US core capital goods orders unexpectedly fall in August

PUBLISHED FRI, SEP 27 2019

New orders for key U.S.-made capital goods unexpectedly fell in August and shipments rebounded moderately, pointing to continued weakness in business investment after it declined at its steepest pace in 3-1/2 years in the second quarter.The Commerce Department said on Friday orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.2% last month amid weak demand for electrical equipment, appliances and components, and computers and electronic products. Data for July was revised down to show these so-called core capital goods orders unchanged instead of gaining 0.2% as previously reported. Economists polled by Reuters had forecast core capital goods orders unchanged in August. Core capital goods orders increased 1.1% on a year-on-year basis. Shipments of core capital goods rose 0.4% last month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. Core capital goods shipments fell by an unrevised 0.6% in July. The Trump administration’s nearly 15-month trade war with China has been blamed for the downturn in business investment. Federal Reserve Chair Jerome Powell last week said trade policy tensions, which “have waxed and waned, and elevated uncertainty is weighing on U.S. investment and exports,” posing an ongoing risk to the longest economic expansion on record, now in its 11th year. Powell said U.S. central bank contacts had told policymakers that trade policy uncertainty “has discouraged them from investing in their businesses.” The Fed cut interest rates again last Wednesday after lowering borrowing costs in July for the first time since 2008. Business investment declined at a 1.0% annualized rate last quarter, the biggest drop since the fourth quarter of 2015, the government reported on Thursday. Weak business investment is underscored by manufacturing, where output has contracted for two straight quarters. Manufacturing, which accounts for about 11% of the economy, is also being undercut by weak global demand and design problems at planemaker Boeing. Last month, orders for electrical equipment, appliances and components dropped 1.3%, the most since November 2018. There were also decreases in orders for computers and electronic products. But orders for machinery rebounded 0.6%. There were also gains in orders for primary metals and fabricated metal products. Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, rose 0.2% in August after surging 2.0% in the prior month. Orders for transportation equipment fell 0.4% after jumping 7.2% in July. Motor vehicles and parts orders decreased 0.8% last month. Orders for non-defense aircraft and parts tumbled 17.1%. Boeing reported on its website that it had received only six aircraft orders in August after getting 31 orders in July.

US consumer spending slows in August, while incomes rise

PUBLISHED FRI, SEP 27 2019

U.S. consumer spending barely rose in August, suggesting that the economy’s main growth engine was slowing after accelerating sharply in the second quarter.The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1% last month as an increase in outlays on recreational goods and motor vehicles was offset by a decrease in spending at restaurants and hotels.Data for July was revised slightly down to show consumer spending increasing 0.5% instead of the previously reported 0.6% advance. Economists polled by Reuters had forecast consumer spending gaining 0.3% last month.On a year-over-year basis, consumer spending was up 1.4 percentin the second quarter.

Consumer spending, fueled by the lowest unemployment rate in almost half a century, has been blunting some of the hit on the economy from the White House’s nearly 15-month trade war in China, which has sunk business investment and manufacturing.But with tariffs on Chinese goods broadened to include consumer goods, there are fears that spending could slow. There are also worries that weak business investment and sluggish profit growth could constrain companies’ ability to continue hiring more workers, and undermine consumer spending.The Federal Reserve last week cut interest rates for the second time this year, citing the ongoing risks to the longest economic expansion on record from the U.S.-China trade war and slowing global growth.The U.S. central bank cut rates in July for the first time since 2008. The economy is now in its 11th year of expansion.Consumer prices as measured by the personal consumption expenditures (PCE) price index were unchanged in August as food prices declined for a third straight month and the cost of energy goods and services dropped 2.0%. The PCE price index rose 0.2% in July. In the 12 months through August, the PCE price index increased 1.4%, rising by the same margin for a fourth straight month. Excluding the volatile food and energy components, the PCE price index edged up 0.1% last month after rising 0.2% in July. That lifted the annual increase in the so-called core PCE price index to 1.8% in August, the biggest gain since January, from 1.7% in July. The core PCE index is the Fed’s preferred inflation measure and has undershot the U.S. central bank’s 2% target this year. When adjusted for inflation, consumer spending gained 0.1% in August. This so-called real consumer spending increased 0.3% in July. Consumer spending surged at a 4.6% annualized rate in the second quarter, the fastest pace in 4-1/2 years. Last month, spending on goods rose 0.1%, driven by outlays on recreational goods and motor vehicles. Spending on services increased 0.2%. The economy grew at a 2.0% annualized rate last quarter, slowing from the January-March quarter’s brisk 3.1% pace. The Atlanta Fed is forecast gross domestic product rising at a 1.9% rate in the third quarter. Personal income rose 0.4% in August after nudging up 0.1% in the prior month. Wages increased 0.6%. With income growth outpacing spending, savings rose to $1.35 trillion from $1.29 trillion in July.

Consumers are really starting to worry about the trade war

PUBLISHED FRI, SEP 27 2019

Yun Li

U.S. consumers are getting increasingly anxious about the trade war with China despite a recent thaw in the tensions ahead of the trade talks next month.The University of Michigan’s Surveys of Consumers showed in September that a near-record number of consumers cited trade policies as a negative factor weighing on the economy.“Trade policies have had the greatest negative impact on consumers, with a near record one-third of all consumers negatively mentioning trade policies in September when asked to explain in their own words the factors underlying their economic expectations,” Richard Curtin, chief economist of the Surveys of Consumers, said in a statement.The result came as the U.S. and China are slated to resume trade talks on Oct. 10 in Washington. Tensions have somewhat eased ahead of the negotiations as China confirmed the country had purchased a “considerable” amount of U.S. soybeans and pork products. President Donald Trump had also delayed some tariffs by two weeks at China’s request.Still, the two economic superpowers have many structural issues they have yet to sort out. White House trade advisor Peter Navarro previously said these issues include cyber intrusion into U.S. business networks, forced technology transfer, intellectual property theft and currency manipulation.An index of consumer confidence rose to 93.2 in September from 89.8 in August, according to the University of Michigan. “Despite the high levels of confidence, consumers have also expressed rising levels of economic uncertainty,” Curtin said. “Some of these concerns are rooted in partisanship, some due to conditions in the global economy (Brexit, Iran, Saudi Arabia, China), and some are tied to domestic economic policies.”

Is there a recession coming? Keep an eye on these key indicators

PUBLISHED MON, SEP 30 2019

Janet Alvarez

If I could devise a model that would accurately predict the onset of every recession or economic crisis, I’d probably be worth more than Warren Buffett, Bill Gates and Jeff Bezos combined. But the truth is nobody can accurately forecast when a recession will hit, although there are some leading indicators investors and economists look out for when trying to predict economic activity the coming months. While you may have heard chatter about the yield curve inverting recently, there are other indicators that are equally or more important. If you’re interested in tracking where the economy could be headed, keep your eyes on these numbers. Keep in mind, however, that no single indicator can give you a complete picture of the economy’s health.

Employment figures provided by the Bureau of Labor Statistics provide a close-to-real-time snapshot of the economy. A decline in payrolls or hours worked — especially for more than a month or two in a row — can signal a slowdown in employment. An increase in unemployment claims is also troubling for similar reasons. Keep in mind that there may be fluctuations isolated to some sectors of the economy, and that these don’t reflect as strongly on the overall picture of economic health. The unemployment rate stands at 3.7%, near historical lows, and is indicative of a robust employment market. Housing prices, construction rates and supply are another set of indicators to watch. Generally speaking, when times are good, housing demand is high and prices rise. When demand begins to contract, fewer new homes get built, or existing homes sold. Both of these can indicate a slowdown is forthcoming. However, existing home prices and sales have each continued to increase in recent months. The Consumer Confidence Index, which details consumer attitudes and buying intentions, is also important to monitor. (By some measures, the consumer makes up approximately 70% of the American economy.) Whether consumers feel confident about spending and the present or future trajectory of the economy tells us a great deal about where our fortunes are headed. At present, this index continues to demonstrate persistently positive consumer attitudes regarding the economy. You can also take a look at manufacturing numbers and business sentiment. The Institute of Supply Management’s famous ISM gauge is a measure of the overall health of the manufacturing industry via its PMI Index. It shouldn’t read below 50, as anything under that represents a contractionary environment. Like consumer confidence, if business sentiment is low, it can also foretell a slowdown to come. The most recent PMI figures came in at 49.1, signaling a somewhat contractionary business sentiment and environment. Gross Domestic Product (GDP) is the best measure of an overall economy’s health. Technically, we enter a recession when we have two consecutive quarters of negative GDP growth. (The first and second quarters of 2019 featured 3.1% and 2% GDP growth, respectively, both indicative of a continued, moderate expansion.) Thus, a decline in the growth rate, while concerning, isn’t actually indicative of a recession. Still, slowing GDP numbers mean we could slip into a negative growth situation, and eventually, a recession, so GDP is still the gold standard by which recessions are truly measured.

Finally, the Conference Board’s Leading Economic Index provides a more comprehensive view of the economy, via a composite score derived from a variety of economic indices. It’s a handy gauge of where most major indicators are pointing. The most recent reading signaled expectation for moderate growth in the second half of 2019. While no single gauge can provide a complete impression of the economic outlook, the LEI is often used as shorthand for economic expectations.

Illuminating Dark Corners of the Global Economy

By: Gita Bhatt

SEPTEMBER 3, 2019

This issue of Finance & Development reminds me of a Sufi parable. A woman sees a mystic searching for something outside his door. “What have you lost?” she asks. “My key,” he responds. So they both kneel down to look for it. “Where exactly did you drop it?” she asks after a few minutes. “In my house,” he replies. “Then why are you looking here?” “Because there is more light.” The lesson: we all search for answers where it is easiest to look. That is why we decided to shine a spotlight on the dark web of secret transactions that enable tax evasion and avoidance, money laundering, illicit financial flows, and corruption. Consider these estimates: bribes to the tune of $1.5–$2 trillion change hands every year. Tax evasion costs governments more than $3 trillion a year, and countless more is lost through other illicit activities. This is money that could go for health care, education, and infrastructure for millions worldwide. But the cost to society is far greater: corruption distorts incentives and undermines public trust in institutions. It is the root of many economic injustices young women and men also suffer every day. The best disinfectant is sunlight. It all comes down to the core notion of governance, says David Lipton. Paolo Mauro and others explore how countries can combat graft by putting in place accountable institutions, improve government budget transparency, and exchange financial information across borders. Jay Purcell and Ivana Rossi propose ways to resolve the tension between the need for transparency and the right to privacy. Nicolas Shaxson argues that tax havens, too, have a stake in curbing evasion. And Aditi Kumar and Eric Rosenbach argue for closer cooperation among law enforcement, financial institutions, and regulators. These hidden transactions are not one nation’s problem nor within one nation’s power to resolve. Tackling the problem requires strong domestic policies and cross-border collaboration. The payoff will be myriad other political, economic, and social benefits, not least reducing inequality. All the more reason to shed light on the dark corners of the world economy.

Brussels Edition: No Deal for Boris

By: Ian Wishart and Nikos Chrysoloras

September 5, 2019

If there’s one thing we know for sure about what happened during a confusing and dramatic night in the House of Commons, it’s that Boris Johnson failed in his attempt to call a general election on Oct. 15. Coupled with his defeat on legislation that would delay the U.K.’s departure from the EU, his Brexit strategy is in complete disarray, and politicians from all sides are divided over what happens next. In Brussels, officials are increasingly pessimistic over the prospects of a deal. The next few days could prove crucial.

What’s Happening

Merkel in China | Germany is the latest country to go from bullish to bearish on China, toughening its stance on investment, trade and intellectual property. But it’s a high-risk strategy at a time when Germany’s export-dependent economy — caught in the middle of the Sino-American trade spat — is flirting with recession. Even for a seasoned negotiator like Angela Merkel, it will be a balancing act. Nuclear Deadline | Iran will today unveil further plans to ramp up its atomic activities, while giving Europe two more months to try to keep the country’s battered nuclear accord alive as the U.S. piles on new sanctions. Europe will use that time to try to find a way around U.S. restrictions on Iran’s oil exports, after failing to meet Tehran’s deadline to work out a mechanism. Peace Offering | If Giuseppe Conte wanted to prove his new government is one Europe can now do business with, his choice of finance minister might be Exhibit A. Roberto Gualtieri is a veteran European lawmaker known more in the political bubble in Brussels than in Rome, and that might be crucial in repairing Italian relations with the EU after a fractious year. ECB Vacancy | The search for one of the ECB’s top jobs is about to be set in motion. Executive board member Benoit Coeure’s term comes to an end this year and senior euro-area finance ministry officials gathering in Brussels today are expected to agree to start the procedure to find his successor at their ministers’ meeting in Helsinki next week. With Mario Draghi’s term coming to an end next month, Italy is widely expected to get the slot. In Case You Missed It Lagarde’s Path | European Central Bank presidential nominee Christine Lagarde signaled that she plans to follow Draghi’s example in finding ways to keep monetary policy exceptionally loose. Deutsche Bank and UBS won’t be impressed, as an ever-increasing number of investors refuse to buy the inflation-boosting policies central banks are selling. Economic Malaise | The latest economic data may strengthen the hand of policy makers advocating for more aggressive action from the ECB. An erosion of euro-area business confidence due to trade tensions and political uncertainty suggests the feeble pace of expansion is unlikely to pick up. Socialist Threat | A specter is haunting Britain’s wealthiest people. No, not Brexit, it’s Corbynism. U.K.’s super-rich fear the leftist firebrand Labour leader much more than a chaotic Brexit or an impending recession. Here’s why. Istanbul-Budapest Express | A guitar-strumming, social-media savvy young politician has managed to unite the opposition in Budapest against the incumbent mayor backed by Prime Minister Viktor Orban. Gergely Karacsony said that his next task is to emulate the shock victory by Turkish opposition in Istanbul and create a beachhead against Orban in the Hungarian capital ahead of the next parliamentary elections.

Minority governments aren’t all that unusual in the EU. Yet in the U.K. — which typically is governed by a one-party majority — that form of rule has gone sour. Just ask Theresa May and Boris Johnson. 

China exempts 16 American products from additional tariffs — here’s the full list

SEP 11 2019

 China’s Ministry of Finance announced plans to exempt 16 types of U.S. products from additional tariffs on Wednesday, including food for livestock, cancer drugs and lubricants.

The exemption, which is scheduled to go into effect from September 17, will be valid for a year through to September 16, 2020.

The announcement comes as high-level trade officials from China and the U.S. prepare to meet in Washington next month. It will mark their latest attempt to resolve a protracted trade dispute. Washington and Beijing have imposed tariffs on billions of dollars’ worth of one another’s goods since the start of 2018, battering financial markets and souring business and consumer sentiment.

We went inside Alibaba’s global headquarters. Here’s what we saw

SEP 10 2019

Uptin Saiidi

Chinese tech giant Alibaba’s global headquarters in Hangzhou is more than an office or corporate campus. It’s an incubator for all things tech, testing everything from self-driving cars to automated hotels. One hour away by train from Shanghai, Alibaba boasts six campuses around Hangzhou. It also has other offices across China, and globally, including Silicon Valley. CNBC recently took a tour of the company’s main Hangzhou headquarters — Xixi campus, which is home to about 22,000 of its 100,000 global employees. Its main campus is also where its corporate office, as well as its major e-commerce brands Tmall, Taobao, and AliExpress, are at. Alibaba was started as an e-commerce platform 20 years ago by Jack Ma, who recently stepped down as the company’s chairman. Today, it has more than 30 business units that span from fintech platforms like AliPay, to its film division, Alibaba Pictures. Five things at Alibaba’s campus Various technologies are being tested across Alibaba’s campus. Here’s five things we noticed:

1.       Facial recognition security access: staff can enter the campus simply through a scan of their faces. Although Alibaba said it’s optional, CNBC saw many employees using it seamlessly to enter the grounds.

2.       Seamless, auto-payment for food: cameras inside the campus cafeteria automatically detect what dishes are selected from the buffet. The payment kiosks then add up the price of each dish, and employees can simply pay with their employee ID or mobile phones.

3.       Autonomous vehicles: they’re seen zooming around campus making grocery deliveries. Last year, Alibaba announced it is developing self-driving technologies, joining its competitors Tencent and Baidu.

4.       Retail tech: customers can scan barcodes at grocery stores to find out more about the products they’re eyeing. They can also virtually try on clothes — the store will simply scan their bodies — and see how it looks like without needing to step into a fitting room.

5.       Alibaba’s hotel of the future, Flyzoo — which is adjacent to the campus — is testing out room deliveries using robots, automatic guest check-ins, and room door locks using facial recognition technology.

The campus is also home to the Alibaba museum, which features a history of the company’s growth. There is a massive wall showcasing drawings of different icons, meant to recognize game changers of the world, according to Alibaba.

The wall includes Google founders Sergey Brin and Larry Page, Apple founder Steve Jobs, Facebook founder Mark Zuckerberg, Berkshire Hathaway CEO and self-made billionaire, Warren Buffett, and as to be expected, Jack Ma.

Saudi stock market dives, crude futures to jump after drone attack on oil plants

SEP 15 2019

Natasha Turak

Saudi Arabia’s stock market fell by 2.3% at Sunday’s open as the country grappled with weekend drone attacks on the heart of its oil production facilities in Abqaiq and Khurais claimed by Yemen’s Houthi rebels. Reports that the country may take weeks to return to full oil supply capacity is set to send crude futures up by as much as $10 per barrel, analysts say, depending on the scale of the damage. Half the country’s oil production was halted due to fire damage and an assessment of the situation is due on Monday, Saudi energy ministry officials said. They have not yet offered a timeline on full production restoration. “A small $2-$3 premium would emerge if the damage appears to be an issue that can be resolved quickly, and $10 if the damage to Aramco’s facilities is significant leading to prolonged supply outages,” Ayham Kamel, practice head for the Middle East and North Africa at Eurasia group, said in a research note Sunday. That’s up to 25 cents higher per gallon of gasoline. Saudi Arabia Drones Attack Oil Production 190915 EC Smoke billows from the Abqaiq, Saudi Arabia crude processing facility after drone strikes Saturday, Sept. 14, 2019 Satellite imagery courtesy of Planet Labs Abqaiq, in the kingdom’s eastern province, is the world’s largest oil processing facility and crude oil stabilization plant with a processing capacity of more than 7 million barrels per day (bpd). Khurais is the second largest oil field in the country with a capacity to pump around 1.5 million bpd. Saturday’s attack is the biggest on Saudi oil infrastructure since Saddam Hussein’s invasion of Kuwait in 1990, when the Iraqi military fired scud missiles into the kingdom. “Oil prices will surely spike on the news of the attacks when markets open on Sunday,” Joseph McMonigle, an energy analyst at Hedgeye Research and former chief of staff at the U.S. Department of Energy, wrote in a client note. “In our view, there is almost no geopolitical risk priced into oil markets that are focused solely on the macro and trade narratives.” If the Saudis maintain closure of half its production, it would impact nearly 5 million barrels of crude production a day, roughly 5% of the world’s daily oil production. In August, Saudi Arabia produced 9.85 million bpd, according to the latest figures from the U.S. Energy Information Administration. Saudi Aramco President and CEO Amin Nasser said no one was hurt in the attacks and emergency crews have contained the fires and brought the situation under control. What Riyadh has called a terrorist attack on its state oil giant, Saudi Aramco, is also likely to unsettle future shareholders and market participants ahead of the company’s highly anticipated initial public offering (IPO). “Very hard to overstate the seriousness of the attacks, especially on Abqaiq. It is the nerve center of the country’s energy infrastructure,” Helima Croft, global head of commodity strategy at RBC Capital Markets, told CNBC on Saturday. “Even if exports resume in the next 24 to 48 hours, the image of invulnerability has been erased.” While Yemen’s Houthi rebels, who have been at war with the Saudis since 2015, claimed the attack, numerous officials and analysts point to Tehran. U.S. Secretary of State Mike Pompeo via Twitter blamed Iran for the attack, saying “Iran has now launched an unprecedented attack on the world’s energy supply. There is no evidence the attacks came from Yemen.” Iran responded by calling the allegations “pointless.” Security experts say the attack likely came from an Iranian-backed militant group in Iraq. Baghdad on Sunday afternoon denied its territory was involved in any way. The Houthis have been behind numerous attacks on Saudi infrastructure in recent years, but they were not viewed as serious by the market, McMonigle said. This time, the attacks ⁠— regardless of their source ⁠— are impossible to ignore.

Taking interest rates to zero is not a good idea. Here’s why

SEP 2019  

by: Harry Jennings

Once again President Trump berated the Federal Reserve via Twitter on Wednesday, this time calling for the central bank to immediately cut interest rates to zero. The president said this would offset the effects of the monetary stimulus being pursued by other central banks and allow the federal government to refinance its outstanding debt at lower rates. He has been very clear in his belief that our relatively high interest rates are causing a number of negative side effects, which include slower economic growth, low inflation and the reduced competitiveness that comes with a stronger dollar. But now he has added another element to his argument. He appears to believe that if the Fed cuts rates to zero the U.S. Treasury could then refinance its debt, saving many billions in interest costs. Is he right? First a little background. The Federal Reserve has just two statutory mandates. The first is to maximize employment, and the second is to maintain price stability. With regard to employment, it’s hard to conclude that the Fed’s mandate has not been achieved. The unemployment rate is at 3.7%, wages are rising at over 3%, and labor shortages are even being reported for certain types of workers. Moreover, access to cheap capital has not been a big factor holding back corporate investment. Capital has been cheap and abundant for many years, and therefore another reduction in the cost of capital is unlikely to unleash a big increase in corporate investment. In my estimation, the relatively sluggish rates of corporate investment in recent years have been the result of weak and uneven demand as well as policy uncertainty. Until and unless those issues are rectified, we are unlikely to see better rates of corporate investment (and the large-scale hiring that goes with it). As its second mandate, the Fed also seeks to maintain price stability. The central bank has told us that its definition of price stability is an inflation rate of 2%. Unfortunately for the Fed, its track record on this mandate is not as good. The economy has been running at inflation rates of less than 2% for almost the entirety of the 10-year economic expansion. This begs the question, why do we need any inflation at all? Wouldn’t it be more advantageous for the economy if prices never rose? Well, there are a couple major reasons why the Fed targets an inflation rate of 2% rather than simply shooting for no price increases. The first reason is that an environment of steadily rising prices incentivizes consumers and businesses to spend and invest now rather than deferring those actions. Consumer spending and private investment typically make up about 85% of US GDP, so these two categories are of critical importance. If inflation expectations begin to fall, we run the risk of a deflationary spiral, which occurs when consumers and businesses defer consumption and investment because they know they can consume/invest at ever cheaper prices in the future. The second reason that some inflation is desirable is that it makes it easier for borrowers to service their debt. Let’s say you purchased a house at the high end of your affordability range using a 30-year, fixed-rate mortgage at 4%. If the economy is running at a 2% inflation rate, you are more likely to receive annual pay raises. These pay raises make it easier for you to stay current on the principal and interest payments, freeing up money to be spent elsewhere. The same goes for fixed-rate debt at the corporate and government levels. Some inflation should cause corporate and tax revenue to rise faster than in an environment of no inflation, allowing these entities to flourish while keeping their bond investors happy. So why hasn’t the Fed cut the Fed Funds rate to zero so that inflation rises to 2% or more? If moderate inflation is so much more desirable than no inflation or deflation, why not just be bold and stoke the fire in earnest? Well, I can think of several reasons why cutting interest rates to zero would be a bad idea. If rates are cut to zero in the U.S.: Those living off fixed incomes, including a very powerful voting bloc of retirees, would find it much harder to make ends meet if they are unable to earn a return on their money without taking excessive risk. The Fed will have very little ammunition if and when the economy falls into recession. There would be large-scale capital flight and businesses could find it harder to fund their operations. And finally, the banking system would be severely handicapped as banks become unable to earn an acceptable spread on loans. If loans become unprofitable, then the supply of credit will dry up and cause great harm to the economy at large. Europe is learning this lesson the hard way right now. President Trump is now introducing a new element to his argument for lower interest rates. Rather than advocating for lower interest rates simply to boost economic growth, he is now saying that sharply lower interest rates would allow the federal government to refinance its debt. Doing so, he says, would save the U.S. Treasury many billions in interest costs. The problem with this argument is that federal government debt is not like a residential mortgage where the borrower can simply pay off the outstanding balance without penalty. Rather, the lion’s share of outstanding U.S. Treasury debt is non-callable, carries fixed interest rates and trades on the deepest, most liquid and transparent market in the world. Economist Mohomad El-Erian wrote and excellent article this week discussing the bind in which the Federal Reserve and Central Bankers find themselves: Rates are already so low, will there be any significant effect if they are taken lower still? Corporate America has been benefiting from very low interest rates for years and had been taking advantage of relatively inexpensive borrowing. In recent years the borrowing hasn’t lead to additional hiring or investment in plant and equipment; it was largely used for stock buy backs. As they were provided greater liquidity from the tax cuts, they continued the buyback cycle. It is puzzling why one would think that additional cash via lower rates would stimulate anything other than more buybacks. El-Erian suggests that the bang for lower rates is fizzling and that fiscal policies need to be better coordinated in order for stimulus to maintain its effect. El-Erian writes, “Absent a significant fiscal commitment from governments and other policy makers, the central banks’ dilemma will only become more acute.” Please remember that this isn’t a political or policy critique, but a factual description of the mechanisms of the bond markets. We are relatively confident that all this Fed badgering will lead to nothing. The Federal Reserve understands all these issues and will continue to act with independence in its stewardship of the U.S. economy. As long as that is the case, these tweets are a great example of background noise that the average investor should simply drown out. Ear plugs in. Eschew the thin branches of risk.

China adds US agricultural products to tariff exemptions ahead of trade talks

SEP 2019  

By: Yun Li

China plans to exclude American farm goods, including soybeans, from tariffs in the latest move to ease trade tensions before the two countries restart trade talks next month. The Chinese Ministry of Commerce said Friday that China welcomed President Donald Trump’s decision to delay tariffs by two weeks and said it will exempt U.S. agricultural products such as soybeans and pork from additional tariffs. These farm goods add to the 16 types of U.S. products that will be exempt from tariffs. The exemption will be valid for a year through to Sept. 16, 2020. The move came after Trump said Thursday that he would consider an interim trade deal with China, even though he would not prefer it. China’s agriculture buying has been a sticking point in the trade battle as Trump has repeatedly accused China of not following through on its promises. China said Thursday that domestic firms have started making inquiries about prices of U.S. soybeans and pork. Chinese importers reportedly bought a total of 600,000 metric tons of soybeans from U.S. Pacific Northwest export terminals for October to December.

Stocks making the biggest moves premarket: Apple, Broadcom, Baker Hughes, Amazon & more

SEP 2019  

By: Peter Schacknow

Apple — Goldman Sachs lowered its price target for Apple shares to $165 per share from $187 a share, saying that accounting for a planned Apple TV+ free trial is likely to have a material negative impact on average selling prices.

Broadcom – Broadcom reported adjusted quarterly profit of $5.16 per share, beating consensus estimates by 3 cents a share. The chip maker’s revenue came in slightly below Wall Street forecasts, however, and Broadcom gave a cautious forecast for semiconductor market demand.

Baker Hughes – Baker Hughes was indicted for allegedly exposing workers to toxic chemicals at a construction site. Two of the oilfield services company’s subsidiaries and an employee were also named in the indictment, which involves 25 felony assault charges. Baker Hughes denied the claims and said it was committed to safety for its workers.

SmileDirectClub – Shares of the maker of teeth straightening kits remain on watch, after debuting Thursday with a 28% decline. That was the worst first-day performance of any of the so-called “unicorn” initial public offerings this year.

Merck — News agency Reuters asked a U.S. judge to unseal documents regarding risks related to Merck’s Propecia baldness drug. Reuters had published a story revealing accusations that Merck did not fully disclose potential risks related to the drug.

Amazon – Amazon’s Whole Foods grocery chain will require part-time employees to work 30 hours per week to receive health benefits beginning January 1, up from the current 20 hours.

Square – The mobile payments company is testing a new feature on its popular Cash App that would enable free stock trades, according to a Bloomberg report. The report said that if the feature is successful, it could pose a challenge to more established online brokers like E*Trade and TD Ameritrade.

General Electric – GE CEO Larry Culp told an investment conference he expects asset sales to bring in about $38 billion in cash, as GE moves to pare down its debt load.

Advance Auto Parts – Citi upgraded the auto parts retailer’s stock to “buy” from “neutral,” while downgrading rival O’Reilly Automotive to “neutral” from “buy.” Citi cited sales momentum and other factors for the Advance Auto Parts upgrade, and said its O’Reilly downgrade was based on valuation.

Southwest Airlines – Macquarie upgraded the airline’s stock to “outperform” from “neutral,” saying Southwest will be able to more fully utilize its new revenue management system and more efficiently schedule its aircraft once the grounding of its Boeing 737 Max fleet ends.

China takes cautious steps with new tariffs, leaving most to December

SEP 2019  

By: Evelyn Cheng

BEIJING — China is moving slowly in the implementation of retaliatory tariffs as trade tensions with the U.S. escalate. The Chinese government pushed ahead Sunday with increased duties of between 5% and 10% on a variety of major American goods exported to China, including soybeans and crude oil. However, the proportion of tariffs that kicked in on Sunday only account for about one third of the more than 5,000 product lines listed in the latest announcement. The majority of the duties will take effect Dec. 15, and China’s plans to reinstate tariffs on U.S. autos and auto parts will also not take place until that time. A report by Panjiva, a supply chain data company that’s part of S&P Global Market Intelligence, pointed out that the products in the Sept. 1 group may have been chosen since those items saw some recovery in shipments rather than further decline. The Aug. 27 analysis pointed out that U.S. exports in the Sept. 1 group fell by 15.2% in the second quarter from a year ago, versus a drop of 20.4% for the Dec. 15 group. The increases are part of the Ministry of Finance’s Aug. 23 announcement for retaliatory tariffs on $75 billion worth of U.S. goods. A portion of President Donald Trump’s latest tariff increases also took effect Sunday. Essentially, all $550 billion worth of Chinese exports to the U.S. are set to be subject to duties when another round is implemented in December. Beijing has sought to boost domestic morale amid the added pressure of tariffs to an economy already facing a growth slowdown. The world’s second-largest economy is also trying to shift away from relying on manufacturing and exports for growth, to consumption. “The big stick of tariffs can’t hold back China‘s development,” the Chinese Communist Party newspaper People’s Daily said in the headline of a Sunday article, according to a CNBC translation of the Chinese text. Analyst reports and anecdotes also indicate that Chinese companies are finding ways to adapt to the tariffs and survive in the long term. However, the Chinese side has called for the cancellation of all additional tariffs as part of a trade agreement. “Under the current situation, we think the problem that should be discussed is the cancellation of tariffs on $550 billion worth of Chinese exports, to prevent further escalation of the trade war,” spokesman for the Ministry of Commerce, Gao Feng, said during a press conference Thursday, according to a CNBC translation of his Mandarin-language remarks. “At this time, the Chinese side is under serious negotiations on this topic with the U.S. side.” The retaliatory tariffs in the trade war of the past year has hit American companies as well. Over the weekend, the U.S.-China Business Council said in its annual member survey that nearly half of the respondents reported lost sales, primarily due to the implementation of tariffs. The survey also found that members were losing market share to foreign competitors. “Chinese customers are concerned about supply chain links that depend on American companies, which they increasingly view as unreliable business partners as a result of the volatility of the bilateral commercial relationship,” the council’s report said. The portion of respondents citing these Chinese concerns as a reason for lost sales increased seven-fold between 2018 and 2019 to 37%, the survey found. U.S. exports to China contribute to more than 1.1 million American jobs, according to a separate report from the council.

Lebanon Bonds Pull Back From the Precipice as Default Fears Wane

By: Netty Idayu Ismail And Alaa Shahine

September 4, 2019

Investors who pushed Lebanese bonds to the edge of a cliff are turning more confident that one of the world’s most indebted countries will maintain its unblemished record of honoring its obligations. Lebanese dollar bonds, the worst performers across emerging markets this year after crisis-hit Argentina and Zambia, rallied this week, fueled by a renewed government commitment to urgently repair public finances and an addition of $1.4 billion to central bank reserves. “The authorities seem to now realize the gravity of the situation and are making a firm and unified call for urgent action,” according to Garbis Iradian, chief Middle East economist at the Washington-based Institute of International Finance. “We still believe that Lebanon will not default given its sizable international reserves, robust banking system, and a track record of having never defaulted on foreign-currency debt,” Iradian said in a report released on Wednesday. The yield on notes due in 2021 tumbled more 120 basis points on Tuesday, the most since Jan. 31. It stood at 18.4% as of 10:37 a.m. in London on Wednesday, according to prices compiled by Bloomberg. Read: Lebanon Holds Firm on Peg With $1.4 Billion Boost to Reserves Fitch Ratings last month cut Lebanon’s credit ranking deeper into junk territory, taking it down to CCC. Credit-default swaps, which reflect the cost of insuring debt against the risk of default, have scaled record highs in recent weeks as investors fretted that Lebanon’s day of financial reckoning is looming. In response, the government has declared a state of “economic emergency” and vowed to press ahead with plans to cuts the budget deficit to below 8% of gross domestic product this year from almost 12% in 2018. The International Monetary Fund estimates that Lebanon’s public debt burden will rise to near 180% of economic output by 2023. The announcement suggests that authorities “will put in place new measures to limit public spending and continue to service the debt,” according to Jan Dehn, the London-based head of research at Ashmore Group, which oversees about $92 billion in emerging-market assets. “This is positive,” he said. Lebanon has relied on billions of dollars in deposits from the diaspora to service its public debt accumulated following the end of a devastating 1975-1990 civil war. But political turmoil and the conflict in neighboring Syria have combined to dry up inflows and aid from Gulf Arab allies. The economy is expected to shrink for a second year in 2019, following a revised estimate of a contraction of 0.2% last year, according to the IIF. The recent hostilities and risk of escalation between Israel and the Iranian-backed Lebanese Hezbollah militants could also “weigh on investor and depositor confidence” in Lebanon, according to Moody’s Investors Service. While Lebanon’s credit-default swaps have dropped from their record highs this week, they remain well within distressed territory at more than 1,200 basis points, according to CMA prices. “In the absence of meaningful adjustment and external support, Lebanon would remain in a vicious cycle of rising debt, high interest rates, depressed private investment, and subdued growth,” Iradian said.

Risk Back on as Tension Ebbs From U.K. to Hong Kong: Market Wrap

By: Robert Brand

September 4, 2019,

U.S. index futures rallied alongside European and Asian stocks as traders cheered a reduction in political tension from Italy and Britain to Hong Kong. Treasuries and gold retreated, while the dollar slipped. Contracts on the three major U.S. equity gauges jumped, signaling stocks will rebound from Tuesday’s declines. All 19 industry groups in the Stoxx Europe 600 index advanced, almost erasing the gauges August’s decline as luxury-good makers including LVMH and Richemont advanced. Markets outperformed in Italy, where a new political coalition was taking shape that may be more conciliatory toward the European Union. Shares in Hong Kong surged the most since 2018, buoying equities across Asia, after embattled leader Carrie Lam said she formally withdrew legislation to allow extraditions to China, the detonator for three months of often-violent protests. In the U.K., the pound strengthened along with stocks after Parliament took a crucial first step to block a no-deal Brexit. The euro advanced and most European bonds fell. Hong Kong shares jump, with property subgauge up most since 2015. Traders are rushing back into riskier assets as event risks seem to be receding, from a possible Chinese crackdown in Hong Kong to a confrontation between the European Union and two of its biggest members. At the same time, investors remain on the alert for any news on China-U.S. trade talks, with officials from both countries struggling to agree on the next step after Washington rejected Beijing’s request to delay tariffs that took effect over the weekend. Hong Kong's Carrie Lam to Formally Withdraw Extradition Bill, SCMP Says. Hong Kong’s embattled leader, Carrie Lam, plans to formally withdraw a controversial bill that would have allowed extraditions to China, the South China Morning Post reported on Wednesday, citing unidentified sources. Bloomberg’s Stephen Engle reports on “Bloomberg. Elsewhere, oil ticked higher and the onshore yuan rose after a stronger-than forecast daily currency fixing. In the U.S., with Florida orange groves seemingly escaping major damage from Hurricane Dorian, concern now turns to soy, corn and cotton fields as well as livestock in Georgia and the Carolinas as the storm churns northward. Here are some key events coming up: Bank of England Governor Mark Carney speaks before Treasury Committee on Wednesday alongside colleagues Andy Haldane, Jonathan Haskel and Gertjan Vlieghe, on the bank’s August Inflation Report; he’ll then appear alone to discuss the U.K.’s economic relationship with the EU. Fed speakers this week include New York Fed’s John Williams on Wednesday and Fed chair Jerome Powell on Friday. The U.S. jobs report on Friday is projected to show the widely watched nonfarm payrolls rose by 160,000 in August, versus 164,000 the month prior. Estimates are for unemployment to be steady at 3.7% and the average hourly earnings rate of increase to slow to 3.0%.

Oil Rises as Tight U.S. Supplies Counter Trade War Pessimism

By: Sharon Cho and Alex Longley

September 4, 2019

Oil rose as a forecast decline in U.S. crude inventories countered pessimism driven by a surprise contraction in American manufacturing and a warning to China from President Donald Trump. Futures in New York climbed as much as 1% after closing 2.1% lower Tuesday. American stockpiles fell for a third week by 3.45 million barrels last week, a Bloomberg survey showed before official data due Thursday. That came after a U.S. factory gauge fell to its weakest level since 2016 and Trump tweeted that it will be tougher for China to secure a trade deal if it waits until he wins the 2020 U.S. presidential election. Elsewhere, financial assets rose on a report that Hong Kong Chief Executive Carrie Lam will formally withdraw a controversial bill that would have allowed extraditions to China.

Crude has fallen around 18% from a high in late April as the trade war escalated and its toll on the global economy became more apparent. Still, that has come against a backdrop of output curbs by the Organization of Petroleum Exporting Countries and its allies that has helped to tighten supply this year, with both Brent and WTI currently in a bullish backwardation structure that indicates scarce supplies. “It’s all about the economy isn’t it,” says PVM Oil Associates analyst Tamas Varga. “The fundamental backdrop is not bad in oil for the rest of the year and it’s reflected in the structure of the market as well.” WTI for October delivery rose 51 cents, or 1%, to $54.45 a barrel on the New York Mercantile Exchange as of 11:36 a.m. in London. Brent for November settlement added 37 cents, or 0.6%, to $58.63 a barrel on the ICE Futures Europe Exchange. The global benchmark crude traded at a $5.49 premium to WTI for the same month. Trump sought to prod China into doing a trade deal before the presidential election next year as the two sides struggled to agree on the schedule for a planned meeting later this month. “Think what happens to China when I win,” he said in a tweet Tuesday. “Deal would get MUCH TOUGHER!”. The Institute for Supply Management’s purchasing managers index fell to 49.1 in August, weaker than all forecasts in a Bloomberg survey of economists, data released Tuesday showed. Readings below 50 indicate the U.S. manufacturing economy is generally shrinking.

Inefficiency in Iran Capital Market can lead to trading bias

The Challenging Path of Stock Valuation

SEO should not interfere in valuation?

Valuation is the knowledge that can be used to model all the factors affecting the cash flow of a company and by discount the cash flow, determine the intrinsic value. Valuation should also be done by qualified persons. According to some market players, the valuation of companies' stocks is up to the Evaluator and the Stock Exchange Organization (SEO) should not interfere. Some other, however, believe that SEO as a Supervisory Authority can monitor this. It is suggested by market players to monitor and evaluate companies on a continuous basis at different thresholds, and upon improvement in information efficiency, propel the companies to top Leaderboards. Also, a warning and penalties should be given to managers of those, if they do not provide transparent and reliable information. in this regard, Dr. PAKDIN's opinion published in the stock exchange information weekly is as follows:

The lack of  Capital Market Efficiency

By: Dr. Aliraza PAKDIN

valuation is the knowledge that can be used to model all the factors affecting the cash flow of a company and by discount the cash flow, determine the intrinsic value. In valuation models, all of the company's financial processes are simulated. Therefore, investors can calculate the relative impact of the reports on the intrinsic value of the stock and execute the transactions with expected earnings. Investment managers can also measure the impact of decisions and can create value to shareholders. Capital market efficiency has always been rooted in entities that perform transactions based on rigorous valuations. Given the conditions experienced in the base market and the entry of the supervisory authority to adopt a trading policy with a view to regulating the volume, price, and manner of trading, which has caused the publication of market players' analysis of its effects, any SEO interfere goes beyond the intrinsic value of corporate stocks, indicates the lack of market maturity. The experience of parallel markets has shown that any phenomenon that disrupts the competitive process will create consequences for that market. On the other hand, the execution of divergent pricing mechanisms relevant to valuation reports is causing traders to ignore the analysis and reduce market depth and cause price deviations. In other words, market inefficiencies can lead to trading bias. So the best policy in any market is to maximize market efficiency, along with the not-entering of the policy makers in pricing procedure. In each market, the evaluator is responsible for the analytical reports of stock valuations that are issued upon the applicant request. Evaluators within the scope of responsibility are also accountable for their reports. Hence, the status of SEO goes beyond this area.

Stock exchange Information weekly - August 2019- Third Week- Seventh Year- No. 317- Page 15

How Iran Is Using Currency Reforms to Withstand Trump

By:Paul Wallace

‎August‎ ‎20‎, ‎2019‎ ‎2‎:‎57‎ ‎PM‎ ‎IRDT

How Iran Is Using Currency Reforms to Withstand Trump

By

Paul Wallace

,

‎August‎ ‎20‎, ‎2019‎ ‎2‎:‎57‎ ‎PM‎ ‎IRDT

U.S. sanctions are battering Iran’s economy. They have all but stopped Western companies from investing in the Islamic Republic, sent oil production crashing to its lowest level in more than three decades and led to a dire scarcity of foreign exchange. Inflation has accelerated to more than 50%, and some foods and medicines are running short. So far, Tehran is hunkering down rather than buckling to U.S. pressure to change its foreign policy, retreat from the region and renegotiate the 2015 nuclear accord abandoned by President Donald Trump. Iran’s latest attempt to ease the pain has been a reform of its currency system.

1. Why is Iran making changes to its currency?

The rial has come under severe pressure from tightening sanctions and the subsequent collapse in oil revenue. Iran has long kept a tight grip on its currency and has been reluctant to let it devalue, maintaining the official exchange rate at 42,000 per U.S. dollar since mid-2018. As supplies of foreign exchange in the banking system dried up, Iranians increasingly turned to the unregulated black market to pay for everything from imported cars to overseas college fees. From the start of 2019 to early May, the rial plummeted almost 30% on Tehran’s streets to 156,500 against the dollar. That caused prices to soar and led to social unrest.

2. What has Iran done?

It essentially created a system of multiple exchange rates, with the aim of taming the black market. It introduced a currency-trading platform known as Nima for local businesses last year. But most exporters preferred to sell their euros or dollars on the unregulated market, since the rial’s Nima rate was too close to the official one, and thus seen as overvalued. In recent months, the central bank has allowed the Nima rate to weaken substantially to encourage more companies to sell foreign exchange. President Hassan Rouhani’s cabinet has also announced that the rial will be redenominated by slashing four zeros off it.

3. Has there been any effect so far?

The plan has succeeded in bolstering the rial on the unregulated market. Since May, it has appreciated more than 30% to 118,000, which is more or less the same as the Nima rate, even though tensions have worsened in the period with Iran shooting down a U.S. drone and seizing vessels in or near the Strait of Hormuz. That has helped slow inflation, according to Steve H. Hanke, a professor of applied economics at Johns Hopkins University in Baltimore. By his reckoning, the annual inflation rate, which peaked at 400% last year, fell to 24% by early August.

  

4. Will it work in the longer run?

The redenomination might have a psychological effect, albeit a minor one, if Iranians perceive a currency worth 12 per dollar to be a better store of value than one worth 120,000, says Renaissance Capital’s chief economist, Charles Robertson. But Iran will struggle to keep the Nima and unregulated markets stable as long as it can’t access enough foreign exchange with which to supply them. And that won’t change until sanctions are eased and energy exports pick up.

5. Why doesn’t Iran float the rial?

Iranian officials worry that the rial would tank if its value were fully determined by markets, which would cause inflation to accelerate again. It’s also politically sensitive. Much of the establishment sees any weakening of the currency as a sign of the nation’s diminishing power and inability to stand up to the U.S. In addition, the central bank’s system of allocating foreign exchange at the official rate is opaque. Analysts have said it fuels corruption, with politically connected Iranians getting cheap dollars while most legitimate business requests are turned down. Those vested interests are unlikely to readily accept a floating currency.

The Reference Shelf

• Bloomberg News: Iran says its efforts to stabilize the rial are starting to work.
• QuickTakes on the U.S.-Iran conflict, Iran’s nuclear program, sanctions on Ayatollah Ali Khamenei and the Strait of Hormuz.
• Foreign Policy writes on how U.S. sanctions are causing shortages of medicine in Iran.
• Stratfor on Iran’s attempts to get around its isolation from the international financial system.

Trump Says He’s Poised to Escalate China Trade War Within Hours

By: Joshua Gallu and Shawn Donnan

‎August‎ ‎23‎, ‎2019‎ ‎7‎:‎21‎ ‎PM‎ ‎IRDT Updated on ‎August‎ ‎24‎, ‎2019‎ ‎12‎:‎57‎ ‎AM‎ ‎IRDT 

Source: Bloomberg

 

President Donald Trump signaled he may escalate the trade war with China in the coming hours after the country’s latest round of tariffs, firing off a new demand that U.S. companies seek alternatives to producing goods in China.

“I will be responding to China’s Tariffs this afternoon. This is a GREAT opportunity for the United States,” Trump tweeted Friday, after China threatened to impose additional tariffs on $75 billion in American goods, including soybeans, cars and oil.

A meeting on trade took place around midday in the Oval Office, according to people familiar with the discussions. Trump is scheduled to leave late Friday for the G-7 summit in France, where trade tensions and their impact on the global economy are at the top of the agenda.

Trump added in a flurry of tweets that he “hereby ordered” American companies to start looking for alternatives to making products in China. It wasn’t immediately clear what legal authority the president would have to force such corporate decisions.

The president laced into China, saying “We don’t need China” and that the U.S. would be “better off without them.” He also took aim at the Federal Reserve over what he’s called its failure to lower interest rates to boost the economy and keep the dollar from becoming too strong, which weighs on exports.

U.S. stocks fell after Trump’s remarks, with the S&P 500 Index dropping 2.6% on the day. Technology stocks were hardest-hit. Treasuries rallied.

....better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing..

The angry set of tweets from Trump came after China announced its retaliation for new U.S. tariffs due to take effect Sept. 1 and Federal Reserve Chairman Jerome Powell repeated his concern that U.S. trade policy was contributing to a slowdown in both U.S. and global economies. They also reflected Trump’s growing frustration with the lack of progress in his trade battles with China, according to analysts close to the White House.

 “The president has been increasingly frustrated in the last three months’’ with China after the May breakdown of talks that he believed were about to yield a deal, said Michael Pillsbury, a China expert with the Hudson Institute in Washington with whom Trump has consulted in the past.

Trump’s most likely response, Pillsbury said, would be to raise tariffs from 10% to 25% on remaining imports from China that are due to start taking effect Sept 1. But he had other ways to increase pressure, Pillsbury added, including giving the final green light to sales of F-16s to Taiwan that have been signed off on by the State Department. The administration has notified Congress it intends to go ahead with the sale.

Derek Scissors, a China expert at the American Enterprise Institute who has also advised the administration, agreed that an increase in tariffs was the most likely course of action, though it could be staged to give China more time to respond.

Trump’s order to U.S. companies to abandon China would mean very little in the short-term, Scissors said. But the president does have other ways he could increase pressure on U.S. companies to stop doing business with China, particularly if he chose to invoke a national security emergency and ban tech companies from selling certain products to Chinese buyers.

 “It’s worth the market being a little nervous that U.S. tech companies are involved with China and that they are providing China with dual-use technologies,’’ Scissors said. “That’s what the hawks are angry about. So the president can take action against those companies not by ‘I hereby order,’ but by starting a process where the direct pressure on them goes up.’’

China’s newest tariffs came earlier Friday in retaliation for Trump’s latest planned levies on Chinese imports, which have pushed U.S. stocks and commodities lower. The move takes aim at the heart of Trump’s political support -- factories and farms across the Midwest and South at a time when the U.S. economy is showing signs of slowing.

Trump reiterated his criticism of the Fed after Powell’s remarks were released earlier Friday morning: “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” Trump said in one of his tweets, referring to Chinese President Xi Jinping.

The news from Beijing rekindled concerns about the world’s two largest economies and a global growth outlook that’s already looking shaky.

Some of the Chinese countermeasures will take effect starting Sept. 1, while the rest will come into effect from Dec. 15, according to the announcement from China’s Finance Ministry. This mirrors the timetable the U.S. has laid out for 10% tariffs on almost $300 billion of Chinese shipments.

China will put an extra 5% tariff on American soybeans and crude-oil imports starting next month. The resumption of a suspended extra 25% duty on U.S. cars will resume Dec. 15, with an additional 10% on top for some vehicles. With existing general duties on autos taken into account, the total tariff charged on U.S.-made cars would be as high as 50%.

The U.S. Chamber of Commerce called China’s move “unfortunate but not unexpected.”

“The fact of the matter is that nobody wins a trade war, and the continued tit-for-tat escalation between the U.S. and China is putting significant strain on the U.S. economy, raising costs, undermining investment, and roiling markets,” Myron Brilliant, the chamber’s head of international affairs, said in a statement.

After Trump gave the go-ahead earlier this month for tariffs on the almost $300 billion in Chinese imports that haven’t been hit by higher duties, China halted purchases of agricultural goods and allowed the yuan to weaken.

Possible Actions

Other than possibly raising the tariffs set to kick in Sept. 1, it isn’t clear what action Trump might take. Inside the White House, hawks have been pushing for a direct intervention in currency markets by the Treasury by pointing to a slowdown in U.S. manufacturing, which many economists have blamed on tariffs imposed by Trump and uncertainty surrounding his trade war with China.

Just how effective a Fed cut or an intervention would be is unclear. The relevant Treasury fund has $92 billion in it. Even if the Fed were to join in, as it has in past interventions, and match that amount, a $180 billion injection into a $5 trillion per day global foreign-exchange market might have a limited effect. It might also unnerve markets and have longer-term economic consequences.

Beyond that, the administration could raise further barriers to Chinese investment in the U.S. or target China’s energy supply by revoking waivers that allow Beijing to continue purchasing oil from Iran and Venezuela. Trump could also take steps to further isolate Huawei Technologies Co., which the U.S. deems a security threat, in its bid to supply 5G technology in the U.S. Or, Trump could take a harder line against Beijing over human rights and the autonomy of Hong Kong, where protests have raged for weeks.

Fentanyl Order

U.S. and Chinese negotiators have spoken by phone and are planning another call in coming days. People familiar with their intentions previously said that the Chinese delegation is sticking to their plan to travel to the U.S. in September for face-to-face meetings, which may offer a chance for further reprieve.

Trump also ordered mail carriers to search for deliveries of the drug fentanyl coming from China.

 “Also, I am ordering all carriers, including Fed Ex, Amazon, UPS and the Post Office, to SEARCH FOR & REFUSE” deliveries of the illegal drug. It isn’t clear what the carriers’ responsibilities are in halting those shipments, which have helped fuel an opioid epidemic in the U.S.

Stopping shipments of illegal fentanyl that enter the U.S. is a job that typically falls to government agencies such as the Drug Enforcement Administration, Food and Drug Administration and Customs and Border Protection.

Illegal Chinese fentanyl is increasingly entering the U.S. through the Mexico border via drug traffickers instead of being sent directly. It’s unclear if Trump also wants to stop legal fentanyl, often used by cancer patients to treat pain, from entering the U.S. as well, which would cause an outcry from patients.

— With assistance by Saleha Mohsin, and Justin Sink

Five Common Reasons Why Startups Fail

Gene Swank

Managing Director at Propellant Labs Incubator 

According to the Small Business Association, approximately 50% of small businesses fail within the first five years of operation. Many experts will tell you that a business fails most often because it runs out of capital or because the founders gave up too early. While the exact reason for failure will vary from venture to venture, there are several common mistakes that can lead to the ultimate downfall of an early startup.

Throughout my career, I've mentored thousands of founders. Here are a few common deadly mistakes that I've noticed early-stage startups make, and what to do about them.

1. Target Audience Confusion

Social media marketing is a great way for companies to quickly grow their customer base. Unfortunately, if the founder does not understand who their target audience is, they can quickly blow through their entire budget with very little results. Identifying your target consumer and testing their likeliness to pay is a key step that no startup should skip over.

 

 

Do some research and identify who may be interested in purchasing your product or service. Testing these theories can often be as simple as asking individuals for their honest opinions, but I don't recommend asking family or friends — their opinions may be greatly influenced by your relationships with them. Once you feel like you understand who your target audience is, test this assumption with a limited budget and then slowly expand the reach. If your audience is responding well to the messaging, crank up the marketing budget; otherwise, adjust the copy and continue to optimize.

2. Over-Engineering Your MVP

Many founders overbuild their minimum viable product (MVP) infrastructure, which can inflate their burn rate without adding a ton of value. It is important for founders to create an infrastructure that allows the company to scale quickly and without friction; however, building an MVP that is equipped to handle 1 million-plus users on the first day is, for most startups, an unnecessary expense. In addition, maintaining your over-engineered architecture can be a fairly hefty bill.

Be realistic about the number of users your platform will need to support and the features that you really need to launch. Remember, the “M” in MVP stands for “minimum.” That means only the most impactful features need to be implemented for the MVP. Create a timeline with your development team that expands past the MVP. This will ensure you have a roadmap to reach key milestones but will allow the organization to receive feedback from the market and adjust properly.

3. Excessive Legal Spending

All too often I hear the same story: The company ran out of capital because they spent their entire budget on legal expenses. Legal is a key and important expense for every startup, but I would suggest speaking with your legal counsel to ensure you have proper protection without going overboard. There may be some legal work that can be deferred until after your company has gained some traction. Spending your entire budget on legal may leave you with a well-protected idea, but without the necessary capital to execute your business plan.

Speak with your legal counsel to see if there are boilerplate templates you can utilize to help reduce their billable hours. If intellectual property is an important part of your business model, consider filing a provisional patent instead. This may reduce your upfront cost and allow the company to spend its limited budget on more pressing items.

4. Raising Capital Too Early

Raising money is expensive — I know this may sound crazy, but it can be a full-time job. Raising money can be distracting and if you’re focused on the fundraising instead of putting your head down and concentrating on building the business, it can do more harm than good. Most investors want to see traction before opening their wallets and, let’s be honest, the only person who wants to invest in your unproven dream is probably your mother.

Bootstrap as long as possible. Investors are normally looking for certain key metrics before they are ready to open up their wallets. These metrics may vary based on your vertical and monetization strategy. The fundraising landscape has changed immensely over the last few years and the trend in venture capital is to focus on later-stage investments, so you need to find a way to stand out and de-risk their investment as much as possible.

It is easier than ever to do some initial testing. Your goal for every $1 you put into marketing should be to produce at least $3 in revenue. While some investors will come in at a much earlier stage, if you can demonstrate these metrics to a potential investor, it will improve your chances of raising capital exponentially.

5. Attitude 

Most experts will tell you that a business fails because of a lack of money; well, I believe that the real problem, in most instances, is a lack of passion and drive. It takes hustle and grit to build a business and a strong stomach that can weather a metaphorical punch in the gut. You must be lean and flexible, with the ability to shake off those failures and continue to persevere. In my experience, most companies shut down not because they are inherently failures, but because their founders gave up after the first few setbacks.

The ultimate success of a business is based only about 10% on how great the actual idea is. The other 90% is based on how well that idea is executed. It is very common for even seasoned entrepreneurs to make a ton of mistakes and fail the first time around, but a hiccup or two does not mean the business is unviable. Learn from those mistakes, listen to the market and have the confidence that you will eventually reach your business goals.

Seven Ways To Take Your Startup To The Next Level

 Eren Pamir

Eren Pamir is a shareholder at Seek Capital.

Eren is an expert in operations and

financing for startup businesses.

So, you’ve made it through the difficult process of starting a new company, obtaining initial financing and surviving your first few months or years. Congratulations. But this is no time to relax. The next big obstacle most startups face happens when they transition from startup status to becoming a viable long-term company. You can’t just sit still, or your competitors will catch up and pass you — it’s time to jump to the next level. But how? As a younger company, you may need some type of partner to fund your expansion and you have multiple options. Here are seven different paths to help transform your business from merely surviving to thriving. 

 

1. Mergers 

A true merger is fairly rare in the corporate world, as it involves two companies consolidating into a new legal entity. However, for the right businesses, this can be a way for both of them to jump to the next level together. For example, if two companies are competing in the same business and undercutting each other’s profitability, neither one of them may be able to climb to the next level. By merging resources, personnel and production — while also eliminating each other as the competition — the newly combined entity can move forward and grow.

2. Acquisitions

Mergers and acquisitions are often misunderstood as being one and the same. The truth is that although these two types of corporate action share similarities, they have major differences.

In an acquisition, one company fully absorbs another company and retains its own name and corporate structure. As a startup company, an acquisition can be an excellent way to accelerate your growth. When you acquire a company, you can instantly diversify your product line, expand your customer base and keep (or obtain) dominance of your market. 

 

One caveat that I will stress for newer companies is that you have to be careful with the financing. I’ve seen how too much debt can cripple growing companies, so you’ll need a sharp finance officer to navigate these waters from day one.  

3. Investors

One of the most common ways for a startup to get to the next level is to find more investors. In fact, most growing companies go through many series of capital raises with additional investors, labeling them Series A, Series B, Series C and so on. Each capital raise can help get your startup to the next level, as you should be pricing your company with a higher valuation at each round. For example, if you value your company at $500,000 in your initial capital raise, your Round B financing might value the company at $1,000,000 or more. Thus, in each round, you are raising additional financing while giving away smaller and smaller chunks of your corporate stock.

4. IPO

An initial public offering is a dream for many startup founders. And for the right company, an IPO can be a huge step toward future growth, as it results in a flood of capital hitting the company’s balance sheet that can be deployed toward growth and expansion. 

If you pursue an IPO, your company will transition from being privately owned to being publicly owned, meaning large investors will own a significant percentage of your company and can influence how you run it. In exchange for capital to grow your business and generate additional profits, you’ll have to give up some of the control of the company. You’ll also have to comply with all the regulations of a public company, including filing quarterly and annual reports.

5. Strategic Partnerships

A strategic partnership is a less invasive way to grow your company than a full-blown merger or acquisition. For a strategic partnership to work, it’s imperative to find a partner that can help you gain market share and reduce risk. For example, if your company only has a local or regional product line, it might benefit from an international partner or distributor. 

The important thing to understand when you’re shopping for a strategic partner is that your relationship is most likely to be successful if your arrangement is a win for both parties. It’s also important to undergo a thorough due diligence review to ensure that your partner is solvent and has a solid reputation.

6. Special Purpose Acquisition Company 

A special purpose acquisition company is a separately created entity that a company uses to raise money to invest in other enterprises. These companies are also known as “blank check” companies since they raise money from investors who don’t have control over where the proceeds will be spent. This can be a good option for startups that either don’t want to or can’t actually qualify to go public on their own. Examples of recent SPACs are GigCapital2 and Proficient Alpha Acquisition, which raised funds with the intention of buying a financial business in China.

7. Nasdaq Private Markets

Nasdaq private markets provide liquidity for companies in the pre-IPO stage. Essentially, Nasdaq private markets provide a way to match growing companies with strategic investors. The average age of companies in the program has steadily fallen over the years, from 10 years to 6 or 7 years old, as both companies and investors alike are looking for ways to mutually benefit. As capital is the lifeblood of growing companies, Nasdaq is a great tool for companies looking to climb to the next level.

The Bottom Line

There’s no shortage of ways for a successful startup to evolve into a rapidly growing company. The key is to strike the right balance between what you have to give up and what you get in return. If you take on too much debt or give up too much control of your company, for example, it can be hard to sustain your growth trajectory. However, if you carefully review all of the various partnership and financing options that are available to you, you can pick just the right type of rocket fuel your company needs to launch to the next level. 

Battle stations

‎August‎ ‎24‎, ‎2019‎ ‎1‎:‎00‎ ‎AM‎ ‎IRDT

• China announced retaliatory tariffs and Trump said he'd fire back. 
• Powell tried to calm markets. That didn't last long (see above).
• Have you had enough of nasty political debates? So has Google.

A sharp escalation in the trade war ended the week. China threatened new tariffs on $75 billion of American goods. President Trump said he'd have a response later. Markets plunged, undoing any good Jerome Powell did with his dovish, long-awaited Jackson Hole comments. And he then got a Twitter lashing from the President, anyway.

• Soybeans, automobiles and oil will bear the brunt of added China tariffs. Some measures would take effect Sept. 1, and some from Dec. 15, Beijing's Finance Ministry said. The levies take aim at the heart of Trump's political support—factories and farms—amid signs of a slowing U.S. economy.
• "I will be responding to China's Tariffs this afternoon. This is a GREAT opportunity for the United States," Trump clapped back in a flurry of tweets. A meeting took place on trade around noon in the Oval Office, according to people familiar. He's scheduled to leave later today for the G-7 summit in France. Watch this space.
• Trump's comments sent U.S. stocks tumbling, with the S&P 500 dropping 2.6% and the Dow losing more than 600 points. Treasuries rallied, with 10-year yields falling nine basis points and the yield curve threatening inversion once again. The dollar lost ground against almost all G-10 peers, with the yen up almost 1%. Oil slid to a two-week low and gold jumped.

Back to Powell's comments, which were trumped by Trump:

• The U.S. economy is in a favorable place, but faces "significant risks," he said a speech to Kansas City Fed's annual symposium in Jackson Hole, Wyoming, minutes after China's announcement on tariffs. "Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending" domestically. 
• The Fed chair may have hoped to reassure markets, but any impact was wiped out within minutes as Trump took to Twitter in response to China. Powell was "fairly dovish today and markets were reacting to that positively, but when the trade tweet came out, that obviously changed market dynamics," said John Augustine, chief investment officer at Huntington Private Bank.
• His comments also weren't enough to give him a respite from presidential ire. "As usual, the Fed did NOTHING!" tweeted Trump. "My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?" Ouch.
• Traders ramped up expectations for rate cuts. While Powell's line of thinking may not be so transparent, he clearly feels the Trump administration's policies have boxed him in, writes Bloomberg Opinion's Brian Chappatta. The path forward amid the U.S.-China trade warmongering may have to be fiscal easing.

China’s narrative

‎August‎ ‎21‎, ‎2019‎ ‎12‎:‎17‎ ‎PM‎ ‎IRDT

• U.K.-China tensions rise as British consular worker detained.
• Markets mixed as investors wait for guidance.
• Trump drops Denmark visit as Greenland not for sale.

U.K-China tensions are mounting. Protesters plan to rally in Hong Kong this evening, calling for the release of British consulate worker Simon Cheng. He failed to return from an Aug. 8 meeting in the border city of Shenzhen, his girlfriend said. China confirmed he was detained under local law. Meanwhile, Beijing is seeking to reshape the global narrative over near-daily protests in the finance hub.

• The Chinese Foreign Ministry sent a letter to senior editors at news organizations including the WSJ, Reuters and Bloomberg, outlining its account of the protests in the former British colony. The 43 pages of documents include a timeline of what President Xi Jinping's government describes as "violent activities that are aimed to trample the rule of law" and have caused "mayhem in Hong Kong."  
• U.S. Senate Majority Leader Mitch McConnell earlier wrote in a WSJ op-ed that Beijing must know "the Senate will reconsider" their special relationship, among other things, if Hong Kong's autonomy is impacted.
• The protests are entering a crucial period, ahead of the 70th anniversary of the People's Republic of China on Oct. 1. Here's a look at the long list of grievances of Hong Kong's lost generation.

Billy Tung wearing safety googles and gas masks poses for a photograph in Hong Kong, China, on Sunday, Aug. 18, 2019.

•  To top it off, Alibaba could launch its share sale in the city in October, after delaying it from this month because of the protests, Reuters reported.

Stocks in Asia were mixed on low volumes as investors assessed the latest news on trade talks and awaited more clues on monetary policy.  U.S. and European futures advanced.

• Fed minutes are due Wednesday in the U.S. but they're likely to be overshadowed by Jerome Powell's address at Jackson Hole on Friday. Traders are already readying to be disappointed by the Fed chief. 
• Oil gained as an industry report indicated that U.S. crude inventories fell for the first time in three weeks, countering growing concern that the global economy is headed for recession.
• And a global natural gas glut is threatening to undermine a $4 billion investment by Reliance Industries aimed at boosting profits at the world's largest oil refining complex.

 Released Iranian Oil Tanker Switches Direction, Heads for Turkey

By Will Hadfield and Catherine Traywick

‎August‎ ‎24‎, ‎2019‎ ‎5‎:‎34‎ ‎AM‎ ‎IRDT Updated on ‎August‎ ‎24‎, ‎2019‎ ‎6‎:‎00‎ ‎PM‎ ‎IRDT

Released Iranian Oil Tanker Switches Direction, Heads for Turkey

By

Will Hadfield

and

Catherine Traywick

,

‎August‎ ‎24‎, ‎2019‎ ‎5‎:‎34‎ ‎AM‎ ‎IRDT

The Iranian oil tanker that the U.S. sought to seize in Gibraltar has changed its heading to southern Turkey, raising concern that its cargo will end up in Syria.

The Iranian-flagged Adrian Darya 1 switched its destination to the Turkish port city of Mersin, located just 150 kilometers from the border with Syria, on Friday evening, according to Bloomberg vessel-tracking data. The ship had previously stated its destination as being Kalamata in Greece, a port that is too small to accommodate a ship of that size.

The tanker, which previously flew the flag of Panama and went under the name Grace 1, is estimated to arrive in Mersin at noon on Aug. 31. It was impounded off Gibraltar in July and released last Sunday after local authorities rejected a legal attempt by the U.S. to detain it. Adrian Darya is currently sailing along the southern coast of Sicily.

The Adrian Darya oil tanker sits off the coast of Gibraltar on Aug. 18.

Iran has given assurances to the government of Gibraltar that the ship will not sail to Syria. The ship’s Automatic Identification System shows that the draft of the ship -- how deep it sits in the water -- is 22.1 meters, indicating that Adrian Darya still has its full cargo of 2 million barrels of crude oil on board. The draft is manually entered into the AIS by the ship’s captain, so it could be misleading, though there is no evidence that the cargo has been discharged.

Turkey accepting the ship risks further fueling tensions with the U.S., at a time when relations have been strained over Turkey’s decision to buy a missile defense system from Russia.

Turkey’s government declined to comment on whether they would allow the ship to dock at Mersin. Officials at the Foreign Ministry in Iran did not immediately respond to calls from Bloomberg to comment on the the tanker’s route.

Iranian Tanker Sails Into Mediterranean: What Happens Next?

The ship could discharge its cargo onto smaller vessels in a process called a ship-to-ship transfer. The smaller tankers would then deliver the crude oil to its final destination. Adrian Darya could switch off its transponder before starting the ship-to-ship transfer in an attempt to conceal what was happening. However, that might not be enough to hide a ship that is being so closely monitored.

— With assistance by Selcan Hacaoglu, and Arsalan Shahla