Tag: news

As hopes for a steeper yield curve have lifted bank stocks, Wells Fargo CEO Tim Sloan is apparently trying to bolster Wells’ lagging share price as the numerous scandals that have tarnished the banks credibility and triggered fines, criminal probes and an unprecedented Fed sanction have continued to take their toll.

Per Bloomberg, Sloan is planning to trim its workforce by between 5% and 10% over the next three years with the explicit goal of propping up the company’s shares. While the cuts could provide the bank with necessary cover to purge bad apples from its employee ranks, they have also been broadly expected since the bank reported one of its worst-ever mortgage numbers as the division struggles under the yoke of Fed sanctions and with a housing market that is already beginning to roll over.

In recognition of Wells’ collapse in mortgage lending, Sloan announced last month that the bank would lay off more than 600 employees from its mortgage division after losing the mantle of America’s top mortgage lender to nonbank fintech phenom Quicken Loans. Also, the fact that the housing market is beginning to roll over isn’t helping bolster the bank’s assets.

Sloan, who made the announcement to employees at a town-hall meeting on Thursday, has reduced headcount as he cleans up the bank and streamlines operations. The San Francisco-based lender is struggling to grow under the weight of a Federal Reserve assets cap. It had 265,000 employees as of June 30, according to a regulatory filing.

“It says something about the revenue environment for them,” Charles Peabody, an analyst at Portales Partners, said in an interview. “If they’re not in the midst of recognizing that revenues are in trouble, they’re anticipating it.”

Sloan has already promised $4 billion in cost cutbacks by the end of next year. The cuts announced Thursday have already been incorporated into the bank’s year-end expense targets for 2018, 2019 and 2020, according to the company.

“We are continuing to transform Wells Fargo to deliver what customers want – including innovative, customer-friendly products and services – and evolving our business model to meet those needs in a more streamlined and efficient manner,” Sloan said in a statement.

Wells shares have climbed 23% since Sloan took the reins in October 2016. However, it continues to lag the KBW Ban Index by 53%.

Meanwhile, analysts’ continued pessimism has sparked rumors that the bank’s board is seeking to oust Sloan. Earlier this year, reports circulated that they had approached Gary Cohn about taking over.

Analysts cut their estimates for Wells Fargo earnings again and again after the Fed punished the bank with an unprecedented cap on growing assets. The analysts began this year predicting a record $24 billion annual profit, and now the average estimate is for less than $21 billion, the weakest since 2012. Speculation that the bank wants a new CEO spilled into public this week when the New York Post said the board had approached former Goldman Sachs Group Inc. executive Gary Cohn. Cohn, who earlier this year finished a stint as a White House adviser, denied the report, as did Wells Fargo Chair Betsy Duke, who said Sloan “has the unanimous support of the board, and this support has never wavered.”

But with the bank unable to meaningfully expand its assets thanks to the Fed’s sanctions, Sloan has few alternatives aside from trimming head count and costs if he wants to impress the analysts. Expect more heads to roll in the near future.

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Well that escalated quickly…

Yesterday’s waterfall collapse has extended in the pre-market, sending the cannabis company’s stocks back below $154.99 – the closing price from Tuesday – and down almost 50% from its record highs Wednesday at $300…

 

And after Wednesday’s chaotic reaction in crypto, as Tilray went crazy, Bitcoin is holding things together, for now…

Oh, and as a reminder, Tilray trades at 971-times-Sales…”no brainer”

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Authored by Charles Hugh Smith via OfTwoMinds blog,

Credit bubbles are not engines of sustainable employment, they are only engines of malinvestment and wealth destruction on a grand scale.

We all know the Status Quo’s response to the global financial meltdown of 2008 has been a travesty of a mockery of a sham–smoke and mirrors, flimsy facades of “recovery,” simulacrum “reforms,” serial bubble-blowing and politically expedient can-kicking, all based on borrowing and printing trillions of dollars, yen, euros and yuan, quatloos, etc.

So when will the travesty of a mockery of a sham finally come to an end? Probably around 2022-25, with a few global crises and “saves” along the way to break up the monotony of devolution. The foundation of this forecast is this chart I prepared back in 2008 (below).

This is of course only a selection of cycles; many more may be active but these four give us a flavor of the confluence of crises ahead.

Cycles are not laws of Nature, of course; they are only records of previous periods of growth/excess/depletion/collapse, not predictions per se. Nonetheless their repetition reflects the systemic dynamic of growth, crisis and collapse, and so the study of cycles is instructive even though we stipulate they are not predictive.

What is predictable is the way systems tend to follow an S-curve of rapid growth with then tops out in excess, stagnates in depletion and then devolves or implodes. We can see all sorts of things topping out and entering depletion/collapse: financialization, the Savior State, Chinese credit expansion, oil production, student loan debt and so on.

Since each mechanism that burns out or implodes tends to be replaced with some other mechanism, this creates the recurring cycle of expansion / excess / depletion / collapse.

I plotted four long-wave cycles in the first chart:

1. The credit expansion/renunciation cycle. a.k.a. the Kondratieff cycle. Credit expands when credit is costly and invested in productive assets. Credit reaches excess when it is cheap and it’s malinvested in speculation and stock buybacks, and as collateral vanishes then credit is renunciated/written off.

This is inexact, but obviously the organic postwar cycle of expansion has been extended by the central bank money-printing / credit orgy.

2. The generational cycle of four generations/80 years described in the seminal book The Fourth Turning. American history uncannily tracks an 80-year cycle of crises and profound transformation: 1860 (Civil War), 1940 (world war and global Empire) and next up to bat, 2020, the implosion of the debt-based Savior State and the financialized economy.

3. The 100-year cycle of inflation-deflation described in the masterful book The Great Wave: Price Revolutions and the Rhythm of History. The price of bread remained almost constant in Britain throughout the 19th century. In contrast, the 20th century has been characterized by inflation–the U.S. dollar has lost approximately 96% of its value since the early 20th century.

Another characteristic of this cycle is wage stagnation: people earn less even as costs of essentials rise, a dynamic that inevitably leads to political crisis and upheaval.

The end-game for inflation is destruction of fiat currencies, i.e. rising inflation or complete loss of faith in paper money. This is of course “impossible,” just like World War I, the Titanic sinking, the global meltdown of 2008, etc. Impossible things happen with alarming regularity.

4. Peak oil, which does not mean the world runs out of oil, it simply means oil production no longer rises to meet demand and eventually declines even as new fields are brought online. It can also mean that the price of energy rises to the point that consumers can either buy energy or they can keep the consumer economy afloat, but they are no longer able to do both.

Many observers are confident that fracking and other technologies will enable current energy profligacy to continue unabated as the U.S. production of oil and natural gas soars.

All this surplus energy in North America sounds wonderful, but that doesn’t mean the world as a whole has escaped Peak Oil. Even if fracked wells didn’t deplete in a year or two (they do), that expansion of production will not replace the loss of production as supergiant fields in Mexico, the North Sea and the Mideast enter the depletion phase. Yes, technology can extract more oil, but technology is costly. The days of cheap natural gas may have arrived, but the days of cheap oil are numbered.

How all this plays out is unknown, but even raising U.S. production might not be enough to maintain current production levels. Since several billion more people desire the U.S.-type lifestyle of energy profligacy, then what are the consequences of the mismatch between global demand and supply?

What happened to crude oil production after the first peak in 2005?

We can also posit that “good-paying jobs” in developed economies are also tracking an S-curve. The post-industrial decline in labor has many causes, but the Internet is a key factor going forward as the Web, AI, Big Data and mobile telephony leverage all sorts of productivity gains without the pesky overhead, costs and trouble of employees.

This reality was masked by the initial boom in Web infrastructure that topped out in 2000, and again by the credit-fueled global malinvestment in real estate that topped out in 2007 and soon by the topping out of the social media/mobile app tech boom, the third stock market bubble and Housing Bubble #2.

Once these bubbles have popped, the reality of long-term employment stagnation can no longer be masked.

Credit bubbles are not engines of sustainable employment, they are only engines of malinvestment and wealth destruction on a grand scale.

A number of other questions arise as we ponder these dynamics. How “cheap” will all that energy be to those without full-time jobs? How will 100 million workers support 100 million retirees, welfare recipients and parasitic Elites plus Universal Basic Income as costs rise, taxes soar and wages stagnate?

The Status Quo is unsustainable on a number of fundamental fronts. How long it can maintain the facade of stability and sustainability is unknown, but the global willingness to squander additional years on artifice and propaganda suggests that another four years will fly by and the end-game will be at hand whether we approve of it or not.

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My new 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.

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One day after EU Council president Donald Tusk poured cold over on hopes of Brexit negotiation progress, saying that “Theresa May’s Brexit plan will not work”, the UK prime minister is set to go “all in” and state that she “will not change tack” on Brexit despite her Chequers plan being rejected by EU leaders, according to the BBC.

May will shortly make a statement in Downing Street on the state of Brexit negotiations following a summit of EU leaders in Salzburg, as Brexit Secretary Dominic Raab said there was no “credible alternative” on the table from the EU at the talks.

He also expressed doubt over how serious EU leaders were about the negotiations. He told the BBC’s Politics Live: “It did not feel like the reciprocation of the statesmanlike approach that she (Mrs May) has taken”.

May says her plan for the UK and EU to share a “common rulebook” for goods, but not services, is the only credible way to avoid a hard border between Northern Ireland and the Republic of Ireland. The “Chequers” plan, as it is also known, remains opposed by many within her own party who argue it would compromise the UK’s sovereignty. And it got a cool reception at this week’s EU summit in Salzburg.

As we reported yesterday, European Council President Donald Tusk said there were some “positive elements” in Mrs May’s proposals, but he said EU leaders had agreed that the proposals needed to be redrawn: “The suggested framework for economic co-operation will not work, not least because it is undermining the single market.”

He followed it up by posting a photograph on Instagram of he and Mrs May looking at cakes with the caption: “A piece of cake, perhaps? Sorry, no cherries.”

The EU has argued that the UK cannot “cherry-pick” elements from its rulebook.

The pound, which has been whiplashed constantly by every new Brexit headline, dropped on the BBC report, sliding to session lows, and down over 100 pips.

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Marijuana stock Tilray has dominated the media over the last week, making early investors (read: anyone who bought it more than a month ago) boatloads of cash. The stock skyrocketed from its July IPO price of $17 and reached highs of $300 on Wednesday, before paring gains and finishing the Thursday session around $172.

But it appears that not everybody benefited from the spike higher in the name. Analyst Charles Finnie from Roth Capital Partners, who tried to warn the investing public that Tilray looked “increasingly speculative” at $59 – after the stock had more than doubled – and Downgraded it to Neutral, has now “left his job” after making said call. He quit on September 5, a day when the stock closed at $89, and just two weeks before the pot stock euphoria sent it to $300.

Shortly after he downgraded his Buy rating on the name on August 30, TLRY proceeded to surge 45% over the next five days. From there, it doubled again.

Finnie tried to warn investors about the company’s limited float and how it could cause volatility. He was right about the volatility – except it came to the upside, not the downside – with the stock tacking on nearly $240 per share at one point after he issued his note. Still, not only was Finnie right about the volatility – if in the wrong direction – he was spot on: trading in Tilray on Wednesday was so volatile that the stock was halted 5 times.

During this time, we reported that investors in Tilray like Peter Thiel had made a killing on the name. Thiel was invested in TLRY through Tilray CEO Brendan Kennedy’s Privateer Holdings, which holds more than 58 million of the total 76 million shares outstanding. Their stake is now valued somewhere near $10 billion thanks to the stock’s “volatility”. 

Despite the interesting timing behind Finnie leaving the firm, Roth Capital claims that he chose to leave. Jeff Martin, Roth Capital’s director of research told Bloomberg that he left “on his own accord” and that plans to replace him “haven’t been finalized”. 

Perhaps Finnie just didn’t know the rules that every other analyst on Wall Street seems to live by in today’s market environment: don’t try to warn investors when their capital could be at risk, otherwise they miss the mania and you could be out of a job as angry clients complain to your boss for having listened to you. And while Finnie will ultimately be proven right, in this case timing was all that mattered.

Now, if only everyone on the street was just as accountable, and left their jobs “on their own accord” after missing a call, the monthly JOLTS reported would be far more exciting.

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One of the reasons why the US economic response to Trump’s trade war with China had been lukewarm at best, is that US consumers had not been subject to any of the inflationary consequences of the escalating tariffs between Washington and Beijing. That, however, is about to change: overnight Walmart issued a warning in a letter to U.S. Trade Representative Robert Lighthizer that it may have to raise prices due to tariffs on Chinese imports, CNN Money reported.

“The immediate impact will be to raise prices on consumers and tax American business and manufacturers,” Walmart said, according to the CNN Money report.

The letter came two weeks after Walmart asked the Trump administration to walk back its plan to put tariffs on Christmas lights, shampoo, dog food, luggage, mattresses, handbags, backpacks, vacuum cleaners, bicycles, cooking grills, cable cords and air conditioners.

However, the administration was unmoved and on Monday, it pressed forward with 10% tariffs on those products and $200 billion worth of other imports from China. The tariffs, which take effect next week, will jump to 25% at the end of the year, and target far more consumer goods – some $78BN according to DB calculations – than the first phase of $50BN in tariffs, that had relatively little impact.

Other retailers and consumer goods companies, including Ace Hardware and Joann fabric and craft stores, also lobbied the administration. Target said the tariffs will “hurt American consumers,” and said working families will pay more for school and college essentials like notebooks, calculators, binders and desks. And while administration generally ignored the concerns, it did spare bicycle helmets, high chairs, car seats and playpens from the final list. It also left off Apple Watches and Air Pods, a reprieve for Apple.

Target and Walmart will now face a tough choice: They can absorb the higher costs from tariffs by taking a hit to their profit margins, or they can pass some of the price increases on to their customers.

“Either consumers will pay more, suppliers will receive less, retail margins will be lower, or consumers will buy fewer products or forego purchases altogether,” Walmart warned in its letter.

The National Retail Federation, a trade group, estimated that a 25% tariff on furniture would cost Americans $4.5 billion more per year, while a 25% levy on travel items like luggage and handbags would cost an additional $1.2 billion.

As a reminder, washing machines were an early example of how tariffs filter down to shoppers. The Trump administration imposed a 20% trade penalty on washers earlier this year, and laundry equipment prices spiked over 16% in recent months.

Walmart will have to wrestle with the price question in a big way: of the company’s $500 billion in sales last year, about $50 billion was linked to Chinese imports or investments in Chinese businesses, estimated Greg Melich, a retail analyst at MoffettNathanson.

Needless to say, for the company which promises “everyday low prices”, raising prices is anathema to Walmart, a company that controls 10% of the US retail market and has a customer base of low- and middle-income Americans.

“Given that Walmart was such a huge source of cheap products for low income customers over the years, this really hurts the very people that Trump professes to help,” said Sucharita Kodali, a retail analyst for research firm Forrester.

In addition to prices, Walmart is facing a different threat: collapsing supply chains.

As CNN notes, Walmart’s American suppliers rely on parts from China to assemble and finish production in the United States. For example, Lasko fans, which are assembed in the United States and sold at stores, rely on motors from China. The same with bikes: Each mass market bicycle requires 40 individual parts to make, all of which are imported. “Tariffs on these parts would make U.S. manufacturing uncompetitive and drive up the price of bicycles for children and families,” Walmart told Lighthizer.

And while the company has been working to buy more bikes from American manufacturers, not enough are made in the United States to meet demand. Even with 25% tariffs, buying bikes with Chinese parts will still be cheaper than suppliers shifting production entirely, Walmart said.

One of Trump’s prerogatives with pursuing trade war is to push companies to manufacture more goods in the United States. But the National Retail Federation says the administration’s thinking is flawed and carefully planned supply chain plans can’t be redrawn overnight.

Retailers order their products six months to a year in advance, and they are left scrambling to find new options for 2019.

“The [administration] continues to overestimate the ability of US companies to shift supply chains out of China,” the trade group said in its own letter to Lighthizer. “Global supply chains are extremely complex. It can take years to find the right partners who can meet the proper criteria and produce products at the scale and cost that is needed.”

Case in point: the United States imported close to $220 million worth of dog leashes last year, and more than 80% came from China. And $474 million worth of lights for Christmas trees were imported to the United States last year, 85% of which were from China.

So while Walmart is already locked in for the coming holiday season, Christmas lights will probably be more expensive next year.

 

 

 

 

 

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The crumbling New York City real estate market has continued apace during the third quarter, after more than half of homes sold in Manhattan during the second quarter closed below asking price – the worst Q2 tally since 2009. And while real-estate brokers had hoped that the seasonal shift during Q3 would help lift sales as a flood of higher-quality offers hit the market, it appears canny buyers – wary of being left holding the bag after nearly a decade of asset appreciation – are refusing to indulge sellers’ lofty asks.

To wit, NYC home sellers slashed prices on almost 800 listings during a single week this month, the largest wave of discounts in at least 12 years, per Bloomberg.

In the week through Sept. 9, there were 774 homes in Manhattan, Brooklyn and Queens that got a price cut, the most for any seven-day period in data going back to 2006, according to a report Friday by listings website StreetEasy. The previous weekly record was in March 2009, during the global recession, when 713 properties were reduced.

With another post-Labor Day wave of listings expected, sellers are experiencing a “gut check” as they realize they must lower  prices to the point of demand, because the days of foreign (mostly Chinese) buyers willing to pay the “Chinese premium” are over.

Sellers with older listings are adjusting expectations just as a wave of newer properties hits the market – customary in New York after Labor Day. In that same September week, Manhattan got 662 additional listings, the third-highest total for any week in StreetEasy’s data.

“It’s a big gut-check for sellers,” said Grant Long, senior economist at StreetEasy. “We’re at a period in the sales market where sellers have been incredibly ambitious with the prices they’re asking. They’re having to come down and bring prices to where demand actually exists.”

As we pointed out earlier this year, sales of luxury apartments (those that cost $5 million or more) plummeted more than 31% over the first six months of this year, forcing sellers to slash price (and developers, who have neglected the sub-luxury market in favor of supposed higher margins at the top end, to eat losses).

Steven James, CEO of Douglas Elliman, provided an apt summary of the dynamics at play in the contemporary NYC housing market.

“It’s about perception – that the market went way up, and it went way up real fast, and it’s not happening anymore, and I am not going to be the fool who gets burned by overpaying,” said Douglas Ellman CEO Steven James, who adds that buyers “do believe that over time, the market will go up, but it’s not going up right now.”

Meanwhile, in the real world outside of New York, the familiar problems remain: with housing starts still lagging expectations, the housing market appears stuck in a vicious cycle. Low development and supply are squeezing prices higher, which are rising more than 2x faster than wage growth across the nation, and as a result most working and middle-class Americans still can’t afford to buy a home.

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