funds rate, it would assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee expected that economic conditions would evolve in a manner that would warrant only gradual increases in the federal funds rate and that the federal funds rate was likely to remain, for some time, below levels expected to prevail in the longer run. However, members emphasized that the actual path of the federal funds rate would depend on the evolution of the economic outlook as informed by incoming data.
The Committee also decided to maintain its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipated doing so until normalization of the level of the federal funds rate is well under way. Members noted that this policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, to be released at 2:00 p.m.:
"Effective February 2, 2017, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1/2 to 3/4 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 0.50 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day.
The Committee directs the Desk to continue rolling over maturing Treasury securities at auction and to continue reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions."
The vote also encompassed approval of the statement below to be released at 2:00 p.m.:
"Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate stayed near its recent low. Household spending has continued to rise moderately while business fixed investment has remained soft. Measures of consumer and business sentiment have improved of late. Inflation increased in recent quarters but is still below the Committee's 2 percent longer-run objective. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will rise to 2 percent over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1/2 to 3/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions."
Voting for this action: Janet L. Yellen, William C. Dudley, Lael Brainard, Charles L. Evans, Stanley Fischer, Patrick Harker, Robert S. Kaplan, Neel Kashkari, Jerome H. Powell, and Daniel K. Tarullo.
Voting against this action: None.
Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances unchanged at 0.75 percent and voted unanimously to approve establishment of the primary credit rate (discount rate) at the existing level of 1.25 percent.6
It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, March 14-15, 2017. The meeting adjourned at 10:05 a.m. on February 1, 2017.
By notation vote completed on January 3, 2017, the Committee unanimously approved the minutes of the Committee meeting held on December 13-14, 2016.
Paul Singer's Elliott Management is getting aggressive.
Earlier this year, the $28 billion activist hedge fund wanted to replace Arconic's chairman, Klaus Kleinfeld, and nominate five board members.
Arconic was spun out of Alcoa and focuses on manufacturing aerospace components. Elliott is the company's biggest shareholder.
"As we noted in our letter to Arconic’s Board earlier this week, shareholder support for change at Arconic has been overwhelming," an Elliott spokesman said in an emailed statement to Business Insider back on February 16. "[We] think it is long past time for the Board to begin a constructive dialogue to put new leadership in place.”
Several other Arconic shareholders, such as First Pacific Advisors and Lion Point Capital, have voiced support for Elliott.
After a few weeks of no action, Elliott has taken things to the next level.
The hedge fund published a website attacking Arconic's current management team. On the website, the fund wrote that current Arconic CEO Kleinfield "suggested Arconic shareholders 'look at the track record.'"
So they did.
The statement is followed by an infographic comparing Kleinfield's record with the record of the CEO candidate Elliott wants to install, Larry Lawson.
Arconic responded with a February 6 statement from the Arconic Board of Directors:
“Management’s accomplishments – the turnaround, the transformation, the growth, the discipline – are clear, and Arconic will continue to build on them. After leading the turnaround of Alcoa Inc., working with the Board to create two strong value engines, launch them as independent companies, and deliver significant shareholder value as a result, Mr. Kleinfeld and his leadership team bring the experience and execution that Arconic needs.”
Arconic also provided a link to their own infographic displayed on the company's website that outlines strong performance and shareholder value.
Check out the stats from Elliott Management below:
Tesla makes sexy electric cars that can outrun Ferraris and Lamborghinis. It's a darling of Silicon Valley, and CEO Elon Musk is seemingly on President Donald Trump's good side.
The company has a new $35,000 car slated to arrive later this year, and it can even sell you a battery to put in your garage to use for backup power.
All that stuff is great, but in the decade that I've been covering Tesla and driving its cars, there's only one product that I'm 100% certain I'm going to buy as soon as I can.
That's right, Tesla newest and most unproven product, an outgrowth of the $2.1-billion merger with SolarCity that was finalized last year. Musk wrapped up 2016 with a presentation of the new roof product (on a studio backlot in Hollywood!) — a product that can entirely replace an existing roof, with a variety of attractive tiles that look just like traditional roofing materials.
The solar roof is likely to be pretty expensive, at least at first, just as Tesla's cars have been quite pricey ($100,000 in average). When it comes to replacing a roof, which homeowners have to do at least once during the life of a 30-year mortgage, many folks aren't going to pony up the bucks.
But I am.
All the time, I look at my house, I look at my roof, I look at the sun, and I think I should get some solar panels.
A solar roof means that I don't have to go the old-school route. I bought my house with a new roof, but it will need to be replaced at some point. So if Tesla is still around by the time I need a new one, I'll install a solar roof and pay a lot less than what it costs at launch.
A solar roof makes much more sense to me economically than a Tesla vehicle. It also dovetails more neatly with Tesla Energy, the company's power-storage business. As far as a vehicle goes, I can get a reliable gas-electric hybrid (a plug-in hybrid, even) for far less than $35,000. I admire Tesla cars, but I don't need or lust after one.
But boy, do I lust after a solar roof. Then logic is simple: my house needs a roof — so why shouldn't it be a solar roof? With a Tesla battery in my basement or garage, I'll have backup power. And as far as my power costs go, the roof will help. It might not eliminate my electricity bill, but every little bit helps. I have three kids to get through college!
You might ask if I will definitely go Tesla for my solar roofing needs, given that I'm not going to be making this purchase until 2025 at the earliest: Won't there be other company's in the space by then?
Maybe, but Tesla's roof has a strong first-move advantage, even though conceptually the tech isn't radically new, and evidently there are some other players on the scene. Tesla is already the Apple of electric cars. Now it will be the Apple of solar roofs.
And I don't want the Android of solar roofs.
So get ready to sign me up for a roof, Elon.
Welcome to Finance Insider, Business Insider's summary of the top stories of the past 24 hours.
Philippe Laffont, the founder of Coatue Management, Louis Bacon of Moore Capital, and Dan Loeb, founder of Third Point, are planning to invest in Ben Melkman's Light Sky Macro, a New York hedge fund which is set to launch March 1.
Elsewhere in hedge fund news, Carl Icahn just jumped into a $90 billion drug maker, and people are betting it'll be a takeover target. And here's the brutal presentation that an activist investor just published about Buffalo Wild Wings.
Infinite personalization is making us dumber, according to David Siegel, cofounder of $40 billion hedge fund Two Sigma.
On Wall Street, Deutsche Bank is set to announce another shakeup in its senior ranks. Dixit Joshi, who previously led the bank's fixed-income sales force as head of the institutional client group for debt, is expected to move to the role of group treasurer, according to people familiar with the matter.
And in deal news, Snapchat executives in New York were peppered with questions on Tuesday about competition from Facebook, user growth for the disappearing-message app, and accessibility in less developed markets as they pitched prospective investors on the company's shares.
In related news, Snapchat has a problem with Android, and it's causing investors to worry.
Unilever says it's reviewing its options just days after rejecting Kraft Heinz's surprise $143 billion takeover bid. And three banks just landed key roles on what could be the biggest IPO of all time.
In markets news, here's the unstoppable 35-year "golden age" for bonds in one clear Credit Suisse chart. And one key measure shows the stock market hasn't been this expensive in 13 years.
President Donald Trump is considering adding two former employees of controversial mortgage lender OneWest to his administration, according to reports. Here's who would save the most money under Trump's proposed tax overhaul.
And here's how CEOs across America feel about Trump — and what they think he'll do to their businesses.
The Fed won't hike rates in March, but it still wants to keep Wall Street guessing, according to Business Insider's Pedro da Costa.
Lastly, here's a rare look inside the $21 million "Princess" megayacht that has five cabins and a Jacuzzi.
Here are the top Wall Street headlines from the past 24 hour:
The biggest ever corruption scandal you’ve never heard of - A giant corruption scandal that started with Brazilian construction giant Odebrecht has now engulfed several Latin American governments. The total tally of known bribes totals in the hundreds of millions of dollars.
Existing-home sales jump to a 10-year high - US existing-home sales in January rose more than expected to their highest level in nearly a decade, according to the National Association of Realtors.
CITI EMEA CHIEF: Germany is a "favourite" for a post-Brexit HQ and 200 jobs could move - Citigroup is considering Frankfurt as a new European base for its markets and trading arm as part of its Brexit plan.
Oil slides on word non-OPEC members aren't cutting production as much as promised - Crude oil prices are lower on Wednesday as traders price in a projected expansion in US crude stockpiles and following comments made by Qatar's oil minister.
Bitcoin is closing in on its all-time high - Buying early on in US trade has run bitcoin up 0.7%, or $7.50, to $1,115 a coin. Wednesday's bid has the cryptocurrency higher for a ninth straight session and threatening its all-time high of about $1,140.
Switzerland's ABB says it uncovered $100 million South Korean fraud - Swiss engineering group ABB said it discovered what it called a "sophisticated criminal scheme" in its South Korean subsidiary on Wednesday, which it expects will result in a $100 million pretax charge.
A JPMorgan economist explains why small and midsized businesses are feeling optimistic - Following the recession, small and midsized businesses in America faced a slow and uncertain recovery.
Mark Cuban calls universal basic income "one of the worst possible responses" to robot automation - Economists predict that robotic automation and advances in artificial intelligence could lead to widespread job loss in the next few decades, but billionaire investor Mark Cuban doesn't think universal basic income is the solution.
The new Range Rover Velar is gunning for Audi and Porsche - Audi and Porsche, beware — Range Rover is coming for you.
Verizon will soon offer a preview of what 5G will feel like when the networking standard becomes more widespread. The wireless provider says it's testing out 5G connectivity on select customers in 11 markets by middle of 2017 with an eye toward seeing how 5G will work in the real world. Verizon will test 5G in 11 cities this year.
Buying early on in US trade has run bitcoin up 1.4%, or almost $16, to $1,123 a coin. Wednesday's bid has the cryptocurrency higher for a ninth straight session and threatening its all-time high of about $1,161.88.
The recent strength in bitcoin comes amid speculation the Securities and Exchange Commission will approve at least one of the three proposed bitcoin-focused exchange-traded funds despite analyst concerns that none will be approved.
Bitcoin has soared more than 40% since bottoming out on January 11 following word that China was going to begin cracking down on trading of the cryptocurrency. That rally has come despite news that China's largest exchanges would begin charging a flat fee of 0.2% on all transactions and that two of China's largest bitcoin exchanges were blocking withdrawals.
For the year, bitcoin is up about 18%.
The sharp slump after the earnings release adds to the share's lackluster performance over the last year, losing almost half its value.
A huge pre-tax restructuring charge of $729 million in the 4th quarter, compared to just $4 million in the 3rd quarter, was to blame. If restructuring and other charges were excluded, the company would have posted a profit $1.24 per share, beating consensus estimates.
"Despite the difficult restructuring decisions that we undertook in the fourth quarter, we ended the year with strong operational results," First Solar CEO Mark Widmar was quoted as saying in a company press release.
Sales dropped by $208 million from the previous quarter to $480 million, posting its biggest-ever loss of $719.9 million. The company's guidance for 2017 was not much better as the company expected to post a loss of between ($0.80) and ($0.05) as against its previous EPS estimate of between ($0.10) and $0.45.
Some of the biggest names in the investing world are backing a hot new hedge fund, according to people familiar with the situation.
Philippe Laffont, the founder of Coatue Management; Louis Bacon, the founder of Moore Capital; and Dan Loeb, the founder of Third Point, are planning to invest in Ben Melkman's Light Sky Macro, a New York hedge fund that is set to launch March 1.
Billionaire Steve Cohen, the founder of Point72 Asset Management, is also investing in the fund.
These are some of the biggest names in the hedge fund industry managing some of the largest funds. As of midyear 2016, Coatue managed $10.2 billion in hedge fund assets, Third Point managed $14.9 billion, and Moore managed $15 billion, according to the Hedge Fund Intelligence Billion Dollar Club ranking.
Cohen, whose firm SAC Advisors was banned from the industry after an insider-trading scandal, is well respected among hedge funders for his investing prowess. He now manages his fortune via his family office, Point72.
Melkman previously was a partner at Brevan Howard Asset Management, a Europe-based hedge fund titan that has been losing assets. Melkman's fund launch is expected to be one of this year's largest and will employ a macro strategy.
The fund is marketing a fee structure that lowers fees as assets rise. For instance, the fund's management fee starts at 1.5% and decreases to 1.25% when assets reach $1 billion and then to 1% if assets hit $2 billion, according to a person familiar with the situation who declined to be named.
Melkman did not return calls seeking comment in time for publication. Representatives for Loeb and Bacon declined to comment.
The fund is expected to launch with at least $400 million.
Papa John's Pizza International is tumbling on Wednesday after the company reported fourth-quarter earnings on Tuesday afternoon.
The American pizza company announced fourth-quarter earnings that increased from last year and beat analysts expectations, however, same-store sales growth fell short.
Here are the numbers:
- Earnings: $0.88 a share versus $0.66 expected.
- Revenue: $439.62 million versus $447.4 million expected.
- North American same-store sales growth: Up 3.8% versus up 5.9% expected.
Looking ahead, Papa John's sees comparable sales growth of 2% to 4% in the U.S. and 4% to 6% internationally in 2017.
NOW WATCH: Here’s everything we know about the iPhone 8
President Donald Trump is considering adding two former employees of controversial mortgage lender OneWest to his administration, according to reports from the Wall Street Journal and CNBC.
OneWest, which was purchased under the name IndyMac by Treasury Secretary Steven Mnuchin's investment firm, has been criticized by Democrats and advocacy groups for aggressive foreclosure processes following the financial crisis.
Joseph Otting, the former CEO of OneWest, is being considered to head the Office of the Comptroller of the Currency, according to the Journal. The comptroller office is the section of the US Treasury responsible for overseeing banks in the US.
Otting was CEO of OneWest from 2010, the year after the lender was acquired by Mnuchin's group, until 2015, when the bank was acquired by CIT Group.
The slots would have to be confirmed by the Senate. If confirmed, Otting would serve a five-year term. The term of the current comptroller, Thomas Curry, expires in April.
Given Otting's background at OneWest, it is likely that his hearing would be similar to that of Mnuchin. The Treasury secretary faced questions regarding practices at OneWest, such as robo-signing foreclosure documents and the higher level of foreclosures at the lender than other banks.
In addition to adding Otting to the Treasury team, CNBC reported that former OneWest general counsel Brian Brooks was being considered to head the Consumer Financial Protection Bureau. While the current director of the CFPB, Richard Cordray, is not supposed to leave the agency until 2018, there has been rampant speculation that the Trump administration will try to push him out before the end of his term.
The CFPB was created after the financial crisis to provide additional oversight for financial institutions. For example, the CFPB was one of three regulators that fined Wells Fargo in September for the creation of up to 2 million accounts without the knowledge of consumers.
A few hundred civilians have fled their homes in the outskirts of western Mosul, the first reported displacement since a U.S.-backed offensive on the jihadists’ remaining stronghold there began at the weekend. A Reuters correspondent saw about 200 women and children being transported on buses by federal police on Wednesday to the town of Hammam al-Alil, some 20 km (12 miles) south of Mosul, where camps have been set up. The federal police and elite Interior Ministry units known as Rapid Response have made quick progress towards western Mosul in a sweep from the south through hilly desert terrain since fighting resumed on Sunday.
Turkey said Wednesday fewer than 100 jihadists were still holed up in the flashpoint Islamic-State Syrian town of Al-Bab, as rebel commanders predicted its capture was imminent. The fight for Al-Bab has seen the bloodiest clashes of Ankara's half-year campaign inside the conflict-torn country and its capture would be one of the most significant reverses for Islamic State in Syria. Speaking to NTV television, Defence Minister Fikri Isik said half of the town of Al-Bab was in the hands of Turkish troops and allied pro-Ankara Syrian rebels, after the government repeatedly said it was "largely under control".
NASA's been finding all kind of cool things out in the depths of space recently, but today the agency is poised to announce something big. NASA will be presenting a new discovery live to the world at 1:00 PM EST, and they'll be live streaming the entire news conference online. You can watch the entire event right here.
There's only been small hints at exactly what the discovery is all about, but NASA has noted that it's related to a "discovery beyond our solar system." That means exoplanets — planets outside of our own little celestial neighborhood — are likely the main focus. Researchers have already made many exoplanet discoveries in recent months, finding "Super Earths" and "Hot Jupiters" by the handful, so if NASA thinks its new discovery is worthy of a press conference of its own, it must be pretty important.
According to Space.com, the conference will feature a total of five speakers, all of whom have job titles that confirm we'll be hearing a lot of big words that we barely understand. The presser will feature:
Thomas Zurbuchen, associate administrator of the Science Mission Directorate at NASA headquarters; Michaël Gillon, astronomer at the University of Liège in Belgium; Sean Carey, manager of NASA's Spitzer Science Center at Caltech/IPAC in Pasadena; Nikole Lewis, astronomer at the Space Telescope Science Institute in Baltimore; and Sara Seager, professor of planetary science and physics at Massachusetts Institute of Technology.
The full report on NASA's finding will be made available in the journal Nature at the same time as the press conference, so there will undoubtedly be plenty of juicy details to sink your scientific teeth into even after the news is out.
Texas has a new plan for its 2.5 million feral hogs: total annihilation. Sid Miller, the state's agriculture commissioner, just approved a pesticide — called "Kaput Feral Hog Lure" — for statewide use. "The 'hog apocalypse' may finally be on the horizon," Miller said in a statement on Tuesday. SEE ALSO: First human-pig chimeras created, sparking hopes for transplantable organs — and debate "This solution is long overdue," he added. "Wild hogs have caused extensive damage to Texas lands and loss of income for many, many years." Texas's agriculture commission estimates that feral hogs cause $52 million in damage each year to agricultural businesses by tearing up crops and pastures, knocking down fences and ruining equipment. The so-called hog lure is derived from warfarin, a blood-thinning agent that's also used to kill rats and mice in homes and buildings. Animals don't die immediately from eating the odorless, tasteless chemical. That would be too kind. Instead, they keep eating it until the anti-clotting properties cause them to bleed to death internally. This week, Miller approved a rule change in the Texas Administrative Code that allows landowners and agricultural producers to use Kaput — essentially warfarin-laced pellets — to keep feral hogs off their property. Not on my watch, hogs. Image: mark thompson/Getty Images Proponents of the hog toxicant, including the Texas A&M Agrilife Extension Service, say it's an effective tool because it's only strong enough to kill the swine, and not other wildlife populations or livestock. In January, the U.S. Environmental Protection Agency registered Kaput's hog bait under the Federal Insecticide, Fungicide and Rodenticide Act, a move that made the product available for general use. Still, environmentalists and hog hunters alike staunchly oppose using warfarin to stamp out Texas's feral pig problem. Pigs poop, after all, and other animals could ingest the warfarin along the way. Some Texans hunt the pigs for sport and food, and they're worried about eating poisoned swine. "For Texas to introduce a poison into the equation is a bad decision in our opinion and could likely contaminate humans who unknowingly process and eat feral hogs," the Texas Hog Hunters Association said in a Change.org petition to block the rule change. MIke and his big ole boar from yesterday. Lamar county Texas https://t.co/jQoS5JbtnQ pic.twitter.com/2SeAKs7zbh — TX Hog Hunters Assn. (@texashoghunters) February 14, 2017 Louisiana might become the next state to use Kaput to quell its feral hog population, which worries state wildlife veterinarian Jim LaCour. He said local black bears and raccoons could easily lift the lid to the cages containing the warfarin-laced pellets. "We do have very serious concerns about non-target species," LaCour told the Times-Picayune in New Orleans. "When the hogs eat, they're going to drop crumbs on the outside, where small rodents can get them and not only intoxicate themselves but also birds of prey that eat them. Since the poison will be on the landscape for weeks on end, the chances of these birds eating multiple affected animals is pretty good," he told the newspaper. The pesticide's manufacturer, Scimetrics Ltd. Corp., assures the pesticide is safe for humans and wildlife — just not for feral pigs.
China said on Tuesday it opposed action by other countries under the pretext of freedom of navigation that undermined its sovereignty, after a U.S. aircraft carrier strike group began patrols in the contested South China Sea. The U.S. navy said the strike group, including the Nimitz-class aircraft carrier the USS Carl Vinson, began "routine operations" in the South China Sea on Saturday amid growing tension with China over control of the disputed waterway. "China always respects the freedom of navigation and overflight all countries enjoy under international law," Chinese foreign ministry spokesman Geng Shuang said at a daily news briefing.
Cypriot President Nicos Anastasiades expressed regret on Wednesday over the decision of Turkish Cypriot leader Mustafa Akinci not to attend scheduled peace talks on Thursday. "I am ready to continue the dialogue at any time," Anastasiades wrote on Twitter. Greek Cypriot officials earlier reported Akinci had pulled out of Thursday's peace talks, ongoing for almost two years.
By Alistair Smout LONDON (Reuters) - Britain's top court backed a government attempt to limit immigration by ruling on Wednesday that an income test for those who want to bring their non-European spouses to the UK is acceptable and does not infringe human rights. Prime Minister Theresa May introduced a rule in 2012 when she was interior minister that Britons who wanted to bring spouses from outside the European Economic Area to the UK had to be earning at least 18,600 pounds ($23,170) a year. The Supreme Court said the minimum income requirement had caused significant hardship to many, but ruled that in principle it was not inconsistent with the European Convention on Human Rights.
By Venus Wu HONG KONG (Reuters) - Former Hong Kong leader Donald Tsang was jailed for 20 months on Wednesday for misconduct in public office, making him the most senior city official to serve time behind bars in a ruling some said reaffirmed the financial hub's vaunted rule of law. The sentence brings an ignominious end to what had been a long and stellar career for Tsang before and after the 1997 handover to Chinese control, service that saw him knighted by the outgoing British colonial rulers. "Never in my judicial career have I seen a man falling from such a height," said High Court justice Andrew Chan in passing sentence.
Tue 21 February, 2017
Immigration policy experts lashed out Tuesday at the Department of Homeland Security’s plan to implement President Trump’s executive orders on immigration. “In my many years of practicing immigration law, I have not seen a mass deportation blueprint like this one,” Marielena Hincapié, executive director of the National Immigration Law Center, a Los Angeles-based nonprofit that advocates for the rights of low-income immigrant families, said in a conference call with reporters. In two memos issued Tuesday, DHS Secretary John Kelly laid out sweeping new guidance for officers tasked with carrying out the president’s immigration policies.