Macro Links Feb 5th – Down 666
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MACRO LINKS TABLE OF CONTENTS (Click or Scroll Down)
- DOW DROPS 666
- NUNES MEMO
- US WAGE GROWTH
- AMAZON BOOM
- BITCOIN, CRYPTOCURRENCY, INITIAL COIN OFFERINGS
- BLOCKCHAIN, FINTECH, DIGITAL PAYMENTS
- TRADE, PROTECTIONISM, REGULATION, OVERSIGHT
- HEALTHCARE, BUDGET, INFRASTRUCTURE
- TAXATION, WEALTH HAVENS, INEQUALITY
- RUSSIA PROBE
- NORTH / SOUTH KOREA, IRAN, NUCLEAR WEAPONS
- RATES, LIQUIDITY, SYSTEMIC RISK, BALANCE SHEETS
- MACRO OP-EDS, INSIGHT, EVENTS AND TRENDS
- CENTRAL BANKS & MONETARY POLICY
- USA ECONOMY DATA, CITIES AND STATES
- COLOR, EARNINGS, SENTIMENT, VALUATIONS
- DEALS, MERGERS, IPOs, LBOs, RESTRUCTURINGS
- ENERGY COMPANIES, NOCs, INDUSTRY
- GEOPOLITICS, CRIME, TERRORISM
- PRIVACY, HACKING, CYBERWAR, SURVEILLANCE STATE
- PROPAGANDA, CORRUPTION, AUTHORITARIANISM
- SCANDALS, LAWSUITS, FINES, REGULATORY
- SILICON VALLEY, UNICORNS, STARTUPS, VC
- ARTIFICIAL INTELLIGENCE, DRONES, FUTURE TECH
DOW DROPS 666
The Dow Jones industrial average plunged 2.5 percent Friday — closing down 666 points — and suffered its worst week in two years as concerns over rising interest rates and inflation from an overheated economy triggered a long-feared sell-off.
The last time the Dow Jones industrial average posted a drop of more than 600 points was June 24, 2016, the day after the Brexit vote. Before Friday, the Dow has only closed more than 600 points lower eight times in history, with all occurrences taking place in the last 18 years. To be sure, as the Dow has soared over its nearly 122-year history, point drops increasingly represent a smaller percentage change.
US stock markets suffered their biggest loss of the Trump presidency on Friday, following bonds lower after a rise in wages intensified fears of inflation. The sell-off in stocks followed weeks of turbulence in the Treasury market as economic growth across the world has accelerated, solidifying the view that central bank policymakers can finally withdraw crisis-era stimulus.
The immediate catalyst was the jobs report, which showed the strong United States economy might finally be translating into rising wages for American workers — a sign that higher inflation could be around the corner. But what is really worrying investors is that the fuel behind this stock market boom, namely cheap money from global central banks, may disappear sooner than they thought.
The fortunes of the world’s 500-richest people dropped by $68.5 billion Friday as equity markets swooned with investor worries about the pace of interest rate hikes in the U.S.
Equities haven’t been this volatile since the day Donald Trump was elected President of the U.S. The CBOE Volatility Index surged as much as 24 percent to 16.66. A close at that level would be the highest since Nov. 8, 2016. The Dow Jones Industrial Average plunged 500 points Friday in the biggest rout since September 2016 as investors grew increasingly concerned that the rout in bonds will force rates higher.
A previously secret memo released on Friday claims that F.B.I. officials abused their authority and favored Democrats in the early stages of the Russia investigation. Rear our reporters’ annotations.
After cries to #ReleaseTheMemo and an even bigger outcry of opposition, the memo has now been released. Here’s what it says.
Many members who criticised Mr Trump during the 2016 campaign now calculate that to retain their seats they need a president who is able to champion some wins — and discredit any ugly findings from Mr Mueller. “We’re now in battle together and in friendship together,” the president declared. Paul Ryan, speaker of the House, gave Mr Trump a backslap and traded jokes onstage with him. Mr Trump claimed that Senator Orrin Hatch had called him “the greatest president in the history of our country”, including Abraham Lincoln and George Washington. A Hatch spokesman clarified that the senator had only suggested Mr Trump could turn out to be the greatest.
President Donald Trump was eager to have a Republican memo alleging bias in the Russia probe released to the public, several people around him said. Now that it’s out, Trump took to Twitter to promote it for that purpose — although the document may not be as effective as the president wants it to be. Still, Trump tweeted from his Florida resort Saturday morning that “this memo totally vindicates ‘Trump’ in probe,” his first public comment since the memo’s release.
By all indications, the president is less amenable to the concerns of his own FBI than those shared by a less formal, more bombastic adviser. That adviser is Sean Hannity, who has been hyping the so-called Nunes memo all week, and with whom the president continues to speak regularly.
Snowden: “I required the journalists who broke the 2013 domestic spying stories (as a condition of access) to talk with gov in advance of publication as an extraordinary precaution to prevent any risk of harm. Turns out our standard of care was higher than the actual Intel committee.”
Sen. John McCain (R-AZ) released a statement Friday afternoon calling out President Trump and his Republican colleagues just minutes before the House Intelligence Committee released a controversial memo that claims an anti-Trump bias within the FBI. In the statement, McCain said attacks on the FBI and Department of Justice only serve one person’s interests: Russian President Vladimir Putin’s.
Rep. Trey Gowdy said Friday that the release of a controversial memo by Republicans on the House Intelligence Committee does not discredit nor undermine special counsel Robert Mueller’s investigation into Russian meddling in the 2016 presidential election.
“Talk is cheap; the work you do is what will endure,” he said.
The Wall Street Journal read through 7,000 text messages from FBI agent Peter Strzok and FBI lawyer Lisa Page, who have been intensely criticized after it emerged they had exchanged anti-Trump texts while Strzok was investigating Hillary Clinton and later Donald Trump. WSJ concluded that the “texts critical of Mr. Trump represent a fraction of the roughly 7,000 messages, which stretch across 384 pages and show no evidence of a conspiracy against Mr. Trump.”
US WAGE GROWTH
U.S. job growth surged in January and wages increased further, recording their largest annual gain in more than 8-1/2 years, bolstering expectations that inflation will push higher this year as the labor market hits full employment.
The 2.9 per cent year-on-year increase in average hourly earnings in January prompted speculation that the lowest jobless rate since the dotcom boom is starting to stoke inflationary pressures in the US economy. But it will also give hope to Republicans that a strengthening economy will help counter the deep unpopularity of the president in midterm elections in November.
Payrolls grew by 200,000 last month and hourly earnings were up 2.9 percent in a sign that American workers were benefiting from a tight labor market. “People have been wondering when the wages are going to start to rise,” said Catherine Barrera, chief economist of the online job marketplace ZipRecruiter. “I think that over the first six months of this year, we’re really going to start to see the wages rise.”
The indefatigable CEO stopped appearing personally on Amazon’s quarterly earnings calls years ago, but he had a clear message for investors Thursday when the online retail giant posted record earnings along with a 38% jump in sales for the fourth quarter. Writing of the strong success of his company’s voice-activated digital assistant technology called Alexa, Mr. Bezos noted in the company’s release: “We don’t see positive surprises of this magnitude very often—expect us to double down.”
Amazon posted a record profit of $1.9 billion during the last three months of 2017, marking the 11th straight quarter of positive net income for Jeff Bezos’ company. About $789 million of that can be attributed to a tax benefit resulting from President Trump’s tax plan. But even without the benefit, the profit number would have been the largest in the company’s history.
Federal Reserve Bank of Minneapolis President Neel Kashkari said cities competing to land Amazon.com Inc.’s second headquarters may end up paying out more in subsidies than they receive back in benefits. “I’m betting Jeff Bezos knows exactly where he wants to put his second headquarters and he’s getting all the cities to compete on who can write the biggest check,” Kashkari said Friday in an interview on CNBC television, referring to the online retailing giant’s chief executive. “I think that’s a money-losing investment for tax payers.”
BITCOIN, CRYPTOCURRENCY, INITIAL COIN OFFERINGS
Bitcoin whipsawed investors, falling below $8,000 for the first time since November before recovering most of Friday’s losses, as a miserable 2018 continued for cryptocurrencies. Since reaching a record high of $19,511 on Dec. 18 shortly after the introduction of regulated futures contracts in the U.S., Bitcoin has wiped out more than half its value amid waves of negative news. Setbacks included escalating regulatory threats from authorities around the world including India, South Korea, China and the U.S., a record $500 million heist at Japanese exchange Coincheck Inc., fears of price manipulation and Facebook’s ban on cryptocurrency ads.
Bitcoin’s “kimchi premium” has finally been gobbled up. Prices for the cryptocurrency in South Korea dropped back in line with those on international exchanges for the first time in seven weeks on Friday, erasing a gap that had swelled to 51 percent in January. The premium had been so persistent — and so unusual for a major market — that traders named it after Korea’s staple side dish.
Nouriel Roubini of Roubini Macro Associates said Bitcoin is the “biggest bubble in human history” and this “mother of all bubbles” is finally crashing, in an interview with Tom Keene and Francine Lacqua on Bloomberg Television. Bitcoin dropped below $8,000 Friday, a 60 percent tumble from its peak of $19,511 on Dec. 18. It isn’t just Bitcoin, Roubini added. There are more than 1,300 cryptocurrencies or initial coin offerings, and “most of them are even worse” than the largest digital token. These constitute a “a bubble to the power of two or three,” he said.
Japan’s Financial Services Agency raided Coincheck Inc.’s offices a week after the cryptocurrency exchange lost about $500 million to hackers, hauling out documents and computers as evidence. The inspection was conducted to ensure security for users, Finance Minister Taro Aso said. On Friday morning, 10 FSA officials entered Coincheck’s premises to gain a better understanding of how the exchange is operating in light of the regulator’s business improvement order imposed earlier this week, an agency official told reporters in Tokyo.
The theft of 523m XEM — worth roughly $500m — has brought back memories of Mt Gox, another Tokyo-based exchange, which collapsed after a similar hack in 2014, leaving investors ruined and bringing the first bitcoin boom to an ugly end. For young crypto-traders such as Ms Yamazaki, “to Gox” has entered the vocabulary as the verb for an exchange’s collapse. But for the Japanese authorities, which have led the world in legitimising cryptocurrencies through regulation, it is a horrifying reminder of what financial innovation can cost.
While it’s been a tough year already for the top two digital currencies, things may soon be looking up. Conditions are forming for a rebound in Bitcoin and Ether, which have tanked this year amid mounting concern that they’re in the midst of a deflating bubble, according to Rob Sluymer, a technical strategist at Fundstrat Global Advisors.
Hedge funds are wagering that Bitcoin’s free-fall will keep going. Leveraged funds, which include hedge funds, held 2,974 short positions in Cboe Global Markets Inc.’s Bitcoin futures as of Tuesday, a fivefold jump from the prior week. Long bets dropped to 895 contracts, down 22 percent from a week earlier, according to weekly data released Friday by the U.S. Commodity Futures Trading Commission.
A growing number of big U.S. credit-card issuers are deciding they don’t want to finance a falling knife. JPMorgan Chase & Co. and Bank of America Corp., the nation’s two largest banks, said they’re halting purchases of Bitcoin and other cryptocurrencies on their credit cards. JPMorgan, enacting the ban Saturday, doesn’t want the credit risk associated with the transactions, said Mary Jane Rogers, a spokeswoman for the firm.
BLOCKCHAIN, FINTECH DIGITAL PAYMENTS
Big Tech’s move into banking is threatening financial stability and the biggest US and Chinese technology groups should be subject to some of the same regulation as big banks, according to top European finance chiefs. Europe’s introduction this year of “open banking” regulation, which forces lenders to provide access to accounts of customers who authorise it, has left senior bankers worrying that tech groups will cherry-pick the best parts of their business.
TRADE, PROTECTIONISM, REGULATION, OVERSIGHT
With Shannon’s departure, seven of the top nine jobs at the department will be empty. Those vacant posts include positions overseeing the agency’s role in U.S. trade policy, stopping the spread of nuclear weapons, refugee issues and efforts to counter human trafficking.
China’s Commerce Ministry said Sunday that it initiated an anti-dumping and anti-subsidy investigation after preliminarily finding that heavy volumes and low prices of American exports of sorghum, bolstered by U.S. government subsidies, hurt Chinese growers. In announcing the action, the Commerce Ministry didn’t mention the Trump administration’s recent ruling to place tariffs on imports of Chinese solar panels. Chinese officials have told representatives of U.S. businesses that Beijing is preparing tit-for-tat measures to retaliate if trade is affected by President Donald Trump’s “America First” agenda.
HEALTHCARE, BUDGET, INFRASTRUCTURE
Four years after the United States pledged to help the world fight infectious-disease epidemics such as Ebola, the Centers for Disease Control and Prevention is dramatically downsizing its epidemic prevention activities in 39 out of 49 countries because money is running out, U.S. government officials said. The CDC programs, part of a global health security initiative, train front-line workers in outbreak detection and work to strengthen laboratory and emergency response systems in countries where disease risks are greatest. The goal is to stop future outbreaks at their source.
TAXATION, WEALTH HAVENS, INEQUALITY
The biggest US tech companies have not promised any specific new investments or jobs in the US in the wake of the country’s recent tax overhaul, despite being the biggest beneficiaries of legislation designed to unlock hundreds of billions of dollars of offshore cash.
Texts critical of President Donald Trump represent a fraction of the roughly 7,000 messages between two FBI employees reviewed by The Wall Street Journal—communications that show dedication, ambition and no hesitation to criticize colleagues. They logged long hours and frequently worked on weekends. They seemed dedicated to their jobs but didn’t hesitate to chastise or criticize many others beyond Mr. Trump, including their colleagues and each other.
The U.S. Treasury Department warned that Russia’s sovereign debt market is too important to sanction without risking global financial turmoil, signaling the Trump administration is wary of targeting it for penalties. A Treasury report obtained by Bloomberg concluded that expanding sanctions to new Russian sovereign debt and derivatives could destabilize markets and spread beyond Russia to have “negative spillover effects into global financial markets and businesses.”
NORTH / SOUTH KOREA, IRAN, NUCLEAR WEAPONS
The US will adopt a more aggressive nuclear posture, contemplating strikes in response to non-nuclear threats and deploying new “low-yield” devices after a government review that detractors say will raise the risk of nuclear war. Although the nuclear posture review states that the US would only consider such an attack in the case of “extreme circumstances”, these could include “significant non-nuclear strategic attacks”.
China, Russia and other countries are failing to rein in North Korea’s illicit financing and weapons proliferation activity, according to a new U.N. report that says time is running out for sanctions to prevent Pyongyang from developing a long-range nuclear weapon.
RATES, LIQUIDITY, SYSTEMIC RISK, BALANCE SHEETS
They’ve faced threats before: swollen valuations, a stagnating economy, stretches of declining earnings. Now investors are dealing with a new menace, and it’s wreaking more havoc than anything in two years. It’s the bond market, where the biggest jump for interest rates since March has bulls questioning the staying power of an equity advance now seven months from being the longest ever. So drastic is the runup in yields that it’s knocking stocks down during a period when analysts are pushing up earnings estimates four times faster than any time since 2012.
U.S. stocks last week suffered their largest weekly drop in two years. But some investors worry that falling prices for things like oil futures, gold and bitcoin are offering a more ominous signal that could presage deeper declines. Even before Friday’s stock rout, many global investors had grown uneasy about various assets moving in lockstep—especially because trading in many of these markets isn’t typically tied to share prices. Such closely correlated movements are often associated with turning points in the markets.
The federal government is on track to borrow nearly $1 trillion this fiscal year — Trump’s first full year in charge of the budget. That’s almost double what the government borrowed in fiscal year 2017. Treasury mainly attributed the increase to the “fiscal outlook.” The Congressional Budget Office was more blunt. In a report this week, the CBO said tax receipts are going to be lower
because of the new tax law.
Bitterly divided US lawmakers return this week to face a shrinking window for reaching deals on immigration, federal spending and the debt, as Republican infighting swirls and President Donald Trump complains he is getting zero cooperation from Democrats. Republican leaders have acknowledged they will not meet a Thursday deadline for a spending bill, and will have to pass yet another stopgap measure this week — with help from Democrats — to avoid a government shutdown.
In the $2 trillion Treasury-bill market, where the U.S. government turns for short-term funding, investors are showing they’re plenty nervous about the approaching deadline to raise the nation’s debt ceiling. There’s growing concern that the impasse over the debt limit will become entangled with efforts to keep the government open. Current federal funding expires Feb. 8, and the Republican-led Congress has been working on a stopgap measure to extend that into late March.
Chinese stocks had their worst week since 2016, with concerns about Beijing’s campaign to cut financial risk and predictions of a slowing economy helping erase half of the market’s year-to-date gains in just a few days. Friday’s drop followed the market’s 1% decline the previous day, when the losses would have been much deeper had it not been for late buying orders from state-backed investment funds known as the ‘national team,’ analysts said.
One of last year’s most-loved trades is off to a rough start in 2018. Strategies that minted money by betting against stock-market turbulence have gotten crushed in January, as volatility finally made an appearance. Despite the rough month for short-volatility strategies, some investors are still piling into the trade.
The worst day of the year for junk bonds rattled credit-investor confidence as risk assets suffered in sympathy with slumping Treasuries and stocks. But most portfolio managers don’t expect much more of a selloff. “JNK chart looks like death. No way to win here, folks,” DoubleLine Capital CIO Jeffrey Gundlach tweeted. JNK is the ticker for the SPDR Bloomberg Barclays High Yield Bond ETF, one of the biggest high-yield exchange traded funds.
Three words have finally set Wall Street deal-makers loose: President Donald Trump. Officially, the Trump administration has yet to rewrite Obama-era rules restricting how much debt banks can pile onto companies in buyouts. But a spate of recent transactions shows financiers are letting go of their concerns about the lending guidelines that had tied their hands in recent years
The Fed’s balance sheet is gradually shrinking since the central bank stopped reinvesting maturing securities, as shown by the yearly change in the Fed’s holdings of Treasuries. European investment-grade bond spreads are at the tightest level in over a decade.
MACRO OP-EDS, INSIGHT, EVENTS AND TRENDS
Dozens of entrepreneurs, made newly wealthy by blockchain and cryptocurrencies, are heading en masse to Puerto Rico this winter. They are selling their homes and cars in California and establishing residency on the Caribbean island in hopes of avoiding what they see as onerous state and federal taxes on their growing fortunes, some of which now reach into the billions of dollars. And these men — because they are almost exclusively men — have a plan for what to do with the wealth: They want to build a crypto utopia, a new city where the money is virtual and the contracts are all public, to show the rest of the world what a crypto future could look like. Blockchain, a digital ledger that forms the basis of virtual currencies, has the potential to reinvent society — and the Puertopians want to prove it.
Bitcoin and its rival currencies were not originally intended as a way to make money, only as a new and technologically savvy way to buy and sell goods and services outside the normal system of cash and credit cards. But bitcoin has been transformed into something else, a way to strike it rich for some, and for others, a hedge against a deeper anxiety about financial security and the economic future. For many, investing in bitcoin is a bit of both.
The strategy, called arbitrage, is simple. If something trades at different prices in multiple places, buy it where it’s cheap and sell where it’s dear. Traders call that “capturing the arb.” It’s tough to find arbitrages in regulated securities markets these days, but not in the world of cryptocurrencies, where bitcoin trades on more than 100 exchanges around the globe and hundreds of other currencies trade in venues few people have heard of.
The word blockchain has been the equivalent of financial fairy dust in recent weeks, adding tens of millions of dollars to the market value of companies, including former camera pioneer Kodak Eastman, that have announced a project involving the technology or simply added it to their names. However, technologists and executives warn that blockchain technology is still developing and the high-profile name changes and often giddy reaction in the stock market are far removed from the real-world experiments.
Essentially, Lightning aims to solve the big problem that has loomed over bitcoin in recent years: Satoshi Nakamoto’s design for bitcoin is comically unscalable. It requires every full node in bitcoin’s peer-to-peer network to receive and store a copy of every transaction ever made on the network.
The memo is so silly, and technical, and logic-defying on its face that it’s easy to miss the fact that its genius lies in precisely that. Unless one ambles comfortably in the murky weeds of the Trump-Russia collusion investigation, this will all be just arcane and confusing enough to mean nothing. For the vast majority of Americans, it will be enough that the president has now declared that his own federal intelligence apparatus is corrupt and out to get him, and has conveniently produced an enemies list that conveniently sweeps in all the villains, from Christopher Steele to Dana Boente to Sally Yates to Andrew McCabe, who have declined to play on the president’s “team.” If the point here is to raise doubts about every investigatory agency capable of scrutinizing Trump, it has been achieved.
The war between the president and the nation’s law enforcement apparatus is unlike anything America has seen in modern times. With a special counsel investigating whether his campaign collaborated with Russia in 2016 and whether Mr. Trump obstructed justice in 2017, the president has engaged in a scorched-earth assault on the pillars of the criminal justice system in a way that no other occupant of the White House has done.
Russian bots and their American allies gamed social media to put a flawed intelligence document atop the political agenda. That should alarm us. Information and psychological operations being conducted on social media—often mischaracterized by the dismissive label “fake news”—are not just about information, but about changing behavior. And they can be surprisingly effective.
Japan’s reputation for flawless manufacturing quality and efficiency transformed the country’s postwar economy, changed business practices world-wide and spawned a library’s worth of management manuals and business advice books. Now, the model is cracking. Corporate wrongdoing occurs the world over, but Japan’s scandals cut to the core of what has kept Japanese brands popular, as well as the country’s perception of itself. The scandals threaten to accelerate an erosion of Japan’s global market share for manufactured goods, handing main rival China further momentum in its march toward becoming the world’s largest economy. They also call into question one of the world’s most influential theories of management and manufacturing.
The crux of the issue is that US startups are increasingly shunning stock market boards. That could have worrying implications for America’s long-term economic prospects. One big reason young companies are shying away from IPOs is that public listings don’t offer much benefit to promising startups, say the paper’s authors. In fact, going public can hurt them.
At a time when a dog-walking app can raise $300m from a single investor — and hordes of hopeful, hopeless and sometimes outright scammy entrepreneurs can raise billions through the cryptocurrency craze — it is fatuous to suggest that good companies are withering on the vine for want of money. In reality, beyond the headline IPO numbers something becomes clear: the issue isn’t that companies aren’t going public, it is that smaller companies aren’t, while big ones are being gobbled up by rivals.
An easy, obvious way of beating the market can, by definition, never be found. Everyone would follow it, so it would generate the average return. But the financial markets are a statistician’s delight, with thousands of companies and price data that change every second. People will keep crunching the numbers in search of the magic factor that makes their fortune.
A group of Silicon Valley technologists who were early employees at Facebook and Google, alarmed over the ill effects of social networks and smartphones, are banding together to challenge the companies they helped build. The cohort is creating a union of concerned experts called the Center for Humane Technology. Along with the nonprofit media watchdog group Common Sense Media, it also plans an anti-tech addiction lobbying effort and an ad campaign at 55,000 public schools in the United States.
She has been raped. She has been sexually assaulted. She has been mangled in hot steel. She has been betrayed and gaslighted by those she trusted. And we’re not talking about her role as the blood-spattered bride in “Kill Bill.” We’re talking about a world that is just as cutthroat, amoral, vindictive and misogynistic as any Quentin Tarantino hellscape. We’re talking about Hollywood, where even an avenging angel has a hard time getting respect, much less bloody satisfaction.
Ingvar Kamprad and Sam Walton both emerged from rural areas to found big-box store chains. Both slashed prices and rallied their employees with folksy wisdom. But Mr. Kamprad’s IKEA has proved more of a global success story than Mr. Walton’s Walmart Inc. The U.S. still accounts for about three-quarters of Walmart sales. Sweden, IKEA’s home market, provides only about 5% of sales at the company, whose biggest markets include Germany, the U.S., France, Britain and China. Including franchises, IKEA has stores in four dozen countries and is preparing to open one in Hyderabad, its first in India.
CENTRAL BANKS & MONETARY POLICY
Federal Reserve Chair Janet Yellen will begin work Monday morning as a distinguished fellow at the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution in Washington, D.C., CNBC has learned. In heading to Brookings, Yellen follows in the steps of former Fed Chairman Ben Bernanke and former vice chairmen Donald Kohn and Alan Blinder, along with former top Fed staffer Nellie Liang.
As Janet Yellen’s tenure comes to an end, it’s worth reflecting on what may be her greatest accomplishment as chair of the Federal Reserve: With calm and dispassionate competence, she kept the central bank at arm’s length from a political system paralyzed by partisan strife. Look at the rest of Washington to see how valuable to the country that distance from dysfunction has been — and how improbable.
Janet Yellen said she was disappointed that President Donald Trump didn’t offer her a second term as Federal Reserve chair, but supports her central bank successor, Jerome Powell, who takes over on Monday. She also said the stock market — the Dow Jones industrial average closed at 25,520 Friday after a 665-point drop — was “high,” and that the financial system was in stronger shape to handle a sharp sell-off than it was during the 2008 financial crisis.
Outgoing Federal Reserve Chair Janet Yellen said U.S. stocks and commercial real estate prices are elevated but stopped short of saying those markets are in a bubble. “Well, I don’t want to say too high. But I do want to say high,” Yellen said on CBS’s “Sunday Morning” in an interview recorded Friday as she prepared to leave the central bank. “Price-earnings ratios are near the high end of their historical ranges.”
USA ECONOMY DATA, CITIES AND STATES
Calls for rent-control legislation are growing across the U.S. as apartment tenants endure sharply rising rents and memories fade of the downsides of price caps. Lawmakers and advocates in California, Illinois and Washington state are pushing to repeal state laws that forbid rent control or place limits on cities’ ability to regulate rent increases.
U.S. households became less confident about the economic outlook at the beginning of 2018, with sentiment easing for the third consecutive month from its highest level in a decade. “Stock-price increases and the passage of tax reforms were mentioned by all-time record numbers of consumers,” said Richard Curtin, the survey’s chief economist. “Consumers continued to expect growth in jobs and incomes.”
COLOR, EARNINGS, SENTIMENT, VALUATIONS
Even before the latest earnings, investors had worried that Google was becoming increasingly dependent on other companies to distribute search advertising on mobile devices, eating into one of its main sources of revenue. The fourth-quarter figures appeared to confirm those fears, with traffic acquisition costs — the amount paid to companies that distribute or carry Google’s ads — climbing by 33 per cent to $64.5bn.
The super-brands that dominate the grocery aisles in stores and online have a price problem, which has echoed through income statements of the largest consumer goods companies in recent weeks. The last three months of 2017 marked the first time since 2011 that the average prices for products sold by P&G and Colgate-Palmolive fell, with particularly severe declines in categories such as razor blades and nappies where online competition is strongest.
The Frankfurt-based lender, which had already guided for a slump in trading earnings, surprised with revenue that fell to the lowest in seven years and declines at businesses from transaction banking to equity derivatives. Even cost control — a key feature of Chief Executive Officer John Cryan’s tenure — was worse than expected. “The results are disappointing again and we don’t see anything encouraging in them, reinforcing our doubts in the bank’s strategy and management,” said Michael Huenseler at Assenagon. “There’s no silver lining.”
Investors were already worrying that holiday-boosted sales numbers would drop back in January. The results showed that in the three months to December, Apple fell some 3m short of investor expectations that sales would be more than 80m. Suddenly, the cycle was not looking quite so super. Apple seemed to spend a disproportionate amount of time on Thursday’s earnings call making excuses, as its executives tried to explain that the shortfall was not quite as bad as it looked.
DEALS, MERGERS, IPOs, LBOs, RESTRUCTURINGS
Broadcom Ltd plans to unveil a new approximately $120 billion offer for Qualcomm Inc on Monday, aiming to ratchet up pressure on its U.S. semiconductor peer to engage in negotiations, people familiar with the matter said on Sunday. The move comes ahead of a Qualcomm shareholder meeting scheduled for March 6, when Broadcom is seeking to replace Qualcomm’s board of directors by nominating its own slate for election.
ENERGY COMPANIES, NOCs, INDUSTRY
Weak performances in refining operations at ExxonMobil and Chevron led the two largest US oil groups to report disappointing fourth-quarter earnings, despite multibillion-dollar accounting gains from the recent US corporate tax cuts. Exxon’s one-off benefits totalled $5.9bn, and Chevron’s reached $2bn because the cut in the main US corporate rate from 35 to 21 per cent shrank the size of their deferred tax liabilities.
GEOPOLITICS, CRIME, TERRORISM
Douglas Haig, who sold ammunition to Las Vegas mass shooter Stephen Paddock and was considered a person of interest by authorities, said Friday said he had no idea Paddock was planning a massacre.
Fidel Castro Diaz-Balart, the oldest son of late Cuban leader Fidel Castro, died after months of treatment for depression, state media reported. He was 68.
Nearly 50 people suspected of using and selling drugs were killed by officers in the past two months, the Philippine National Police said on Friday, contradicting earlier pronouncements that the government’s war on drugs would become less deadly. The figure was the first released since President Rodrigo Duterte reactivated the police in December as the country’s lead agency in carrying out a no-holds-barred crackdown on illegal narcotics.
PRIVACY, HACKING, CYBERWAR, SURVEILLANCE STATE
A Russian programmer arrested in Spain at Washington’s request has been extradited to the U.S., a move likely to anger Kremlin officials who say Russian citizens are being hunted down. U.S. authorities accuse Mr. Levashov of infecting a network of computers around the world with a potent malware known as Kelihos and remotely controlling the network, or botnet, for criminal purposes, including so-called ransomware attacks.
PROPAGANDA, CORRUPTION, AUTHORITARIANISM
YouTube said it is planning changes to give users more context for videos promoting conspiracy theories or state-sponsored content, the latest effort by an internet giant to clean up its platform amid criticism over its role in spreading misinformation.
SCANDALS, LAWSUITS, FINES, REGULATORY
The harsh rebuke of the third-largest U.S. bank by assets came on the last business day of Janet Yellen’s tenure as chairwoman of the Fed. It prompted Wells Fargo’s stock to fall more than 6% in after-hours trading on Friday. The bank also said it expected the action to reduce expected 2018 after-tax profit by $300 million to $400 million.
“We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again,” Fed Chair Janet Yellen said in a statement.
The investors — including the World Bank and the Bill and Melinda Gates Foundation — want to know why more than $200 million that they and others had provided was not spent. They fear that Abraaj may have used the money for its own purposes, according to the people briefed on the issue. Not all of the 24 investors in the fund have complained, people close to Abraaj said.
SILICON VALLEY, UNICORNS, STARTUPS, VC
Airbnb Inc.’s finance chief’s decision to leave came after he was passed over for a different role at the home-sharing company and disagreed with co-founder and chief executive Brian Chesky about Airbnb’s future, people familiar with the matter said.
ARTIFICIAL INTELLIGENCE, DRONES, FUTURE TECH
Massachusetts Institute of Technology is launching an ambitious programme, involving hundreds of researchers across the university, to understand human intelligence and apply that knowledge to develop intelligent machines. The MIT Intelligence Quest or MIT IQ, based at an institution that has been at the forefront of artificial intelligence research since the 1950s, is a far-reaching academic effort to regain the initiative in AI. It comes at a time when the technology industry’s fast-growing research labs threaten to suck the field’s most talented scientists, engineers and ideas away from universities.
Professional football is a brutal sport, he knew that. But he loved it anyway. And he accepted the risks of bruises and broken bones. What he didn’t know was that along with a battered body can come a battered mind.
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