by tyler | May 18, 2023 | CNN, investing
Inflation-fatigued shoppers are heading to Walmart for groceries while they’re pulling back on nonessential purchases at other chains.
Walmart
(WMT), America’s largest retailer, posted strong sales last quarter and raised its outlook for 2023.
The company said Thursday that sales at stores open for at least one year increased 7.4% during its latest quarter compared with the same stretch last year. Its operating income increased 17.3% last quarter.
Walmart
(WMT) raised its sales forecast for its next quarter and the full-year, sending its stock up 1.5% during pre-market trading.
During times of economic strains, Walmart tends to perform best.
The company can reach a wide swath of shoppers, and around half of its sales come from groceries and other non-discretionary products.
Walmart’s grocery sales increased by low double-digits last quarter, the company said. Food prices have climbed in recent years, and Walmart said wealthier households have been shopping in its stores more frequently. Other shoppers are trading down into Walmart’s cheaper private-label food brands to save money.
“Customers continue to seek value given the impact of inflation,” Walmart CEO Doug McMillon said on a call with analysts.
The company said sales of discretionary products, such as home goods, electronics and clothing, were sluggish.
The retailer’s strong results contrast with Target
(TGT) and Home Depot’s
(HD) weaker figures during their latest quarters.
Shoppers have pulled back from these chains on discretionary purchases as they face pressure from higher prices and borrowing costs.
by tyler | May 17, 2023 | CNN, investing
US senators hammered former executives of recently collapsed Silicon Valley Bank and Signature Bank on Tuesday over their paychecks, sales of stock and bonus payouts as the financial institutions struggled to stay afloat.
The 2.5-hour hearing by the Senate Banking Committee was meant to hold leadership accountable for the mismanagement that led to the banks’ failures and the regional banking crisis, but much of the focus centered around CEO compensation.
High payouts, posited lawmakers on both sides of the aisle, made execs greedy. Executives prioritized profit margins and share prices over the fundamental health of their banks, leading to a meltdown in the sector that rippled through the economy.
What’s happening: Securities and Exchange Commission filings show that SVB’s former chief executive Greg Becker sold more than $2 million in SVB stock in late February and $1.1 million in stock in January, ahead of the bank’s failure.
At the time of its collapse, SVB had 31 unresolved supervisory warnings. Still, Becker received a $1.5 million bonus as part of his 2022 compensation package that was worth about $10 million in total.
Joseph DePaolo, the former CEO of Signature Bank, received about $8.6 million.
“You were paying out bonuses until literally hours before regulators seized your assets,” Sen. Sherrod Brown, chairman of the Senate Banking Committee, told Becker at Tuesday’s hearing.
“Workers face consequences, executives ride off into the sunset. Only in corporate boardrooms can you run your business into the ground, take the whole economy along with you and come out ahead. We can’t let that happen again,” Brown said.
Becker said his cash and stock bonuses were “predetermined” and that he wasn’t aware of when they would be paid out.
Regulators have identified major weaknesses in SVB’s incentive program, Sen. Bob Menendez said, which, he claimed, encouraged “excessive risk-taking to maximize short-term financial metrics.”
“In other words, the incentive structure you and your colleagues put in place rewarded breakneck growth and profitability, while kneecapping efforts to manage growing risks to the firm… Clearly, the compensation structure at your institution was not in line with the long-term interests of your shareholders and deposit holders,” Menendez said.
Republicans also homed in on executive pay. Throughout the hearing, they criticized the banks for incentivizing taking risk while failing to hedge against the excess of securities that they held. Around the time of SVB’s failure, more than 85% of the bank’s capital was invested in securities with maturity of greater than 5 years.
“If you’d bought those hedges [against Treasuries purchased by the bank], that would have cut into your profits, wouldn’t it? If you’d made less money, that would have affected your bonus, wouldn’t it?” added Sen. John Kennedy.
Sen. Tim Scott added that the banks’ management teams appeared more “focused on chasing profitability than stability.” That, he remarked, “sounds like greed.”
What’s next: Both the Federal Deposit Insurance Corporation and Federal Reserve have the authority to claw some of that pay back and further penalize bank executives. Brown said he is working on a bill to make it easier for them to do so.
Sen. Elizabeth Warren said she was working with Brown on the regulation.
“Right now, the law says that people like Mr. Becker and Mr. [Scott] Shay [former chairman of Signature Bank] can come to Washington, they can lobby for weaker bank regulations, they can load up their banks with risk, they can pay themselves tens of millions of dollars,” she said. “And when the banks blow up, Mr. Becker and Mr. Shay get to keep all the money. And that is just plain wrong.”
OpenAI CEO Sam Altman also made his way to the Senate on Tuesday. There, he urged lawmakers to regulate artificial intelligence, reports my colleague Brian Fung.
This new AI technology is a huge, potential “printing press moment,” he said, but added that it would also require some legal safeguards.
“We think that regulatory intervention by governments will be critical to mitigate the risks of increasingly powerful models,” Altman said in his opening remarks before a Senate Judiciary subcommittee.
Altman’s appearance comes after the viral success of ChatGPT, his company’s chatbot tool, renewed an arms race over AI and sparked concerns from some lawmakers about the risks posed by the technology.
A growing list of tech companies have deployed new AI tools in recent months, with the potential to change how we work, shop and interact with each other. But these same tools have also drawn criticism from some of tech’s biggest names for their potential to disrupt millions of jobs, spread misinformation and perpetuate biases.
In his remarks Tuesday, Altman said the potential for AI to be used to manipulate voters and target disinformation are among “my areas of greatest concern,” especially because “we’re going to face an election next year and these models are getting better.”
Altman suggested that the United States government create a licensing system to regulate and monitor companies working with powerful AI tools. This “combination of licensing and testing requirements,” Altman said, could be applied to the “development and release of AI models above a threshold of capabilities.”
Altman also warned that AI might eliminate jobs.
“There will be an impact on jobs,” Altman told the Senate. “We try to be very clear about that, and I think it’ll require partnership between industry and government, but mostly action by government, to figure out how we want to mitigate that. But I’m very optimistic about how great the jobs of the future will be.”
Tesla
(TSLA) will begin to publicly advertise its cars for the first time in its short history. Up until now, the company has garnered its status through earned press and word of mouth.
CEO Elon Musk announced the change on Tuesday evening at the company’s annual meeting in Austin, Texas.
“We’ll try a little advertising, and see how it goes,” Musk said.
The crowd was overwhelmingly positive about Musk and Tesla, reports my colleague Chris Isidore. “I didn’t realize people wanted it that much,” Musk said about advertising later in the meeting.
The decision is a complete turnaround. The billionaire CEO has argued for years that there is no need for the company to advertise because demand for the vehicles outstrips supply without any added promotion.
One thing that has changed for Tesla is greater competition from existing automakers, all of which have devoted much of their advertising budget to electric vehicles, even for vehicles that are not yet available for sale.
by tyler | May 17, 2023 | CNN, investing
No one can say yet which day the US Treasury would no longer be able to pay all the bills of the United States in full and on time if lawmakers refuse to raise the debt limit.
That day — the so-called “X-date” — is currently estimated to fall sometime between early June and early August.
Bond market experts still expect lawmakers to strike a deal before the X-date hits, if only at the 11th hour and 59th minute.
“[N]o one in Washington has any incentive to see the US default … [but] no one is also really incentivized to compromise before the actual deadline….. Nevertheless, we remain confident that a deal will happen in time to avoid any sort of breach,” said Libby Cantrill, managing director and head of public policy at PIMCO.
But even if that’s the case, between now and then bond investors should expect volatility.
“As long as the discussions are ongoing between the Biden administration and Congress, we’d expect volatility to be relatively elevated,” said Collin Martin, director and fixed income strategist at the Schwab Center for Financial Research.
Bond investors are all about pricing in the risk that they may not be paid back on debt they buy — either on time or at all. Normally, US Treasuries are considered to be the world’s safest assets because they are backed by the full faith and credit of the United States. But the lack of a deal to raise lawmakers’ self-imposed debt ceiling so close to the X-date is introducing unwanted risk into each investor’s calculus.
“We’ve already seen some pricing stress around short-term bills, Treasury bills, and a little bit of change in the… sovereign credit default swap spreads,” said Gary Gensler, chair of the Securities and Exchange Commission, at an event on Monday.
Short-term Treasury bills that mature on June 1 or soon thereafter have seen a spike in yields in the past month, indicating investors want to be paid more for taking on what they perceive to be higher risk that they may not be paid back on time.
That’s an important distinction from assuming they won’t be paid back in full, Martin notes. The assumption is that even if the United States briefly goes past the X-date, it will resolve things quickly and will make good on all the payments it must make. In contrast to corporate debt, the risk is that a bond investor would only be able to recover a portion of their investment. “But with Treasuries, it’s more about ‘When will I get the money back?’” he said.
Right now, yields on one-month T bills are well above the yields for 10-year and 30-year Treasury bonds. For bills maturing on or before May 30, yields have fallen and their prices have risen because investors are willing to pay up to have a near guarantee of prompt repayment, Martin noted.
Those who have invested in Treasury bills maturing on or right after June 1 and who definitely need their money at that time — for example, to pay their own bills — might consider selling those bills now and reinvesting in bills that mature sooner, Martin suggested.
If you’re invested in bond funds, check to see that the bond portion of your portfolio has adequate exposure to intermediate and longer-term bonds, rather than being too heavily weighted toward short-term higher yielding bonds. With the latter, “you face reinvestment risk down the road when it might be better to lock in rates with certainty now,” he said. Those rates are currently running between 3.5% to 4%.
And to the extent there is any uncertainty about being paid on time by the Treasury, there may be a flight to 10-year Treasury bonds — which means their prices will go up, which can help buffer your portfolio. “They are still the most liquid investment and the safest investment out there,” Martin said.
When it comes to your exposure to bonds other than Treasuries, Martin recommends sticking more heavily with high-quality investments, rather than corporate junk bonds or emerging market bonds. The reason: If the economy turns south — or the unthinkable happens and the United States does default on its debt — those high-risk debt instruments will come under the most pressure.
“If you need to borrow money, you need the confidence of the markets to lend to you,” Martin said. If there is a recession or any concern about the Treasury paying back investors on time, there will be less confidence to go around.
As for your 401(k), Martin said the best thing you can do now is to review your equity-to-bond allocation and make adjustments if necessary. As we move closer to June, stocks are likely to see a lot more volatility because they are inherently riskier assets than bonds.
Considering the longer-term picture for your investments is also the advice from Vanguard, according to spokesperson Jessica Schifalacqua.
“Our general guidance is for investors to maintain a balanced portfolio in keeping with their goals and to remain disciplined. A long-term view is especially important during periods of uncertainty,” she said.
– CNN’s Elisabeth Buchwald contributed to this report
by tyler | May 15, 2023 | CNN, investing
Investors are nervously awaiting the outcome of Turkey’s tight presidential race Monday, sending stocks falling and the value of its currency down to a new record low against the US dollar.
Turkey’s benchmark BIST-100 index sank as much as 6.4% in pre-market trade after President Recep Tayyip Erdoğan appeared to be heading for a run-off on May 28 against his main opponent, Kemal Kilicdaroglu.
“An opposition victory looks to have become less likely and this will disappoint investors hoping for a return to orthodox economic policymaking and a more credible commitment to tackling Turkey’s inflation problem,” Liam Peach, senior emerging markets economist at Capital Economics, said in a note.
The sharp stock market fall prompted the Istanbul exchange to halt trading briefly. The BIST-100 was last trading down 2.8%, while its banking sub-index was 8.3% lower.
The Turkish lira slipped 0.5% to trade at 19.70 against the US dollar, a record low. The value of the currency cratered by more than 40% last year as Erdoğan’s unorthodox economic policies fueled eye-watering levels of inflation.
Erdoğan has been at the helm of Turkey’s government for two decades, and may be on the brink of another five years in power. With 98% of the votes counted, neither Erdoğan nor Kilicdaroglu have reached the 50% threshold of votes needed to declare a decisive victory. Erdoğan has performed better than polls suggested, tallying about 49% of the vote to the opposition’s 45%.
The uncertainty has investors in Turkish government bonds worrying about the country’s ability to pay them back. The cost of buying insurance against the risk of default by the government — known as a credit default swap — surged 22% in morning trade to its highest level since November, according to data from S&P Global Market Intelligence.
Credit rating agency Moody’s said Monday that a victory for the opposition would “improve prospects for a return to orthodox economic policies which — if effectively implemented — would be positive for the sovereign’s credit profile over the longer term.”
Still, “unwinding the distortionary measures put in place over the past two years will be challenging,” Moody’s said, adding that the risk of volatility in Turkey’s economy and markets was “significant.”
In late 2021, as global inflation started to accelerate, Erdoğan ordered Turkey’s central bank to slash interest rates — the exact opposite of what other central banks were doing to tame runaway prices. Annual consumer price inflation surged to 85% in October, before slowing to 44% in April, data from the Turkish Statistical Institute shows.
“A victory for President Erdogan, which now looks like the base case scenario… would be negative for Turkey’s macroeconomic stability and financial markets,” Peach added.
“We think the continuation of low interest rates, restrictive foreign currency regulations and high inflation could increase the threat [of] a severe currency crisis down the line.”
— Yusuf Gezer contributed reporting.
by tyler | May 15, 2023 | CNN, investing
President Joe Biden said over the weekend that debt ceiling negotiations were moving along and that talks between the White House and House Speaker Kevin McCarthy would resume on Tuesday.
But there is still no plan in place to avoid a default on US debt, and there are now just four days when both the House and Senate are scheduled to be in session before June 1, the date when Treasury Secretary Janet Yellen has warned the US government could run out of money.
Without swift action by Congress to raise or suspend its self-imposed borrowing limit, the country could soon be unable to pay its bills. Such a default would, in Yellen’s words, cause “an economic catastrophe.”
It would have serious ripple effects on small and medium-sized businesses. It may become more difficult to access credit, further exacerbating the challenges individuals and companies are already facing because of the banking crisis.
Before the Bell spoke with Dean Zerbe, the national managing director for Alliantgroup and former senior counsel and tax counsel to the US Senate Committee on Finance to discuss what that might look like.
This interview has been edited for length and clarity.
Before the Bell: What do the ongoing debt ceiling negotiations mean to small and medium businesses?
Dean Zerbe: There’s a significant number of small and medium businesses that are still waiting for their employee retention credit [a tax credit introduced to encourage employers to retain their employees during challenging economic times] to come back to them. The IRS has a considerable backlog — well north of a million filings are still waiting to be processed. That’s been a real lifeline for small and medium-sized businesses, often to the tune of hundreds of thousands of dollars. If the US doesn’t have money to make those payments and there are further delays that means companies won’t be able to hire or possibly even keep their doors open.
What happens if a US default collides with the crisis among regional banks?
It’s a double hit — we already see credit drying up for small and medium businesses, it’s getting tougher for them to get loans. The atmosphere has been very bad. Another way that these businesses get access to funds is through their tax refunds or through that employee retention credit. So if you’re not getting tax refunds and you’re not able to go to the bank, then there is a bit of a double whammy.
As someone who has been involved in these debt ceiling negotiations in the past, what do you think is happening behind closed doors right now?
It’s really not that difficult to get a deal done, there’s just a lot of posturing going on right now. Congress is dealing with a lot of pressure from a number of groups and everyone’s got to show that they fought for their corner. This isn’t impossible, but I do think that the White House should recognize that Republicans don’t really have a steering wheel and that a game of chicken could get really dangerous.
Do you think bank executives and members of the business community can put pressure on Congress and the White House to come to a deal?
The House Speaker is going to pick up a call from [JPMorgan CEO] Jamie Dimon and he’s going to listen to him. But then he’s going to ask ‘how many votes does Jamie Dimon have in the House of Representatives?’ He’s dealing with the barest of majorities, and he’s working on getting his caucus on board to get votes. So yes, business leaders can advise, but they’re not living in this situation. The White House needs to recognize that they can get finance CEOs to call but that’s not going to sway the House to agree to a deal.
The top consumer watchdog in the federal government has issued a warning to American families: The debt ceiling crisis could have dire consequences.
“It’s a big worry. Every family should be concerned,” Rohit Chopra, director of the Consumer Financial Protection Bureau, told CNN in an interview last week.
Chopra said a default would cause borrowing costs — including credit card, car loans and mortgage rates — to spike because US debt serves as a critical benchmark for various forms of credit, reports my colleague Matt Egan. US Treasuries have long been viewed as risk-free assets, keeping their rates very low.
“If global investors do not think that is completely safe, all of us will end up paying for it,” Chopra said.
Asked to react to former President Donald Trump dismissing a default as perhaps just a “week or bad day” to CNN’s Kaitlan Collins, Chopra declined to comment directly on political candidates. But in his response, Chopra made clear he has the exact opposite view.
“A lot of things we assume are part of our financial fabric would get ripped away,” Chopra told CNN.
Some economists have warned of mass layoffs if the government defaulted. The White House has estimated more than 8 million jobs would get wiped out if there is a protracted default.
“From our own knowledge and oversight of the banking system, we know that everyone is extremely concerned. Corporate America, main street, all of it could be affected,” Chopra said. “The impacts are really quite acute, often for those who can least weather those economic storms.”
Can pickleball, the sport that combines elements of tennis, badminton and ping-pong, save the US mall?
Venues for America’s fastest growing sport are replacing recently shuttered Bed Bath & Beyond, Old Navy, and Saks Off 5th stores, reports CNN’s Nathaniel Meyersohn.
A group called Pickleball America is taking over an 80,000 square-foot anchor space in Stamford, Connecticut, in a former two-story Saks Off 5th retail store this summer. It’s set to become one of the largest indoor pickleball venues in the United States.
The Meadows at Lake Saint Louis, an outdoor mall, plans to fill the space once occupied by Bed Bath & Beyond with a pickleball club.
A pickleball facility recently opened in a former Burlington store space at Shore Mall in New Jersey, and a pickleball club took over an Old Navy space at a New Hampshire mall.
And the first Camp Pickle, a new chain that pairs pickleball with food and drink options in a 1940s-era camp culture setting, is set to open next year in Huntsville, Alabama. It will also expand to Atlanta, Dallas and Minneapolis.
by tyler | May 12, 2023 | CNN, investing
President Joe Biden on Friday nominated economist and World Bank official Adriana Kugler to join the Federal Reserve’s powerful Board of Governors and Philip Jefferson to be the central bank’s vice chair.
If confirmed, Kugler, a Colombian-American, would be the first Latino to serve on the Fed board, marking the latest effort by Biden to improve the central bank’s diversity.
Biden, who has been under pressure from New Jersey Democratic Sen. Bob Menendez to name a Latino to the Fed, praised Kugler in a statement as a “highly qualified and respected economist with deep expertise in labor markets.”
Menendez celebrated the groundbreaking nomination at the Fed, saying in a statement: “Simply put, we are witnessing history unfold in real time.”
“We are ushering in a new chapter at the Federal Reserve, which for 109 years has never had Latinos or Latinas in the upper echelons of its leadership,” Menendez said. “We are finally giving Latinos, all 62 million of us who call this country home, a seat at the table where the most consequential decisions on monetary policy are made.”
Last year, Kugler was confirmed with bipartisan support to serve as the US executive director to the World Bank. Her name has been mentioned in media reports as a candidate to fill the open seat at the Fed created when Lael Brainard left the Fed in February to serve as the director of the White House’s National Economic Council.
Kugler, who is currently on leave from Georgetown University, previously worked in the Obama administration as the Labor Department’s chief economist. She brings to the Fed extensive research experience and expertise in labor economics. Her work has examined the role that public policies, such as unemployment benefits and minimum wages, play in labor-market outcomes.
Jefferson, who joined the Fed as a governor a year ago, has been tapped by Biden to the influential role of vice chair, serving as the No. 2 official behind Fed Chairman Jerome Powell. He joined the Fed board in May 2022, after winning broad bipartisan support during his congressional confirmation process. Jefferson has indicated support for the Fed’s aggressive approach in combating inflation in past speeches.
The Fed’s board consists of seven members, including two vice chairs; one who serves in the absence of the chairperson and another in charge of supervising and regulating financial institutions. The vice chair role was previously held by Brainard.
Jefferson’s decades-long career includes stints in economics and academia. He taught economics at Swarthmore College, Columbia University and the University of Virginia, and served as a high-ranking administrator at Davidson College. He also worked as a research economist at the Fed’s Board of Governors.
He has a bachelor’s degree in economics from Vassar College and two post-graduate degrees from the University of Virginia.
In a speech this week, Jefferson said that he believes “inflation will start to come down and the economy will have the opportunity to continue to expand.”
Biden also announced he will renominate Lisa Cook, the first Black woman to serve at the Fed, to an additional full term as Fed governor. Last year, the Senate confirmed Cook to a term that expires in January.
“These nominees understand that this job is not a partisan one, but one that plays a critical role in pursuing maximum employment, maintaining price stability and supervising many of our nation’s financial institutions,” Biden said.
Friday’s nominations underscore Biden’s intention of elevating individuals with diverse backgrounds to key government posts.
Ohio Democratic Sen. Sherrod Brown, chairman of the Senate Banking Committee, praised Biden’s Fed nominees as people who “reflect the vibrant diversity of our country, and the people who make it work.”
“These historic nominees have built their careers by putting workers and communities at the center of our economy,” Brown said.
South Carolina Sen. Tim Scott, the top Republican on the Banking Committee, said he looks forward to “thoroughly vetting these nominees and determining if they are equipped to address our nation’s economic challenges.” Scott added that it’s critical during today’s period of high inflation that Fed nominees are “exceptionally qualified.”
