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  • The US dollar is at a crossroads | CNN Business

    The US dollar is at a crossroads | CNN Business

    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    Wall Street investors are reaching for their neck braces in preparation for yet another volatile swing in stock markets: A surging US dollar.

    The greenback — which is not just the dominant global currency but also “the key variable affecting global economic conditions,” according to the New York Federal Reserve — reached a 20-year high last year after the Fed turned hawkish with its aggressive rate hikes.

    Since then, inflation seemed to have softened, pushing the dollar down. But in recent weeks, as a slew of economic data has shown the Fed’s inflation battle is far from over, the currency soared by about 4% from its recent lows, and now sits near a seven-week high.

    Investors are stressing about this sudden rebound, since a stronger dollar means American-made products become more expensive for foreign buyers, overseas revenue decreases in value and global trade weakens.

    Multinational companies, naturally, aren’t thrilled about any of this. And around 30% of all S&P 500 companies’ revenue is earned in markets outside the US, said Quincy Krosby, chief global strategist for LPL Financial.

    What’s happening: The US dollar “finds itself at a significant crossroads yet again,” said Krosby. “While the Fed remains steadfastly data dependent, the dollar’s course as well remains focused on inflation and the Fed’s monetary response.”

    “The strong US dollar has been a headwind for international earnings and stock performance (for US investors),” wrote Wells Fargo analysts in a recent note.

    February was a rough month for markets: The Dow ended February down 4.19%, the S&P 500 fell 2.6% and the Nasdaq lost just over 1%.

    What’s next: Investors are clearly focused on the next Fed policy meeting, which is still three weeks away, for signals about the direction of rates. But until then, investors may gain some insight Tuesday when Fed Chairman Jerome Powell speaks before the Senate Banking Committee.

    They’ll also be watching next Friday’s jobs report for any softening in the labor market that could temper the Fed’s hawkish mood.

    Don’t forget the debt ceiling: Another significant threat to the dollar is looming in Congress — the ongoing debt ceiling fight. The United States could start to default on its financial obligations over the summer or in the early fall if lawmakers don’t agree to raise the debt limit — its self-imposed borrowing limit — before then, according to a new analysis by the Bipartisan Policy Center.

    That could potentially lead to a disastrous downgrade to America’s credit rating and could send the dollar spiraling as investors start to sell off their US assets and move their money to safer currencies.

    “It would certainly undermine the role of the dollar as a reserve currency that is used in transactions all over the world. And Americans — many people — would lose their jobs and certainly their borrowing costs would rise,” Treasury Secretary Janet Yellen told CNN in January.

    ▸ A lot has changed in the last twenty years. The gender pay gap hasn’t.

    In 2022, US women on average earned about 82 cents for every dollar a man earned, according to a new Pew Research Center analysis of median hourly earnings of both full- and part-time workers.

    That’s a big leap from the 65 cents that women were earning in 1982. But it has barely moved from the 80 cents they were earning in 2002.

    “Higher education, a shift to higher-paying occupations and more labor market experience have helped women narrow the gender pay gap since 1982,” the Pew analysis noted. “But even as women have continued to outpace men in educational attainment, the pay gap has been stuck in a holding pattern since 2002, ranging from 80 to 85 cents to the dollar.”

    ▸ Initial jobless claims, which measures the number of people who filed for unemployment insurance for the first time last week, are due out at 8:30 a.m. ET on Thursday.

    This will be the last official jobs data investors see before February’s heavily anticipated unemployment report next Friday.

    Economists are expecting 195,000 Americans to have filed for unemployment, which is higher than the seasonally adjusted 192,000 who applied two weeks ago.

    Initial claims have come in lower than expected in recent weeks and remain well below their pre-pandemic levels.

    The white-hot labor market in the US added more than 500,000 jobs in January, blowing analysts’ expectations out of the water and bringing the unemployment rate to its lowest level since May of 1969.

    That’s bad news for the Federal Reserve where policymakers have been attempting to tame inflation by cooling the economy through painful interest rate hikes.

    ▸ It’s a big day for groceries. Kroger (KR), Costco (COST) and Anheuser-Busch (BUD) all report earnings on Thursday.

    Investors will be watching closely for clues about consumer sentiment during an uncertain retail earnings season. On Tuesday, Kohl’s reported that it had a rough holiday season and executives at the company put the blame on inflation. The company said higher prices squeezed sales and forced it to mark down some products to entice shoppers — which hurt its profit margin.

    Those comments echoed those of other big box retailers like Walmart (WMT) and Target (TGT), who have said consumers are feeling the pinch of inflation.

    Still, Target and Walmart’s bottom lines were bolstered by food sales even as consumers pulled back on discretionary purchases.

    The US Senate voted on Wednesday to overturn a Biden administration retirement investment rule that allows managers of retirement funds to consider the impact of climate change and other ESG factors when picking investments.

    As my CNN colleagues Ali Zaslav, Clare Foran and Ted Barrett write: The rule is not mandated – it allows, but does not require, the consideration of environmental, social and governance factors in investment selection.

    Republicans complained that the rule is a “woke” policy that pushes a liberal agenda on Americans and will hurt retirees’ bottom lines.

    “This rule isn’t about saying the left or the right take on a given environmental, social, or governance issue is ‘correct,’” countered Senator Patty Murray (D-WA) on the Senate floor Wednesday. “It’s about acknowledging these factors are reasonable for asset managers to consider.”

    The measure will next go to President Joe Biden’s desk as it was passed by the House on Tuesday. The administration, however, has issued a veto threat. As a result, passage of the resolution could pave the way for Biden to issue the first veto of his presidency.

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  • UK house prices post sharpest fall since 2012 as high mortgage rates hurt | CNN Business

    UK house prices post sharpest fall since 2012 as high mortgage rates hurt | CNN Business


    London
    CNN
     — 

    UK house prices last month saw their biggest annual decline since November 2012, in the latest indication of the lasting pain that former Prime Minister Liz Truss’s ill-fated “mini” budget inflicted on Britain’s property market.

    The average price of a house fell 1.1% to £257,406 ($310,000) in February compared with a year earlier, taking UK house price growth into negative territory for the first time since June 2020, lender Nationwide said Wednesday.

    House prices have now declined for six months in a row and are 3.7% below their August 2022 peak, according to Nationwide’s index based on purchases involving a mortgage.

    “The recent run of weak house price data began with the financial market turbulence in response to the mini budget at the end of September last year,” Nationwide’s chief economist Robert Gardner said in a statement.

    “While financial market conditions normalized some time ago, housing market activity has remained subdued,” reflecting “the lingering impact on confidence, as well as the cumulative impact of the financial pressures that have been weighing on households for some time,” he added.

    The “mini” budget unveiled in September by Truss and then-finance minister Kwasi Kwarteng collapsed UK bond prices, sent borrowing costs soaring and sparked chaos in the mortgage market, as lenders withdrew hundreds of products, and deals fell through.

    “The economy has largely moved on from the mini budget, but the hangover for the UK housing market is more prolonged. We’re still seeing the effects of higher mortgage rates in the last three months of last year,” said Tom Bill, head of UK residential research at broker Knight Frank.

    Surging food and energy costs alongside feeble pay growth have also taken a bite out of household budgets, weighing on consumer confidence and housing market activity.

    “Inflation has continued to outpace wage growth, and mortgage rates remain significantly higher than the lows recorded in 2021,” said Gardner at Nationwide. “Even though consumer sentiment has improved in recent months, it is still languishing at levels prevailing during the depths of the financial crisis.”

    According to Bill, activity since Christmas has been “solid” but prices still have further to fall. He expects a decline of 5% this year.

    “House prices are 20% higher than they were before the pandemic and we expect around half of this to unwind over the next two years as buyers revise down their budgets,” Bill said.

    Mortgage rates have started to fall but recent stronger-than-expected UK economic data could lead the Bank of England to keep interest rates higher for longer, causing the downward drift in mortgage rates to “stall,” he told CNN. “That’s something we’re keeping an eye on.”

    — This is a developing story and will be updated.

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  • Pending home sales blew past expectations last month as buyers pounced on lower rates | CNN Business

    Pending home sales blew past expectations last month as buyers pounced on lower rates | CNN Business


    Washington, DC
    CNN
     — 

    Pending home sales crushed expectations in January, when mortgage rates dropped from recent highs of more than 7% and home buyers jumped at the opportunity.

    According to data released Monday from the National Association of Realtors, it was the largest monthly sales increase since June 2020.

    The pending sales index, based on signed contracts to buy a home rather than the final sales that are accounted for in existing home sales, rose by 8.1% from December to January, beating economists’ predictions for a rise of 1%. January’s jump followed a downwardly revised 1.1% rise in December.

    “Buyers responded to better affordability from falling mortgage rates in December and January,” said Lawrence Yun, chief economist at NAR.

    But since then, mortgage rates have risen again, climbing almost half a percentage point since the beginning of February, according to Freddie Mac.

    “Mortgage rates took a breath in December and January before resuming their climb in February, reaching 6.5%, the highest level of the new year,” said Hannah Jones, an economic data analyst at Realtor.com.

    At the current mortgage rate, the monthly payment on a median-priced home is about 45% higher — or $630 more — than it was at the same time last year, she said. “Many buyers are still holding off, waiting to see if prices or rates give a bit before getting into the market.”

    Last year’s persistent increase in both mortgage rates and home prices pushed many would-be home purchasers out of the market, said Jones. This resulted in a slowing of new homes in the building pipeline and fewer sellers listing their homes, which limited options for buyers still in the market.

    “New listings were at the lowest level in the last six years in January as sellers stayed on the sidelines, waiting to see buyers return, before placing their homes for sale,” said Jones. “However, the first month of the year brought glimmers of hope as year-over-year declines in both existing and new home sales slowed, and buyer sentiment improved slightly.”

    While home sales were down by 24.1% from the still-hot market of a year ago, activity appears to be bottoming out in the first quarter of this year, before incremental improvements will occur, Yun said.

    “An annual gain in home sales will not occur until 2024,” said Yun. “Meanwhile, home prices will be steady in most parts of the country with a minor change in the national median home price.”

    All regions saw a month-to-month increase in pending home sales, with the Northeast up 6%, the Midwest up 7.9%, the South up 8.3% and the West up 10.1%.

    “An extra bump occurred in the West region because of lower home prices, while gains in the South were due to stronger job growth in that region,” Yun said.

    Home prices are dropping fastest in areas where prices ran up the most in the frenzied market of the past few years.

    But overall, the number of home sales are expected to drop this year, according to NAR’s forecast.

    NAR anticipates the economy will continue to add jobs throughout this year and next, with the 30-year fixed mortgage rate steadily dropping to an average of 6.1% in 2023 and 5.4% in 2024.

    Even with an improving interest rate environment and job gains, Yun still expects annual existing-home sales to drop about 11% this year from last year, before jumping up about 18% in 2024. NAR projects new-home sales will fall about 4% this year compared with last year before surging nearly 20% in 2024.

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  • Union Pacific CEO to leave after push from activist shareholder | CNN Business

    Union Pacific CEO to leave after push from activist shareholder | CNN Business


    New York
    CNN
     — 

    Union Pacific shares jumped 10% in premarket trading Monday after the railroad company announced CEO Lance Fritz will leave the company by year-end, following a call by an activist hedge fund for his ouster.

    Union Pacific just reported a record profit for the second straight year. But the hedge fund, Soroban Capital Partners, put out a statement saying that Fritz had lost the confidence of “shareholders, employees, customers, and regulators.”

    “UNP’s total shareholder return has been the worst in the industry,” said Soroban’s letter to the board. “Among all S&P 500 companies, UNP is rated by employees as the worst place to work and has the lowest employee CEO approval rating (ranked 500th out of 500 in both),” said the letter. And it said that the Surface Transportation Board, one of the regulators of freight railroads, ranked Union Pacific as providing the worst service among the major railroads.

    Soroban only owns about 1% of Union Pacific’s shares.

    “It is my honor and privilege to serve this great company. I am proud of our team and all we have built together,” said Fritz in a statement. “Union Pacific has been my home for 22 years and I am confident that now is the right time for Union Pacific’s next leader to take the helm.”

    Union Pacific said its process of looking for a new CEO had been ongoing for a year and that it decided to make a public statement in light of Soroban’s public call for a change.

    “The Board is grateful to Lance for his unwavering leadership, dedication and oversight in driving our company forward over the last eight years as CEO. Lance created an environment that has allowed Union Pacific to make a measurable impact with our customers, communities and employees alike,” said Michael McCarthy, lead independent director of the Board. “He has capably led our company during a time of significant challenge and change.”

    But, overall, the level of service and on-time performance in the freight railroad industry has been declining for years, as the railroads attempted to trim costs and staffing.

    Despite the industry’s record profits, stocks in major freight railroads have lagged other sectors. Shares of Union Pacific

    (UNP)     are down about 20% over the last 12 month through Friday’s close, even with a rebound in share price so far in 2023. That’s worse than the drop in share price at other major railroads like Norfolk Southern

    (NSC)     and CSX

    (CSX)    .

    As far as employee relations, Union Pacific was seen as a leader among freight railroads in contentious labor negotiations last year that would have resulted in an economy-crippling strike had Congress not stepped in and imposed an unpopular contract. The contract granted employees an immediate 14% raise, including back pay, but denied them the paid sick days they had sought.

    Union Pacific and other railroads argued during the negotiations that it couldn’t afford to meet union demands for paid sick days, even though the unions estimated it would cost the entire industry $321 million a year at a time when the railroads are each making billions of dollars in profits.

    Union Pacific last year earned a net income of $7 billion, up about $500 million, or 7%, from the previous record profit it posted for 2021. Total employee compensation for the year came to $4.6 billion, far less than the $6.3 billion that Union Pacific spent repurchasing shares of stock in the period.

    Last week, Union Pacific reached an agreement with two of its smaller unions granting their members up to four sick days a year, as well as greater flexibility to use three personal days as sick days without prior notice and approval.

    “We will continue to work with other unions to address paid sick time solutions,” according to the company’s statement on sick pay last week. The move came after another major railroad, CSX, reached deals granting sick days with six of its unions. UP did act before a third railroad, Norfolk Southern, reached a deal with one of its unions on sick days in the wake of a major train derailment in East Palestine, Ohio, which released toxic materials into the area.

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  • Economists’ crystal balls are growing cloudier. But they still expect a recession | CNN Business

    Economists’ crystal balls are growing cloudier. But they still expect a recession | CNN Business


    Minneapolis
    CNN
     — 

    The US economy is confusing: Jobs are surging. Inflation has been cooling but still running relatively hot. Gas prices are on the rebound. Consumers keep spending, and their confidence is growing. But holiday sales were tepid. Corporate layoffs are mounting. Company earnings aren’t stellar. And mortgage rates are ticking higher.

    In a time when the economic data has delivered mixed messages or flat out busted expectations, economists’ predictions for the year ahead are growing increasingly opaque.

    The National Association for Business Economics’ latest survey, released Monday, shows a “significant divergence” among respondents about where they think the US economy is heading in 2023, the organization’s president said.

    “Estimates of inflation-adjusted gross domestic product or real GDP, inflation, labor market indicators, and interest rates are all widely diffused, likely reflecting a variety of opinions on the fate of the economy — ranging from recession to soft landing to robust growth,” Julia Coronado, NABE’s president, said in a statement.

    Nearly 60% of survey respondents said they believe the US had a more than 50% shot of entering a recession in the next 12 months.

    When such a recession would start was another matter: 28% said first quarter, 33% said second quarter, and 21% said third quarter.

    As the Federal Reserve’s battle against high inflation continues to loom large, economists anticipate that key inflation gauges will slow this year, landing around 2.7% to 3% in 2023 and inching closer to the 2% target by 2024.

    Creating some uncertainty among economists, however, is what the Fed might do during that time as well as the potential effect from external factors.

    “Panelists’ views are split regarding how high the Federal Reserve may raise interest rates, how long rates might stay at the peak, when cuts would begin, and what would signal the central bank’s actions on each of these fronts,” Dana M. Peterson, NABE Outlook Survey chair, and chief economist at the Conference Board, said in the report. “Respondents are also highly concerned but divided in their opinions regarding the consequences of other matters that might affect the US economy, including the impact of China’s reopening on global inflation and the looming debt ceiling.”

    In terms of the labor market, which remains strong and tight, panelists’ median projections for monthly payroll growth this year was 102,000, a significant upward revision from projections in December for 76,000 jobs per month.

    NABE economists said they expect unemployment to increase, but the majority doubt it’ll exceed 5%.

    On the housing front, they expect home prices and new home construction to continue to fall this year, projecting that housing starts could see their largest decline since 2009.

    But they don’t anticipate the downturn to swing into “bust” territory. A mere 2% of respondents said that a “housing market bust” was the greatest downside risk to the US economy in 2023.

    Instead 51% of respondents said the biggest downside risk was too much monetary tightening. Trailing far behind in second was the broadening of war in Ukraine, with 12%.

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  • Inflation is doing a crab walk and Fed officials fear its pinch | CNN Business

    Inflation is doing a crab walk and Fed officials fear its pinch | CNN Business

    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    The possibility of a 2023 market rally ground to a halt last week amid an onslaught of unfortunate inflation and economic data that spooked investors and increased the likelihood that the Federal Reserve will continue its economically painful rate hikes campaign for longer than Wall Street hoped.

    All major indexes notched their largest weekly losses of 2023 on Friday. The S&P 500 fell by 2.7%. The Dow Jones Industrial Average sank 3%, and the tech-heavy Nasdaq fell 3.3%.

    What’s happening: It appears that after months of steady decline, the pace of inflation is going sideways. January’s Personal Consumption Expenditures price index – the Fed’s favored inflation gauge – came in hotter than expected on Friday.

    Prices rose a whopping 5.4% in January from a year earlier, the Commerce Department’s Bureau of Economic Analysis reported. In December, prices rose 5.3% annually.

    In January alone, prices were up 0.6% from the prior month, a higher monthly gain from December’s increase of 0.2%.

    This inflationary crab walk is almost certainly causing Fed officials to rethink their policy.

    A paper presented Friday at the Booth School of Business Monetary Policy Forum in New York argued that disinflation will likely be slower and more painful than markets anticipate.

    “Significant disinflations induced by monetary policy tightening are associated with recessions,” said the paper. “An ‘immaculate disinflation’ would be unprecedented.” (Immaculate, in this instance, refers to the possibility of inflation falling quickly to the Fed’s 2% goal without any serious economic damage).

    Several Fed presidents, governors and top economists were on hand at the Booth School forum to discuss the paper and monetary policy on Friday. The majority of those speaking expressed deep concern about the stubbornness of inflation and general market reaction.

    Inflation won’t quit: Cleveland Fed President Loretta Mester said that while price growth has moderated from its recent high, the overall pace of inflation remains too high and could be more persistent than her colleagues currently anticipate.

    “I anticipate further rate increases to reach a sufficiently restrictive level, then holding there for some, perhaps extended, time,” echoed Boston Fed President Susan Collins at the conference.

    Collins referred to inflation as “recalcitrant,” a loaded million-dollar word that means uncooperative, or defiant to authority.

    Fed Governor Philip Jefferson struck a more befuddled stance on Friday, observing that inflation continues to baffle economists. “The inflationary forces impinging on the US economy at present represent a complex mixture of temporary and more long-lasting elements that defy simple, parsimonious explanation,” he said. Parsimonious being another million-dollar word for frugal.

    Economists stressed that more pain lies ahead. “It’s important that markets understand that ‘no landing’ is not an option,” said Peter Hooper, vice chair of research at Deutsche Bank, an author of the report.

    While recent data has signaled that the US economy remains strong, “by the time we get to the middle of this year we expect to see some bad news coming and the sooner the markets get that message the more helpful it will be to the Fed,” he said.

    The final word: Former Bank of England Governor Lord Mervyn King summed up what many were thinking on Friday: Given the complexity of the current monetary situation, he said, “I wouldn’t want to give advice to any central banks about what we should do.”

    Researchers at the Federal Reserve Bank of New York have issued a dire warning: If President Joe Biden’s student loan forgiveness plan doesn’t come to fruition, the US could face another credit crisis.

    Some background: The Covid-19 crisis triggered a sudden shift in student loan policy and a new openness to forgiveness. In March 2020, Congress passed the CARES Act, which automatically paused required payments on all federally held student loans.

    That forbearance has since been extended eight times and is set to end as late as August, 40 months after it began.

    The Biden Administration had announced an unprecedented debt cancellation proposal which would provide relief to more than 40 million borrowers. An analysis by the New York Fed found that roughly $441 billion of federal student loans are eligible for forgiveness under the proposal, canceling about 30% of all outstanding federal student loan debt.

    That forgiveness proposal is now on hold after an injunction by the 8th US Circuit Court of Appeals. On Tuesday, The Supreme Court of the United States will hear the case with its decision expected by June 2023.

    What’s on the line: If the Biden Administration’s forgiveness plan survives the court challenge, it will mark the largest mass discharge of consumer debt in modern history, according to the New York Fed. About 40% of those with federal student loan debt would have a zero balance; even more would have a much smaller monthly payment.

    But, “if payments resume without debt relief, we expect both student loan default and delinquencies to rise and potentially surpass pre-pandemic levels,” warned Fed researchers.

    “We note a stark increase in new credit card and auto loan delinquency for borrowers with eligible student loans over the past few quarters, growing at a faster pace than those without student loans and those with ineligible loans,” they wrote.

    Those missed payments suggest that some federal student loan borrowers are having trouble meeting their monthly debt obligations. “We expect these delinquency patterns to worsen if federal student loan payments resume without relief,” said the report.

    The data “may be suggestive of problems to come, a sign of economic distress that may appear particularly concerning when the burden of student loan payments resumes.”

    Future concerns: If student loan borrowers expect future debt cancellation, they may borrow even more, said researchers, which would increase debt balances even more sharply. “Absent direct policies to address this growing burden, taxpayers may be again called to for relief in the future,” they concluded.

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  • DOJ seeks court sanctions against Google over ‘intentional destruction’ of chat logs | CNN Business

    DOJ seeks court sanctions against Google over ‘intentional destruction’ of chat logs | CNN Business


    Washington
    CNN
     — 

    Google should face court sanctions over “intentional and repeated destruction” of company chat logs that the US government expected to use in its antitrust case targeting Google’s search business, the Justice Department said Thursday.

    Despite Google’s promises to preserve internal communications relevant to the suit, for years the company maintained a policy of deleting certain employee chats automatically after 24 hours, DOJ said in a filing in District of Columbia federal court.

    The practice has harmed the US government’s case against the tech giant, DOJ alleged.

    “Google’s daily destruction of written records prejudiced the United States by depriving it of a rich source of candid discussions between Google’s executives, including likely trial witnesses,” the filing said.

    “We strongly refute the DOJ’s claims,” Google

    (GOOGL)     said in a statement. “Our teams have conscientiously worked for years to respond to inquiries and litigation. In fact, we have produced over 4 million documents in this case alone, and millions more to regulators around the world.”

    The federal government’s call for sanctions adds to the pressure Google faces as it battles antitrust suits on multiple fronts, and highlights a rare move by prosecutors.

    Through a setting in its chat software, Google employees can save chat history for up to 18 months — but only if the setting is manually enabled, the US government said in its filing, adding that Google routinely trained and encouraged employees to discuss sensitive topics over chat messages they knew would be auto-deleted the next day.

    The filing cites several attached exhibits in which Google employees, sensing that a conversation was about to stray into sensitive territory, suggested that the discussion continue on the chat platform, with history turned off.

    The government’s filing follows a similar sanctions motion against Google by Epic Games, maker of the hit video game “Fortnite,” in a separate antitrust case related to Google’s app store. The two sides faced off in an evidentiary hearing last month; on Feb. 15, the judge in the case ordered Google to produce more chat messages.

    Thursday’s DOJ filing also cites the Epic evidentiary hearing, saying that it proved Google destroyed records of at least nine individuals who were each considered potential trial witnesses, and that the federal judge overseeing that case agreed the chats could have contained relevant evidence but that Google “did not systematically preserve those chats.”

    “Google admitted that — for litigations spanning the past five years — it has never preserved all chats for relevant individuals by turning chat history on,” the DOJ filing said.

    It was not until earlier this month that Google agreed to preserve the chats, the filing alleged, after failing to disclose to prosecutors its practice of deleting history-off chats after 24 hours.

    It is not the first time DOJ has tussled with Google over evidence. Last year, in the same case, the agency asked the court to sanction Google for a program known as “Communicate with Care,” in which the company allegedly trained employees to copy lawyers on emails as a way to claim attorney-client privilege on communications that were business sensitive but did not seek legal advice and did not merit confidentiality.

    While Judge Amit Mehta declined to issue sanctions at the time, he ordered that all of the emails in question be re-reviewed.

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  • Norfolk Southern is paying $6.5 million to derailment victims. Meanwhile, it’s shelling out $7.5 billion for shareholders | CNN Business

    Norfolk Southern is paying $6.5 million to derailment victims. Meanwhile, it’s shelling out $7.5 billion for shareholders | CNN Business


    New York
    CNN
     — 

    Norfolk Southern CEO Alan Shaw pledged Tuesday the freight railroad will spend $6.5 million to help those affected by the release of toxic chemicals from its derailment nearly three weeks ago in East Palestine, Ohio. But in a plan released earlier this year, the company said it’s planning to spend more than a thousand times that amount — $7.5 billion — to repurchase its own shares in order to benefit its shareholders.

    The company spent $3.4 billion on share repurchases last year, and $3.1 billion in 2021, bringing its recent share repurchases to $6.5 billion. That towers over what it said is its financial commitment to East Palestine, which it said exceeds $6.4 million in direct aid to families and government agencies, in addition to what will be required in cleanup costs.

    There is no estimate as to the total cost to Norfolk Southern from the derailment, including the cost of cleanup that the Environmental Protection Agency says will be the railroad’s responsibility.

    It’s not clear how much of the accident’s cost will fall on Norfolk Southern. The company revealed Wednesday during a conference call with investors that it has as much as $1.1 billion worth of liability insurance coverage that it can draw upon to compensate third parties for losses caused by the accident. It also has about $200 million worth of insurance coverage to cover damage to its own property, such as tracks or equipment.

    In March 2022, Norfolk Southern

    (NSC)     announced a new $10 billion share repurchase plan. Its latest annual financial report, filed just hours before the derailment this month, shows that it still had $7.5 billion available to buy additional shares under that repurchase plan as of December 31.

    Norfolk Southern did not respond to questions Wednesday on whether it expects to change its share repurchase plans in the wake of the derailment.

    The company also returned an additional $1.2 billion to shareholders in the form of dividend payments in 2022, and $1 billion in 2021, bringing total payments to shareholders to $4.6 billion last year and $4.1 billion in 2021.

    The shareholders did much better than the company’s 19,000 employees. Total employee compensation in 2022 came to $2.6 billion, up from $2.4 billion in 2021.

    The amount that Norfolk Southern and other major freight railroads are spending on shareholders got a lot of attention in December, when they successfully fought a move in Congress to require them to give hourly workers at least seven sick days a year as part of a labor contract imposed on the industry by Congress in order to avoid an economically crippling rail strike. And it’s getting new attention in the wake of the derailment, along with questions about whether the environmental disaster could have been avoided if the railroad had spent more on staffing and safety.

    “Corporations do stock buybacks, they do big dividend checks, they lay off workers,” said Democratic Sen. Sherrod Brown of Ohio, on CNN’s State of the Union on Sunday. “They don’t invest in safety rules and safety regulations, and this kind of thing happens.”

    The accident is under investigation by the National Transportation Safety Board. While the cause has yet to be determined, it is known that freight railroads have fought tougher safety rules in the past.

    One rule the industry successfully fought would have required a more modern braking system on trains carrying significant amounts of hazardous materials. The Federal Railroad Administration, which proposed the rule under the Obama administration, estimated a more modern braking system would reduce by nearly 20% the number of rail cars in a derailment that puncture and release their contents.

    The FRA estimated those better brakes would cost the entire industry $493 million, spread over a period of 20 years. The Association of American Railroads, the trade industry group that represents most US freight railroads, estimated a much greater cost — about $3 billion, but again, spread over 20 years. That would mean around $150 million a year for an entire industry that is earning billions of dollars of annual profits.

    Still, it was able to block the rule from ever taking effect, based partly on the argument it was too costly for the potential benefit.

    “The railroads are quick to point out their lack of funds to provide adequate staffing, paid sick leave and improved safety, yet they have billions of dollars to spend on stock repurchases,” said Eddie Hall, national president of the Brotherhood of Locomotive Engineers, the industry’s second-largest union behind the one that represents conductors.

    Share repurchases are designed to help increase the value of the stock by reducing the number of shares outstanding.

    In theory, each remaining share becomes more valuable since it represents a greater percentage of the company’s overall ownership. The earnings per share, a key measure used by investors to judge a company’s profitability, can rise even if the total dollars earned by the company goes down, as the pool of shares available to the public shrinks further.

    But Norfolk Southern’s profits aren’t going down. They’re going up — by quite a bit. It posted record profits from railway operations of $4.45 billion in 2021, and broke that record in 2022 when it earned $4.8 billion on that basis.

    Other freight railroads are also reporting improving profits, and have joined Norfolk Southern in massive share repurchases.

    Union Pacific

    (UNP)     purchased $6.3 billion worth of shares in 2022, and has plans to purchase an additional 84 million shares, worth more than $16 billion at its current value. CSX repurchased $4.7 billion worth of shares last year and has plans to buy an additional $3.3 billion going forward. Like Norfolk Southern, both UP and CSX spent more on share repurchases than they did on total employee compensation.

    Share repurchases are not limited to the rail industry. Chevron

    (CVX)     recently announced plans to repurchase $75 billion worth of its stock with windfall record profits that came from high oil prices. Across corporate America, share repurchases reached almost $1 trillion for the first time last year, coming in at $936 billion according to S&P Dow Jones Indices, up from $882 billion in 2021.

    Share repurchases are forecast to top $1 trillion this year.

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  • Russia’s economy is hurting despite Putin’s bluster | CNN Business

    Russia’s economy is hurting despite Putin’s bluster | CNN Business


    London
    CNN
     — 

    When Russia launched its full-scale invasion of Ukraine one year ago, Western countries hit back with unprecedented sanctions to punish Moscow and pile pressure on President Vladimir Putin. The aim: to deal an economic blow so severe that Putin would reconsider his brutal war.

    Russia’s economy did weaken as a result. But it also showed surprising resilience. As demand for Russian oil fell in Europe, Moscow redirected its barrels to Asia. The country’s central bank staved off a currency crisis with aggressive capital controls and interest rate hikes. Military expenditure supported the industrial sector, while the scramble to replace Western equipment and technology lifted investment.

    “The Russian economy and system of government have turned out to be much stronger than the West believed,” Putin said in a speech to Russia’s parliament Tuesday.

    Yet cracks are starting to show and they will widen over the next 12 months. The European Union — which spent more than $100 billion on Russian fossil fuels in 2021 — has made huge strides in phasing out purchases. The bloc, which dramatically reduced its dependence on Russian natural gas last year, officially banned most imports of Russian crude oil by sea in December. It enacted a similar block on refined oil products this month.

    Those measures are already straining Russia’s finances as it struggles to find replacement customers. The government reported a budget deficit of about 1,761 billion rubles ($23.5 billion) for January. Expenditure jumped 59% year-over-year, while revenue plunged 35%. Deputy Prime Minister Alexander Novak announced that Russia would cut oil production by about 5% starting in March.

    “The era of windfall profits from the oil and gas market for Russia is over,” Janis Kluge, an expert on Russia’s economy at the German Institute for International and Security Affairs, told CNN.

    Meanwhile, the ruble has slumped to its weakest level against the US dollar since last April. The currency’s weakness has contributed to high inflation. And most businesses say they can’t conceive of growing right now given high levels of economic uncertainty, according to a recent survey by a Russian think tank.

    These dynamics place the country’s economy on a trajectory of decline. And they will force Putin to choose between ramping up military spending and investing in social goods like housing and education — a decision that could have consequences both for the war and the Russian public’s support of it.

    “This year could really be the key test,” said Timothy Ash, an associate fellow in the Russia and Eurasia program at Chatham House, a think tank.

    In a bid to bring Russia to heel for its aggression, Western countries have used their sway over the global financial system, unveiling more than 11,300 sanctions since the invasion and freezing some $300 billion of the country’s foreign reserves. At the same time, more than 1,000 companies, ranging from BP

    (BP)     to McDonald’s

    (MCD)     and Starbucks

    (SBUX)    , have exited or curtailed operations in the country, citing opposition to the war and new logistical challenges.

    Russia’s economic output duly contracted by 2.1% last year, according to a preliminary estimate from the government. But the hit was more limited than forecasters initially expected. When sanctions were first imposed, some economists predicted a contraction of 10% or 15%.

    One reason for Russia’s unexpected pluck was its push toward self-sufficiency following Putin’s annexation of Crimea from Ukraine in 2014. Through a policy known as “Fortress Russia,” the government boosted domestic food production and policymakers forced banks to build up their reserves. That created a degree of “durability,” said Ash at Chatham House.

    The swift intervention of Russia’s central bank, which jacked up interest rates to 20% after the invasion and implemented currency controls to buttress the ruble, was also a stabilizing force. So was the need for factories to increase production of military goods and replace items that had been imported from the West.

    But the greatest support came from high energy prices and the world’s continued thirst for oil and other commodities.

    Russia, the world’s second-largest exporter of crude, was able to send barrels that would have gone to Europe to countries like China and India. The European Union, which imported an average of 3.3 million barrels of Russian crude and oil products per day in 2021, was also still buying 2.3 million barrels per day as of November, according to the International Energy Agency (IEA).

    “It’s a question of natural resources,” Sergey Aleksashenko, Russia’s former deputy minister of finance, said at an event last month hosted by the Center for Strategic and International Studies, a think tank. That meant the economy experienced a decline, but “not a collapse,” he added.

    In fact, Russia’s average monthly oil export revenues rose by 24% last year to $18.1 billion, according to the IEA. Yet a repeat performance is unlikely, presaging increasingly tough decisions for Putin.

    The price of a barrel of Urals crude, Russia’s main blend, fell to an average of $49.50 in January after Europe’s oil embargo — as well as a Group of Seven price cap — took effect. By comparison, the global benchmark stood around $82. That suggests that customers like India and China, seeing a smaller pool of interested buyers, are negotiating greater discounts. Russia’s 2023 budget is based on a Urals price of more than $70 per barrel.

    Finding new buyers for processed oil products, which are also subject to new embargoes and price caps, won’t be easy either. China and India have their own network of refineries and prefer to buy crude, noted Ben McWilliams, an energy consultant at Bruegel.

    Meanwhile, gas exports to Europe have plunged since Russia shut its Nord Stream 1 pipeline.

    A motorcyclist rides past an oil depot in New Delhi, India, on Sunday, June 12, 2022.

    Russia’s government relied on the oil and gas sector for 45% of its budget in 2021. As it plans to maximize defense spending, lower revenues inevitably mean trade-offs. Spending plans for 2023 finalized in December involved a decrease in expenditure on housing and health care, as well as a category that includes public infrastructure.

    “Whatever energy resources are obtained, they’ll be spent on military needs,” said Gulnaz Sharafutdinova, acting director of the Russia Institute at King’s College London.

    The International Monetary Fund still expects Russia’s economy to expand by 0.3% this year and 2.1% the next. Yet any outlook is contingent on what happens in Ukraine.

    “Whether the economy shrinks or expands in 2023 will be determined by developments in the war,” Tatiana Orlova, an economist at Oxford Economics, wrote in a note to clients on Tuesday. Shortages of workers tied to military conscription and emigration pose a key risk, she noted.

    The impact of Western sanctions is poised to develop into a crisis over time. Bloomberg Economics estimates that Putin’s war in Ukraine will slash $190 billion off Russia’s gross domestic product by 2026 compared with the country’s prewar path.

    Sectors that rely on imports have been particularly vulnerable. Domestic car makers such as Avtovaz, which manufactures the iconic Ladas, have struggled with shortages of key components and materials.

    A man talks on his phone near a closed H&M store on December 15, 2022 in Moscow, Russia.

    Russia’s auto industry was already weakened after companies such as Volkswagen

    (VLKAF)    , Renault

    (RNLSY)    , Ford

    (F)     and Nissan

    (NSANF)     halted production and began to sell their local assets last year. Chinese firms have stepped up their presence, part of a broader trend. Even so, sales of new cars dropped 63% year-over-year in January, according to the Association of European Businesses.

    Across sectors, firms are struggling to plan for the future. A survey of more than 1,000 Russian businesses by the Stolypin Institute of Economic Growth in November found that almost half plan to maintain production over the next one to two years and aren’t thinking about growth. The group said this contributed to a high risk of “long-term stagnation of the Russian economy.”

    Given Putin’s ideological commitment to subsuming Ukraine, he’s unlikely to back down, according to Sharafutdinova at King’s College London. But his war chest “is likely, inevitably, to diminish,” she added.

    Prioritizing military spending will also come at a social cost, with a “slow and creeping” erosion of living standards, she added.

    “In normal times, we might have said that the population would protest against that,” Sharafutdinova said. “But of course, these are not normal times.”

    — Clare Sebastian and Olesya Dmitracova contributed reporting.

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  • Dow drops more than 500 points as retail earnings disappoint | CNN Business

    Dow drops more than 500 points as retail earnings disappoint | CNN Business


    New York
    CNN
     — 

    US stocks dropped on Tuesday afternoon after fourth-quarter earnings and forecasts from mega-retailers like Walmart and Home Depot raised concerns about the strength of demand from the US consumer.

    The Dow was down about 500 points, or 1.5%, on Tuesday afternoon. The S&P 500 fell by 1.6% and the Nasdaq Composite was 1.8% lower.

    Walmart

    (WMT)     topped revenue expectations, but shares of the stock fell nearly 2% in morning trading after the retailer lowered its outlook for the year ahead. Walmart

    (WMT)    ’s CFO said that he was worried about inflation and its impact on the US consumer.

    “The consumer is still very pressured, and if you look at economic indicators, balance sheets are running thinner and savings rates are declining relative to previous periods,” Walmart CFO John Rainey said during the earnings call. “And so that’s why we take a pretty cautious outlook on the rest of the year.”

    Shares of the stock had recovered by the early afternoon and were up by about 0.6%.

    Home Depot

    (HD)     reported record earnings for the fiscal year that ended in January, and boosted both hourly wage and the stock dividend. But the fourth quarter painted a different picture, as the company missed revenue expectations for the first time since 2019, before the pandemic.

    The company also lowered its outlook for the year ahead as executives struck a more cautious tone about recession and inflation forecasts on the call that followed earnings.

    Shares of the stock fell by nearly 6% on Tuesday as the housing market weakens – US existing home sales dropped to their lowest level in more than 12 years in January.

    “After a year of defying gravity, the slowing economy and pressures on consumers have finally caught up with Home Depot,” said Neil Saunders, managing director of GlobalData. “For most of 2022, the number of existing homes sold has been in decline. However, the pace of decline accelerated in December with the volume of completed sales down by a sharp 36.3%.”

    Target, Best Buy, Macy’s and Gap will report later this month.

    Investors, meanwhile, are gearing up for a week full of important economic data. Minutes from the Federal Reserve’s last meeting are coming on Wednesday, a second revision of GDP will be released on Thursday and Friday brings January’s Personal Consumption Expenditures – the Fed’s preferred inflation gauge.

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  • Howard Schultz: Unions ‘a manifestation of a much bigger problem’ | CNN Business

    Howard Schultz: Unions ‘a manifestation of a much bigger problem’ | CNN Business


    New York
    CNN
     — 

    Fifteen years ago, Howard Schultz reprised his role as Starbucks CEO, returning to the helm to help put the struggling company back on course. At the time, the coffee chain was flailing, facing growing competition, cooling customer interest and contending with the financial crisis.

    Last year he returned once again, as Starbucks was in the midst of a different crisis: A growing wave of unionization.

    Schultz, who sat down for a far-reaching conversation with CNN’s Poppy Harlow in February, covering the union, relations with China and the US economy, said he didn’t return to Starbucks because of the union efforts. But he did see the labor movement as a sign that things had gone sour at Starbucks, and for young people in general.

    “It’s my belief that the efforts of unionization in America are in many ways a manifestation of a much bigger problem,” he told Harlow. “There is a macro issue here that is much, much bigger than Starbucks.”

    The first Starbucks store voted to unionize in December of 2021, about five months before Schultz became CEO — this time on an interim basis — for the third, and he says final, time. Even before he officially rejoined the company, Schultz was already alarmed by the union push.

    In November, a month before the successful vote to unionize, he published an open letter to employees. “No partner has ever needed to have a representative seek to obtain things we all have as partners at Starbucks,” he wrote, using the word “partner” to refer to employees, as Starbucks does. “I am saddened and concerned to hear anyone thinks that is needed now.”

    Unionized workers are fighting for guaranteed schedules, protecting benefits for part-time workers and more. One priority, they say, is to have Starbucks sign fair election principles which protect workers rights to organize without retaliation.

    In the months since returning as CEO, Schultz has doubled down on his opposition to the union. And during his tenure, the battle has intensified and turned ugly.

    Union leadership has accused Starbucks of refusing to come to the bargaining table, threatening their benefits and employing union-busting tactics, claims that the company has denied.

    Starbucks employee Brian Murray, center, and other employees and supporters react as votes are read during a viewing party for their union election on Thursday, Dec. 9, 2021, in Buffalo, N.Y.

    The union has filed hundreds of unfair labor practice charges against the company, and Starbucks has filed some of its own unfair labor charges against the union, saying that it’s the union that is holding up negotiations.

    The NLRB has found, in some cases, that the company illegally threatened and fired workers involved in the union effort. A judge recently ruled that Starbucks must stop firing employees who are involved in the union. Starbucks said the measure was unwarranted, and, relating to the NLRB’s findings, that it endeavors to comply with the law.

    And recently, Vermont Senator Bernie Sanders and the rest of the Senate Health, Education, Labor and Pensions Committee asked Schultz to testify in an upcoming hearing on Starbucks’ compliance with labor laws. Schultz declined, and Starbucks announced that its chief public affairs officer AJ Jones II will attend instead.

    As of mid-February, the National Labor Relations Board has certified 282 stores that voted to unionize, and 56 that voted against. There are about 9,300 US company-operated Starbucks stores, and a relatively small number have voted to unionize. To Schultz, this means that the vast majority of workers at Starbucks stores are happy with how things are.

    The union sees its growth, in spite of Starbucks’ muscular fight against it, as a clear sign of worker interest. “The fact that Starbucks workers are continuing to organize and win shows just how much workers need and desire a union,” Starbucks Workers United said in a statement to CNN.

    Over the years, Starbucks has cultivated its image as a progressive company, an image that Schultz himself helped establish by offering employees health insurance, tuition reimbursement and company stock.

    But as he prepares to step down from the CEO role, that reputation is being challenged, in large part because of the company’s steadfast opposition to the union. But Schultz, who doesn’t think fighting the workers’ unionization effort will tinge the company’s legacy, is not backing down.

    When Schultz re-joined the company last year, he spent months visiting with employees as part of a listening tour that helped him develop a new roadmap for the company, which he said had “lost its way.”

    “I’ve talked to thousands of our Starbucks partners,” he told Harlow. “I was shocked, stunned to hear the loneliness, the anxiety, the fracturing of trust in government, fracturing of trust in companies, fracturing of trust in families, the lack of hope in terms of opportunity.”

    Baristas prepare orders at a Starbucks coffee shop in New York, NY.

    American companies are “faced with unionization because [workers are] upset, not so much with the company, but the situation.”

    Still, Starbucks made some specific missteps, he said, during his absence.

    Before he became interim CEO last year Schultz served in the top spot from 1987 to 2000, and then again from 2008 to 2017. But even when he had ceded the role for the final time, he remained involved as chairman of the board — until 2018, when he retired. That four-year lapse, Schultz said, was a “mistake,” adding, “I should have probably stayed engaged.” This time, Schultz will retain his board seat after incoming CEO Laxman Narasimhan takes over.

    Especially during the pandemic, “some decisions were made that I would not have made,” he said, without specifying which. When asked for more details, a spokesperson pointed to the resumption of training programs in 2022.

    “As a result of that, I think people did lose trust in the leadership of the company.” Efforts to unionize, he said, were spurred “because Starbucks was not leading in a way that was consistent with its history.”

    Still, he sees the union as a relatively minor issue that represents the desires of a small group of people.

    “I don’t think a union has a place in Starbucks,” he said. “If a de minimis group of people … file for a petition to be unionized, they have a right to do so. But we as a company have a right also to say, we have a different vision that is better.”

    But that’s likely not the case, said Rebecca Givan, associate professor of labor studies and employment relations at Rutgers School of Management and Labor Relations.

    Starbucks workers during a rally on October 05, 2022 in New York City.

    “I’m sure there’s a large number of people who are interested [in unionizing], but afraid,” she said. “We know, just from general polling data, that many, many workers are interested in organizing collectively or in being represented collectively.” This is especially true among younger workers, she said.

    Collectively, workers hold more sway with employers, giving them more power to negotiate.

    “If Starbucks really thought that not that many people were interested, then they could pledge neutrality,” Givan said, as Microsoft did last year. Schultz said that just as workers have the right to organize, Starbucks has “the right to defend” itself.

    As a CEO, Schultz has been responding “very typically,” Givan said, in how strongly he’s opposed the union. “I think every corporate leader takes it personally and when their workers organize, even though they really shouldn’t,” she said.

    While Starbucks deals with the union effort at home, it also faces challenges in China, its key growth market. In the three months through January, sales at Starbucks’ Chinese locations open at least 13 months plunged 29% due in part to Covid restrictions.

    Despite these setbacks, Starbucks remains bullish on China, even as tension between the country and the United States grows.

    “I don’t believe China is an enemy of America,” Schultz told Harlow, describing it instead as a “fierce adversary, especially economically.” In his opinion, there need to be “good, solid geopolitical relations between the Chinese government and the American government.”

    As it forges ahead in China, Starbucks is steering clear of Russia, he said.

    Starbucks exited the country last year because of Russia’s attack on Ukraine, and Schultz doesn’t see the company ever going back. “I think Starbucks is gone from Russia for good,” he said.

    Back in the United States, Schultz is anticipating a “soft landing” for the economy. “I have great confidence in the US economy,” he said. “I don’t see a recession coming.” Inflation, he thinks, has peaked.

    That goes for Starbucks pricing, as well. “I don’t think our prices are going up,” he said.

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  • China’s capital offers $6 monthly handout to offset inflation. The public says it’s not nearly enough | CNN Business

    China’s capital offers $6 monthly handout to offset inflation. The public says it’s not nearly enough | CNN Business


    Hong Kong
    CNN
     — 

    Beijing will give out a $6 monthly cash subsidy to low-income residents to cushion the impact of rising food prices, a move that has unexpectedly angered many online who say the amount is far too low.

    The announcement from the city government comes as food inflation accelerated in China after policymakers scrapped their zero-Covid strategy in December and eased monetary policy further to fuel economic recovery.

    Last week, protests by retirees broke out in the cities of Wuhan and Dalian over cuts to their medical care benefits, highlighting the growing risk of unrest over livelihood issues as China’s economy struggles to regain its footing after being drained by pandemic policies.

    The demonstrations were the latest outburst of public discontent since mass protests against Covid curbs gripped the country late last year. The recent protests underscored the financial pressure on local governments, after three years of the zero-Covid policy strained their coffers and a property market slump severely eroded their income.

    According to the Beijing Municipal Commission of Development and Reform, the city’s economic regulator, more than 300,000 people on low incomes will each receive a cash payment of 40 yuan (about $6) per month. The first payment will be given out later this month and it’s unclear for how long they will continue.

    “In January, food prices in Beijing rose by 6.6%, meeting the conditions for starting the price-linked subsidy program,” the state-run Beijing Daily newspaper quoted an official from the commission as saying in a Friday report.

    “[We will] try to do a good job in ensuring the basic livelihood of the needy people … and continuously enhance the people’s sense of gain, happiness and security.”

    China launched a low-income subsidy program in 2011 to offer cash handouts to the needy when the consumer price index or food prices hit certain thresholds. Each city or region sets its own standard as living costs vary across the country.

    The news of Beijing’s latest handout was not well received by the public, who took to social media to complain about the high cost of living in the city.

    “40 yuan? Are you serious? [When] the low-income people take the subway to collect the money and then they return, they lose 8 yuan,” said one comment on Weibo.

    “Is it like an insult? [The amount] just subsidizes a bowl of noodles,” another Weibo user said.

    Some people criticized the country’s weak social welfare system, while others blasted the government’s move to write off billions of debt to other countries.

    “Can’t we question the move? Do you think the current welfare system in our country is good? Can it meet the needs of people?” one said.

    China’s consumer inflation accelerated in January, as the CPI rose 2.1% from a year earlier. Although the headline figure remains relatively low compared to other countries, food prices jumped 6.2%, with pork and fruit prices rising the most.

    In Beijing, food prices outpaced the national level. Vegetable prices soared 24% last month.

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  • Warren Buffett is missing out on this year’s market comeback | CNN Business

    Warren Buffett is missing out on this year’s market comeback | CNN Business

    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.


    New York
    CNN
     — 

    Warren Buffett is arguably the most legendary investor of all time. But the Oracle of Omaha has missed out on this year’s stock market rally. So far, at least.

    Shares of Buffett’s Berkshire Hathaway

    (BRKB)     conglomerate, a company that owns businesses ranging from Geico and the Burlington Northern Santa Fe railroad to consumer brands like Dairy Queen, Duracell and Fruit of the Loom, are down slightly this year — lagging the market, as the S&P 500 is up 6%. (The Nasdaq has done even better, surging 12%.)

    Berkshire Hathaway also has a giant stock portfolio that Buffett helps run. Apple

    (AAPL)     is now by far the top holding for Berkshire, which also has big stakes in Bank of America

    (BAC)    , Chevron

    (CVX)    , American Express

    (AXP)     and Coca-Cola

    (KO)    .

    So is Berkshire’s portfolio, dare we say it, a little too boring? After all, if you want exposure to the big blue chips he owns, you could just buy an S&P 500 index fund.

    Buffett, in fact, has promoted that idea to investors many times, arguing that most individual stock pickers will not be able to beat the market. The 92-year-old Buffett, who has a net worth of more than $100 billion according to Forbes, even said that he wants the trustee in charge of his will to put 90% of his wife’s inheritance in index funds.

    Still, investors pay extremely close attention to Buffett every time he speaks. So traders will be poring over every word in his annual shareholder letter, which will be released the morning of Saturday, February 25, along with Berkshire’s latest earnings report.

    Don’t expect any major surprises. Buffett will probably continue to extol the virtues of a long-term, patient approach to investing and give a bullish outlook for the US economy. And to his credit, that usually pays dividends: Berkshire stock was up 3% last year in a down market.

    But market watchers are looking to see what Buffett says about the current inflationary scourge that has had a big impact on consumers and investors. He has lived through a couple of bouts of high inflation, after all.

    “I would like to hear Buffett address what’s going on with interest rates and inflation up as much they are,” said Steve Check, president of Check Capital Management, an investment firm that owns Berkshire shares. “He talked a lot about how concerned he was in the 1970s and 1980s.”

    Buffett has made numerous comments about inflation over the past few decades. And he was particularly nervous during the late 1970s and early 1980s, when soaring oil prices created an inflationary shock that severely hurt the economy.

    “High rates of inflation create a tax on capital that makes much corporate investment unwise,” Buffett said in his 1980 shareholder letter to Berkshire investors. Buffett also described inflation as a gigantic parasitic “tapeworm” for businesses in 1981.

    Buffett may also need to address how top-heavy and concentrated his portfolio has become. Berkshire’s five largest holdings make up about 75% of the company’s stock investments.

    “The portfolio is significantly overweight [in] technology, energy, consumer staples, and financials relative to the S&P 500,” said Bill Stone, chief investment officer with The Glenview Trust Company, another Berkshire shareholder, in a report. Stone noted that Berkshire also has big stakes in Kraft Heinz

    (KHC)     and oil company Occidental Petroleum

    (OXY)    .

    Investors also want to hear more about what Buffett plans to do with Berkshire’s massive pile of cash. The company has more than $100 billion on its balance sheet. Are more acquisitions coming?

    Buffett has talked for the past few years about how he’s longing to do an “elephant-sized” deal with Berkshire’s cash. Its most recent big deal was last year’s purchase of insurer Alleghany for $11.6 billion.

    Still, the recent sluggish performance of Berkshire’s stock is unlikely to deter the faithful Buffett fans, many of whom are expected to make the annual pilgrimage to Omaha on May 6 for the company’s shareholder meeting.

    Berkshire vice chairman Charlie Munger will likely be on stage with Buffett. So will Greg Abel, the chairman and CEO of Berkshire Hathaway Energy who Buffett has handpicked to eventually succeed him as Berkshire Hathaway CEO.

    Buffett’s faith in the US economy is well founded. American consumers have proven to be remarkably resilient despite rampant inflation. The surprisingly strong retail sales gains for January is further proof of that.

    Investors will get several more clues about consumer spending this week when several top retailers report earnings.

    Dow components Walmart

    (WMT)     and Home Depot

    (HD)     are the highlights. Walmart

    (WMT)    , which has a massive grocery business, should shed some light on how shoppers are coping with surging grocery prices.

    Walmart could still benefit from its reputation as a place for bargains, though. That could even attract more affluent shoppers looking to save a buck.

    “With inflation remaining elevated in the U.S., we expect Walmart to see continued trade-down benefits…particularly from higher-income customers,” said Arun Sundaram, an analyst at CFRA Research, in a report.

    And investors will be looking for clues about the health of the housing market when Home Depot reports. Placer.ai, a research firm that measures foot traffic at top retailers, said in a recent report that consumers are returning to Home Depot and rival Lowe’s at almost pre-pandemic levels — even despite the housing slowdown.

    One reason? Current homeowners may decide to spend more on renovations if they now plan to stick in their current house longer instead of looking to sell.

    “Although the hot home-buying market is cooling off…foot traffic remains close to pre-pandemic levels due to a shift towards projects aimed at sprucing up a current living space,” said Placer.ai’s Ezra Carmel in a report. “It appears that projects that enhance the prospect of staying in place also have the ability to drive visits.”

    Investors will be keeping close tabs on several other retailers set to report earnings this week, including TJX

    (TJX)     — the owner of TJ Maxx, Marshalls and HomeGoods — as well as online retailers eBay

    (EBAY)    , Etsy

    (ETSY)    , Overstock

    (OSTK)    , Wayfair

    (W)     and China’s Alibaba

    (BABA)    .

    The US government is also set to release personal spending figures for January on Friday, another data point that will give a glimpse of consumers’ financial health.

    Monday: US stock and bond markets closed for Presidents’ Day

    Tuesday: US existing home sales; Eurozone and UK PMI; earnings from Walmart, Home Depot, Medtronic

    (MDT)    , Fluor

    (FLR)    , Molson Coors

    (TAP)    , Caesars Entertainment

    (CZR)    , Diamondback Energy

    (FANG)    , Chesapeake Energy

    (CHK)    , Palo Alto Networks

    (PANW)    , Coinbase, La-Z-Boy

    (LZB)     and Hostess Brands

    (TWNK)

    Wednesday: Weekly crude oil inventories; earnings from Stellantis, Baidu

    (BIDU)    , TJX, Garmin

    (GRMN)    , Overstock, Wingstop

    (WING)    , Nvidia

    (NVDA)    , eBay, Etsy and Bumble

    Thursday: US weekly jobless claims; US Q4 GDP (second estimate); Eurozone inflation; Turkey interest rate decision; earnings from Alibaba, Netease

    (NTES)    , Keurig Dr Pepper

    (KDP)    , Wayfair, Newmont, Domino’s

    (DPZ)    , Papa John’s

    (PZZA)    , Yeti

    (YETI)    , Nikola, CNN owner Warner Bros. Discovery, Block

    (SQ)    , Booking Holdings

    (BKNG)    , Live Nation

    (LYV)    , Carvana

    (CVNA)    , Intuit

    (INTU)     and Beyond Meat

    (BYND)

    Friday: US personal income and spending; US PCE inflation figures; US new home sales; Japan inflation; Germany Q4 GDP; earnings from CIBC

    (CM)    , Scripps

    (SSP)     and Cinemark

    (CNK)

    Saturday: Berkshire Hathaway earnings and Warren Buffett annual shareholder letter

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  • Here are the US cities where home prices are actually falling | CNN Business

    Here are the US cities where home prices are actually falling | CNN Business


    Washington, DC
    CNN
     — 

    Home prices are going up across the country — in aggregate. Looking at individual markets, however, some are showing prices have fallen from a year ago.

    Single-family median home prices increased 4% in the fourth quarter from a year ago to $378,700. Prices were strongest in the Northeast in the last quarter, up 5.3%; followed by the South, up 4.9%; the Midwest, up 4% and the West, up 2.6%, according to the National Association of Realtors.

    But drill down to the market level and it’s clear that prices in some areas are declining from the prior year. The positive regional numbers mask that about 11% of individual housing markets tracked by NAR — 20 of 186 cities — experienced home price declines in the fourth quarter of last year.

    “A few markets may see double-digit price drops, especially some of the more expensive parts of the country, which have also seen weaker employment and higher instances of residents moving to other areas,” said Lawrence Yun, NAR’s chief economist.

    Nearly all of the most expensive places to buy are in the West and half of the 10 most expensive cities are in California. Several of those places are seeing prices fall the most.

    San Jose, California, was the most expensive place to purchase a home in the United States in the fourth quarter. But that median price of $1,577,500 is actually down 5.8% from a year ago — and prices there have already dropped 17% from the peak $1,900,000 median price in the second quarter of last year, according to NAR.

    San Francisco had the biggest price drop in the country, year over year, last quarter, with the median price of $1,230,000 — down 6.1% from a year ago. Prices for San Francisco homes are already down 21% in the fourth quarter from the peak median price of $1,550,000 in the second quarter.

    Among the most expensive cities that saw prices falling are Anaheim, California, with the median price of $1,132,000, down 1.6% from a year ago; Los Angeles, with the median price of $829,100, down 1.3%; and Boulder, Colorado, with the median price of $759,500, down 2.0%.

    Other places with falling prices saw the big price increases during the frenzied home buying market of the past few years. They also tend to be appealing lifestyle destinations where people moved to as remote work provided more flexibility. These include Boise, Idaho, where prices fell 3.4% from a year ago and Austin, Texas, where prices are down 1.3%.

    The good news for buyers looking for price relief is that the 4% median price hike in the fourth quarter is less than the 8.6% increase in the third quarter. In addition, the price increases are smaller, with far fewer markets experiencing double-digit price gains in the fourth quarter.

    “A slowdown in home prices is underway and welcomed, particularly as the typical home price has risen 42% in the past three years,” said Yun, noting these cost increases have far surpassed wage increases and consumer price inflation since 2019.

    Throughout much of the pandemic, home prices across the country moved in a single direction: up. Some hotspots like Austin and Boise saw prices skyrocket. Other areas — particularly in the Midwest — saw prices go up more moderately. Yet, because mortgage rates were near historic lows, buyers came out in droves.

    That story changed last year, when mortgage rates spiked as a result of the Federal Reserve’s historic campaign to rein in inflation. Homebuying fell off a cliff. By the end of 2022, sales of existing homes were down nearly 18% from 2021 as would-be homebuyers left the market, according to NAR.

    Typically, a drop in demand to buy would mean excess supply and ultimately lead to prices coming down. But that’s not happening, broadly speaking, in the housing market.

    Instead, prices for single-family homes climbed in nearly 90% of metro areas tracked by NAR in the fourth quarter: 166 markets out of 186 saw prices still going up. The national median price of a single-family home increased 4% last quarter from one year ago to $378,700.

    How can this be?

    One main driver of this phenomenon is that there is a shortage of inventory due to chronic underbuilding of affordable homes in the United States, along with homeowners who don’t want to part with the ultra-low mortgage rate they secured over the past few years.

    “Even with a projected reduction in home sales this year, prices are expected to remain stable in the vast majority of the markets due to extremely limited supply,” said Yun.

    There are still places where home prices continue to climb at double-digit rates. The top 10 cities with the largest year-over-year price increases all recorded gains of at least 14.5%, with seven of those markets in Florida and the Carolinas, according to NAR.

    Farmington, New Mexico, saw the biggest price increase in the fourth quarter, up 20.3% from a year ago. It was followed by Sarasota, Florida, up 19.5%; Naples, Florida, up 17.2%; Greensboro, North Carolina, up 17.0%; Myrtle Beach, South Carolina, up 16.2%; Oshkosh, Wisconsin, up 16.0%; Winston-Salem, North Carolina, up 15.7%; El Paso, Texas, up 15.2%; Punta Gorda, Florida, up 15.2%; and Daytona Beach, Florida, up 14.5%.

    In the last quarter of 2022 a family needed a qualifying income of at least $100,000 to afford a 10% down payment mortgage in 71 markets, up from 59 in the prior quarter, according to NAR.

    Yet there were 16 markets where a family needed a qualifying income of less than $50,000 to afford a home, although that was down from 17 the previous quarter. Some of those included Peoria, Illinois, where a family can qualify for a loan with an income of $33,660; Waterloo, Iowa, with an income of $40,639; and Montgomery, Alabama, with an income of $48,172.

    Nationally, the monthly mortgage payment on a typical existing single-family home with a 20% down payment was $1,969 in the fourth quarter according to NAR. That’s a 7% increase from the third quarter of last year, when the monthly payment was $1,838, but a major surge of 58% — or a $720 monthly increase — from one year ago.

    This made the affordability picture even harder for many home buyers. Families typically spent 26.2% of their income on mortgage payments, which was up from 25% in the prior quarter and 17.5% one year ago.

    First-time buyers were evidently pushed to a breaking point on affordability. They typically spent 39.5% of their family income on mortgage payments, up from 37.8% in the previous quarter. A mortgage is considered unaffordable if the monthly payment, including principal and interest, amounts to more than 25% of the family’s income. Generally, a common financial rule of thumb is to not spend more than 30% of your income on housing costs.

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  • After a steep fall, used car prices poised to rise again | CNN Business

    After a steep fall, used car prices poised to rise again | CNN Business


    New York
    CNN
     — 

    The price of used cars has been falling steadily, and steeply, for much of the last year. Unfortunately for car buyers, that could be about to change.

    Wholesale prices for used cars being sold at auction have risen sharply in the last few weeks, according to industry data. Higher retail prices on used car dealer lots are likely to be close behind.

    According to data from Manheim, the largest wholesale automotive marketplace, prices jumped 4% in just the last two weeks, an unusually large increase in such a short time period. While many in the industry expected the drop in prices wouldn’t last, the sudden increase caught many by surprise.

    “We did not anticipate that prices would jump as much as they have,” said Chris Frey, senior industry insights manager at Cox Automotive, which owns Manheim. “It made my eyes jump out.”

    Dealers started pulling back on their inventory of used cars as prices were declining late last year and into January. Much of the decline began late last year as a larger supply of new cars became available for purchase.

    A shortage of parts, particularly computer chips, caused automakers to scale their production back far below the demand for new vehicles, and push potential new car buyers, even rental car companies, into the used car market. That shortage of new car inventory helped drive both new and use car prices to record levels earlier last year.

    But part supplies and computer chip inventory improved in the last half of 2022, and with that used car prices started to decline. In January used car prices were down 11.6% from the year earlier, according to the Consumer Price Index, the government’s key inflation reading – the biggest 12-month decline since the depths of the Great Recession in early 2009.

    The busy selling season for used cars is only months away — it’s tied to when potential buyers get their tax refunds. Now dealers are scrambling to rebuild inventories, and that is driving up prices.

    The strong labor market, with employers unexpectedly adding more than 500,000 jobs in January, is also driving demand for used cars.

    “If you want to point at one factor that drives demand for cars, it’s jobs,” said Ivan Drury, director of insights at Edmunds. “If you’ve got a job, you’ve got a car.”

    Part of the problem in the months ahead can be traced to the early days of the pandemic three years ago. The disruptions to the new car market at that time are about to be felt by today’s used car market.

    In March and April of 2020, auto plants across the nation were shut by stay-at-home orders, and many dealerships were closed. Demand for cars also fell off a cliff amid record job losses and millions of additional workers shifted to working from home rather than commuting.

    So the 2020 plunge in car sales meant that few people were signing up for three-year leases on new vehicles, contracts that would normally be coming to an end now and in turn feed those vehicles into the supply of used cars on the markets.

    “The repercussions of the pandemic are coming through,” Drury said. “The supply is definitely not going to be there.” The disruptions in the car markets in 2020 and early 2021 could affect used car prices much of the year.

    “We are entering a period of tight supply on 3- and 4-year-old vehicles, which make up the majority of [used] car sales,” said Michael Manley, CEO of AutoNation

    (AN)    , the nation’s largest car dealership, in a call with investors Friday. “And that’s going to impact wholesale prices and ultimately, retail prices.”

    It’s tough to know how long the rise in used car prices will last.

    The labor market and consumer spending is strong at the moment, but there are still worries about a possible recession. The Federal Reserve appears likely to keep raising interest rates, at least in the near term, which in turn will raise the cost of car loans, and for the financing that car dealers use when purchasing their own inventories.

    The drop in used car prices has been a major factor in the slowing of inflation, but a sustained rise in used car prices could make it more difficult for the Fed to pull back on rate hikes.

    Overall prices are up 6.4% over the last 12 months, according to CPI, but that reading has fallen for seven straight months. And prices would have risen 6.9% over the same 12 month period if used car prices had posted such a steep decline and instead just stayed unchanged.

    So broader economic conditions in the US economy are certain to have an effect on supply, demand and pricing of used cars, which makes forecasting future prices very difficult, said Frey.

    “I don’t think this latest increase is a blip. But I imagine prices could come down after spring and tax refunds land,” said Frey. But he added that forecasts are tough to make in the current market.

    “We’ve been calling for a 4% decline in prices from December last year to December this year,” Frey said. “We may have to revise that.”

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  • Judge orders Sam Bankman-Fried back to court after learning how he accessed the internet remotely | CNN Business

    Judge orders Sam Bankman-Fried back to court after learning how he accessed the internet remotely | CNN Business


    New York
    CNN
     — 

    A federal judge ordered Sam Bankman-Fried back to court this week after learning that the founder of crypto trading platform FTX accessed the internet in a way the government can’t track.

    Judge Lewis Kaplan set a hearing for Thursday after he was notified by prosecutors and attorneys for Bankman-Fried that the former so-called Crypto King used a virtual private network, or VPN, twice in the past month, including days after the judge expressed concern about the use of encrypted messaging apps.

    Bankman-Fried’s lawyers said in a letter to the judge that Bankman-Fried used the VPN to access an NFL Game Pass international subscription that he used when he lived in the Bahamas to watch NFL playoff and Super Bowl games while out on bail in the US.

    Bankman-Fried is currently under house arrest at his parents’ home in Palo Alto, Calif. He is released on a $250 million bond while awaiting trial on fraud and conspiracy charges. He pleaded not guilty.

    The judge noted that Bankman-Fried used the VPN at least once after he was ordered to refrain from using encrypted messaging apps, adding, “The defendant’s use of a VPN presents many of the same risks associated with his use of an encrypted messaging or call application.” The judge said Bankman-Fried could not use VPNs until the outcome of the hearing.

    Overnight Prosecutors alerted the judge to Bankman-Fried’s use of a VPN in late January and early February.

    “The use of a VPN raises several potential concerns. First, a VPN is a mechanism of encryption, hiding online activities from third parties, including the Government. Second, it is a means to disguise a user’s whereabouts because a VPN server essentially acts as a proxy on the internet,” prosecutors wrote in a letter to the judge. “It is well known that some individuals use VPNs to disguise the fact that they are accessing international cryptocurrency exchanges that use IPs to block U.S. users,” they wrote.

    Prosecutors and Bankman-Fried’s lawyers asked the judge for more time to work out new bail terms, but the judge rejected that, calling them back to court for the second time in a week.

    The judge previously expressed concern over Bankman-Fried’s use of encryption and whether the government could track what he was doing while out on bail.

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  • Isolated Iran finds ally China reluctant to extend it a lifeline | CNN

    Isolated Iran finds ally China reluctant to extend it a lifeline | CNN

    Editor’s Note: A version of this story appears in today’s Meanwhile in the Middle East newsletter, CNN’s three-times-a-week look inside the region’s biggest stories. Sign up here.


    Abu Dhabi, UAE
    CNN
     — 

    Shortly before leaving for his first state visit to China on Tuesday, Iranian President Ebrahim Raisi issued a thinly veiled criticism of his powerful ally, saying the two countries’ relationship has not lived up to expectations.

    The first Iranian president to arrive in China on a state visit in two decades, Raisi was keen to tell Beijing that it has not given enough support to Tehran, especially economically.

    “Unfortunately, I must say that we have seriously fallen behind in these relations,” he said, referring to trade and economic ties. Part of his mission, he said, was to implement the China-Iran Strategic Partnership Plan (CISPP), a pact that would see Beijing invest up to $400 billion in Iran’s economy over a 25-year period in exchange for a steady supply of Iranian oil.

    Raisi said that economic ties had regressed, and that the two nations needed to compensate for that.

    The public criticism on the eve of the landmark trip demonstrated the heavily-sanctioned Islamic Republic’s disappointment with an ally that has in many ways become one of its few economic lifelines.

    The speech was likely “a reflection of Tehran’s frustration with China’s hesitancies about deepening its economic ties with Iran,” Henry Rome, senior fellow at the Washington Institute for Near East Policy, told CNN. “The same issues that have constrained China-Iran relations for years appear to remain.”

    Analysts said Raisi’s speech was a clear call for China to live up to its end of the relationship, seeking economic guarantees from the Asian power so he can have something to show at home amid a wave of anti-government protests and increasing global isolation.

    “The mileage Raisi will get for having a visit is going to be very limited if that visit doesn’t produce anything,” said Trita Parsi, vice-president of the Quincy Institute in Washington, DC. “The Iranians are not in a position right now in which a visit in and of itself is sufficiently good for them…They need more.”

    Whether Iran is satisfied with what China offered it, however, is yet to be seen.

    “Though more substance may be achieved following the visit, the reality is that Raisi needs both the substance and the announcement of concrete agreements,” said Parsi. He added that China, on the other hand, appears to be inclined to “play matters down” as it balances the partnership with its ties with Gulf Arab states at odds with Iran, as well as its own fraught relations with the US.

    In a joint statement, both China and Iran said they are “willing to work together to implement” the CISPP and “continue to deepen cooperation in trade, agriculture, industry, renewable energy, infrastructure and other fields.”

    On Wednesday, Iranian Foreign Minister Hossein Amirabdollahian, who accompanied Raisi to China, said that the two countries agreed to remove obstacles in the way of implementing the CISPP, adding that Iran was “optimistic at the results of the negotiations,” according to state news agency IRNA.

    Chinese President Xi Jinping also accepted an invitation to visit Iran on a future date.

    Raisi’s trip comes as Beijing strengthens its ties with Iran’s foe Saudi Arabia, and as cheap Russian oil potentially threatens Iran’s crude exports to China.

    Less than two years after he took power, Raisi’s term has witnessed growing isolation from the West – especially after Iran supplied Russia with drones to use in its war on Ukraine – and failed efforts to revive a 2015 nuclear deal that removed some barriers to international trade with the Islamic Republic.

    As Western sanctions cripple its economy, Beijing has helped keep Tehran afloat economically. China is Iran’s biggest oil customer, buying sanctioned but cheap barrels that other nations would not touch.

    Tehran’s other ally, Russia, has however been biting into its Asian oil market as China buys more Russian barrels – also sanctioned by the West – for cheap, threatening one of Iran’s last economic lifelines.

    The visit is therefore a strategic one, analysts say, and an attempt by Iran pull itself back up from domestic instability and worsened isolation from the West.

    “(It) is an opportunity for Raisi to try to draw a line under the past five months of domestic unrest and project a sense of normalcy at home and abroad,” said Rome.

    But Jacopo Scita, a policy fellow at the Bourse & Bazaar Foundation in London, said he did not expect the visit to result in much more than a recognition of China’s partnership with Iran.

    “Raisi will hardly get much from the economic perspective, except for a new series of memoranda of understanding and some minor deals,” he told CNN.

    Iran has also been reminding its people that looking eastward is the right path toward economic revival as prospects of returning to nuclear agreement fade, said Parsi. The government has been keen to show that it has “an eastern option” that is supportive and lucrative, he said.

    Scita said that China is unlikely to live up to Iran’s expectations, however.

    “I don’t believe that Beijing can offer guarantees to Tehran except a pledge to continue importing a minimum amount of crude regardless of the global market situation and China’s domestic demand,” he told CNN.

    How Raisi’s visit will be received back at home remains unclear. If the trip yields no concrete results in the coming days, then Iran’s move eastward could prove to be “a huge strategic mistake that the Raisi government has really rushed into,” said Parsi.

    Additional reporting by Adam Pourahmadi and Simone McCarthy

    Turkey’s earthquake left 84,000 buildings either destroyed or in need of demolition after sustaining heavy damage, Turkish Urban Affairs and Environment Minister Murat Kurum said Friday, according to state media.

    The deadly earthquake – which sent shockwaves across the region – has so far killed more than 43,000 across both Turkey and Syria.

    At least 38,000 people died in Turkey, according to Turkey’s governmental disaster management agency, AFAD. The death toll in Syria remains at least 5,841, according to the latest numbers reported Tuesday by the United Nations Office for the Coordination of Humanitarian Affairs (OCHA).

    Here’s the latest:

    • Since the February 6 earthquake, a total of 143 trucks loaded with aid provided by six UN agencies have crossed from Turkey to northwest Syria through two border crossings, a OCHA statement said Friday.
    • Two men were rescued in Hatay ten days after the earthquake struck, said Turkey’s Health Minister Fahrettin Friday. And late on Thursday, a 12-year-old boy was rescued from rubble in southern Hatay 260 hours after the earthquake hit, according to CNN Turk, which reported live from the scene.
    • World Health Organization Director-General Tedros Adhanom Ghebreyesus said upon returning from Syria on Tuesday that more than a decade of war in the region has left towns destroyed, with the health system unable to cope with this scale of emergency. “Survivors are now facing freezing conditions without adequate shelter, heating, food, clean water or medical care,” he said.
    • Turkey added Elazig as the 11th province in the list of those impacted by the quake, the ruling party spokesman said.
    • A Turkish family was reunited with the ‘miracle baby’ that was found in the rubble of the quake after they had given up hope.
    • A confused woman asked her rescuers “What day is it?” when pulled alive from the rubble of last week’s earthquake after 228 hours.
    • After attending the Munich Security Conference in Germany, US Secretary of State Antony Blinken will travel on to Turkey and Greece on Sunday to see US efforts to assist with the earthquake and to meet with Turkish and Greek officials, the State Department said Wednesday.

    Palestinian activist beaten by Israeli soldier says he is scared for his life

    Palestinian activist Issa Amro, who was filmed being assaulted by an Israeli soldier on Monday, told CNN Thursday that he is physically and psychologically affected by the attack and fears for his life.

    • Background: Lawrence Wright, a writer for the New Yorker magazine, posted video of the assault on Twitter. It showed two IDF soldiers manhandling well-known activist Amro, throwing him onto the ground, and one soldier kicking him, before that soldier is pushed away by other troops. The Israeli soldier who was filmed assaulting Amro in Hebron was sentenced to 10 days in military jail. In response to CNN’s interview with Amro, Israel Defense Forces international spokesman Lt. Col. Richard Hecht said there was “no justification” for the soldier’s behavior, but suggested Amro had provoked the incident.
    • Why it matters: Amro said he is afraid for his life and for the lives of the people in the area, but added that, “unfortunately what happened to me is happening almost every day.” He said he filed many complaints to the Israeli police about soldier and settler violence, but had gotten no accountability. Amro also said he wants the Biden administration to reopen the Palestinian consulate in East Jerusalem.

    Protesters set fire to ATMs as Lebanese lira hits 80,000 against the dollar in new record low

    Lebanon’s national currency has hit a new record low of 80,000 Lebanese lira against the US dollar, according to values sold on the black market on Thursday. On Thursday, protesters blocked roads across Beirut and set fires to ATMs and bank branches, according to videos posted on social media by the organizers, United for Lebanon and the Depositors Outcry Association, who are both advocating for the release of depositor savings.

    • Background: The lira has been on an exponential fall since January 20 when the Lebanese central bank (BDL) adjusted the official exchange rate for the first time in decades, from LL1,500 to LL15,000. Lebanese banks have been closed since Tuesday due to a strike announced by the Association of Banks in Lebanon. Prime Minister Najib Mikati said in a statement Thursday that “efforts are continuing to address the financial situation.”
    • Why it matters: Lebanon has been in a deepening financial crisis since 2019. The country moved toward securing an International Monetary Fund (IMF) bailout in April 2022, but the deal is yet to be finalized.

    Iran denies links to new al-Qaeda leader, calls US claim ‘Iranophobia’

    Iranian Foreign Minister Hossein Amir Abdollahian on Thursday denied claims by the US that al-Qaeda’s new leader, Seif al-Adel, is living in his country. “I advise White House to stop the failed Iranophobia game,” wrote Abdollahian on Twitter. “Linking Al-Qaeda to Iran is patently absurd and baseless,” he said.

    • Background: US State Department spokesman Ned Price on Wednesday told reporters that the US backs a UN report linking al-Adel to Iran. “Our assessment aligns with that of the UN, the assessment that you (a reporter) referenced that Saif al-Adel is based in Iran,” said Price during a press briefing, adding that “offering safe haven to al-Qaeda is just another example of Iran’s wide-ranging support for terrorism, its destabilizing activities in the Middle East and beyond.”
    • Why it matters: Tensions between Iran and the US have only worsened in recent months, as the Islamic Republic supplies drones to Russia for use in its war on Ukraine and negotiations to revive a 2015 deal remain frozen. The US said it killed al-Qaeda’s former leader, Ayman al-Zawahiri, in a drone strike on Kabul, Afghanistan last year.

    A Roman-era lead sarcophagus was uncovered on Tuesday at the site of a 2000-year-old Roman necropolis in the Gaza Strip. The necropolis is along the Northern Gaza coast and 500 meters (0.3 miles) from the sea.

    The sarcophagus may have belonged to a prominent individual based on where it was found, the Palestinian Ministry of Tourism and Antiquities’ director of excavation and museums, Jehad Yasin, told CNN on Thursday.

    Yasin said the ancient Roman cemetery was discovered in 2022 “as excavations were carried out at the site in cooperation with Premiere Urgence Internationale and funded by the British Council.”

    Premiere Urgence Internationale, a French humanitarian organization, has collaborated on “Palestinian cultural heritage preservation” projects in Gaza under a program called INTIQAL.

    The coffin was exhumed from the site to perform archaeological analysis for bone identification, which will take around two months, according to Yasin.

    A team of experts in ancient funerary will unseal the coffin in the coming weeks.

    While Gaza is a site of frequent aerial bombardment and a land, air, and sea blockade imposed by Israeli and Egyptian officials, the sarcophagus remains intact.

    “The state of preservation of the sarcophagus is exceptional, as it remained sealed and closed,” read a press release from the Ministry of Tourism and Antiquities.

    French and Palestinian archaeologists have uncovered eighty-five individual and collective tombs in the 3,500-square-meter Roman acropolis since its discovery last year, while ten of them have been opened for excavation.

    Beyond the rubble of the coastal enclave lay dozens of artifacts and burial sites from the Roman, Byzantine and Canaanite eras.

    Last year a Palestinian farmer discovered the head of a 4,500-year-old statue of Canaanite goddess Anat while another Palestinian farmer discovered a Byzantine-era mosaic in his orchard.

    In 2022 the Ministry of Tourism and Antiquities released their first Arabic archaeological guide titled “Gaza, the Gateway to the Levant.” The guide charts 39 archaeological sites in Gaza, including churches, mosques and ancient houses that date back to 6,000 years.

    The ministry expects more archaeological findings at the necropolis.

    Further sarcophagi are likely to be uncovered in the following months, said Director Yasin.

    By Dalya Al Masri

    A man and woman walk along a damaged street at night in earthquake- stricken Hatay, Turkey on Thursday.

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  • China’s property crash is prompting banks to offer mortgages to 70-year-olds | CNN Business

    China’s property crash is prompting banks to offer mortgages to 70-year-olds | CNN Business


    Hong Kong
    CNN
     — 

    The property market in China is so depressed that some banks are resorting to drastic measures, including allowing people to pay off mortgages until they are 95 years old.

    Some banks in the cities of Nanning, Hangzhou, Ningbo and Beijing have extended the upper age limit on mortgages to between 80 and 95, according to a number of state media reports. That means people aged 70 can now take out loans with maturities of between 10 and 25 years.

    China’s property market is in the midst of a historic downturn. New home prices had fallen for 16 straight months through December. Sales by the country’s top 100 developers last year were only 60% of 2021 levels.

    Analysts say the new age limits, which aren’t yet official national policy, aim to breathe life into the country’s moribund property market while taking into consideration China’s rapidly aging population, said Yan Yuejin, a property analyst at E-House China Holdings, a real estate services firm, in a recent research note.

    “Basically, it’s a policy tool to stimulate housing demand, as it can alleviate the debt payment burden and encourage home buying,” he added.

    The new mortgage terms are like a “relay loan.” If the elderly borrower isn’t able to repay, his or her children must carry on with the mortgage, he said.

    Last month, China reported that its population shrank in 2022 for the first time in more than 60 years, a new milestone in the country’s deepening demographic crisis with significant implications for its slowing economy. The number of people aged 60 or above increased to 280 million by the end of last year, or 19.8% of the population.

    The mortgage borrower’s age plus mortgage length should not usually exceed 70 years, according to previous rules published by the banking regulator. China’s average life expectancy is around 78.

    The China Banking and Insurance Regulatory Commission hasn’t commented publicly about the new terms.

    But bank branches across the country are setting their own terms on these multi-generational loans.

    According to the Beijing News, a branch of Bank of Communications in the city said borrowers as old as 70 can take out home loans lasting 25 years, which means the upper age limit on its mortgages has been lifted to 95.

    But there are also prerequisites: The mortgage needs to be guaranteed by the borrower’s children, and their combined monthly income must be at least twice the monthly mortgage payment.

    Separately, a branch of Citic Bank has extended the upper age limit on its mortgages to 80, the paper said, citing a bank client manager.

    Calls to the Beijing branches of Citic Bank and Bank of Communications were not answered.

    Hong Hao, chief economist at Grow Investment Group, said this was a “drastic” measure and “could be a marketing gimmick to attract the elderly to pay [mortgages] for the younger generation.”

    Yan from E-House said the main beneficiary of the move might not be the elderly, but middle-aged borrowers between 40 and 59. Under the extended payment cutoff age, those people could get a mortgage for 30 years — the maximum length allowed in China.

    Compared with previous terms, it means those borrowers could pay less each month.

    “It is obviously a way to alleviate the debt payment burden,” said Hong.

    According to calculations by E-House, if a bank extends the upper age limit to 80, borrowers aged from 40 to 59 can get 10 additional years on their mortgages. Assuming their mortgage is one million yuan ($145,416), then their monthly payment can be reduced by 1,281 yuan ($186), or 21%.

    Chinese households have grown reluctant to purchase new homes in the past year, as the now-defunct Covid curbs, falling home prices and rising unemployment have discouraged would-be buyers. Last summer, protests that erupted in dozens of cities were staged by people refusing to pay mortgages on unfinished homes, dealing a further blow to market sentiment.

    Authorities have rolled out a flurry of stimulus measures to try to revive the housing market, including several cuts to lending rates and measures to ease the liquidity crisis for developers — so that they can resume stalled construction and deliver pre-sold homes to buyers as quickly as possible.

    Other than Beijing, some banks in Nanning, the provincial capital of Guangxi province, have raised the upper age limit on mortgages to 80, according to the city’s official newspaper Nanguo Zaobao.

    In the eastern cities of Ningbo and Hangzhou, several local lenders are advertising age limits of 75 or 80, a relaxation from previous rules, according to reports by government-owned Ningbo Daily and Hangzhou Daily.

    “If the applicant is too old to meet the loan requirement, they can have their children as the guarantor,” a lender was quoted as saying.

    But Wang Yuchen, a real estate lawyer at Beijing Jinsu Law Firm, warned such mortgages were “risky.”

    It’s understandable that many cities are trying to revive their housing markets by reducing the monthly debt payment and enlisting more elderly people into the pool of home buyers, he said in a written commentary on his WeChat account.

    “But the elderly have relatively poor repayment ability. On the one hand, it could affect their quality of life in old age, as they continue carrying the mortgage debt mountain and work for the bank until the last moment of their lives,” he said. “On the other hand, the associated risks may be transferred to their children, increasing their financial pressure.”

    “For some home buyers, choosing this way to purchase a house is probably because of their lack of funds. But it’s risky to do so at this time,” he said, adding that the property market is in a structural downturn and the government is still working to curb speculation.

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  • Inflation pushes up mortgage rates for second week in a row | CNN Business

    Inflation pushes up mortgage rates for second week in a row | CNN Business


    Washington, DC
    CNN
     — 

    Mortgage rates climbed higher for the second consecutive week, following four weeks of declines. Inflation is running hotter, making rates more volatile, with the expectation that they will move in the 6% to 7% range over the next few weeks.

    The 30-year fixed-rate mortgage averaged 6.32% in the week ending February 16, up from 6.12% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 3.92%.

    After climbing for most of 2022, mortgage rates had been trending downward since November, as various economic indicators indicated inflation may have peaked. But a stronger-than-expected jobs report and a Consumer Price Index report that showed inflation is only moderately easing suggest the Federal Reserve could continue hiking its benchmark lending rate in its battle against inflation.

    Inflation is keeping mortgage rates volatile, said Sam Khater, Freddie Mac’s chief economist.

    “The economy is showing signs of resilience, mainly due to consumer spending, and rates are increasing,” said Khater. “Overall housing costs are also increasing and therefore impacting inflation, which continues to persist.”

    The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. Many buyers who put down less money upfront or have less than ideal credit will pay more than the average rate.

    Investors are digesting the latest economic data, said George Ratiu, Realtor.com manager of economic research.

    The Fed does not set the interest rates that borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

    “While the Fed signaled that it will continue to raise rates this year, the moves are expected to come in 25 basis point increments, a less aggressive tightening than what we saw in 2022,” said Ratiu. “The central bank is acknowledging that it sees its monetary actions having a tangible effect on inflation. The CPI data out this week seems to confirm the bank’s views.”

    At the same time, he said, many companies expect the economy will enter a recession as a result of the Fed’s rate hikes, even in the face of data pointing to continued resilience.

    “This expectation is becoming more visible in the growing number of companies resorting to layoffs as a hedge against a potential economic slowdown,” he said. “People who are laid off pull back on spending, and even those who are still employed may begin to do the same due to worries about losing their job, thus potentially sending consumer spending into a downward spiral.”

    For home buyers, the cost of financing a home is expected to go up.

    Already, rates have been climbing in recent weeks, leading to a drop in mortgage applications. Last week, applications fell 7.7% from one week earlier, according to the Mortgage Bankers Association.

    Buyers are proving to be interest rate sensitive, according to MBA.

    “Purchase applications dropped to their lowest level since the beginning of this year and were more than 40% lower than a year ago,” said Joel Kan, MBA’s vice president and deputy chief economist. “Potential buyers remain quite sensitive to the current level of mortgage rates, which are more than two percentage points above last year’s levels and have significantly reduced buyers’ purchasing power.”

    Mortgage rates are expected to move in the 6% to 7% range over the next few weeks, said Ratiu.

    For housing markets, he said, “the rebound in rates translates into higher mortgage payments, adding pressure on homebuyers.”

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  • US regulator orders crypto firm to stop minting Binance stablecoin | CNN Business

    US regulator orders crypto firm to stop minting Binance stablecoin | CNN Business


    Hong Kong
    CNN
     — 

    New York’s top financial regulator has ordered a crypto company to stop minting a major stablecoin, widening a clampdown on the embattled digital assets sector.

    Paxos, a blockchain company, announced Monday that it had been instructed by the New York State Department of Financial Services (NYDFS) to stop issuing BUSD, a Binance-branded stablecoin pegged to the US dollar.

    The firm said in a statement that it would stop issuing the token on February 21. The ones already circulating “have and always will be” backed one-to-one with US dollar reserves, it added.

    Paxos has told customers they will be able to redeem their BUSD through February 2024, with options to redeem funds in US dollars or to convert their tokens to Pax Dollar, another stablecoin issued by the company.

    Paxos also said it would “end its relationship” with Binance, the world’s largest crypto exchange. It did not give detail on why the regulator had ordered it to stop issuing BUSD.

    In a statement, the NYDFS told CNN the order was “a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance.”

    “The department is monitoring Paxos closely to verify that the company can facilitate redemptions in an orderly fashion subject to enhanced, risk-based, compliance protocols,” it said.

    BUSD is one of the world’s most popular stablecoins, with a circulation of 15.8 billion tokens, according to CoinMarketCap.

    Stablecoins are digital currencies that are designed to hold steady. They’re usually pegged to real-world assets such as gold or the US dollar.

    In a statement to CNN, Binance stressed that, although its name appeared on the coin, “BUSD is a stablecoin wholly owned and managed by Paxos.”

    “Binance licenses its brand to Paxos for use with BUSD, which is entirely owned by Paxos and regulated” by New York authorities, the exchange said.

    The BUSD news has unsettled investors. Binance suffered one of its worst-ever days in terms of withdrawals on Monday, with $873 million in net outflows, according to data provider Nansen.

    “Clearly there’s a number of traders and investors moving to take their funds off the exchange,” Andrew Thurman, Nansen’s content lead, told CNN.

    He noted that Binance had seen worse days. In December, a deluge of bad press caused investor jitters, sparking outflows of as much as $3 billion.

    This time, “investors are still trying to digest the news,” Thurman added.

    “We’re seeing some indecision from the market trying to decide if this is a case of agencies going after one bad instance of a stablecoin, or trying to shut stablecoins down entirely.”

    In its statement, Binance warned that the move to stop minting BUSD would hurt users and “only decrease” the token’s market capitalization over time.

    “Stablecoins are a critical safety net for investors seeking refuge from volatile markets, and limiting their access would directly harm millions of people across the globe,” the firm said.

    Martin Lee, a data journalist for Nansen, told CNN that Binance had few options to counter the ban.

    “Over time, the supply will drop as redemptions happen,” he said.

    But “in terms of confidence in the exchange as a whole,” Binance will likely retain users as long as customer deposits continue to be protected and users can still convert BUSD to other stablecoins, Lee added.

    Starting last year, the digital financial assets sector has been weathering a so-called “crypto winter,” sparked by the collapse of TerraUSD, an algorithmic stablecoin, in May.

    Then FTX, one of the world’s biggest crypto exchanges at the time, went bankrupt in November, deepening the crisis in the industry.

    As a result, digital asset companies are facing tighter regulatory scrutiny around the world.

    Last week, the US Securities and Exchange Commission said overseeing crypto assets was a key priority for 2023.

    The SEC also reached a $30 million settlement with cryptocurrency platform Kraken last Thursday. The agreement will force the company to unwind a program offering investment returns to US users who committed their digital assets to the company.

    That practice, known as “staking,” reflected an unregistered offer and sale of securities, the SEC alleged in a complaint.

    Hong Kong has also announced plans for new regulations. The city, which hopes to become a virtual assets hub, announced plans last month to adopt new rules for stablecoins, including licensing requirements for businesses.

    According to crypto advocates, the growing global clampdown could undermine the ecosystem for digital assets.

    — CNN’s Brian Fung contributed to this report.

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