Month: February 2019

With the latest China economic data once again underwhelming overnight, it is safe to say that in a world where consensus overwhelmingly expect a global recession to arrive some time in 2020, China – which continues its aggressive shadow deleveraging campaign – remains the biggest potential catalyst for a major economic swoon in the coming year.

Which is why we did not find it surprising that in the latest note from Credit Suisse strategist Andrew Garthwaite, he writes that “to us, China remains the biggest macro risk currently. We would expect aggregate demand to continue to slow (owing to a slowdown in housing, manufacturing investment and exports and there needs to be a destocking) but we also would expect to see an accelerating policy response which should be enough to stabilize PMIs at lower levels.”

And while the “house view” from the Swiss bank is that the Chinese government still has policy flexibility and none of the preconditions for a hard landing are currently present, it does caution that as one of its biggest possible outlier surprises for 2019 that, China suffers a hard landing, defined as real GDP growth slowing to sub 5% (for context, the lowest real GDP growth recorded in the past 40 years – i.e. since the reform and opening up by Deng Xiaoping – was 3.9% in 1990).

So is a China hard landing probable in 2019, and how could we get to that point? Credit Suisse lays out several key developments that could get us there, starting with…

Aggregate demand growth slows much further

Aggregate demand growth, measured as the sum of exports, FAI and retail sales, is at the weakest in 20 years.

The problem, as CS writes, is that the key drivers of demand are likely to continue to slow:

Exports have been front loaded and new orders suggest export growth continues to fall.

Housing starts are expected to fall around 8% in 2019, according to our China property analysts – with the fall in property transactions and the end of shantytown loans.

Furthermore, manufacturing investment (which accounts for c.32% of FAI) could slow sharply to reflect the fall in corporate profits, coupled with an inventory destock: inventories are in the top 10% of their range, with NBS PMI new orders vs inventories now at their lowest level in their five-year history.

Property prices fall sharply, causing a hard landing

To Garthwaite, a shock in China’s housing sector “seems the most likely catalyst” because if we look at the credit bubbles in Spain, Ireland, Japan or the US, then “the recession occurred soon after house prices started to fall.” Consider this: China has seen the fourth biggest increase in credit to GDP of any economy over a 10-year period; this is notable because all the other countries that have seen a larger increase in leverage ended up with major recessions (Ireland, Spain and Thailand).

As we have discussed previously, much of this credit excess has gone into real estate (as is often the case). Furthermore, in China real estate is as high as a proportion of GDP, and two measures of affordability look clearly stretched: rental yields are one third of the mortgage rate (a simple measure of affordability) and the house price to wage ratio is among the highest in the world.

As such, CS thinks that property is the key to a potential hard landing in China as property accounts for 40-50% of banks’ collateral and around half of household wealth.  The worry is that:

• Property turnover is consistent with a small fall in property prices.
• As above, affordability is stretched.
• 29% of Chinese urban households have at least one vacant property. As we discussed last November, according to research published by Southwestern University of Finance and Economics in China noted that 20% of urban housing stocks are empty (or 50MM apartments)
• The problem with this is that the home ownership rate in China is already very high (c.73% according to analysts’ estimates), which means should any cracks appear, they will be few potential buyers that could step in (if not the government).

Demographics is not helping as well. The working age population has already peaked and the country is rapidly ageing. Rising urbanisation should be supportive, but the Japanese experience makes us less sanguine. Admittedly, it is slow moving and unlikely to cause a large price correction in itself.

The hope is that LTV are low in China and thus a large collapse in house prices would be required to trigger negative equity. Still, Credit Suisse is confident that the trigger point would be around a 30% fall.

Meanwhile, the worry is that growth in shadow lending means that there may be a lot more hidden leverage. As such, the fall in house prices needed to trigger negative equity could be a lot less than is generally thought.

That said, China has two key supports for allowing an ‘overvaluation’ of real estate— first, that disposable income is still growing at ~8% (helping to improve affordability over time) and second, there are very few alternative venues for investment in mainland China (with a high saving ratio, capital controls and an underdeveloped financial markets). The Swiss bank also admits that Chinese property developers tend to lead property turnover, which in turn leads property prices. Property developers have recently started to underperform but have held up remarkably well in the past year.

China’s excess investment results in deflation

The investment share of GDP remains extreme. This is a problem because when GDP moves from being investment-led to consumer-led, the GDP growth rate tends to halve.

The excess is so great that while China accounts for 22% of global investment, it is responsible for just 10% of global consumption and thus this excess capacity has to be exported. However, this is now more difficult for both political and economic reasons. The danger is when excess capacity leads to domestic deflation. This pushes up real rates which could in turn trigger a major deleveraging. Both PPI inflation and GDP deflators have dropped significantly recently.

The leadership is late in using the appropriate policy… and thus make a policy mistake

Garthwaite is worried that China’s leadership does too little, too late and that in turns allows the credit bubble to deflate much more aggressively. The risk is that the leadership has a higher ‘pain’ threshold than normal to slowing growth as: (1) with the lifting of the term limit for President Xi, there is less need to focus on short-term boosts to growth, and (2) there is not yet a sharp rise in official unemployment with the job offer to application ratio still high at 1.2 and the urban unemployment rate of 3.8% officially (its lowest level since 2002).

The other issue might be that leadership may seek to avoid having a stimulus that would result in a current account deficit (which in turn would mean that China would have to ‘borrow’ from foreigners). The current account fell to a small deficit for the first three quarters of 2018. Indeed, this might mean that the leadership would deem cutting rates and allowing the RMB to depreciate as the most appropriate response—something that would not only export deflation but also potentially cause a protectionist backlash  among its trading partners.

Consumer leverage has risen to worrisome levels

With a consumer share of GDP of 39%, it is obvious that in the long run growth has to be led by the consumer. The problem is that after Norway, China has had a bigger increase in household debt to GDP than any other country

While it may comes as a surprise to some, the debt to disposable income ratio is above that of the US (at 118% versus 104% in the US). The debt service ratio has also increased significantly in recent years, and is likely to increase further given that consumers are incurring more expensive forms of borrowing, i.e. via credit cards or short term loans. Credit card debt to GDP now is about 7%.

As a result, Credit Suisse economists argue that growth of nominal disposable income net of debt services (i.e. income available for consumption) has dropped to 2%.

A financial crisis usually takes c7% off GDP

One should also consider the costs in terms of output lost due to contraction in general economic activities. According to a paper published by NBER, the financial crises between 1980-2007 resulted in a hit of c7% of GDP on average (admittedly with a relatively large standard deviation of 9%). A 7% hit would push Chinese GDP growth to conventional recession territory.

Clearly, the issue is whether it would be significantly different in China’s case, and as Credit Suisse notes, the question to ask is whether China has the fiscal flexibility to deal with a banking crisis.

The two previous banking crises in China have had NPLs in excess of 20% (for example, in 1999, the AMC bought 24% of total loans). If this happened again, then NPLs would be around 30-40% of GDP (as bank loans are c.155% of GDP and total non-government credit to GDP is c.205%). If we assume that two thirds has to be written off, then the cost would be c20-30% of GDP.

Moreover, the fiscal flexibility is limited by a combined budget deficit (state and local) of around 6% to 8% of GDP. With around 23% of local government revenue coming from property/land sales, then the budget deficit could be significantly worse than this. Finally, if we include local government financing vehicles and other off-budget liabilities, total government debt to GDP is at 68%. The number is likely to be much higher once we include debt owed by SOEs, as non-financial corporate debt is at 155% of GDP and, according to ADB, SOEs account for approximately 2/3 of them, i.e. more than 100% of GDP. Thus, China’s fiscal
ability to maneuver could be much more limited than would appear to be the case.

Credit is giving a warning signal

Credit tends to lead the cycle, and we believe Chinese credit is giving a clear warning signal. As we have discussed frequently, China corporate bond defaults hit an all-time high in 2018.

* * *

So assuming China does suffer a hard landing, what would be the impact of such an outcome on the global economy and global markets? In a word, it would be nothing short of devastating.

Global Growth

China has accounted for 36% of the global growth since 2013 and accounts for 16% of the world GDP (on current exchange rates, 18.7% on PPP). If China growth slows to just 4% (i.e. c.2.2% lower than we expect), that would take 0.4p.p growth off global GDP directly. However, the total impact would be about double the size because the foreign trade multiplier is  typically 2x to 3x (we assume 2.5x). In other words, if China growth slows, the growth of other Asian countries would likely to slow in response. One can see this beta by looking at the sensitivity of say German exports to China versus China GDP growth (last time when Chinese nominal GDP dropped to 6% in Q3 2015, imports from Germany dropped by c.20%).

Thus, the Swiss bank estimates that China GDP growth slowing to 4% would take approximately 1% off global GDP growth. Global PMIs are already pointing towards 2.8% global growth and thus global growth could fall to just below 2%. This would be the lowest level since 2009.

And yet, even this may underestimate the impact because should China slow significantly, it is likely to be accompanied by deflation (i.e. the GDP deflator becomes negative) and thus nominal GDP in China could slow by even more. If the deflator falls from the current 1.5% to -1% in this scenario, then nominal GDP in China falls from 9.4% to 3% and this then takes 2% off global nominal GDP growth (on consensus numbers for 2019, GDP growth is 3.5% and inflation is 3.2% and thus nominal GDP of 6.7% would end up being around 4.5%).

Global equities

From a stock market perspective, the impact would be even greater because of the high multiples that rely heavily on consumer earnings from China (in the case of staples and luxury, for example). Meanwhile, the much weaker RMB would destabilise emerging market currencies and be a further deflationary force globally at a time when the US economy is slowing.

However, the biggest problem is that this time around, unlike 2008, the space for policy response is limited (real rates in a recession typically need to be cut 4% to 5%), and there is no new China to take over the leadership of global growth.

As a result, a China recession combined with a much weaker RMB could easily cause US GDP growth to fall to zero. Finally, according to Credit Suisse calcs, a “small” recession in the US (1% decline in GDP) would lead to 34% fall in markets without a change in bond yields; even with a 1% fall in bond yields, -1.0% US growth would lead to a 16% fall in markets.

via ZeroHedge News http://bit.ly/2DPNdeS Tyler Durden

Jobs beat and ISM beat but as soon as Europe closed, it all fell apart (despite President Trump’s jawboning at how well China talks are going)…

Perhaps this is why – the market is implying a more hawkish Fed (rate-cut expectations are falling)…

via ZeroHedge News http://bit.ly/2Geg12a Tyler Durden

Authored by James Howard Kunstler via Kunstler.com,

Howard Schultz seemed like a nice enough fellow on CBS’s 60 Minutes show last week. The coffee maestro from the Brooklyn public housing projects is no Golden Golem of Greatness but, alas, he does happen to be a white man, meaning he’s a walking microaggression. And he informed the viewing audience that he is of the Hebrew persuasion, which must have induced a fugue of hysteria among those who believe that the Jews have put the global economy on layaway for some future apocalyptic Hanukkah celebration.

In a way, he’s calling the Political Identitarians’ bluff. The Democrats who, for the moment, remain a major political party, are absolutely determined to put a woman in the White House because men have made the world a failed planet that can only be fixed with a regime of caring-and-sharing. The Democrats would like to drive a wooden stake through Mr. Schultz’s offensive gonads.  How dare he! Does he not know that his independent ticket in the 2020 election will crib votes from whomever the “It’s Her Turn” candidate proves to be — and result in the re-election of that Diet Coke guzzling shit-magnet in the oval office? (!)

Senator Kamala Harris of California is the big locomotive on the track for now. I suspect her cowcatcher will shove Elizabeth Warren, Kirsten Gillibrand, and honorary feminist Cory Booker into the weeds before the first debates are over. Ms. Harris is a formidable personality. You could see it in her hectoring interrogations during senate committee hearings the past few years. She likes to chew up these equivocating pissants sitting below at the witness table and spit them out. She comes from a family of scientists and economists and has had a distinguished career of her own, dealing with a lot of dicey legal questions in the political hall of mirrors called California. I don’t have any doubt that she’s intelligent and qualified. But I do have doubts that anyone will want to take the oath of office on January 20, 2021.

The problem-of-problems (and there are many) is that America has shot its wad borrowing money to keep things going – things like the consumer economy, suburbia, generous pensions, agribusiness, health care, higher education… stuff like that. The reason we’ve shot our wad: the collateral for our loans is gone. Oh? What was that collateral? It was the promise of future economic growth, rather specifically of the industrial type that produced real stuff and real wealth. We put that on a slow boat to China some years ago and replaced it with financialization, which is a colossal Three-Card-Monte game that produces a lot of “money” without producing wealth. Even worse, financialization destroyed the indexes that accounted for the measurement of real wealth, or capital, and replaced it with accounting fraud, so it’s very hard to see the damage.

What it boils down to is that the USA is no longer a credit-worthy borrower. If the USA was looking for a car, it would have to settle for a 14-year-old Jeep Cherokee on somebody’s lawn with a sign taped to the windshield that says “Runs Gud!” Of course, America will still manage a kind of hocus-pocus to give itself loans — which is what happens when the Federal Reserve buys bonds from the US Treasury — but with the collateral of future real growth gone, the catch is that the money itself will increasingly be gone as the dollar loses value. That’s nature’s way of seeking equilibrium.

The final two years of the Golden Golem’s reign will be the workout of these dynamics. Poor Mr. Trump will be left groaning and bellowing in that tar pit of fiscal ruin like a doomed mastodon while the saber-toothed cats prowl the sagebrush flats around him. Let’s face it: he served his purpose. He stirred the pot. He gave the right people some wedgies. He revealed all the fissures in our disintegrating national life. More consequentially, perhaps, he changed the composition of the federal courts. So that when Kamala Harris does take her turn, and discovers the horrifying financial state of the union, the courts will obstruct her most ambitious schemes to strip the remaining assets from the land to keep America’s beater government running at all costs. That is, to turn the USA into a paradise of free everything.

But Howard Schultz kind of mucks things up. Think of him as a sort of Bizarro Golden Golem of Greatness. He will appeal to a lot of voters who are looking for a reassuring Daddy. He fulfills the fantasy of what an outsider businessman-type might bring to the scene without all the reeking baggage on Mr. Trump’s careening choo-choo.

It’s also possible that he doesn’t scare easy, and that the show of claws and fangs he’s been treated to so far on the “Progressive” side of things are an interesting sign of weakness in his adversaries.

via ZeroHedge News http://bit.ly/2G54OBN Tyler Durden

In what’s shaping up to be a perfect political storm for the Trump administration, the crisis in Venezuela has offered ample fodder for Republicans who are hoping to counter the influence of the resurgent American left. And as Democratic contenders for the 2020 nomination continue to announce their intentions to run with a focus on “economic justice” – as New Jersey Democratic Cory Booker did Friday morning – the Trump administration is hoping to seize the opportunity to win over more conservative Latino voters in a crucial swing state: Florida.

To this end, Vice President Mike Pence is planning on delivering a sweeping policy speech in Doral, Florida on Friday after he and wife Karen Pence finish meeting with members of the Venezuelan community-in-exile, including former Venezuelan politicians and political prisoners, according to Bloomberg. Pence’s speech comes one week after the administration took the unprecedented step of recognizing opposition leader Juan Guaido as the legitimate ruler of Venezuela, before slapping sanctions on the country’s state-run oil company, PDVSA.

And as Democrats back policies like aggressive taxes and “Medicare-for-All”, it’s becoming easier than ever for Republicans to paint Democrats and the Socialist party of Nicolas Maduro with the same brush.

“A lot of what the Democratic candidates are proposing is closer to socialist policy than any other major policy proposals we’ve seen in the last 20 or 30 years,” said Lanhee Chen, head of Stanford University’s domestic policy studies program and former policy director for Mitt Romney’s 2012 campaign. “A confiscatory wealth tax, a single-payer health system – these are all things you would find in a socialist country, quite frankly.”

Florida politicians have been notably outspoken in condemning the depredations of the Maduro regime – Marco Rubio, who has unleashed an almost unceasing stream of tweets about Venezuela since the US backed Guaido – being one key example. For Venezuelans who have flocked to “little Caracas” and the large Cuban community in and around Miami, politicians condemning “socialism” have typically offered a lot of clout. Gov. Ron DeSantis’ warnings about challenger Andrew Gillum wanting to turn Florida into another Venezuela have been credited with helping him emerge victorious with a razor-thin margin.

And as another political commentator noted, 202 is right around the corner.

“Venezuela matters a lot down here,” said Brian Fonseca, director of the Jack D. Gordon Institute for Public Policy at Florida International University. “And I know that there is no doubt Florida politics is part of this. 2020 is right around the corner, and Florida is a very important swing state; it always has been.”

Pence has been credited with taking a leading role in establishing the US’s Venezuela policy, and is expected to be accompanied by DeSantis, Rubio Representative Mario Diaz-Balart and Senator Rick Scott, all of whom were notably present at the White House on Jan. 22.

Some 125,000 Venezeulans are believed to be living in South Florida, part of an estimated 3 million living in exile around the world. Many have fled to neighboring countries like Brazil, Colombia and Peru. With the US ratcheting up pressure on Venezuela every day, it’s not out of the realm of possibility that Pence could include new revelations about the administration’s efforts to topple Maduro.

via ZeroHedge News http://bit.ly/2RZBXVP Tyler Durden

Authored by Charles Hugh Smith via OfTwoMinds blog,

The corporate-state media lives in terror that the truth will somehow leak out of the corporate-Imperial fortress, imperiling their jobs and perks.

It’s not exactly news that the Alternative Media is under assault: skeptical inquiry and dissenting narratives are smeared as “fake news,” and new suspiciously corporate entities (NewsGuard et al.) claim to be “protecting” consumers from “fake news” as cover for their real agenda, which is limiting public exposure to skeptical, dissenting independent analysis.

Social Media and Search corporations are also censoring non-corporate, non-state media, again under the purported guise of stripping out “fake news.”

Despite this semi-official censorship, we in the Alt-Media are having way more fun that the anxiety-ridden serfs in the Mainstream Media. There are many hard-working, honest journalists slaving away in the Mainstream (more accurately, the corporate-state) Media, but there’s the neofeudal reality of their employment: If what they report undermines the ruling elites, they’re not allowed to do their job.

MSM journalists have no agency: they report what they’re told to report. They also have no control over what gets by their employers’ editorial / corporate filters: question a big advertiser and your report will quietly be buried. Question the approved narrative and conclusion, and you’ll be shunned, blacklisted, etc. If you make a fuss, you’ll be let go in the next round of lay-offs.

Everyone who labors in the corporate-state media lives in fear of the truth getting out: hence the full-spectrum freak-out whenever an insider turns leaker / whistleblower: oops, the happy-story cover is blown and the ugly truth is now revealed, including the collusion of the corporate-state media. (In the U.S. PBS / NPR is the quasi-state media, analogous to Japan’s NHK, Britain’s BBC or France’s France24.)

The corporate-state media lives in terror that the truth will somehow leak out of the corporate-Imperial fortress, imperiling their jobs and perks. Their job isn’t to report any truth that lays waste to the self-serving interests of the ruling elites; their job is to protect the ruling elites by “reporting” politically-correct narratives and playing up culturally divisive incidents to distract the masses from any awareness of their political invisibility and lack of financial independence or agency.

The MSM’s other job is to scrub any mass dissent from their “news.” So for example, U.S. corporate-state media coverage of the yellow vest movement in France is near zero. This is not random; it is all part of skewing the “news” to meaningless controversies and fawning politically correct / approved narratives stories.

A working-class rebellion against political and financial invisibility is anathema to America’s ruling elites and their corporate allies in the MSM and hence the minimal coverage. You basically have to understand French to follow on-the-ground Alt-Media coverage in France of the yellow vest protesters.

The American MSM dutifully regurgitates the bogus narrative being pushed by France’s elitist corporate-state media, that the yellow vest protesters are violent and thus need to be crushed by overwhelming paramilitary force. That the protesters are being beaten and provoked to respond to state-ordered violence is left unreported.

We in Alt-Media are confident the truth will eventually come out despite the efforts of the ruling elites and their MSM / social media corporate minions. It’s a lot more fun being on the side of skeptical inquiry and dissent than being behind the leaky dike, anxiously trying to stop the actual facts of the matter from entering the public awareness.

It’s more fun being on the side of free inquiry and meaningful analysis than being on the side of censorship, fear-mongering, propagandistic sowing of discord and the promotion of the corporate-state party line.

You won’t find any MSM reporting on the neofeudal structure of America’s economy and society:

*  *  *

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print): Read the first section for free in PDF format. My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF). My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

via ZeroHedge News http://bit.ly/2RxHPk7 Tyler Durden

Call it a 1/1024th apology.

Having resisted calls to apologize for her October DNA test gimmick as recently as December, Democratic presidential hopeful Elizabeth Warren appears to have seen her polling figures with Indians (and other minorities) and she finally caved.

According to the Intercept and NYT, Senator Warren, who is running for the Democratic presidential nomination on a platform of taxing America’s billionaires, and who previously claimed she was of Indian ancestry, has apologized to the Cherokee Nation for her decision to take a DNA test to prove her Native American ancestry, a move that the NYT said “had angered some tribal leaders and ignited a significant political backlash.”

It wasn’t clear if in addition to apologizing to the Cherokee Nation, Warren was also apologizing to the rest of the nation.

The apology comes just as Warren is set to formally kick off her presidential run after recent visits to early nominating states like Iowa, New Hampshire, and South Carolina. It also comes after repeated calls for her to apologize from tribal leaders, political operatives, and her own advisers, who said her October decision to take the DNA test “gave undue credence to the controversial claim that race could be determined by blood — and politically, played into President Trump’s hands.“

And so, bury the tomahawk, on Thursday, Warren called Bill John Baker, chief of the Cherokee Nation, to apologize for the DNA test, said Julie Hubbard, a spokeswoman for the tribe. She called it a “brief and private” conversation.

“I understand that she apologized for causing confusion on tribal sovereignty and tribal citizenship and the harm that has resulted,” Ms. Hubbard said. “The chief and secretary of state appreciate that she has reaffirmed that she is not a Cherokee Nation citizen or a citizen of any tribal nation.”

The unexpected apology breaks from Warren’s previous public stance, in which she refused to admit fault and as recently as December she rebuffed calls for an apology; however that changed after Warren’s advisers said she has privately expressed concern that she may have damaged her relationships to Native American groups “and her own standing with activists, particularly those who are racial minorities.”

In other words, her sincere apology was the outcome of careful strategy sessions about how her polling could be affected by the DNA test.

“I put it out there. It’s on the internet for anybody to see,” Ms. Warren said in an interview. “People can make of it what they will. I’m going to continue fighting on the issues that brought me to Washington.”

The apology follows the publication of an opinion collumn by Chuck Hoskin Jr, the secretary of state of the Cherokee Nation, in the Tulsa World on Wednesday titled, “Elizabeth Warren can be a friend, but she isn’t a Cherokee citizen.”

In the column, Hoskin said Warren’s test, which her office said showed strong evidence that Ms. Warren has Native American pedigree “6-10 generations ago,” did not take into account that, for most Native Americans, culture and kinship is what creates tribal membership — not blood, and certainly not 1/1024th thereof.

“This concept of family is key to understanding why citizenship matters,” Mr. Hoskin wrote. “That is why it offends us when some of our national leaders seek to ascribe inappropriately membership or citizenship to themselves. They would be welcome to our table as friends, but claiming to be family to gain a spot at the table is unwelcome.”

via ZeroHedge News http://bit.ly/2TpBoBb Tyler Durden

The digital publishing industry, which expanded rapidly during the online video boom but has since been struggling to deliver on the lofty promises sold to its VC and corporate backers, just can’t catch a break.

Following mass layoffs at Buzzfeed, the Huffington Post, Gannett and Verizon Media Group last week, Vice Media has become the latest trendy new media darling to announce deep cuts to staffing levels.

The Hollywood Reporter reported Friday morning that the cuts will impact around 250 people, and are part of new CEO Nancy Dubuc’s “strategic plan” to cut back on spending and “achieve profitability.” The cuts, which will be distributed across “all departments at every level”, will total roughly 10% of the company’s workforce.

Around 250 jobs are expected to be cut, a company spokeswoman tells The Hollywood Reporter, as the 2,500-person Vice reduces redundancies internationally and reorients to focus on growth areas like film and television production and branded content. All departments at every level are expected to have layoffs, from IT to finance to television.

As part of the “strategic restructuring”, the company is pivoting away from online publishing and focusing more on television, film and branded content.

“Having finalized the 2019 budget, our focus shifts to executing our goals and hitting our marks,” CEO Nancy Dubuc wrote in a memo sent to staff on Friday morning that was shared with THR. “We will make Vice the best manifestation of itself and cement its place long into the future.”

The cuts were widely expected. Dubuc, who is the first outside CEO in the company’s 25-year history, was brought in to replace founder Shane Smith, who has retreated into the role of executive chairman. One of Dubuc’s chief duties is reining in the aggressive global growth that occurred under Smith as Vice transformed from a Montreal-based punk magazine to a global digital media darling.

Dubuc, in an October interview with THR, was forthcoming about her plans to reorient Vice for the future and tighten its spending in order to put it on a path to profitability, acknowledging that she was “not going to rule out more” layoffs at the company. Vice last year implemented a hiring freeze and attempted to reduce some of its workforce through attrition but once executives finalized the strategic plan for the year, they made the decision to complete most of the cuts through layoffs.

Dubuc, the former A+E chief, became CEO of Vice at the end of May, taking over for the company’s brash founder Shane Smith who announced in March that he would step back into the role of executive chairman. As the first outside CEO at the 25-year-old company, she is now tasked with helping it live up to the high expectations surrounding its $5.7 billion valuation and more than $1 billion in investments from the likes of Fox, Disney and TPG.

One of Dubuc’s first projects was setting a plan that would bring order to the chaos that was created during the years when Vice transformed from a Montreal punk magazine to a global media organization. Chasing growth, Smith aggressively took Vice into new markets, opening up offices in nearly 40 countries and striking deals for linear and mobile content with media companies in every major region.

In what will come as welcome news to staffers – particularly after Buzzfeed’s staff has spent the last week complaining to anybody who would listen about how the company has opted not to compensate departing employees for unused PTO – Vice said it will pay out PTO and 10 weeks severance and health care to its employees.

Employees affected in the U.S., U.K. and Canada are expected to be notified today. The remainder of the cuts will take place over the coming weeks. Vice, whose employees recently ratified new contracts via WGA East, will pay out employee PTO and 10 weeks of severance and medical benefits in the U.S. Global separation packages will vary based on the country.

After Disney took a $157 million writedown on its Vice stake in November, the company’s other investors are growing antsy for it to find a buyer as the company remains unprofitable despite bringing in between $600 million and $650 million in revenue last year. In an encouraging sign about the potential for its films unit, Vice snagged around $14 million from Amazon for the Adam Driver drama “The Report” at Sundance this past week.

But Vice’s bottom line aside, we can’t help but wonder if the New York Times will publish another op-ed where then paper’s columnist labels the Vice layoffs “Devastating for Democracy.”

via ZeroHedge News http://bit.ly/2HMSvvq Tyler Durden