AYA Analytica financial health memo October 2018
As of October 2018, this regular podcast is available on our Andy Yeh Alpha fintech network platform.
President Trump floats generous 10% tax cuts for the U.S. middle class ahead of the November 2018 mid-term elections.
President Trump floats 10% tax cuts for the U.S. middle class ahead of the November 2018 mid-term elections.
Republican senators, congressmen, and congresswomen can propose major tax cuts for middle-income Americans.
This time may be a bit different, and President Trump expects the tax bill to go through Congress but not an executive order.
The Trump administration suggests that the legislative vote will likely take place soon after the mid-term elections.
This strategic move boosts confidence in the Republican lawmakers who can continue to control Congress.
Treasury Secretary Steven Mnuchin cannot offer details on the middle-income tax brackets that can experience lower effective tax rates.
This tax bill may add to the prior $1.5 trillion tax cuts and $779 billion fiscal deficits.
Republican leaders and senators suggest that this tax bill will finance itself with better real GDP economic growth in the healthy upper range of 3%-4%.
The Trump administration can offset these new tax cuts with lower government expenditures in Medicare, Medicaid, and social security.
Alternatively, the Trump administration can raise effective tax rates for the crazy rich Americans in the top 1% socioeconomic echelon to partially offset the new tax cuts for the U.S. middle-class.
U.S. automobile and real estate sales decline despite higher consumer confidence and low unemployment as of October 2018.
U.S. automobile and real estate sales decline despite higher consumer confidence and low unemployment as of October 2018.
This slowdown arises from the current U.S. interest rate hike that helps wean the economy off near-zero rates.
High costs of capital squeeze the automobile and real estate industries after the prior decade of monetary stimulus.
The most expensive U.S. consumer purchases are cars and houses, and these consumer industries are quite sensitive to the cyclical ebbs and flows of credit supply expansion.
Recent U.S. mortgage rates reach 5% for the first time since 2011, and thus new home sales tumble 5.5% in 2018Q3 to the lowest level in about 2 years.
Residential home sale declines are double-digits and quite severe in the northeast and west U.S. states.
In light of higher mortgage rates and home prices, financial economists start to consider rental properties more cost-effective than residential home purchases.
Meanwhile, most Case-Shiller home price indices begin to show the current trend that home price gains decelerate from March 2018 to September 2018.
Wall Street seems to impose hefty penalties on automobile and real estate stocks.
Many homebuilder ETFs such as XHB, TOL, and KBH have plunged about 30% year-to-date since January 2018.
Also, several automobile stocks from Ford to GM show 25%+ price declines in the same time frame.
The latter auto industry further suffers higher production costs due to Trump tariffs.
These bearish traces suggest the inconvenient truth that the U.S. economy may have gone beyond the peak of real business cycles with low inflation and robust employment and capital investment growth.
Trump tariffs begin to bite U.S. corporate profits from Ford and Harley-Davidson to Caterpillar and Walmart etc.
Trump tariffs begin to bite U.S. corporate net profits from Ford and Harley-Davidson to Caterpillar and Walmart etc.
U.S. corporate profit growth remains high at 22% as of October 2018, but fewer S&P 500 companies manage to beat stock analyst estimates of both bottom-lines and net sales.
This lackluster stock performance erodes investor sentiment and thus contributes to the recent sharp sell-off in equities.
The negative ripple effects and externalities spread to Asian and European stock markets.
On the quiet western front, President Trump remains rather bellicose toward China, whereas, the Chinese trade delegates, diplomats, and negotiators gradually become less belligerent and less truculent in the current Sino-U.S. standoff.
The Federal Reserve continues the current neutral interest rate hike to contain inflation and wage growth in America.
Greenback appreciation arises as a result of this current interest rate hike.
As a consequence, U.S. dollar appreciation exacerbates the bilateral trade deficit between America and China.
In this negative light, the Trump administration may or may not be able to effectively curb the current bilateral trade deficit with China.
The Federal Reserve monetary policy reaction can lead to U.S. dollar appreciation that inevitably weakens the impact of Trump tariffs on Chinese imports.
Former Fed Chair Paul Volcker releases his memoir, talks about American public governance, and worries about plutocracy in America.
Former Fed Chair Paul Volcker releases his memoir, talks about public governance, and worries about plutocracy in America.
Volcker points out that public governance entails running the government with fewer unproductive policy debates.
As the U.S. central bank, the Federal Reserve need not adhere to an explicit 2% symmetric inflation target.
The current neutral interest rate hike can continue even when inflation rises above the target range of 2%-2.5%.
Volcker supports stronger supervisory powers for both the Federal Reserve and Treasury.
Both regulatory agencies should continue to conduct macroprudential stress tests on the systemically-important financial institutions (SIFIs) once per year in the post-Dodd-Frank era.
SIFIs should build up sufficient core capital buffers to safeguard against extreme losses that might arise in rare times of financial stress.
Also, the Volcker rule separates commercial bank activities from proprietary investment transactions.
This firewall serves as a safety valve between safe bank deposits and risky asset investments.
Volcker worries about the impact of money on the U.S. political system, and he expresses grave concerns about the recent trend that America seems to devolve into a plutocracy.
In his view, U.S. democratic regulations should constrain the direct influence of crazy rich Americans over political affairs.
PayPal earns great fintech reputation from its massive worldwide network of 250+ million users.
PayPal earns great fintech reputation from its massive worldwide network of 250+ million active users.
As PayPal beats the revenue and profit expectations of most stock analysts and economic commentators in 2018Q3, its share price surges 9%.
A peer-to-peer payment app, Venmo, enjoys 80% growth in total payment volume quarter-to-quarter.
As this M&A brain child proves to be a major moneymaker for its parent company PayPal, Venmo adds 9 million peer-to-peer payment accounts to the PayPal mafia worldwide network.
PayPal now continues to expand its strategic partnership with Visa, MasterCard, American Express, Apple, Google, Samsung, and Walmart to allow cardholders to use their membership points when these consumers shop from PayPal merchants.
This additional convenience empowers key consumers to integrate their electronic retail experiences with most traditional credit cards.
Anecdotal evidence suggests that PayPal encompasses more than 250 million active members with about 78% of the total market share in America.
Key stock analysts and economic media commentators expect the eBay multi-year transition to the Adyen fast-payment platform to be quite bumpy in light of the long history that both buyers and sellers have almost exclusively interacted with PayPal on the prior eBay online auction platform.
In hindsight, the Dutch payment platform Adyen can be a cost-effective key option for eBay, but eBay might have overlooked the tremendous positive network effects of PayPal that dominates in the electronic mobile payment market in America.
The Trump administration blames China for egregious currency misalignment.
The Trump administration blames China for egregious currency misalignment, but this criticism cannot confirm *currency manipulation* on the part of the Chinese Xi administration.
As President Trump remains eager to continue the Sino-U.S. trade war, the U.S. Treasury releases its biennial currency exchange report that criticizes the Chinese trade and currency practices.
However, this report cannot conclude that the Chinese government improperly devalues its renminbi currency in order to improve competitive export prices.
If U.S. Treasury categorizes China as a currency manipulator, this decision would inadvertently ratchet up substantial trade tension between America and China.
For technical reasons, the status quo remains the same. As the Chinese government continues to constrain its direct intervention in the foreign exchange market, there is minimal evidence of currency manipulation in China.
At best, the recent Chinese renminbi devaluation amounts to transient currency misalignment.
On the other hand, the Trump administration begins to conduct bilateral trade pacts with former Trans-Pacific Partnership (TPP) members in order to contain China's economic prowess.
As the Trump administration revives trade talks with 11 Asian countries, Britain, and European Union, this bilateral tactic better prepares for the next round of Sino-American trade negotiations soon after the mid-term elections.
Several pharmaceutical companies now switch their primary focus from generic prescription drugs to medical specialties.
Several pharmaceutical companies now switch their primary focus from generic prescription drugs to medical specialties such as cardiovascular medications and radioactive therapies.
The pharmaceutical giants need to focus on specific medical market niches because the Trump administration urges these firms to reduce drug prices and medical costs in America.
Pfizer, Merck, and Johnson & Johnson now plan to dramatically reduce headcounts in the next few years.
In addition to Pfizer, Merck, Johnson & Johnson, Novartis now plans to cut jobs through early retirement plans and layoffs worldwide.
The Swiss pharmaceutical firm Novartis also plans to acquire American cancer drugmaker Endocyte for $2 billion.
This strategic move accords with the broader competitive landscape that induces pharmaceutical firms to specialize in new medications and therapies that exhibit low price elasticities of patient demand.
In stark contrast to generic prescription drugs, the new therapies and medications require the productive use of medical tech advances and can thus become more effective in treating specific diseases.
In a recent tweet, President Trump condemns pharmaceutical firms such as Pfizer for raising the prices of about 40 prescription drugs.
In response, Pfizer CEO Ian Read decides to defer these price hikes to assuage grave concerns about patient demand and consumer protection.
Ramit Sethi suggests that it is important to invest in long-term gains instead of paying attention to daily dips and trends.
Personal finance author Ramit Sethi suggests that it is important to invest in long-term gains instead of paying attention to daily dips and trends.
It is futile to time the stock market.
Wild and unpredictable fluctuations can confuse stock investors who miss informative fundamental factors from time to time.
Investors should play the long game by spending a sufficient amount of time in small-to-mid-cap profitable value stocks that exhibit conservative capital investment.
This value investment strategy yields an 8% stock market return net of inflation on average.
If the investor stays in the U.S. stock market with his or her $10,000 investment during the 20-year sample period from 1998 to 2017, the long-run S&P 500 average return is 7.2%.
However, if the investor misses the top 10 days of hefty stock market gains, he or she earns only 3.5%.
For this reason, rational investors should aim to persist throughout transient stock market ebbs and flows for sustainable shareholder value maximization.
Long-term stock market returns consistently conform to the normal distribution with fat tails or leptokurtic extreme outliers.
Insofar as the investor can persevere in his or her multi-year value investment strategy, this strategy helps reap reasonable rewards in due course.
President Trump blames the Federal Reserve for its *crazy tight* interest rate hike.
Dow Jones tumbles 3% or 831 points while NASDAQ tanks 4%, and this negative investor sentiment rips through most European and Asian stock markets in early-October 2018.
President Trump blames the Federal Reserve for its crazy tight interest rate hike.
However, this criticism may not be the main trigger for bearish massive stock sell-off.
The relentless Sino-American trade impasse remains on the radar for stock market investors.
Also, the 10-year Treasury bond yield rises above 3%, and then many institutional investors switch from stock bets to Treasury bond purchases.
Due to these unforeseen circumstances, the International Monetary Fund (IMF) downgrades global economic growth from 3.9% to 3.7% as of October 2018.
This latter downgrade seems to trigger ubiquitous investor panic that manifests in the recent surge of the CBOE volatility index (VIX) well beyond 22 points.
Treasury Secretary Steven Mnuchin views the severe bloodbath from S&P 500 to NASDAQ as a normal stock market correction.
Mnuchin considers this widespread stock market correction as part of the healthy fundamental recalibration primarily for tech titans such as Facebook, Apple, Microsoft, Google, Amazon, Netflix, and Twitter (FAMGANT).
These tech titans exhibit prior stock market overvaluation in the interim period from late-2017 to early-2018.
Treasury bond yield curve inversion often signals the next economic recession in America.
U.S. bond yield curve inversion often signals the next economic recession in America.
In fact, U.S. bond yield curve inversion correctly predicts the dawn of an economic recession every time since the 1970s.
The maturity term spread is the difference between the 10-year Treasury bond yield and the 2-year Treasury bond yield.
The Treasury yield curve inverts when this term spread falls below zero or the short-term government bond yield exceeds the long-term counterpart.
In this rare situation, investors bet on short-term bond reinvestment risk in exchange for less risk exposure to highly volatile long-term bond prices.
These higher long-term bond prices translate into lower long-term bond yields and thus result in government bond yield curve inversion.
In this rare event, investors prefer to roll over their short-term bonds with substantial interest rate risk instead of having to keep their capital in long-term bonds that exhibit volatile price gyrations.
Low long-term bond yields suggest that these subpar rates of bond return cannot be commensurate with long-term risk exposure.
In effect, sound basic economic intuition suggests that this rare situation dampens both nationwide capital investment and even household consumption as the ripple effects manifest in real GDP economic growth protraction.
U.S. economic history shows that it takes about 10 months for government bond yield curve inversion to reach the stock market peak plus another quarter until the next economic recession.
A recent Forbes article discusses empirical evidence in support of the generic view that if U.S. bond yield curve inversion happens in December 2018, we would expect the current bull market to peak in September 2019.
In this worst-case scenario, the U.S. economy would probably move into the next economic recession in February 2020.
Whether this scenario takes place in reality depends on how well the Trump administration maneuvers fiscal stimulus to help reinvigorate both macroeconomic output expansion and productivity growth.
The Trump administration also needs to consider how the current trade tactics and interest rate increases can lead the U.S. economy to derail off the steady-state growth path.
New York Fed CEO John Williams and Fed Governor Lael Brainard admit that U.S. bond yield curve inversion can be a powerful indicator of the next economic recession.
However, both Williams and Brainard point out that *this time is different* because the U.S. economy gradually recovers from the zero lower bound of interest rates in recent years.
The International Monetary Fund (IMF) appoints Harvard professor Gita Gopinath as its chief economist.
The International Monetary Fund (IMF) appoints Harvard chair professor Gita Gopinath as its chief economist.
Gopinath follows her PhD advisor and trailblazer Kenneth Rogoff (who served as a former IMF chief economist) as well as Ben Bernanke (who served as the chairman of the U.S. Federal Reserve in response to the global financial crisis from 2008 onwards).
This appointment puts another pillar of mainstream orthodoxy about the benefits of flexible exchange rates on notice.
In effect, this transition aligns with the IMF advocacy of the Washington consensus that constitutes economic policies in favor of free cross-border capital transfer and fiscal consolidation.
With flexible exchange rates, an open economy can better cushion against external shocks and transitional price gyrations.
A country whose currency depreciates against the global trade dollar index should observe more competitive export prices relative to import prices.
As the country faces a decline in the terms of trade, foreigners face an inherent price incentive to buy more export goods and services from this country.
Thus, this trend helps reinvigorate the open economy via its current account channel.
Professor Gopinath now oversees the IMF biennial economic forecasts and provides her fresh perspective on the dominant flexible currency paradigm.
The U.S. greenback soars in value as the Federal Reserve continues its interest rate hike.
The U.S. greenback soars in value as the Federal Reserve continues its interest rate hike.
With impressive service-sector data and strong non-farm payroll and wage growth, the U.S. dollar hits an 11-month high threshold against foreign currencies such as the Euro, British pound, Japanese yen, and Chinese renminbi etc.
This currency adjustment drives U.S. 10-year Treasury bond yield to its highest level near 3.2% since mid-2011.
In effect, the latter long-term bond yield boost helps assuage the recent worries and concerns about potential U.S. bond yield curve inversion, which often indicates the dawn of a major U.S. economic recession.
From Europe and Australia to China and India, many international economies either stagnate or slow down as U.S.-centric free capital flows take place.
In addition to the recent greenback strength, crude oil prices surge toward $89-$95 per barrel in response to sequential decreases in OPEC oil production.
As this crude oil price hike coincides with U.S. dollar appreciation, American households, firms, and financial intermediaries may face inflationary cost increases across a common basket of goods and services.
Several economic media commentators now pencil in another U.S. Federal Reserve interest rate hike in December 2018 for better inflation containment.
Fed Chair Jerome Powell sees a remarkably positive outlook for the U.S. economy in early-October 2018.
Fed Chair Jerome Powell sees a remarkably positive outlook for the U.S. economy right after the recent interest rate hike as of September 2018.
He humbly suggests that this positive outlook may be too good to be true.
The U.S. economy now operates near full employment with low inflation.
The current unemployment rate is at the historically low level of 3.9%, and the inflation rate hovers around the Federal Reserve's medium-term target of 2%.
These top-line statistics may not always present an accurate picture of overall economic conditions, but a wide range of recent economic data on jobs and prices supports a positive view.
This combination not only serves well the Federal Reserve's dual mandate of maximum employment and price stability, but also raises the reasonable question of whether U.S. real GDP economic growth is sustainable in the next few years.
In light of higher household consumption, capital investment, and credit supply expansion, the Federal Reserve expects real GDP economic growth to approach 3%+ until early-2020.
Low inflation and low unemployment arise as a rare combination in modern U.S. economic history.
Whether this rare combination can sustain in the medium term remains an open controversy.
With this ambivalence, American economists, consumers, producers, and financial intermediaries remain in extraordinary times.
President Trump announces the new trilateral trade agreement among America, Canada, and Mexico.
President Trump announces the new trilateral trade agreement among America, Canada, and Mexico.
The U.S.-Mexico-Canada Agreement (USMCA) revamps and replaces the 24-year-old North America Free Trade Agreement (NAFTA).
Through this agreement, the Trump administration grants Canada and Mexico reprieve on automobile tariffs.
In return, Canada reduces import barriers from American dairy products.
Mexico also implements more employee protection rules and regulations.
USMCA enriches and strengthens the economic lives of the middle-class and further creates new job opportunities for about half billion residents in North America.
This trade pact comes up for trilateral review once every 6 years and in turn gives the Trump administration significant leverage to ensure its fair trade and commerce with Canada and Mexico.
President Trump touts and hails this new trade pact with Canada and Mexico as a major win for American workers and especially the U.S. automobile industry.
USMCA thus contributes to President Trump's key motif in the merry medley of Make America Great Again (MAGA).
Stock market investors breathe a sigh of relief that the key pillars of North America Free Trade Agreement (NAFTA) survive President Trump's hardball strategy to reshape global commerce.
A 7-year $1.3 billion hedge fund manager Chelsea Brennan shares her investment advice.
A 7-year $1.3 billion hedge fund manager Chelsea Brennan shares her investment advice.
Her advice comprises several ingenious steps toward better financial literacy and freedom.
Each wise investor should understand his or her multi-year investment goals.
For financially free and secure retirement, many investors focus on steady cash dividends, whereas, other investors seek healthy capital gains.
It is important to maintain a multi-year perspective to strike a better balance between these investment goals.
Also, it is easier to optimize average asset returns against investment risks via multiple index funds.
Each smart investor needs to diversify across U.S. and international index ETFs in stocks, bonds, currencies, commodities, REITs, and mutual funds etc.
In practice, this diversification allows him or her to boost the Sharpe ratio from the U.S. stock market benchmark around 0.33-0.35 to 0.63-0.85.
The Sharpe ratio typically constitutes 10% average return as the numerator as well as 30% return volatility as the denominator for the U.S. stock market benchmark.
Multi-asset portfolio optimization increases 10% average return to at least 15% and then reduces 30% return volatility to 20%.
This dynamic asset allocation helps ensure a better reward-risk Sharpe ratio near 0.75 or the mid-point of the healthy target range.
Goldman, JPMorgan, Bank of America, Credit Suisse, Morgan Stanley, and UBS face an antitrust lawsuit.
In this lawsuit, a U.S. judge alleges the illegal conspiracy that they have kept stock loans in the stone age to stifle financial market competition in the $2 trillion stock-lending market.
These large banks boycott the startup platforms AQS, Data Explorers, and SL-x in order to maintain their competitive advantage in stock loans.
In this fashion, these banks maintain monopoly control over stock loans and so charge excessive fees to investors and short-sellers.
A counter argument sheds skeptical light on the court decision that continuing to execute stock loans under the current rules and standards somehow amounts to an illegal conspiracy.
This alternative argument suggests that the current class actions against these banks would result in an unreasonable restraint on trade.
Indeed, this dispute boils down to whether there is sufficient evidence of collusion among the plaintiffs in direct competition with the above startup platforms.
Stock loans are important to short-sellers when the investor borrows stocks in order to immediately sell them.
Institutional investors with large current stock positions profit by lending out these stocks, whereas, borrowers aim to profit by buying the stocks at lower prices later.
The SEC sues Elon Musk for his August 2018 tweet that he has secured external finance to convert Tesla into a private company.
The Securities and Exchange Commission (S.E.C.) sues Elon Musk for his August 2018 tweet that he has secured external finance to convert Tesla into a private company.
Federal regulators accuse Musk of misleading stock market investors with false public statements.
This regulatory move can potentially oust Musk out of his current chief executive leadership at the electric carmaker Tesla.
The S.E.C. files a recent lawsuit in federal court in New York to accuse Musk of committing fraud by making false public statements that may inadvertently be detrimental to shareholder value.
This lawsuit seeks to bar Musk, who is both the CEO and executive chairman at Tesla, from serving as an executive director of public corporations such as Tesla.
This punishment is one of the most serious remedies that the S.E.C. can impose against corporate executive incumbents.
From a regulatory perspective, Musk might be reckless in not knowing the fact that his public statements can mislead stock market investors who maintain an active interest in Tesla shares.
Both in truth and in fact, Musk has never confirmed key deal terms such as deal price and stock exchange etc with any relevant source of external finance.
Tesla shares tumble 12% in direct response to this S.E.C. lawsuit.
The S.E.C. eventually settles this lawsuit with Elon Musk who has to relinquish his chairman role but remains the CEO with complete corporate control at Tesla.
As part of this swift legal settlement, Musk and Tesla have to pay hefty fines $20 million each.
Musk and Tesla neither admit nor deny any egregious mistakes that the S.E.C. alleges in recent times.
Elon Musk ultimately has to abort his prior plan to transform Tesla into a private company.
This recent case sets a new precedent for CEOs and executive chairmen who might inadvertently erode shareholder value via their erroneous public statements, tweets, articles, blogs, and posts etc.
S.E.C. regulatory scrutiny and oversight can thus serve as a central safety valve that prevents CEOs and executive chairmen from social engagement that might lead to false public statements.
Michael Kors pays $2.3 billion to acquire the Italian elite fashion brand Versace.
Michael Kors pays $2.35 billion to acquire the Italian elite fashion brand Versace.
In accordance with Michael Kors's 5-year plan, the joint company grows Versace's sales revenue to $2 billion per annum, opens more stores worldwide, and improves the brand's ecommerce services to expand its apparel, footwear, and accessories business franchises.
Donatella Versace remains an Italian fashion label, but the U.S. fashion Group Michael Kors rebrands itself as Capri.
As a major U.S. handbag maker, Michael Kors acquires Gianni Versace plus its debt to enter the exclusive high-end European luxury market.
As part of the deal, Donatella Versace stays as the chief fashion designer to oversee the brand.
In effect, Capri seeks an innovative M&A entry into the global market for personal luxury goods from handbags to clothes and accessories with more than $300 billion revenue as of mid-2018.
This buyout is a significant step toward building a bold and efficient fashion business that would rival the French heavyweight conglomerates LVMH (Louis Vuitton, Fendi, and Givenchy) and Kering (Gucci, Balenciaga and Saint Laurent).
No similar U.S. conglomerate has comparable scale, this buyout can be the key watershed between U.S. and French fashion designers.
In fact, Coach has made moves to implement a similar model with ambitious acquisitions of Kate Spade and Stuart Weitzman, owning the European luxury fashion brand Versace would give considerable clout and star power to the Capri fashion portfolio.
Sirius XM pays $3.5 billion shares to acquire the music app company Pandora.
Sirius XM pays $3.5 billion shares to acquire the music app company Pandora.
This acquisition would form the largest audio entertainment company worldwide.
Building on its current 15% equity stakes in Pandora, Sirius initiates a stock acquisition with an exchange ratio of 1.44 Sirius shares for each share in Pandora.
In response, Sirius experiences a 7% stock price dip while Pandora share price trades at a hefty 13% premium.
This deal generates several synergies between Sirius XM and Pandora.
First, the broader music network includes 100+ million active users.
Sirius now has 35 million subscribers in North America and 23 million users on an annual trial.
Meanwhile, Pandora carries 70 million active users and 6 million premium subscribers.
Massive network effects can result from this merger.
Second, Sirius can tap into Pandora's mobile and web advertisements, and Pandora benefits from Sirius's greater financial capital and in-car presence.
As the joint company cross-sells its music services to build new audio packages, Sirius plans to keep operating both brands for better user experience.
Third, the Pandora-Sirius combination can better hold up against intense competition from Apple, Spotify, and Amazon as these latter platform orchestrators invest aggressively in their music services.
Subject to customary shareholder approval and regulatory scrutiny etc, the deal can close in early-2019.
BAC chief investment strategist Michael Hartnett points out that U.S. corporate debt accumulation can cause the next financial crisis.
Bank of America Merrill Lynch's chief investment strategist Michael Hartnett points out that U.S. corporate debt (not household credit supply or bank capital shortage) can cause the next financial crisis.
U.S. public corporations have gradually accumulated more than $6 trillion debt with low interest rates since the global financial crisis from 2008 to 2009.
This corporate debt binge helps fund the recent recovery in new capital investment and equipment, full employment, and stock buyback in America.
Corporate default rates are minuscule, and U.S. companies now sit on hefty cash stockpiles primarily due to robust U.S. economic output gains and corporate tax cuts under the Trump administration.
At some inflection point, however, both economic growth and corporate income may start to slow down.
U.S. companies then have less firepower to pay back debt, and it is not easy for these companies to roll over their debt in due course.
Debt-laden companies would be vulnerable to higher costs of capital as the Federal Reserve continues the current interest rate hike.
These higher costs of capital can translate into a credit crunch, which adversely affects both employment and capital investment as the U.S. economy slides into an economic recession.
Anne Krueger explains why the Trump administration's current tariff tactics undermine the multilateral global trade system.
Former World Bank and IMF chief economist Anne Krueger explains why the Trump administration's current tariff tactics undermine the multilateral global trade system.
In the post-war decades, America has led the way in establishing the troika of major economic institutions, the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO) (formerly known as the General Agreement on Tariffs and Trade (GATT)), that collectively form the primary basis of international economic order in place today.
Due to the healthy expansion of an open multilateral trade system under the WTO, international trade has grown 1.5 times faster than global GDP since World War II.
The WTO 164-member economies commit to supporting an open multilateral trade system with common rules and procedures.
These rules can achieve for international trade what domestic commercial codes can accomplish for contracts and transactions between parties within a given jurisdiction.
Under WTO rules, international trade partners are subject to the same national regulations just as domestic firms have the same rights in regional courts.
Governments cannot discriminate against other WTO members, so trade benefits for one trade partner must apply to all other trade partners under WTO rules.
It is essential to ensure that trade partners receive fair regulatory and judicial treatment from WTO member-state governments, and the principle of non-discrimination has been a core tenet of the global trade system.
Under this WTO framework, the Trump administration now uses national-security concerns to justify tariffs on steel-and-aluminum imports from China, Canada, Europe, Mexico, and Japan etc.
Whether these tariffs would help reduce U.S. trade deficits remains complex and mysterious.
The Trump discriminatory tariffs undermine the WTO economic order and so induce China and other countries to seek reparation through the WTO dispute-settlement mechanism.
These countries may retaliate against Trump tariffs and in turn would exacerbate the current global trade quagmire.
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President Trump floats generous 10% tax cuts for the U.S. middle class ahead of the November 2018 mid-term elections.
President Trump floats 10% tax cuts for the U.S. middle class ahead of the November 2018 mid-term elections.
Republican senators, congressmen, and congresswomen can propose major tax cuts for middle-income Americans.
This time may be a bit different, and President Trump expects the tax bill to go through Congress but not an executive order.
The Trump administration suggests that the legislative vote will likely take place soon after the mid-term elections.
This strategic move boosts confidence in the Republican lawmakers who can continue to control Congress.
Treasury Secretary Steven Mnuchin cannot offer details on the middle-income tax brackets that can experience lower effective tax rates.
This tax bill may add to the prior $1.5 trillion tax cuts and $779 billion fiscal deficits.
Republican leaders and senators suggest that this tax bill will finance itself with better real GDP economic growth in the healthy upper range of 3%-4%.
The Trump administration can offset these new tax cuts with lower government expenditures in Medicare, Medicaid, and social security.
Alternatively, the Trump administration can raise effective tax rates for the crazy rich Americans in the top 1% socioeconomic echelon to partially offset the new tax cuts for the U.S. middle-class.
U.S. automobile and real estate sales decline despite higher consumer confidence and low unemployment as of October 2018.
U.S. automobile and real estate sales decline despite higher consumer confidence and low unemployment as of October 2018.
This slowdown arises from the current U.S. interest rate hike that helps wean the economy off near-zero rates.
High costs of capital squeeze the automobile and real estate industries after the prior decade of monetary stimulus.
The most expensive U.S. consumer purchases are cars and houses, and these consumer industries are quite sensitive to the cyclical ebbs and flows of credit supply expansion.
Recent U.S. mortgage rates reach 5% for the first time since 2011, and thus new home sales tumble 5.5% in 2018Q3 to the lowest level in about 2 years.
Residential home sale declines are double-digits and quite severe in the northeast and west U.S. states.
In light of higher mortgage rates and home prices, financial economists start to consider rental properties more cost-effective than residential home purchases.
Meanwhile, most Case-Shiller home price indices begin to show the current trend that home price gains decelerate from March 2018 to September 2018.
Wall Street seems to impose hefty penalties on automobile and real estate stocks.
Many homebuilder ETFs such as XHB, TOL, and KBH have plunged about 30% year-to-date since January 2018.
Also, several automobile stocks from Ford to GM show 25%+ price declines in the same time frame.
The latter auto industry further suffers higher production costs due to Trump tariffs.
These bearish traces suggest the inconvenient truth that the U.S. economy may have gone beyond the peak of real business cycles with low inflation and robust employment and capital investment growth.
Trump tariffs begin to bite U.S. corporate profits from Ford and Harley-Davidson to Caterpillar and Walmart etc.
Trump tariffs begin to bite U.S. corporate net profits from Ford and Harley-Davidson to Caterpillar and Walmart etc.
U.S. corporate profit growth remains high at 22% as of October 2018, but fewer S&P 500 companies manage to beat stock analyst estimates of both bottom-lines and net sales.
This lackluster stock performance erodes investor sentiment and thus contributes to the recent sharp sell-off in equities.
The negative ripple effects and externalities spread to Asian and European stock markets.
On the quiet western front, President Trump remains rather bellicose toward China, whereas, the Chinese trade delegates, diplomats, and negotiators gradually become less belligerent and less truculent in the current Sino-U.S. standoff.
The Federal Reserve continues the current neutral interest rate hike to contain inflation and wage growth in America.
Greenback appreciation arises as a result of this current interest rate hike.
As a consequence, U.S. dollar appreciation exacerbates the bilateral trade deficit between America and China.
In this negative light, the Trump administration may or may not be able to effectively curb the current bilateral trade deficit with China.
The Federal Reserve monetary policy reaction can lead to U.S. dollar appreciation that inevitably weakens the impact of Trump tariffs on Chinese imports.
Former Fed Chair Paul Volcker releases his memoir, talks about American public governance, and worries about plutocracy in America.
Former Fed Chair Paul Volcker releases his memoir, talks about public governance, and worries about plutocracy in America.
Volcker points out that public governance entails running the government with fewer unproductive policy debates.
As the U.S. central bank, the Federal Reserve need not adhere to an explicit 2% symmetric inflation target.
The current neutral interest rate hike can continue even when inflation rises above the target range of 2%-2.5%.
Volcker supports stronger supervisory powers for both the Federal Reserve and Treasury.
Both regulatory agencies should continue to conduct macroprudential stress tests on the systemically-important financial institutions (SIFIs) once per year in the post-Dodd-Frank era.
SIFIs should build up sufficient core capital buffers to safeguard against extreme losses that might arise in rare times of financial stress.
Also, the Volcker rule separates commercial bank activities from proprietary investment transactions.
This firewall serves as a safety valve between safe bank deposits and risky asset investments.
Volcker worries about the impact of money on the U.S. political system, and he expresses grave concerns about the recent trend that America seems to devolve into a plutocracy.
In his view, U.S. democratic regulations should constrain the direct influence of crazy rich Americans over political affairs.
PayPal earns great fintech reputation from its massive worldwide network of 250+ million users.
PayPal earns great fintech reputation from its massive worldwide network of 250+ million active users.
As PayPal beats the revenue and profit expectations of most stock analysts and economic commentators in 2018Q3, its share price surges 9%.
A peer-to-peer payment app, Venmo, enjoys 80% growth in total payment volume quarter-to-quarter.
As this M&A brain child proves to be a major moneymaker for its parent company PayPal, Venmo adds 9 million peer-to-peer payment accounts to the PayPal mafia worldwide network.
PayPal now continues to expand its strategic partnership with Visa, MasterCard, American Express, Apple, Google, Samsung, and Walmart to allow cardholders to use their membership points when these consumers shop from PayPal merchants.
This additional convenience empowers key consumers to integrate their electronic retail experiences with most traditional credit cards.
Anecdotal evidence suggests that PayPal encompasses more than 250 million active members with about 78% of the total market share in America.
Key stock analysts and economic media commentators expect the eBay multi-year transition to the Adyen fast-payment platform to be quite bumpy in light of the long history that both buyers and sellers have almost exclusively interacted with PayPal on the prior eBay online auction platform.
In hindsight, the Dutch payment platform Adyen can be a cost-effective key option for eBay, but eBay might have overlooked the tremendous positive network effects of PayPal that dominates in the electronic mobile payment market in America.
The Trump administration blames China for egregious currency misalignment.
The Trump administration blames China for egregious currency misalignment, but this criticism cannot confirm *currency manipulation* on the part of the Chinese Xi administration.
As President Trump remains eager to continue the Sino-U.S. trade war, the U.S. Treasury releases its biennial currency exchange report that criticizes the Chinese trade and currency practices.
However, this report cannot conclude that the Chinese government improperly devalues its renminbi currency in order to improve competitive export prices.
If U.S. Treasury categorizes China as a currency manipulator, this decision would inadvertently ratchet up substantial trade tension between America and China.
For technical reasons, the status quo remains the same. As the Chinese government continues to constrain its direct intervention in the foreign exchange market, there is minimal evidence of currency manipulation in China.
At best, the recent Chinese renminbi devaluation amounts to transient currency misalignment.
On the other hand, the Trump administration begins to conduct bilateral trade pacts with former Trans-Pacific Partnership (TPP) members in order to contain China's economic prowess.
As the Trump administration revives trade talks with 11 Asian countries, Britain, and European Union, this bilateral tactic better prepares for the next round of Sino-American trade negotiations soon after the mid-term elections.
Several pharmaceutical companies now switch their primary focus from generic prescription drugs to medical specialties.
Several pharmaceutical companies now switch their primary focus from generic prescription drugs to medical specialties such as cardiovascular medications and radioactive therapies.
The pharmaceutical giants need to focus on specific medical market niches because the Trump administration urges these firms to reduce drug prices and medical costs in America.
Pfizer, Merck, and Johnson & Johnson now plan to dramatically reduce headcounts in the next few years.
In addition to Pfizer, Merck, Johnson & Johnson, Novartis now plans to cut jobs through early retirement plans and layoffs worldwide.
The Swiss pharmaceutical firm Novartis also plans to acquire American cancer drugmaker Endocyte for $2 billion.
This strategic move accords with the broader competitive landscape that induces pharmaceutical firms to specialize in new medications and therapies that exhibit low price elasticities of patient demand.
In stark contrast to generic prescription drugs, the new therapies and medications require the productive use of medical tech advances and can thus become more effective in treating specific diseases.
In a recent tweet, President Trump condemns pharmaceutical firms such as Pfizer for raising the prices of about 40 prescription drugs.
In response, Pfizer CEO Ian Read decides to defer these price hikes to assuage grave concerns about patient demand and consumer protection.
Ramit Sethi suggests that it is important to invest in long-term gains instead of paying attention to daily dips and trends.
Personal finance author Ramit Sethi suggests that it is important to invest in long-term gains instead of paying attention to daily dips and trends.
It is futile to time the stock market.
Wild and unpredictable fluctuations can confuse stock investors who miss informative fundamental factors from time to time.
Investors should play the long game by spending a sufficient amount of time in small-to-mid-cap profitable value stocks that exhibit conservative capital investment.
This value investment strategy yields an 8% stock market return net of inflation on average.
If the investor stays in the U.S. stock market with his or her $10,000 investment during the 20-year sample period from 1998 to 2017, the long-run S&P 500 average return is 7.2%.
However, if the investor misses the top 10 days of hefty stock market gains, he or she earns only 3.5%.
For this reason, rational investors should aim to persist throughout transient stock market ebbs and flows for sustainable shareholder value maximization.
Long-term stock market returns consistently conform to the normal distribution with fat tails or leptokurtic extreme outliers.
Insofar as the investor can persevere in his or her multi-year value investment strategy, this strategy helps reap reasonable rewards in due course.
President Trump blames the Federal Reserve for its *crazy tight* interest rate hike.
Dow Jones tumbles 3% or 831 points while NASDAQ tanks 4%, and this negative investor sentiment rips through most European and Asian stock markets in early-October 2018.
President Trump blames the Federal Reserve for its crazy tight interest rate hike.
However, this criticism may not be the main trigger for bearish massive stock sell-off.
The relentless Sino-American trade impasse remains on the radar for stock market investors.
Also, the 10-year Treasury bond yield rises above 3%, and then many institutional investors switch from stock bets to Treasury bond purchases.
Due to these unforeseen circumstances, the International Monetary Fund (IMF) downgrades global economic growth from 3.9% to 3.7% as of October 2018.
This latter downgrade seems to trigger ubiquitous investor panic that manifests in the recent surge of the CBOE volatility index (VIX) well beyond 22 points.
Treasury Secretary Steven Mnuchin views the severe bloodbath from S&P 500 to NASDAQ as a normal stock market correction.
Mnuchin considers this widespread stock market correction as part of the healthy fundamental recalibration primarily for tech titans such as Facebook, Apple, Microsoft, Google, Amazon, Netflix, and Twitter (FAMGANT).
These tech titans exhibit prior stock market overvaluation in the interim period from late-2017 to early-2018.
Treasury bond yield curve inversion often signals the next economic recession in America.
U.S. bond yield curve inversion often signals the next economic recession in America.
In fact, U.S. bond yield curve inversion correctly predicts the dawn of an economic recession every time since the 1970s.
The maturity term spread is the difference between the 10-year Treasury bond yield and the 2-year Treasury bond yield.
The Treasury yield curve inverts when this term spread falls below zero or the short-term government bond yield exceeds the long-term counterpart.
In this rare situation, investors bet on short-term bond reinvestment risk in exchange for less risk exposure to highly volatile long-term bond prices.
These higher long-term bond prices translate into lower long-term bond yields and thus result in government bond yield curve inversion.
In this rare event, investors prefer to roll over their short-term bonds with substantial interest rate risk instead of having to keep their capital in long-term bonds that exhibit volatile price gyrations.
Low long-term bond yields suggest that these subpar rates of bond return cannot be commensurate with long-term risk exposure.
In effect, sound basic economic intuition suggests that this rare situation dampens both nationwide capital investment and even household consumption as the ripple effects manifest in real GDP economic growth protraction.
U.S. economic history shows that it takes about 10 months for government bond yield curve inversion to reach the stock market peak plus another quarter until the next economic recession.
A recent Forbes article discusses empirical evidence in support of the generic view that if U.S. bond yield curve inversion happens in December 2018, we would expect the current bull market to peak in September 2019.
In this worst-case scenario, the U.S. economy would probably move into the next economic recession in February 2020.
Whether this scenario takes place in reality depends on how well the Trump administration maneuvers fiscal stimulus to help reinvigorate both macroeconomic output expansion and productivity growth.
The Trump administration also needs to consider how the current trade tactics and interest rate increases can lead the U.S. economy to derail off the steady-state growth path.
New York Fed CEO John Williams and Fed Governor Lael Brainard admit that U.S. bond yield curve inversion can be a powerful indicator of the next economic recession.
However, both Williams and Brainard point out that *this time is different* because the U.S. economy gradually recovers from the zero lower bound of interest rates in recent years.
The International Monetary Fund (IMF) appoints Harvard professor Gita Gopinath as its chief economist.
The International Monetary Fund (IMF) appoints Harvard chair professor Gita Gopinath as its chief economist.
Gopinath follows her PhD advisor and trailblazer Kenneth Rogoff (who served as a former IMF chief economist) as well as Ben Bernanke (who served as the chairman of the U.S. Federal Reserve in response to the global financial crisis from 2008 onwards).
This appointment puts another pillar of mainstream orthodoxy about the benefits of flexible exchange rates on notice.
In effect, this transition aligns with the IMF advocacy of the Washington consensus that constitutes economic policies in favor of free cross-border capital transfer and fiscal consolidation.
With flexible exchange rates, an open economy can better cushion against external shocks and transitional price gyrations.
A country whose currency depreciates against the global trade dollar index should observe more competitive export prices relative to import prices.
As the country faces a decline in the terms of trade, foreigners face an inherent price incentive to buy more export goods and services from this country.
Thus, this trend helps reinvigorate the open economy via its current account channel.
Professor Gopinath now oversees the IMF biennial economic forecasts and provides her fresh perspective on the dominant flexible currency paradigm.
The U.S. greenback soars in value as the Federal Reserve continues its interest rate hike.
The U.S. greenback soars in value as the Federal Reserve continues its interest rate hike.
With impressive service-sector data and strong non-farm payroll and wage growth, the U.S. dollar hits an 11-month high threshold against foreign currencies such as the Euro, British pound, Japanese yen, and Chinese renminbi etc.
This currency adjustment drives U.S. 10-year Treasury bond yield to its highest level near 3.2% since mid-2011.
In effect, the latter long-term bond yield boost helps assuage the recent worries and concerns about potential U.S. bond yield curve inversion, which often indicates the dawn of a major U.S. economic recession.
From Europe and Australia to China and India, many international economies either stagnate or slow down as U.S.-centric free capital flows take place.
In addition to the recent greenback strength, crude oil prices surge toward $89-$95 per barrel in response to sequential decreases in OPEC oil production.
As this crude oil price hike coincides with U.S. dollar appreciation, American households, firms, and financial intermediaries may face inflationary cost increases across a common basket of goods and services.
Several economic media commentators now pencil in another U.S. Federal Reserve interest rate hike in December 2018 for better inflation containment.
Fed Chair Jerome Powell sees a remarkably positive outlook for the U.S. economy in early-October 2018.
Fed Chair Jerome Powell sees a remarkably positive outlook for the U.S. economy right after the recent interest rate hike as of September 2018.
He humbly suggests that this positive outlook may be too good to be true.
The U.S. economy now operates near full employment with low inflation.
The current unemployment rate is at the historically low level of 3.9%, and the inflation rate hovers around the Federal Reserve's medium-term target of 2%.
These top-line statistics may not always present an accurate picture of overall economic conditions, but a wide range of recent economic data on jobs and prices supports a positive view.
This combination not only serves well the Federal Reserve's dual mandate of maximum employment and price stability, but also raises the reasonable question of whether U.S. real GDP economic growth is sustainable in the next few years.
In light of higher household consumption, capital investment, and credit supply expansion, the Federal Reserve expects real GDP economic growth to approach 3%+ until early-2020.
Low inflation and low unemployment arise as a rare combination in modern U.S. economic history.
Whether this rare combination can sustain in the medium term remains an open controversy.
With this ambivalence, American economists, consumers, producers, and financial intermediaries remain in extraordinary times.
President Trump announces the new trilateral trade agreement among America, Canada, and Mexico.
President Trump announces the new trilateral trade agreement among America, Canada, and Mexico.
The U.S.-Mexico-Canada Agreement (USMCA) revamps and replaces the 24-year-old North America Free Trade Agreement (NAFTA).
Through this agreement, the Trump administration grants Canada and Mexico reprieve on automobile tariffs.
In return, Canada reduces import barriers from American dairy products.
Mexico also implements more employee protection rules and regulations.
USMCA enriches and strengthens the economic lives of the middle-class and further creates new job opportunities for about half billion residents in North America.
This trade pact comes up for trilateral review once every 6 years and in turn gives the Trump administration significant leverage to ensure its fair trade and commerce with Canada and Mexico.
President Trump touts and hails this new trade pact with Canada and Mexico as a major win for American workers and especially the U.S. automobile industry.
USMCA thus contributes to President Trump's key motif in the merry medley of Make America Great Again (MAGA).
Stock market investors breathe a sigh of relief that the key pillars of North America Free Trade Agreement (NAFTA) survive President Trump's hardball strategy to reshape global commerce.
A 7-year $1.3 billion hedge fund manager Chelsea Brennan shares her investment advice.
A 7-year $1.3 billion hedge fund manager Chelsea Brennan shares her investment advice.
Her advice comprises several ingenious steps toward better financial literacy and freedom.
Each wise investor should understand his or her multi-year investment goals.
For financially free and secure retirement, many investors focus on steady cash dividends, whereas, other investors seek healthy capital gains.
It is important to maintain a multi-year perspective to strike a better balance between these investment goals.
Also, it is easier to optimize average asset returns against investment risks via multiple index funds.
Each smart investor needs to diversify across U.S. and international index ETFs in stocks, bonds, currencies, commodities, REITs, and mutual funds etc.
In practice, this diversification allows him or her to boost the Sharpe ratio from the U.S. stock market benchmark around 0.33-0.35 to 0.63-0.85.
The Sharpe ratio typically constitutes 10% average return as the numerator as well as 30% return volatility as the denominator for the U.S. stock market benchmark.
Multi-asset portfolio optimization increases 10% average return to at least 15% and then reduces 30% return volatility to 20%.
This dynamic asset allocation helps ensure a better reward-risk Sharpe ratio near 0.75 or the mid-point of the healthy target range.
Goldman, JPMorgan, Bank of America, Credit Suisse, Morgan Stanley, and UBS face an antitrust lawsuit.
In this lawsuit, a U.S. judge alleges the illegal conspiracy that they have kept stock loans in the stone age to stifle financial market competition in the $2 trillion stock-lending market.
These large banks boycott the startup platforms AQS, Data Explorers, and SL-x in order to maintain their competitive advantage in stock loans.
In this fashion, these banks maintain monopoly control over stock loans and so charge excessive fees to investors and short-sellers.
A counter argument sheds skeptical light on the court decision that continuing to execute stock loans under the current rules and standards somehow amounts to an illegal conspiracy.
This alternative argument suggests that the current class actions against these banks would result in an unreasonable restraint on trade.
Indeed, this dispute boils down to whether there is sufficient evidence of collusion among the plaintiffs in direct competition with the above startup platforms.
Stock loans are important to short-sellers when the investor borrows stocks in order to immediately sell them.
Institutional investors with large current stock positions profit by lending out these stocks, whereas, borrowers aim to profit by buying the stocks at lower prices later.
The SEC sues Elon Musk for his August 2018 tweet that he has secured external finance to convert Tesla into a private company.
The Securities and Exchange Commission (S.E.C.) sues Elon Musk for his August 2018 tweet that he has secured external finance to convert Tesla into a private company.
Federal regulators accuse Musk of misleading stock market investors with false public statements.
This regulatory move can potentially oust Musk out of his current chief executive leadership at the electric carmaker Tesla.
The S.E.C. files a recent lawsuit in federal court in New York to accuse Musk of committing fraud by making false public statements that may inadvertently be detrimental to shareholder value.
This lawsuit seeks to bar Musk, who is both the CEO and executive chairman at Tesla, from serving as an executive director of public corporations such as Tesla.
This punishment is one of the most serious remedies that the S.E.C. can impose against corporate executive incumbents.
From a regulatory perspective, Musk might be reckless in not knowing the fact that his public statements can mislead stock market investors who maintain an active interest in Tesla shares.
Both in truth and in fact, Musk has never confirmed key deal terms such as deal price and stock exchange etc with any relevant source of external finance.
Tesla shares tumble 12% in direct response to this S.E.C. lawsuit.
The S.E.C. eventually settles this lawsuit with Elon Musk who has to relinquish his chairman role but remains the CEO with complete corporate control at Tesla.
As part of this swift legal settlement, Musk and Tesla have to pay hefty fines $20 million each.
Musk and Tesla neither admit nor deny any egregious mistakes that the S.E.C. alleges in recent times.
Elon Musk ultimately has to abort his prior plan to transform Tesla into a private company.
This recent case sets a new precedent for CEOs and executive chairmen who might inadvertently erode shareholder value via their erroneous public statements, tweets, articles, blogs, and posts etc.
S.E.C. regulatory scrutiny and oversight can thus serve as a central safety valve that prevents CEOs and executive chairmen from social engagement that might lead to false public statements.
Michael Kors pays $2.3 billion to acquire the Italian elite fashion brand Versace.
Michael Kors pays $2.35 billion to acquire the Italian elite fashion brand Versace.
In accordance with Michael Kors's 5-year plan, the joint company grows Versace's sales revenue to $2 billion per annum, opens more stores worldwide, and improves the brand's ecommerce services to expand its apparel, footwear, and accessories business franchises.
Donatella Versace remains an Italian fashion label, but the U.S. fashion Group Michael Kors rebrands itself as Capri.
As a major U.S. handbag maker, Michael Kors acquires Gianni Versace plus its debt to enter the exclusive high-end European luxury market.
As part of the deal, Donatella Versace stays as the chief fashion designer to oversee the brand.
In effect, Capri seeks an innovative M&A entry into the global market for personal luxury goods from handbags to clothes and accessories with more than $300 billion revenue as of mid-2018.
This buyout is a significant step toward building a bold and efficient fashion business that would rival the French heavyweight conglomerates LVMH (Louis Vuitton, Fendi, and Givenchy) and Kering (Gucci, Balenciaga and Saint Laurent).
No similar U.S. conglomerate has comparable scale, this buyout can be the key watershed between U.S. and French fashion designers.
In fact, Coach has made moves to implement a similar model with ambitious acquisitions of Kate Spade and Stuart Weitzman, owning the European luxury fashion brand Versace would give considerable clout and star power to the Capri fashion portfolio.
Sirius XM pays $3.5 billion shares to acquire the music app company Pandora.
Sirius XM pays $3.5 billion shares to acquire the music app company Pandora.
This acquisition would form the largest audio entertainment company worldwide.
Building on its current 15% equity stakes in Pandora, Sirius initiates a stock acquisition with an exchange ratio of 1.44 Sirius shares for each share in Pandora.
In response, Sirius experiences a 7% stock price dip while Pandora share price trades at a hefty 13% premium.
This deal generates several synergies between Sirius XM and Pandora.
First, the broader music network includes 100+ million active users.
Sirius now has 35 million subscribers in North America and 23 million users on an annual trial.
Meanwhile, Pandora carries 70 million active users and 6 million premium subscribers.
Massive network effects can result from this merger.
Second, Sirius can tap into Pandora's mobile and web advertisements, and Pandora benefits from Sirius's greater financial capital and in-car presence.
As the joint company cross-sells its music services to build new audio packages, Sirius plans to keep operating both brands for better user experience.
Third, the Pandora-Sirius combination can better hold up against intense competition from Apple, Spotify, and Amazon as these latter platform orchestrators invest aggressively in their music services.
Subject to customary shareholder approval and regulatory scrutiny etc, the deal can close in early-2019.
BAC chief investment strategist Michael Hartnett points out that U.S. corporate debt accumulation can cause the next financial crisis.
Bank of America Merrill Lynch's chief investment strategist Michael Hartnett points out that U.S. corporate debt (not household credit supply or bank capital shortage) can cause the next financial crisis.
U.S. public corporations have gradually accumulated more than $6 trillion debt with low interest rates since the global financial crisis from 2008 to 2009.
This corporate debt binge helps fund the recent recovery in new capital investment and equipment, full employment, and stock buyback in America.
Corporate default rates are minuscule, and U.S. companies now sit on hefty cash stockpiles primarily due to robust U.S. economic output gains and corporate tax cuts under the Trump administration.
At some inflection point, however, both economic growth and corporate income may start to slow down.
U.S. companies then have less firepower to pay back debt, and it is not easy for these companies to roll over their debt in due course.
Debt-laden companies would be vulnerable to higher costs of capital as the Federal Reserve continues the current interest rate hike.
These higher costs of capital can translate into a credit crunch, which adversely affects both employment and capital investment as the U.S. economy slides into an economic recession.
Anne Krueger explains why the Trump administration's current tariff tactics undermine the multilateral global trade system.
Former World Bank and IMF chief economist Anne Krueger explains why the Trump administration's current tariff tactics undermine the multilateral global trade system.
In the post-war decades, America has led the way in establishing the troika of major economic institutions, the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO) (formerly known as the General Agreement on Tariffs and Trade (GATT)), that collectively form the primary basis of international economic order in place today.
Due to the healthy expansion of an open multilateral trade system under the WTO, international trade has grown 1.5 times faster than global GDP since World War II.
The WTO 164-member economies commit to supporting an open multilateral trade system with common rules and procedures.
These rules can achieve for international trade what domestic commercial codes can accomplish for contracts and transactions between parties within a given jurisdiction.
Under WTO rules, international trade partners are subject to the same national regulations just as domestic firms have the same rights in regional courts.
Governments cannot discriminate against other WTO members, so trade benefits for one trade partner must apply to all other trade partners under WTO rules.
It is essential to ensure that trade partners receive fair regulatory and judicial treatment from WTO member-state governments, and the principle of non-discrimination has been a core tenet of the global trade system.
Under this WTO framework, the Trump administration now uses national-security concerns to justify tariffs on steel-and-aluminum imports from China, Canada, Europe, Mexico, and Japan etc.
Whether these tariffs would help reduce U.S. trade deficits remains complex and mysterious.
The Trump discriminatory tariffs undermine the WTO economic order and so induce China and other countries to seek reparation through the WTO dispute-settlement mechanism.
These countries may retaliate against Trump tariffs and in turn would exacerbate the current global trade quagmire.
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