Month: September 2019

Authored by Mike Shedlock via MishTalk,

Reports by Challenger, a global outplacement and business firm, shows record CEO churn and growing corporate layoffs.

Overall Layoffs a Growing Concern

The August Challenger report says 53,480 Announced Cuts Led by Tech, Trade Issues a Growing Concern

U.S.-based employers ramped up the pace of downsizing in August, as companies announced plans to cut 53,480 jobs from their payrolls. This is up 37.7% from July’s total of 38,845, according to the latest report on job cuts released Thursday from global outplacement and business and executive coaching firm Challenger, Gray & Christmas, Inc.

August’s total is the fourth highest for job cuts this year, and marks the eighth consecutive time job cuts were higher than the corresponding month one year earlier. Last month’s total was the highest August total since 2009, when 76,456 cuts were recorded.

The August total is 39% higher than the 38,472 cuts announced in August 2018. So far this year, employers have announced plans to cut 423,312 jobs from their payrolls, up 36.2% from the 310,773 cuts in the first eight months of 2018. It is the highest eight-month total since 2015, when 434,554 cuts were announced.

“Employers are beginning to feel the effects of the trade war and imposed tariffs by the U.S. and China. In fact, trade difficulties were cited as the reason for over 10,000 job cuts in August,” said Andrew Challenger, Vice President of Challenger, Gray & Christmas, Inc.

“We are continuing to see investor concerns shaking confidence in the market, and employers appear to be cutting workers in response to a slowdown in demand for their products and services,” he added.

Retail continues to lead all sectors in 2019 with 57,226 cuts, 2,059 of which occurred last month. That is 28% fewer cuts than the 79,478 announced in the same period last year. The Automotive sector has announced 36,148 cuts so far this year, the highest eight-month total since 2009, when 128,906 jobs were cut.

While job cuts are up in every region, companies located in the Southern United States have seen the largest jump in job cut announcements, as employers in this region have announced 53% more job cuts than through the same period last year: 90,337 compared to 58,964 in 2018. Companies in the Eastern United States had the second-largest percentage increase, with 46.6%, as employers in this region announced 119,689 cuts in 2019 compared to 81,616 last year

CEOs Abandon Ship

Via email from Challenger, 159 CEO Exits in August.

CHICAGO, September 11, 2019 – Increased churn continues at the chief executive position, as employers at U.S.-based companies announced 159 chief executive officer changes, the highest monthly total on record, according to a report released Wednesday by global outplacement and business and executive coaching firm Challenger, Gray & Christmas, Inc.

Last month’s total was 28% higher than the 124 CEO exits announced in July. It is 3% higher than the 154 CEO changes announced in the same month last year, the previous highest monthly total. August marks the seventh time this year that CEO changes were higher than the corresponding month one year earlier.

So far this year, 1,009 chief executives have left their posts, 15% more than the 879 CEOs who left the top spot at companies through August 2018. It is the highest total of CEO exits in the first eight months of a year since Challenger began tracking in 2002.

Chief executives are leaving at a faster clip than even during the recession. In 2008, the next highest year for CEO turnover, 992 CEOs had announced their exits through August, 2% lower than the current year-to-date total.

“With growing uncertainty surrounding global business and market strength, the fact that so many companies are choosing this moment to find new leadership is no coincidence,” said Andrew Challenger, Vice President of Challenger, Gray & Christmas, Inc.

Challenger tracks CEO changes at companies that have been in business for at least two years, with a minimum of ten employees.

CEO Exits By Sector

• Companies in the Government/Non-Profit sector continue to lead all sectors in CEO exits with 218.

• The Technology sector announced the second-highest number of CEO changes this year with 134, up 34% from the 99 who left their posts through August last year.

• Health Care/Products companies and manufacturers have announced 83 CEO exits, down 2.3% from the 85 who announced their departures through August last year.

• Industrial Goods manufacturers, who have been particularly hard hit with trade issues, regulations and deregulation, have announced 44 CEO changes in 2019, 132% higher than the 19 announced through the first eight months of 2018.

• Meanwhile, Energy companies announced 43 CEO changes this year, up 139% from the 18 CEOs who left their posts in this industry through August last year.

Darn “Boneheads”

Layoffs up, CEOs quitting, jobs picture weakening.

Not to worry, this is the strongest economy ever.

Which of course is why Trump Calls Jerome Powell and the Fed “Naive Boneheads” for not cutting rates to zero or negative.

Uber, which posted an astounding $5 billion loss in its earnings report in August, looks like it may not be heading closer to profitability anytime soon (big surprise) – especially if California has anything to say about it.

California could be the first state set to disrupt Uber’s business model “gravy train” of essentially being able to use drivers as employees, but classifying them as independent contractors, according to Bloomberg. It’s a move that could significantly disrupt the ride-sharing company’s business model and, because of that, is prompting a legal response from Uber. 

What does that rock solid legal response look like? Uber is arguing that driving isn’t its core business. 

In California, lawmakers are seeking to reclassify workers that are treated as independent contractors. The move could wind up “dramatically” boosting costs for Uber and other companies built around the “gig economy”. The bill, Assembly Bill 5, would require that many workers be provided a minimum wage, mileage reimbursement and workers compensation. The California senate approved the bill on Tuesday. It now goes back to the Assembly before being sent to the governor for his signature.  

The bill has the support of Governor Gavin Newsom who, along with supporters, says that it will finally provide contract workers what they are owed. Uber, and those similarly situated, say that if the bill becomes law, it may not meaningfully change their business model because there would still be questions about which workers qualify. 

Tony West, Uber’s general counsel said: 

“AB 5 doesn’t all of a sudden — magic wand — change everybody’s status to employee. Instead, new criteria would be used to determine whether workers are employees or contractors. Now, whether or not we win under that test in California remains to be seen.”

No it doesn’t, Tony. The company would almost certainly not “win” from this type of regulation. 

Echoing our sentiments are skeptics of the company, who believe Uber may be too optimistic. The company has been able to get out of classifying independent contractors as employees by using litigation and settlements thus far. But AB 5 could pose a significant risk to the company and, even more terrifying for Uber, could also pave the way for other parts of the United States to do the same.

Jason Lohr, an employment lawyer in Uber’s hometown of San Francisco said: “Uber is ‘whistling past the graveyard’ if it underestimates how much AB 5 would favor drivers. If Uber balks, it will be a bonanza for personal-injury attorneys because the company will be presumed negligent when a driver is injured — and on the hook for attorney’s fees for failing to provide coverage.”

Obviously, higher labor costs would mean significant price hikes for riders.

Tom White, an analyst at D.A. Davidson in New York said: “Some of the data we’ve seen suggests that in order for ride-sharing to be a suitable replacement for car ownership, prices have to come down, not go up. That part of the story gets eroded somewhat if Uber is forced to increase prices in a material way.”

He continued:

“The market generally anticipates there being a headline about AB 5 being signed. But I think there’s still some question as to whether that necessarily means that it’s enforced before the two sides hash something out.”

As AB 5 continued to gain support in Sacramento, Uber has argued that other industries – like hairdressers and travel agents – have been exempted from the law. There’s also a provision in the law that gives California’s attorney general or city attorneys the ability to prosecute companies and block their operations if they mis-classify employees. Uber has argued that this could result in companies being “arbitrarily targeted with lawsuits and injunctions”.

Uber is prepared to go to court if the bill wins final approval. Part of its argument will be that it is a technology platform, not a transportation company. The new law states that for drivers to be considered independent contractors they must perform work “outside the usual course” of the company’s business.

With the implementation of meal delivery, Uber is going to argue that instead of being a ride hailing company, it is “connecting individuals with a work opportunity.”

Uber’s general counsel hilariously argued: “When courts understand that, they realize that drivers are not involved in the usual core business of Uber — because Uber is a technology company that operates a marketplace.”

Authored by Global Macro Monitor,

We are just starting to play with the wealth distribution data and will have much more coming your way.  What we have seen so far is shocking.

The distribution of wealth has deteriorated significantly over the past 20 years and is now so skewed toward the top that average U.S. household wealth is close to $1 million, though the median household wealth is only around $70k.

In fact, the aggregate level of wealth of the bottom 50 percent peaked in Q1 2000, the height of the dot.com bubble, and is down almost 10 percent in nominal terms.  Whereas, the aggregate wealth level of the top 1 percent is up almost 120 percent over the same period.

If  I brought a number or a forecast like that to my manager when I was a very young economist working on the World Bank’s capital flows model back in the day, he would say,

“You are forecasting revolution.”

Note the relative leverage ratio of the bottom 50 percent.  For several quarters after the GFC the bottom 50 percent, not all households but in aggregate, were technically insolvent, where debt levels were greater than the value of assets ( > 100 percent on the chart).

These data put the current political climate and debate around debt forgiveness in context. They also reflect the two-speed U.S. economy.

Stay tuned for some more shocking data.

Long pitchforks.

With the ECB bazooka turning out to be a water pistol, the onus on getting stocks in the green was back on the Trump administration, and some new source of “optimism” on a trade deal with China. And miraculously, with the market sliding red, that’s precisely what Bloomberg delivered with a report that Trump admin officials “have discussed offering a limited trade agreement to China that would delay and even roll back some U.S. tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases.”

While the report, sourced to five unnamed “people familiar with the matter” did not say if China would agree to commitments on intellectual property – because it won’t, or at best it will promise to comply but then resume stealing US tech – it noted that Trump’s top trade advisers in recent days have discussed the plan in preparation for two rounds of face-to-face negotiations with Chinese officials in Washington, due to take place in coming weeks.

Oh, and just in case the market reaction is a total dud, the plan is so preliminary that “Trump has yet to sign off on it.”

Luckily, for now the plan to boost stocks is working, and US stocks are surging…

… as is the Yuan, which is trading at new session highs:

Some more details from the report: according to Bloomberg, the effective temporary ceasefire proposal would also be an interim deal, which would freeze the conflict, rather than bring a final resolution to a trade war that has cast a shadow over the global economy.

In short: the whole point of the report is to push stocks higher, while the trade war is deferred until Trump’s reelection, with the market supposedly hitting new all time highs around Nov 2020 allowing Trump to extend his term for another 4 years.

Besides the usual stock market considerations, why would Trump seek to capitulate now?

Well, for one, the plan reflects concerns within the White House over the recent escalation in tariffs and their economic impact on the U.S. going into an election year. Polls show the trade war is not popular with many voters and farmers are increasingly angry over depressed commodity prices.

This means that a key goal of the delay is to strike a deal that would allow the administration to avoid going ahead with more tariffs in December that would hit consumer products ranging from smartphones to toys and laptop computers. Also in play is a further delay in a tariff-rate hike due to take effect in October.

Late Wednesday, Trump tweeted that he was putting off the 5% increase in tariffs on Chinese goods, originally set to take effect the first day of next month until Oct. 15 — out of respect for the celebration of the 70th anniversary on Oct. 1 of the revolution that brought the communist government to power.

And while this is all fine and good, the flipside is that a trade deal now would all but crush any hopes for aggressive rate cuts by the Fed, and sure enough, the number of rate cuts by year ends is suddenly sliding.

At the end of the day, traders have to pick their poison: stocks up on trade war prompting more recession fears and rate cuts by the Fed, or stocks up on the end of trade war and economic “green shoots.” The good news is that, for whatever reason, stocks are up right now. Whether this persists is a different question.

While on the surface today’s ECB announcement was underwhelming, with both the size of the rate cut (-0.10%) and the amount of QE (€20BN), coming in well below what was already priced in, the biggest saving grace in Mario Draghi’s “swan song” conference was that the newly restarted QE would be, in the words of the ECB, open-ended. Which is great in theory, but a disaster in principal for the bond-constrained Europe.

Sure enough, with one of the most pressing questions at today’s ECB press conference being just what the open-ended nature of QE means for the ECB’s existing 33% issuer purchase limits, Draghi was laconic: the ECB president admitted there was “no appetite to discuss bond buying limits” instead merely saying that “we have relevant headroom to go on at quite a long time at this rhythm without the need to raise the discussion about limits”, which translates roughly as “I am punting this most critical topic to Christine Lagarde.”

Because while Draghi may be leaving the ECB by implementing what some have called QEternity, the reality is far more problematic, and unless the ECB charter is changed to raise issuer limits to 50% or more – in the process informing the hyperinflation sensitive Germans that half of its bonds will have to be monetized – the open-ended QE will be very limited, and that limit will be reached very soon.

How soon?

Here opinions differ slighlty, but converge on roughly 12 months of possible QE under the current limits.

According to Pictet’s Frederik Ducrozet, at the proposed €20bn/month in QE, and assuming a split of €5bn in corporate bonds and the balance in sovereign, QE can run for roughly 9 months under current limits.

Separately, Danske Bank’s strategist Peter Sorensen said that according to his calculations, the ECB can buy German bonds under its fresh €20b per month program for about 14 months. Here, Italy has the most most months left, at 87 while France, and Spain have 57 months and 25 months respectively. On the other end, Finland will have only five months of buying before limits reached while Slovakia has already hit the buffers.

Finally, Credit Agricole’s Valentin Marinov was even less subtle: the FX strategiust pointed out the same thing we did, namely that “Draghi indicated that there was no discussion of raising the issuer limit as a way to boost the size of the pool of assets available to buy under QE.” The problem: this will limit the duration of QE at 20 billion euros to between just six to 12 months, according to Credit Agricole estimates.

“So much for the infinity QE. Assuming that the capital key is sacrosanct, they cannot boost the size of their balance sheet in a meaningful way without an increase in the issuer limit.”

His conclusion is that “this could put a base under the euro for now” and sure enough, upon realizing that open-ended QE is just a myth, the EURUSD has not only recovered all losses but is now up for the day!

For a few brief minutes it was all going Draghi’s way.

Unleashing lower rates and QE4EVA sparked buying of bunds and selling of the Euro – mission accomplished.

But then the market decided to steal the jam out of Mario’s farewell performance and reverse those moves entirely…

The euro is suddenly surging…

Source: Bloomberg

And 10Y Bund yields are soaring…

Source: Bloomberg

“…you’re gonna need a bigger boat…”

In what appears to be a huge victory for Google employees who don’t ascribe to the ultra-liberal Silicon Valley monoculture, the National Labor Relations Board has reached a settlement with Google over complaints that the search giant punishes employees for speaking out on political and workplace issues that don’t comport with the company’s agenda.

The settlement, which was reportedly approved by an agency director this week, according to WSJ, comes in response to a pair of complaints filed by conservative employees about how the company handles workplace dissent.

One complainant, former engineer Kevin Cernekee, claims he was fired for expressing his right-leaning political views on an internal company message board (Google, for what it’s worth, claims he was fired for “misusing company equipment”)

Last month, President Trump tweeted his support for Cernekee, whose complaint became a cause celebre among conservatives.

.@sundarpichai of Google was in the Oval Office working very hard to explain how much he liked me, what a great job the Administration is doing, that Google was not involved with China’s military, that they didn’t help Crooked Hillary over me in the 2016 Election, & that they…

— Donald J. Trump (@realDonaldTrump) August 6, 2019

… are NOT planning to illegally subvert the 2020 Election despite all that has been said to the contrary. It all sounded good until I watched Kevin Cernekee, a Google engineer, say terrible things about what they did in 2016 and that they want to “Make sure that Trump losses…

— Donald J. Trump (@realDonaldTrump) August 6, 2019

Fortunately for Google, the settlement is little more than a slap on the wrist: the company won’t need to admit wrongdoing as part of the settlement, and the NLRB isn’t requiring Google to reinstate Cernekee with back pay, as he had requested.

As part of the settlement, Google will be required to inform its employees that they are free to speak to the media about working conditions, wages and other work-related issues. The company will also be required to withdraw its final warning letter to Cernekee, which claimed he had violated a clause in the company’s code of conduct requiring employees to “respect each other” in his message-board postings. 

The other complainant is a current Google employee who claims he was punished for sharing “unflattering opinions” about a Google executive on Facebook.

According to WSJ, right-leaning Google employees have long maintained that expressing their beliefs can make them “lepers” among their fellow Googlers, as well as to the company’s hiring managers. Some left-leaning employees, meanwhile, have complained that the company retaliated against them for raising concerns about YouTube’s hate speech policies.

Google has long maintained that its company culture encourages open debate. Now, it’s being held accountable to ensure that this is, in fact, the case.