U.S. Consumer Prices Flat in November U.S. consumer prices were flat in November, weighed down by a drop in gas prices, although the broader trend of underlying inflation showed signs of firming amid rising services costs.
The consumer-price index, which measures what Americans pay for everything from breakfast cereal to college tuition, was unchanged in November after rising a seasonally adjusted 0.2% in October, the Labor Department said Tuesday. Excluding the volatile food and energy categories, so-called core prices rose 0.2%, the same pace of growth as in October and September.
Over the year, overall prices rose 0.5%, the largest 12-month increase since December 2014. Prices were largely held down over the past year by a 14.7% year-over-year decline in energy prices. Core prices were up 2% on the year, the largest 12-month increase since May 2014, driven by rising housing costs.
U.S. brands tap European auto recovery as Volkswagen left behind European car sales rose 13.7 percent in November, according to industry data published on Tuesday, with U.S. brands recording strong gains as Volkswagen continued to pay the price of its diesel emissions test-rigging scandal.
The big news here is that car sales rose 13.7%!
Blame the weather: oil prices
Environmentalists may argue that the beginning of the end of the fossil-fuel era, heralded (perhaps) by the climate-change agreement in Paris this weekend, has helped deepen the rout in global oil markets. But a bigger culprit is another sort of warming: mild winter weather in the northern hemisphere. Over-production by OPEC’s disintegrating cartel has already sent crude below $40 a barrel, but natural-gas prices in America are also near 14-year lows, and heating-oil futures have tumbled. Storage tanks are overflowing. For producers, the pain is ubiquitous: countries whose budgets depend on oil revenues are squealing; so are unhedged oil and gas firms dependent on bank borrowing. A Federal Reserve interest-rate rise, expected on Wednesday, could deepen the gloom. If, around the same time, America scraps a 40-year oil-export ban, oilmen’s winter woes will deepen further. Energy users, and fans of free markets, have plenty of holiday cheer. The Economist)
Wells Fargo warns of energy ‘stresses’ Bank in talks with clients to cut borrowing limits
The head of corporate banking at Wells Fargo, the biggest bank in the world by market capitalisation, has warned of “stresses” in its energy portfolio, as the ongoing slump in the price of oil begins to weigh heavily on servicers and producers.
Kyle Hranicky, who spent nine years at the helm of the Houston-based Wells Fargo Energy Group before rising to head the corporate banking division in May, said that the bank had been in discussions with clients for several months about preserving cash and cutting borrowing limits. (…)
“We’ve been in the energy business for over 30 years, so we’re comfortable with cycles. But this one feels deeper and broader and could last longer.” (…)
Overall, loan books at the big US banks are still in decent shape. Keefe, Bruyette & Woods expects net charge-offs (NCOs) as a proportion of loans to fall next year, from an average of 0.61 per cent to 0.59 per cent, at Bank of America, Citigroup, JPMorgan Chase and Wells. That group’s average NCOs had peaked at 3.43 per cent in 2009 and 2010.
But at a conference in New York last week, BofA chief executive Brian Moynihan noted that some energy loans had moved to “classified” status — and thus in danger of default — while Andy Cecere, chief operating officer at US Bancorp, the number five lender by assets, said the bank had seen a “modest uptick” in net charge-offs, largely related to energy.
Dallas-based Comerica, one of the banks most exposed to energy, said that it was “carefully monitoring” its energy portfolio but had not seen any losses in its direct exposures. It noted that many of its clients continue to have access to capital markets as well as significant hedges in place throughout next year, which would help offset a prolonged slump in prices. (…)
(…) “I’ve been in the oil business all my life. I saw six cycles – I saw very high price, I saw low price, and this is one of them. This will not continue,” Badri said at the first OPEC-India Energy dialog in New Delhi.
“In a few months or a year or so this will change,” he said. (…)
Oil output could decline in the next two to three years as low prices have resulted in a planned $130 billion in investment being cut this year, Badri said, adding that non-OPEC supplies are set to decline by about 400,000 bpd next year. (…)
(…) The latest such forecast came from Maxim Oreshkin, Russia’s deputy finance minister, who says he expects oil to sell for no more than $40 to $60 per barrel for the next seven years, and that Moscow is adjusting its budget planning accordingly, given that half the country’s annual budget relies on revenues from oil and gas sales.
“In our estimates, one should hardly expect any serious growth of the oil price above $50,” Oreshkin told a breakfast forum hosted by Russian newspaper Vedomosti on Friday. “The oil industry is changing structurally and it may happen that … the global economy will not need that much oil.”
“Therefore we see a range from $40 to $60 somewhere for the next seven years,” Oreshkin said. “And these are the prices we should base our macroeconomic policy on.” They also must take into account the pressure on Russia’s economy brought by Western sanctions imposed because of Moscow’s annexation of Ukraine’s Crimean peninsula and its role in the country’s internal conflict.
The Finance Ministry’s first step, he said, will be to address an expected deficit of 3 percent for the country’s 2016 fiscal year because his ministry forecasts that the average global price of oil will remain where it has been for the past few months, between $40 and $50 per barrel. In fact, the world’s two international benchmarks, Brent crude and West Texas Intermediate, recently dipped below $40.
Specifically, Oreshkin said his country’s deficit forecast for fiscal 2016 is $21.7 billion if the price of oil remains around $40 per barrel for the next year. (…)
As China Dream Fades, Workers Fight Back For workers like Li Jiang, China’s factory closings represent a failed promise, the fraying of a social compact in which migrants accepted grueling shift work for the promise of a better future.
(…) The Hong Kong-based civic group China Labour Bulletin says strikes and labor protests nationwide nearly doubled in the first 11 months of 2015 to 2,354 from 1,207 in the same 2014 period. China’s labor ministry says 1.56 million labor-dispute cases were accepted for arbitration and mediation in 2014, up from 1.5 million in 2013. (…)
The number of factories owned by Hong Kong companies in southern Guangdong province, where Shenzhen is located, fell by a third to 32,000 in 2013 from a 2006 peak, according to an analysis by Justina Yung of Hong Kong Polytechnic University for the Federation of Hong Kong Industries, a trade group. (…)
Chinese researchers and business executives say chances are rising that the Communist government may face the kind of social unrest that it has long feared. Chinese authorities recently detained and interrogated over a dozen labor activists, mainly in Guangdong. (…)
Increasingly heated are labor disputes involving older, less-educated workers with limited job options, says Mr. Molloy, the crisis-management consultant. He advises clients—Western companies and a few Chinese multinationals—to lock factories, evacuate executives and ensure production can continue elsewhere before delivering bad news to workers.
“They’re increasingly desperate,” he says of older workers. “They’re not going to get another job.” (…)
There is also this:
(…) Guo Guangchang, chairman of Shanghai-based conglomerate Fosun International — known as China’s Warren Buffett — penned these words last year in a Guide-to-getting-rich-in-China-without-ending-up-in-jail. He has just been released after four days “assisting” police with an investigation into — no one quite knows what. No one knows where he was, or why he was allowed to leave (or what it was all about anyway). It seems the government found a way to “mess” with him after all. (…)
Fosun executives gave an entire press conference on Sunday night without saying anything clearly about that — though Fosun later told some foreign business partners that he was not the target and the probe was just “political”, as though that is any consolation in China.
It’s also not clear whether his disappearing act is over for good — and the Shanghai police have found it inconvenient to answer their phones for days, so there’s no risk of them clarifying anything. Some stories about the episode have disappeared from local media and transcripts of the Fosun press conference have even been deleted from some websites. Maybe the government thinks we’ll all forget that one of China’s richest and most internationally prominent businessmen disappeared for four days and no one knows why. Perhaps they want to disappear all evidence that they disappeared him. (…)
If the man whose company owns Club Med and vast tracts of the centre of Shanghai, not to mention one of the most famous buildings in Manhattan, isn’t safe, then what Chinese tycoon is? Could we one day be reading headlines about Alibaba’s Jack Ma going missing, perhaps even in the newspaper he has just announced he is buying, the South China Morning Post?
“If this was anywhere else in the world, [Guo] would be out in front of the cameras telling how this is an outrage,” says Fraser Howie, co-author of Red Capitalism . “But this is China. He is staying quiet.” (…)
I should have known better: an alarmingly high proportion of those I have interviewed in China are no longer free to answer questions. My inaugural interview with a Chinese tycoon was in 2008, when an FT team spoke to home appliance mogul Huang Guangyu, who was at the time China’s richest man. Shortly after the interview he was arrested and has been in jail ever since.
Then there was Wang Zongnan, head of Bright Food, the company that bought Weetabix and tried to nab Yoplait and United Biscuits. We interviewed him in 2011. Now he’s been sentenced to 18 years for bribery and embezzlement — and Mr Guo was linked to him in the court transcripts.
Mr Guo’s detention may have everything or nothing to do with that. It may even have nothing to do with Mr Guo. But the message could not be more damaging, to him, to his company, and to China. The government can “mess” with you. However good you are.
‘Adjusted’ Earnings Cloud Corporate Results Pro forma results, that favorite financial obfuscation of the dot-com era, are making a comeback—with a notable adjustment.
(…) These adjusted measures paint a rosier picture of corporate earnings. Without them, third-quarter earnings per share fell 13% for the biggest U.S. companies, according to Deutsche Bank research, instead of falling 0.1% with them.
About one in 10 major securities filings this year used the term adjusted Ebidta—or adjusted earnings before interest, taxes, depreciation and amortization—up from one in 40 a decade ago. About a quarter of earnings-related filings this year included figures that don’t comply with generally accepted accounting principles, or GAAP, as well as more standard measures, according to a Wall Street Journal analysis of 10-K, 10-Q and 8-K filings. (…)
The result, however, is a new yardstick with no standard accounting definition and, often, little comparability to other companies or even other time periods.
“Non-GAAP measures are used extensively and in some instances may be a source of confusion,” Mary Jo White, chair of the Securities and Exchange Commission said at a conference last week. “This area deserves close attention.” (…)
Adjustments allow companies to strip out such expenses as asset write-downs or the effects of foreign-currency moves that executives and many investors consider to be outside a company’s most fundamental operations. Companies also often omit results from newly opened and recently closed stores to better reflect ongoing operations. (…)
“There are those that use it as a way to take out nonrecurring type of items to help people understand how the business works,” said T.C. Robillard, vice president of investor relations at Hanesbrands. “Then there are companies out there like anything else in life that go out and misuse it.” (…)
The difference between standard and adjusted earnings is growing. Deutsche Bank equity strategist David Bianco said he expected the gap to widen to 40% in the fourth quarter, from 20% or 30% in recent periods. He blamed lackluster operating results, with sales likely to fall 4% this year for companies in the S&P 500 index.
“There is a lot of concern about companies doing everything they can to keep earnings from going negative,” Mr. Bianco said. (…)
Somewhat biased piece. Here’s the chart from S&P since 1988
The current gap between Reported and Operating on a trailing 12 months basis is within the historical band.
The bulk of the gap comes from energy companies recording asset impairment charges due to low prices. According to S&P calculations, the gap will be closing starting in Q4’15 when reported EPS are expected to jump 21% vs 9% for operating EPS. By the end of 2016, S&P shows reported TTM EPS 6.4% below Operating EPS.