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Stock futures: Will the China trade deal spur the stock market to record highs like Apple? Microsoft, Google, Nvidia, Facebook, Visa are near buys.
Earnings season for banks begins Oct. 15, when J.P. Morgan Chase, Citigroup and Wells Fargo are scheduled to announce their Q3 results. However one CIO says earnings are not the focus in the market.
(Bloomberg Opinion) -- However frothy valuations currently seem to be, optimists can always argue they’re justified by strong earnings. In the past four years, S&P 500 operating earnings per share have grown by nearly 40%.Those numbers, however, may be as airy as the asset prices they support. The U.S. government’s national income and product accounts -- which cover a broader number of businesses than the S&P, use tax returns and adjust for certain accounting practices -- suggest that corporate profits actually peaked in 2014 and have been stagnant since. The national accounts also show significant downward revisions to corporate profit margins over the previous five years. While one would expect some discrepancies between that data and S&P numbers, which are based on Generally Accepted Accounting Principles (GAAP), the gulf is too wide to be ignored.What’s going on? In many cases, accounting choices appear to be distorting results. In early 2019, General Electric Co. reported GAAP losses of $2.43 per share; under adjusted figures it earned $0.65 per share. Tesla Inc. reported full-year GAAP losses of $5.72 per share but “non-GAAP” losses were only $1.33 per share. Over 95% of S&P 500 companies regularly use at least one non-GAAP measure, up about 50% over the last 20 years.One question is how companies choose to recognize income. In the case of long-term, multi-year contracts, such as construction projects, reported revenue can be based on a formula: a portion of the total contract amount, calculated as costs incurred in the relevant period as a percentage of total forecast costs. Understating estimated final costs allows margins to be increased and greater revenue to be recognized up front. Following the collapse of Carillion PLC, the firm was found to be aggressive in recording income which was sensitive to small changes in assumptions. Given the trend to converting sales of products (such as software) into long-term service contracts, these risks are only going to grow. Companies can understate expenses. Many tech companies use non-GAAP accounting to strip out the cost of employee stock options, for instance, thereby showing higher earnings. WeWork sought to redefine traditional earnings before interest, tax, depreciation and amortization as something called “community-based EBITDA.” The new measure conveniently excluded normal operating expenses such as marketing, general and administrative expenses, development and design costs.Spending may be treated as an asset, to be written off in the future rather than when expended. A recent JPMorgan Chase and Co. research report found software intangible assets (the amount spent but not yet expensed) averaged up to 15% of adjusted costs for a sample of European banks. The idea is to better match expenses to the period over which they are expected to benefit the business. But the practice may overstate current earnings.Related-party transactions can distort a company’s true financial position. Saudi Arabia slashed the tax rate on large oil companies to 50% from 85%, even though the government depends on the profits of Saudi Arabian Oil Co. for 80% of its revenues. Aramco will still pay most of its profits to the state, but as dividends rather than tax. That means reported profits will be higher, potentially increasing the company’s valuation ahead of a highly anticipated initial public offering. Complex structures can mask liabilities. Tesla, for instance, faces potential payments related to its SolarCity business. Before being bought by Tesla in 2016, SolarCity regularly sold future cash flows to outside investors in exchange for upfront cash. Tesla assumed these obligations and has continued the practice. The obligations now reportedly total over $1.3 billion.To reduce unfunded pension liabilities, some companies have borrowed at low available interest rates to inject money into the funds. That’s fine as long as fund returns -- generally assumed to be around 6% to 8% -- are higher than the cost of borrowing. If returns come in lower, however, the companies in question will have to raise their contributions, affecting future earnings.New business models often disregard potential costs. If Lyft Inc. and Uber Technologies Inc. drivers are reclassified as employees as proposed in California, then hidden employment costs would need to be recognized, perhaps retrospectively. Newly listed fitness company Peloton Interactive Inc. faces a $300 million lawsuit from music publishers who claim the company used their songs in workouts without paying licensing fees.Finally, stated asset values can be misleading. Goodwill, the difference between acquisition price and the fair value of actual assets acquired, now averages above 50% of acquisition price. Goodwill values are notoriously uncertain. In 2018, GE unexpectedly wrote off $23.2 billion of goodwill arising from its acquisition of Alstom SA.The problem is compounded by private markets, where funding rounds can establish questionable valuations. Recent investments into WeWork valued the company at over $40 billion, more than three times the projected pricing of its abandoned IPO. A recent proposal to get Saudi businesses to make anchor investments in Aramco ahead of its IPO could also inflate its valuation.“Fake” financials, as some would call them, undermine markets. With a correction looking increasingly likely, investors need to start working with regulators and standard setters now to close accounting loopholes, while scrutinizing underlying data more closely. Otherwise, the more creatively companies are allowed to manage their financial position for short-term gain, the bigger the bill is going to be.(Corrects definition of goodwill in twelfth paragraph.)To contact the author of this story: Satyajit Das at email@example.comTo contact the editor responsible for this story: Nisid Hajari at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Satyajit Das is a former banker and the author, most recently, of "A Banquet of Consequences."For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
In the last week, we looked at Amazon Inc (AMZN) stock trends. Here is another attempt to decode the same patterns for the second week of October 2019.
The coming week’s docket of economic reports and earnings releases comes just following the Trump administration’s announcement of a partial trade deal with China late last week.
Could Delta Air Lines, Inc. (NYSE:DAL) be an attractive dividend share to own for the long haul? Investors are often...
Facebook’s plans for a digital currency are coming under further pressure as global regulators step up their scrutiny of the troubled Libra project. In a letter to G20 finance ministers on Sunday, Randal Quarles, the head of the global Financial Stability Board, said that, with a “host of challenges” posed by global “stablecoins”, such as Libra, “possible regulatory gaps should be assessed and addressed as a matter of priority”. This, the letter said, created challenges including financial stability, consumer and investor protection, data privacy, money laundering, terrorist financing, fair competition, cyber security and tax evasion.
The Democratic presidential candidate would like not only to break up Big Tech, but tax companies such as Facebook and people like Mr Zuckerberg a lot more. It galls me not that I pay roughly half my income in taxes, but that I do so because I earn it from actual work while those who earn money from rising share prices pay much less. , a book by Emmanuel Saez and Gabriel Zucman, who are advising Ms Warren on tax issues, including the details of how to tax wealth rather than just income.
The United Auto Workers union said Saturday it will boost strike pay for 48,000 hourly workers at General Motors Co by $25 a week to $275 as a strike against the largest U.S. automaker nears the end of its fourth week. Talks were continuing late Saturday afternoon to try to resolve the longest nationwide strike at GM since 1970, both sides said. The UAW also said it would allow members striking to take on part-time jobs without reducing their strike pay – as long as they perform picket-line duties.
This weekend's Barron's cover story examines ways to maximize income in a low-rate environment. Other featured articles discuss a way to play the China trade talks and what a new baby boom means for retail ...
Benzinga has examined the prospects for many investor favorite stocks over the past week. Bullish calls included the iPhone maker, a mining giant and a recent IPO. Bearish calls included beleaguered health ...
Reality is closing in on Netflix. With the stock (NFLX) down 30% over the past three months, poor second-quarter results and signs that third-quarter subscriber numbers (which the company reports on Oct. 16) might be below expectations, the market is no longer buying CEO Reed Hasting’s previous ridiculous claims like that Fortnite and YouTube are Netflix’s primary competitors. While the “sell side” remains bullish, with 70% of Wall Street analysts tracked by FactSet calling Netflix a buy, independent investors are increasingly skeptical of the company’s growth story.
For investors, it could be a costly mistake to be on the wrong side of that debate if Netflix’s stock price marches toward a record $419. The streaming service has done an excellent job penetrating Western Europe, which has fast broadband speeds.
We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always […]
(Bloomberg Opinion) -- How worried should we be about Starbucks’s recent announcement that it plans to begin testing a new type of store that only takes orders via mobile app — no cashiers?At first glance the image seems vaguely dystopian: person after person filing through, inevitably wearing AirPods, to pick up caffeine-and-sugar infusions they ordered by pressing a few buttons on their smartphones as they were leaving home — all without a moment of human interaction.(1)But that’s more or less what’s happening right now at regular Starbucks stores: the company already accepts mobile orders, and has more than 16 million mobile users. The drawback is that those users crowd the stores and cause bottlenecks at peak times; in some outlets, the glut of mobile orders has gotten so bad that it’s discouraging walk-in customers. Thus, the mobile-only store model is presumably a response to problems already created by mobile ordering.Experiments of this kind are increasingly common. Amazon Go stores are cashier-less. Some grocery stores let you scan items as you pick them up and economize on checkout time. And mobile ordering is becoming widespread for foods ranging from salad to lobster. So we might not be too far away from the day when mobile ordering and cashier-less purchasing are the norm, rather than the exception.Will we be better off for it?In Starbucks’s case, at least, mobile-only stores might actually work out well for customers. Those who want to order via mobile will be able to go to specialized stores optimized for handling them. And that will reduce congestion at other stores, meaning that people there won’t have to spend as much time waiting for their drinks.As with many forms of product differentiation, the change might even increase demand for Starbucks coffee. Anyone who previously found Starbucks too time-consuming to stop in during their morning commutes will have a new, faster option. And people who had been driven off by the throngs of mobile-order customers might be able to come back.It’s less clear, however, how mobile-only stores will affect Starbucks employees.Some activists are trying to push for laws that would put limits on the shift to cashier-less shopping, requiring that stores must have humans on hand to ring up customer orders. That’s an onerous proposal — analogous to saying that every ATM should also have a bank teller on hand.(2)But still, you can see why there’s concern. Presumably, cashier-less stores will need fewer employees, even if they do pull in a large number of new customers. And reducing congestion in regular Starbucks stores might reduce staffing needs there as well.Then there's the drudgery factor: Working in a mobile-only store will surely be a lot more monotonous, more like being employed on a factory assembly line than in a typical coffee shop, where give-and-take between workers and customers can be part of the appeal. There will be less human interaction – and what interactions there are might well be with upset customers.It’s also likely that the workers at mobile-only stores won’t make nearly as much in tips. First off, customers might not feel an obligation to employees they don’t interact with personally. Moreover, tipping using an app isn’t observable to others, and there’s solid evidence that people take prosocial actions more frequently when others are watching. In other words, people tend to tip more when they know they're being observed.That said, the Starbucks app’s default tipping options are on the order of 10% to 20% -- higher than many people give with the typical change-in-jar approach. So if Starbucks pushes app tipping hard with notifications and alerts, there might not be too much of a shortfall. Better would be to still have a physical tip jar in mobile stores — or even to place a star on the order display board next to the name of anyone who tips.So there’s a chance that mobile-only Starbucks might be beneficial overall, rather than dystopian. Or at least not as dystopian as the pumpkin-spice latte.(1) I mean, isn’t that basically one of the opening scenes of the movie "Equilibrium"?(2) And what about completely automated coffee shops like those now operating in San Francisco?To contact the author of this story: Scott Duke Kominers at email@example.comTo contact the editor responsible for this story: James Greiff at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Scott Duke Kominers is the MBA Class of 1960 Associate Professor of Business Administration at Harvard Business School, and a faculty affiliate of the Harvard Department of Economics. Previously, he was a junior fellow at the Harvard Society of Fellows and the inaugural research scholar at the Becker Friedman Institute for Research in Economics at the University of Chicago.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
How to sort through the rewards and dangers in short-term paper, corporates, munis, preferred stocks, and taxable bonds.
Citigroup, JPMorgan Chase and Wells Fargo reporting third-quarter results on Tuesday, giving investors important data points on the state of the economy.
Petrol bombs were thrown inside a Hong Kong metro station on Saturday but no one was injured, the government said, as pro-democracy protesters again took to the streets angry at what they believe is Beijing's tightening grip on the city. The Kowloon Tong station was seriously damaged in the attack, the government said in a statement.
Several pro-democracy protests are planned for Hong Kong on Saturday reflecting the widespread anger at the government, ranging from an elderly sit-in, a face mask party, a shopping mall demonstration and an anti-emergency law street march. Hong Kong's protests started in opposition to a now-abandoned extradition bill but have mushroomed in four months into a pro-democracy movement and an outlet for anger at social inequality in the Asian financial hub. Hong Kong has experienced relative calm since last weekend, when a peaceful march by tens of thousands spiralled into a night of running battles between protesters and police.
(Bloomberg) -- The United Auto Workers made a counter proposal to General Motors Co. late Friday that would end a nearly month-long strike if the automaker agrees, capping a tumultuous day in which the union and company traded barbs and blame.UAW Vice President Terry Dittes offered no specifics on the proposal in a letter sent to members and published on the union’s website. GM had been awaiting a response to its latest offer made Monday, which a person familiar with the matter said included $9 billion of total investment in U.S. plants, about $2 billion more than the carmaker vowed to make in mid-September.Analysts say the strike has cost GM more than $1 billion of lost profit. The automaker’s senior executives appealed to rank-and-file employees late this week, portraying UAW leadership as dragging their feet in responding to its proposals.“We object to having bargaining placed on hold,” Scott Sandefur, GM’s vice president of North American labor relations, wrote to Dittes late Thursday in a letter obtained by Bloomberg. “As we have urged repeatedly, we should engage in bargaining over all issues around-the-clock to get an agreement.”The public war of words escalated midday Friday, with the UAW issuing an open letter accusing GM of stalling negotiations to “starve UAW-GM workers off the picket lines” and protect its own interests. The union said its negotiators remain committed to bargaining day-and-night to find an agreement.“These delaying tactics have human costs. Families are suffering, from Detroit to Texas to New York,” the letter said. “This strike has been and continues to be about securing the American workers’ future.”Showing FrustrationThe UAW’s walkout has halted production at 34 U.S. plants and disrupted output at factories in Mexico and Canada. While GM publicly released details of its first formal offer to the union on Sept. 15 -- the day the UAW called the strike -- the company had until this week kept a lid on public criticism of union leaders, who themselves are dealing with a credibility crisis.GM was upping the pressure on UAW brass Friday in a bid to clinch an agreement before the strike enters a fifth week.“GM is frustrated with the pace of negotiations,” said Art Schwartz, a former GM labor negotiator who’s now a consultant in Ann Arbor, Michigan. “They gave the union a comprehensive offer on Monday, and it’s Friday and they haven’t had a response yet. If I had members out on strike, I would be responding within hours.”GM shares rose 2.6% on Friday, paring their decline since the strike began to 8.5%. While credit-rating companies initially warned of risk to the automaker if the walkout lasted more than a couple weeks, they’ve been reluctant to downgrade.“GM has adequate liquidity to contend with a strike of this duration,” Bruce Clark, lead U.S. auto analyst for Moody’s Investors Service, wrote in a report Friday. The carmaker would start to forgo significant earnings if the walkout extends into late November, he said.Earlier Friday, GM released a broad outline of the offer made at the beginning of the week, saying it would boost wages and lump-sum payments while also preserving health care benefits. Gerald Johnson, GM’s executive vice president of manufacturing, wrote to employees the automaker was prepared to enhance profit-sharing, including by lifting the cap on how much is paid out based on the company’s earnings.UAW members also would receive bigger ratification bonuses than in 2015, when each worker was paid an $8,000 signing bonus. And the offer gives temporary workers a clear path to permanent status, Johnson said.“The strike has been hard on you, your families, our communities, the company, our suppliers and dealers,” Johnson wrote to employees. “We have advised the Union that it’s critical that we get back to producing quality vehicles for our customers.”Security ConcernThe investment offer from GM was aimed at sewing up one of the union’s major remaining concerns -- that underused plants could end up being idled or closed during the life of the agreement. UAW Vice President Terry Dittes said in two letters this week that the union wanted the company to offer more job security.GM’s initial formal offer made in mid-September included plans to build electric trucks at a plant in Detroit, which is scheduled to run out of work in January, and to construct a battery plant in Lordstown, Ohio, where the company has idled a compact car plant. Those two investments remain parts of GM’s plans, the person said.“GM definitely has moved; whether the union has moved off their demands, we don’t know,” Schwartz said. “Maybe they’re not responding quickly because the leadership is worried about ratification. They’re probably more worried about ratification than actually getting the deal done.”(Updates with TK in TK paragraph. An earlier version of this story corrected the investment figure in the headline and first paragraph.)To contact the reporters on this story: David Welch in Southfield at email@example.com;Keith Naughton in Southfield, Michigan at firstname.lastname@example.orgTo contact the editors responsible for this story: Craig Trudell at email@example.com, ;Crayton Harrison at firstname.lastname@example.org, Chester DawsonFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.