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  • Everything you need to know about Biden’s student loan forgiveness program | CNN Politics

    Everything you need to know about Biden’s student loan forgiveness program | CNN Politics

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    Washington
    CNN
     — 

    President Joe Biden’s federal student loan forgiveness program, which promises to deliver up to $20,000 of debt relief for millions of borrowers, is on hold indefinitely as legal challenges work their way through the courts.

    About 26 million people had already applied by the time a federal district court judge struck down the program on November 10 – prompting the government to stop taking applications. No debt has been canceled thus far.

    The administration officially launched the application on October 17, following a brief “beta period” during which its team assessed whether tweaks were needed.

    If the courts ultimately allow the program to move forward, not every student loan borrower is eligible for the debt relief. First, only federally held student loans qualify. Private student loans are excluded.

    Second, high-income borrowers are generally excluded from receiving debt forgiveness. Individual borrowers who make less than $125,000 a year and married couples or heads of households who make less than $250,000 annually will see up to $10,000 of their federal student loan debt forgiven.

    If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 of debt forgiveness. Pell grants are awarded to millions of low-income students each year, based on factors including their family’s size and income and the cost charged by their college. These borrowers are also more likely to struggle to repay their student debt and end up in default.

    Here’s what else borrowers need to know about the new student loan forgiveness plan:

    It’s unclear when, or if, borrowers will see debt relief under Biden’s program.

    Administration officials expected to be able to grant relief before federal student loan payments are set to resume in January, when the pandemic-related pause expires. But now that timeline is in jeopardy.

    The White House has said that it has already approved 16 million applications for debt relief. The Department of Education will hold on to that information so it can quickly process those borrowers’ relief if the government prevails in court.

    If and when the program moves forward, an estimated 8 million borrowers may receive debt relief automatically because the Department of Education already has their income on file.

    If the government restarts taking applications, borrowers can apply online here: https://studentaid.gov/debt-relief/application.

    Applicants can expect to receive an email confirmation once their application is successfully submitted. Then, borrowers will be notified by their loan servicer when the debt cancellation has been applied to their account.

    Borrowers were expected to have until December 31, 2023, to submit an application.

    There are a variety of federal student loans and not all are eligible for relief. Federal Direct Loans, including subsidized loans, unsubsidized loans, parent PLUS loans and graduate PLUS loans, are eligible.

    But federal student loans that are guaranteed by the government but held by private lenders are not eligible unless the borrower applied to consolidate those loans into a Direct Loan by September 29.

    The Department of Education initially said these privately held loans, many of which were made under the former Federal Family Education Loan program and Federal Perkins Loan program, would be eligible for the one-time forgiveness action – but reversed course in September when six Republican-led states sued the Biden administration, arguing that forgiving the privately held loans would financially hurt states and student loan servicers.

    Defaulted Federal Family Education Loans and defaulted Perkins Loans are still eligible for the debt relief even if they are privately held.

    If Biden’s program is allowed to move forward, eligibility is based on a borrower’s adjusted gross income for either tax year 2020 or 2021. Adjusted gross income can be lower than your total wages because it considers tax deductions and adjustments, like contributions made to a 401(k) retirement plan.

    A taxpayer’s adjusted gross income can be found on line 11 of IRS Form 1040.

    The Department of Education says it already had income information for nearly 8 million borrowers, likely because of financial aid forms or previously submitted income-driven repayment plan applications. If the program is allowed to move forward, those borrowers will automatically receive the debt relief if they meet the income requirement, unless they choose to opt out. The department has said it will email borrowers who will be considered for debt relief but don’t need to apply.

    Millions of other borrowers will need to apply for student loan forgiveness if the Department of Education doesn’t have their income information on file. When they submit the application, borrowers are required to self-attest that their income is under the eligibility threshold. They are required to certify that the information provided is accurate upon penalty of perjury.

    The Biden administration has said that applicants who are “more likely to exceed the income cutoff” will be required to submit additional information, like a tax transcript. Officials expect that just 5% of borrowers with eligible federal student loans would not qualify due to the income threshold.

    Borrowers will not have to pay federal income tax on the student loan debt forgiven, thanks to a provision in the American Rescue Plan Act that Congress passed last year.

    But it’s possible that some borrowers may have to pay state income tax on the amount of debt forgiven. There are a handful of states that may tax discharged debt if state legislative or administrative changes are not made beforehand, according to the Tax Policy Center. The tax liability could be hundreds of dollars, depending on the state.

    Yes, some current students are eligible. Eligibility for borrowers who filed the Free Application for Federal Student Aid, known as the FAFSA, as an independent will be based on the individual’s own household income.

    Eligibility for borrowers who are enrolled as dependent students, generally those under the age of 24, will be based on parental income for either 2020 or 2021.

    Yes, if your income meets the eligibility threshold.

    Yes, if your income meets the eligibility threshold. A parent borrower with federal Parent PLUS loans for multiple children is still only eligible for up to $20,000 of loan forgiveness.

    But a parent is only eligible for up to $20,000 in debt relief if he or she received a Pell grant for his or her own education. If only the child received a Pell grant, the parent is eligible for up to $10,000 in forgiveness.

    Most borrowers can log in to Studentaid.gov to see if they received a Pell grant while enrolled in college. Information about Pell grants received is displayed on the account dashboard and on the My Aid page. This is also where borrowers can find out how much they owe and what kind of loans they have.

    Borrowers who received a Pell grant before 1994 won’t see their Pell grant information online, but they are still eligible for the $20,000 in student loan forgiveness.

    As long as borrowers received at least one Pell grant, they are eligible.

    The Biden administration has said that eligible borrowers who have received Pell grants will automatically receive the additional debt relief.

    Yes, defaulted federal student loans are eligible for debt relief.

    For borrowers who have a remaining balance on their defaulted student loans after the cancellation is applied, there will be an opportunity to get out of default once payments resume in January 2023 as part of what the Department of Education is calling its “Fresh Start” initiative.

    The Biden administration is facing several lawsuits over the student loan forgiveness program. Many of the plaintiffs argue that the Department of Education is overstepping its authority.

    In one case, a federal judge in Texas struck down the program on November 10, declaring it illegal. The Department of Justice has appealed the ruling to the 5th US Circuit Court of Appeals, but debt relief is on hold while that case plays out.

    Previously, the 8th US Circuit Court of Appeals put a temporary, administrative hold on the program on October 21, barring the administration from canceling loans covered under the policy while the court considers a challenge brought by six Republican-led states. The appeals court then granted an injunction on the program on November 14, which will remain in place until the appeals court, or the Supreme Court, issues a further order in the case.

    A lower court judge dismissed the lawsuit on October 20, ruling that the plaintiffs did not have the legal standing to bring the challenge.

    On the same day as the lower court dismissal, Supreme Court Justice Amy Coney Barrett rejected a separate challenge to Biden’s student loan forgiveness program, declining to take up an appeal brought by a Wisconsin taxpayers group.

    The Biden administration is also facing lawsuits from Arizona Attorney General Mark Brnovich and the Cato Institute, a libertarian think tank.

    Lawyers for the government say that Congress gave the secretary of education “expansive authority to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies,” like the Covid-19 pandemic, according to a memo from the Department of Justice.

    Borrowers who have debt remaining after either $10,000 or $20,000 is wiped away could see their monthly payment amounts recalculated if they are enrolled in a standard repayment plan. Under a standard repayment plan, borrowers pay a fixed amount that ensures loans are paid off within 10 years.

    Borrowers who are already enrolled in an income-driven repayment plan are not likely to see their monthly payment amounts change due to the forgiveness, because their payments are based on household income and family size.

    Borrowers have not been required to make payments on their federal student loans since March 2020 because of the government’s pandemic-related pause. Biden has extended the pause through the end of this year, and payments will resume in January 2023.

    Along with Biden’s August announcement about canceling some federal student loan debt, he also said he would create a new plan that would make repayment more manageable for borrowers.

    There are currently several repayment plans available for federal student loan borrowers that lower monthly payments by capping them at a portion of their income.

    The new income-driven repayment plan that Biden is expected to propose would cap payments at 5% of a borrower’s discretionary income, down from 10% that is offered in most current plans, as well as reduce the amount of income that is considered discretionary. It would also forgive remaining balances after 10 years of repayment, instead of 20 years.

    Biden is also proposing that the new plan cover the borrower’s unpaid monthly interest. This could be very helpful for people whose monthly payments are so low that they don’t cover their monthly interest charge and end up seeing their balances explode, growing larger than what was originally borrowed.

    But we don’t know when these changes will take effect. The Department of Education has not provided any sense of timing, but has said it will propose a new rule to create the repayment plan. The department’s formal rule-making process usually includes soliciting public comments and can take months, if not more than a year.

    Yes. Borrowers have not been required to make payments on their federal student loans since March 13, 2020, because of the pandemic-related pause. But if borrowers did make payments, they are allowed to contact their loan servicer to request a refund.

    This story has been updated with additional information.

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  • Crypto crisis continues. Here’s the latest on the FTX collapse | CNN Business

    Crypto crisis continues. Here’s the latest on the FTX collapse | CNN Business

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    New Delhi
    CNN Business
     — 

    Aftershocks from the massive earthquake in the trillion-dollar crypto industry last week continued to be felt on Monday.

    Prices of digital currencies fell again as the crisis engulfing the market deepened over the weekend. Bitcoin, the world’s biggest crypto has plummeted about 65% so far this year. It was trading at about $16,500 on Monday, according to CoinDesk, and analysts believe that it could fall below $10,000 in the coming days.

    Meanwhile, the world’s second most valuable cryptocurrency ethereum isn’t faring much better. It was trading at $1,231.53 on Monday, having sunk over 20% over the last week, CoinDesk data showed.

    The plunge comes as investors continue to grapple with the stunning implosion of the FTX Group, one of the biggest and most powerful players in the industry.

    Some industry insiders have said the company’s downfall had triggered a “Lehman moment,” referring to the 2008 collapse of the investment bank that sent shockwaves around the world.

    The episode has not just destroyed confidence in the crypto industry, but it will also embolden global regulators to tighten the screws. Some of the biggest names in the business said they will welcome the scrutiny, if it helps restore faith in the industry once again.

    There is a “lot of risk,” said Changpeng Zhao, who runs the crypto exchange Binance. “We have seen in the past week things go crazy in the industry, so we do need some regulations, we do need to do this properly,” he added.

    The Binance boss, known as CZ, was speaking at a conference in Indonesia on Monday. He said last week that comparing the current crypto turmoil to the 2008 global financial crisis is “probably an accurate analogy.”

    Zhao was a key player in events surrounding the downfall of FTX. Binance had reached a tentative rescue deal with FTX earlier last week, but that transaction almost immediately fell apart.

    FTX continued its downward spiral over the weekend, after filing for bankruptcy on Friday. And, another big name from the industry admitting to mishandling funds, spooking investors even more.

    Here is how things have unfolded over the last few days, showing the crisis has only just begun.

    FTX moved its headquarters from Hong Kong to The Bahamas last year, with former CEO Sam Bankman-Fried hailing it as “one of the few places to set up a comprehensive framework for crypto” at the time.

    On Sunday, the authorities in The Bahamas said they were investigating potential criminal misconduct surrounding the company’s implosion.

    “In light of the collapse of FTX globally and the provisional liquidation of FTX Digital Markets Ltd., a team of financial investigators from the Financial Crimes Investigation Branch are working closely with the Bahamas Securities Commission to investigate if any criminal misconduct occurred,” the Royal Bahamas Police Force said in a statement.

    It’s not clear which particular aspect of the swift collapse of FTX authorities are investigating.

    Bankman-Fried, the 30-year-old founder of the exchange, was one of the faces of the crypto industry, amassing a fortune once totaling $25 billion that has since vanished. He had been viewed as the crypto world’s white knight, stepping in previously to rescue companies struggling after the collapse of the TerraUSD stablecoin in May.

    FTX, backed by elite investors like BlackRock and Sequoia Capital, rapidly became one of the biggest crypto exchanges in the world. Its collapse was preceded by the decision to lend billions of dollars’ worth of customer assets to fund risky bets by Alameda, FTX’s crypto hedge fund, The Wall Street Journal reported on Thursday.

    The Bahamas probe came a day after the bankrupt exchange said it was launching an investigation of its own.

    On Saturday, FTX said it was looking into whether crypto assets were stolen and has since moved all its digital assets offline. Crypto risk management firm Elliptic said although the theft was unconfirmed, $473 million in crypto assets were apparently stolen from FTX.

    In a tweet early Saturday, FTX General Counsel Ryne Miller said the company “initiated precautionary steps” and moved all its digital assets to cold storage. The process was “expedited” Friday evening “to mitigate damage upon observing unauthorized transactions,” Miller said in a tweet.

    Miller said late Friday that FTX was “investigating abnormalities” regarding movements in crypto wallets “related to consolidation of FTX balances across exchanges.” The facts are still unclear and the company will share more information as soon as possible, he added.

    As scrutiny of big players in the crypto world increases, another major mishap alarmed investors over the weekend. Singapore-based Crypto.com admitted to accidentally sending more than $400 million in ethereum to the wrong account.

    Its CEO, Kris Marszalek, said on Twitter Sunday the transfer of 320,000 ETH was made three weeks ago to a corporate account at competing exchange Gate.io, instead of to one of its offline, or “cold”, wallets.

    And though the funds were recovered, users are withdrawing from the platform fearing the same outcome as FTX.

    ‘We have since strengthened our process and systems to better manage these internal transfers,” Marszalek tweeted Sunday. The platform’s native token has fallen over 20% in the last 24 hours, according to CoinDesk on Monday.

    At the conference in Bali, Binance boss Zhao signaled that regulating the industry won’t be easy.

    Authorities’ “natural response is to borrow regulations from traditional banking systems… but crypto exchanges operate very, very differently from banks,” he said Monday.

    “It is very very normal for a bank to move user assets for investments and try to make returns,” he explained. If a crypto exchange operates that way it is “almost guaranteed to go down,” he said, adding that the industry collectively had a role to play in protecting consumers.

    “Regulators have a role… but no can can protect a bad player,” he said.

    — Matt Egan, Ramishah Maruf and Allison Morrow contributed to this report.

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  • Opinion: The judge blocking student loan relief for millions is wrong about the law | CNN

    Opinion: The judge blocking student loan relief for millions is wrong about the law | CNN

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    Editor’s Note: Steve Vladeck is a CNN legal analyst and a professor at the University of Texas School of Law. He is the author of the upcoming book “The Shadow Docket: How the Supreme Court Uses Stealth Rulings to Amass Power and Undermine the Republic.” The opinions expressed in this commentary are his own. View more opinion at CNN.



    CNN
     — 

    The legal battles over President Joe Biden’s student loan debt relief program heated up on Thursday, when the Fort Worth, Texas-based Judge Mark Pittman, a Trump appointee, struck down the program and issued a nationwide injunction purporting to block it across the country.

    Biden’s program aims to provide eligible low- and middle-income borrowers $10,000 in federal student loan forgiveness – or up to $20,000 if they also received a Pell grant while in college. Before the program was put on hold, it had already received 26 million applications.

    But for Pittman, the central problem with the program is that its sheer economic size required clearer authorization from Congress than that provided by the 2003 statute on which the executive branch is relying. Invoking the Supreme Court’s new and deeply contested “major questions doctrine,” Pittman’s ruling would, if left intact, make it impossible for the program to be rescued without Congress stepping in.

    But the biggest problem with Pittman’s ruling isn’t its substance; it’s why he allowed the case to be brought in the first place. Every other challenge to the Biden program that’s been brought thus far (and there have been a bunch) have been thrown out by trial courts – the term courts use as a shorthand for whether the dispute before them is the kind of controversy over which the Constitution allows them to exercise judicial power.

    In a nutshell, a case’s standing has three elements: That the plaintiff shows an “injury in fact”; that the injury is “fairly traceable” to the defendant’s allegedly wrongful conduct; and that the courts are able to provide at least some redress for their injuries.

    Although standing is a technical doctrine, it’s also an important one. As Justice Samuel Alito wrote in a 2007 opinion, “No principle is more fundamental to the judiciary’s proper role in our system of government.”

    Basically, the idea is that it’s not the federal courts’ job to answer hypothetical questions or resolve policy disputes. Only if a party can show how they’ve been harmed by the challenged policy in a manner that is concrete and particularized – real and discrete – will they (usually) be allowed to challenge it.

    If the complaint is just that the government is acting unlawfully in a way that doesn’t affect plaintiffs personally, that’s a matter to be resolved through the political process – not a judicial one. As Justice Antonin Scalia put it 30 years ago, “vindicating the public interest (including the public interest in Government observance of the Constitution and laws) is the function of Congress and the Chief Executive.”

    That’s why, until Thursday, each court to rule on a lawsuit challenging the Biden student loan debt relief program had dismissed the suit for lack of standing, like the St. Louis-based federal district court in a suit brought by six red states. Whether the plaintiffs were taxpayers or states, the problem was the same: Like it or hate it, when the government hands out a benefit to a class of individuals, that doesn’t usually injure other individuals discretely.

    Instead, objections to the Biden program present the classic kind of “generalized grievance” that the Supreme Court has long held federal courts lack the constitutional authority to resolve – like when a taxpayer tried to sue the CIA in an attempt to force the agency to provide a public accounting of its (allegedly unlawful) expenditures.

    Against that backdrop, Judge Pittman’s holding that the two plaintiffs in his case had standing just doesn’t hold up. For both of them – Myra Brown and Alexander Taylor – Pittman tied their standing to the fact that they are partly or fully ineligible for the program. The injury they suffered, in Pittman’s view, is that they were unable to argue for more expansive eligibility criteria that would’ve included them – not that the program itself is unlawful. That reasoning, such as it is, is especially ironic for two reasons.

    First, Pittman recognized later in the same opinion that the Biden administration didn’t need to provide Brown and Taylor with an opportunity to argue for expanded eligibility criteria – because the law the program is based on is exempt from the administrative law requirement known as “notice-and-comment rulemaking.” So they had standing based on an injury Pittman held … didn’t exist.

    Second, the rest of Pittman’s analysis – that there was no means by which the Biden administration could have expanded the eligibility criteria, since the program itself is, in his view, unlawful – makes it impossible for Brown or Taylor to show how their injuries could have been redressed by the courts. Indeed, Pittman’s ruling blocking the program on a nationwide basis provides Brown and Taylor with precisely … nothing.

    The Biden administration has already announced its intent to appeal Pittman’s ruling to the ultra-conservative US Court of Appeals for the Fifth Circuit, and it’s likely that whoever loses there will take the matter to the Supreme Court. So Pittman is unlikely to have the last word. But it’s still worth taking a step back and reflecting on the lengths to which Pittman went to find standing in a context in which every other court to date has held it doesn’t exist.

    Part of what Pittman might be chafing against is the idea that the federal government could take any action that might be immune to judicial review (during one hearing in the case, he compared Congress’ delegation of authority to the executive branch under the relevant statute to the infamous 1933 Enabling Act in Germany). But the federal government takes actions courts can’t review. Indeed, it’s the conservatives on the Supreme Court who have spent much of the past 40 years tightening the requirements for standing – and making it harder for plaintiffs to challenge allegedly wrongful government action. Reasonable minds can dispute – and have disputed – those precedents, but they’ve become the foundation of contemporary federal courts doctrine.

    In that respect, Pittman’s ruling, and the public discourse surrounding the student loan debt relief program more generally, is also a helpful reminder that not every policy dispute should lead to litigation – and that it’s not the job of the courts to resolve every contentious issue in American politics.

    For if Justice Alito was right that “no principle is more fundamental to the judiciary’s proper role in our system of government” than the idea that courts can only decide cases that present actual, justiciable controversies between adverse parties, then that principle ought to prevail even against the most strenuous (if not well-taken) objections to the government policy being challenged. Otherwise, the courts aren’t acting as courts; they’re just taking sides in policy debates that no one elected them to resolve.

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  • This oil refiner is cutting 1,100 jobs — and giving billions of dollars to its shareholders | CNN Business

    This oil refiner is cutting 1,100 jobs — and giving billions of dollars to its shareholders | CNN Business

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    New York
    CNN
     — 

    Phillips 66 is cutting at least 1,100 jobs by the end of this year as the refining giant seeks to slash costs and steer a larger chunk of its soaring profits to shareholders.

    At its investor day meeting in New York Wednesday, Phillips 66 detailed plans to slim down in a bid to save about $1 billion in annual costs.

    In a presentation to shareholders, the refiner projected a workforce of under 12,900 people by the end of this year, down from 14,000 last year and 14,300 in 2020.

    Phillips 66 spokesperson Bernardo Fallas said the smaller workforce was driven by a combination of attrition and eliminated positions.

    Most of the job cuts have already taken place and were communicated to employees in late October, the spokesperson said, adding that recent attrition levels significantly lowered the number of employees impacted.

    The layoffs come despite the fact that Phillips 66, one of the nation’s largest refiners, has raked in $9.1 billion in profit so far this year, up from just $44 million a year ago. The company’s share price has soared 45% so far this year, easily outperforming the 20% decline for the broader S&P 500.

    “Phillips 66 is undergoing a company-wide effort to optimize its cost structure and reimagine its operating model to enable sustainable savings,” the spokesperson said.

    Houston-based Phillips 66 said the cost-cutting moves, along with other steps, will give the company more financial firepower to boost stock buybacks and dividends.

    Phillips 66 said it plans to return an additional $10 billion to $12 billion to shareholders between mid-2022 and the end of 2024.

    “We are announcing a number of priorities designed to reward shareholders,” Phillips 66 CEO Mark Lashier said in a statement.

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  • What midterm elections could mean for the US economy | CNN Business

    What midterm elections could mean for the US economy | CNN Business

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    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 Business
     — 

    Tuesday’s midterm elections come at a time of economic vulnerability for the United States. Recession predictions have largely turned to “when” not “if” and inflation remains stubbornly elevated. Americans are feeling the pain of rising interest rates and are facing a winter filled with geopolitical tension.

    The results of Tuesday’s election will determine the makeup of a Congressional body that holds the potential to enact policies that will fundamentally change the fiscal landscape.

    Here’s a look at what policy issues investors will pay particular attention to as they digest election results.

    Tax changes: Last week, President Joe Biden suggested he may impose a windfall tax on Big Oil companies after they recorded record profits on high gas prices. Republicans would be less likely to approve that windfall tax on oil company profits and also are generally not in favor of tax hikes on the wealthy, reports my colleague Paul R. La Monica.

    “What do midterms mean for the markets? If Republicans get the House, tax hikes are dead in the water,” said David Wagner, a portfolio manager with Aptus Capital Advisors.

    What about tax cuts? If Republicans do take control of Congress, it would be difficult to enact any major tax reductions without some backing from Democrats or President Biden, meaning there could be grandstanding without much action.

    Debt limit: The federal debt ceiling was last lifted in December 2021 and will likely be hit by the Treasury at some point next year. That means it will need to be raised again in order to ensure that America can borrow the money it needs to run its government and ensure the smooth operation of the market for US Treasuries, totaling roughly $24 trillion.

    A fight seems to be brewing between Democrats and Republicans. House Republicans indicate that they may ask for steep spending cuts in exchange for boosting the ceiling.

    If the government ends up divided and brinkmanship continues, there could be bad news for markets. The last time such gridlock occurred, under the Obama administration in 2011, the United States lost its perfect AAA credit rating from Standard & Poor and stocks dropped more than 5%.

    Spending: Democrats have indicated that they intend to focus on parts of the fiscal agenda proposed by President Biden in 2021 that have not yet become law, including expanding health coverage and child care tax credits. A Republican win or gridlock could table that. Goldman Sachs economists also note that a Democratic victory could likely increase the federal fiscal response in the event of recession, while Republicans would be more likely to avoid costly relief packages.

    Social Security: Popular programs like Social Security and Medicare face solvency issues long-term and the topic has become a hot-button issue on both sides of the aisle. The topic is so closely watched that even debating changes could impact consumer confidence, say analysts.

    Democratic Senator Joe Manchin said last week that spending changes must be made to shore up Social Security and other programs which he said were “going bankrupt.” He said at a Fortune CEO conference that he was in favor of bipartisan legislation within the next two years to confront entitlement programs that are facing “tremendous problems.” Republican Senator Rick Scott has proposed subjecting almost all federal spending programs to a renewal vote every five years. Analysts say that could make Social Security and Medicare more vulnerable to cuts.

    The Federal Reserve: Lawmakers have been increasingly speaking out against the pace of the Federal Reserve’s interest rate hikes meant to fight inflation. Democratic Senators Elizabeth Warren, alongside Banking Chair Sherrod Brown, John Hickenlooper and others have called on Fed Chair Jerome Powell to slow the pace of hikes.

    Now, Republicans are getting involved. Senator Pat Toomey, the top Republican on the Banking Committee, asked Powell last week to resist buying government debt if market conditions remain subdued. Expect more scrutiny from both parties after the elections.

    The stock market under President Biden started with a boom, but as we head into midterm elections, markets are going bust, reports my colleague Matt Egan.

    As of Monday, the S&P 500 has fallen by 1.2% since Biden took office in January 2021. That marks the second-worst performance during a president’s first 656 calendar days in office since former President Jimmy Carter, according to CFRA Research.

    Out of the 13 presidents since 1953, Biden ranks ninth in terms of stock market performance through this point in office, besting only former Presidents George W. Bush (-32.8%), Carter (-8.9%), Richard Nixon (-17.2%) and John F. Kennedy (-2.1%), according to CFRA.

    By contrast, Biden’s two immediate predecessors headed into their first midterm election with stock markets surging. The S&P 500 climbed 52.2% during the first 656 calendar days in office for former President Barack Obama and 23.9% under former President Donald Trump, according to CFRA.

    American consumers borrowed another $25 billion in September, according to newly released Federal Reserve data, as higher costs led to further dependence on credit cards and other loans, reports my colleague Alicia Wallace.

    In normal economic times, that would be a concerningly large jump, said Matthew Schulz, chief credit analyst for LendingTree, wrote in a tweet. “However, it is actually the second-smallest increase in the past year.” Economists were anticipating monthly growth of $30 billion, according to Refinitiv consensus estimates.

    The data is not adjusted for inflation, which is at decade highs and weighing heavily on Americans, outpacing wage gains and forcing consumers to rely more heavily on credit cards and their savings.

    In the second quarter of this year, credit card balances saw their largest year-over-year increases in more than two decades, according to separate data from the New York Federal Reserve. The third-quarter household debt and credit report is set to be released Nov. 15.

    Correction: A previous version of this article incorrectly stated the number of calendar days in the analysis as well as the stock market performance under various US presidents during that period.

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  • Why is the Powerball prize at a record? Thank Fed Chairman Jerome Powell | CNN Business

    Why is the Powerball prize at a record? Thank Fed Chairman Jerome Powell | CNN Business

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    New York
    CNN Business
     — 

    One of the reasons for the record $1.9 billion jackpot for the Powerball drawing Monday night is something you wouldn’t expect — the recent run of steep interest rate hikes from the Federal Reserve.

    That’s because the size of the advertised $1.9 billion top prize is the amount winners would get, which involves taking 30 equal payments of about $63 million spread out over the next 29 years. Those payments come from an annuity purchased by the lottery sponsors, and the payments factor in an average rate of return

    But the thing is, the real prize is far more likely to be a much smaller lump sum, the “cash value” – in this case $929.1 million – that never gets any attention.

    “All anyone ever talks about is the annuity prize,” said Victor Matheson, professor of economics and accounting at the College of the Holy Cross in Massachusetts. “It’s the number the lotteries market. It’s the number in the news story. But it’s the number that almost no one ever takes.”

    No Powerball winner since 2014 has chosen the “larger” annuity amount over the cash prize.

    The cash value is the amount the prize would actually cost the lottery, either in a lump-sum payment now, or to buy an annuity to make those 29 subsequent payments. The current environment of rising interest rates has opened the door to ever-larger annuity payments.

    In the low interest rate environment of recent years, the advertised annuity price was only about 50% or 60% bigger than the cash value, or sometimes less.

    The largest Powerball jackpot ever won was in January 2016 when three winners split a prize advertised at $1.586 billion. Each took their share of the cash value, which added up to $983.5 million, which was $54.4 million more than cash prize in Monday’s “record” drawing.

    That advertised then-record annuity prize was 61% greater than the cash prize. This time, the estimated annuity prize is 104% greater than the cash prize. If it was the same ratio as in 2016, Monday’s annuity prize would be only $1.5 billion.

    And interest rates were as low as they were in January of this year, Monday’s annuity rate would be only $130 million.

    The current prize assumes a return on the cash value of about 5.75% a year, Matheson said.

    But even a conservative investor in stocks could likely do better by taking the money up front and investing it, not withstanding the swings in the stock market. The Standard & Poor’s 500 has risen 728% in the 29 years since October 1993, or a compounded annual average growth rate of about 7.5%.
    The larger assumed return associated with Monday’s annuity prize might make it more attractive to the next big winner or winners, said Matheson.

    Then again, a disinclination to accept deferred gratification could overcome any investment assumptions or tax planning that goes into the winner’s calculations.

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  • Britons given extra day’s holiday to celebrate King’s coronation | CNN

    Britons given extra day’s holiday to celebrate King’s coronation | CNN

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    London
    CNN
     — 

    British Prime Minister Rishi Sunak announced Sunday there would be a public holiday to celebrate the coronation of King Charles III next year.

    Sunak said the bank holiday would fall on Monday, May 8, following the coronation two days earlier.

    Charles, 73, automatically became monarch in September on the death of his mother, Queen Elizabeth II. Days later, he was formally confirmed as the new King of the United Kingdom in a ceremony at St. James’ Palace.

    The British government said in a statement that the move was in line with the bank holiday that accompanied the late Queen’s coronation in 1953. The day off would be an opportunity for families and communities across the United Kingdom to come together to celebrate, it added.

    “The Coronation of a new monarch is a unique moment for our country,” Sunak said. “In recognition of this historic occasion, I am pleased to announce an additional bank holiday for the whole United Kingdom next year.

    “I look forward to seeing people come together to celebrate and pay tribute to King Charles III by taking part in local and national events across the country in his honour.”

    Buckingham Palace announced last month that the King’s coronation would take place on May 6 at Westminster Abbey in London, the location of every coronation since 1066. Since William the Conqueror, all but two monarchs have been crowned there. Edward V died before he could be crowned and Edward VIII abdicated.

    The service will be a more modern affair than previous royal coronations and will “look towards the future,” the palace said in a statement. It added that the occasion will still be “rooted in longstanding traditions and pageantry.”

    The occasion will also see the Queen Consort crowned in a similar but smaller ceremony.

    Experts say Charles’s coronation will be a significantly more subdued event than his mother’s, with arrangements influenced by the ongoing cost-of-living crisis in the UK.

    It’s fairly common for the government to proclaim bank holidays around royal occasions. This year, Britons have received two extra days – one for the late monarch’s funeral on September 19 and previously in June to celebrate her Platinum Jubilee.

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  • Interest rates will keep rising. How high will they go? | CNN Business

    Interest rates will keep rising. How high will they go? | CNN Business

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    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 Business
     — 

    What will the Federal Reserve do at its meeting in December? Analysts can speculate all they want, but Fed officials say they will be using hard economic data to make their next decision.

    That means key housing, labor, and inflation reports will likely have outsized effects on the market as investors speculate about what they might mean for the future of interest rates.

    What’s happening: No one can move markets like Federal Reserve Chair Jerome Powell — with just a few words on Wednesday he crushed investors’ hopes of an interest rate pivot and sent stocks plunging. “We have a ways to go,” said Powell of the Fed’s current hiking regime meant to fight persistent inflation. “It’s very premature, in my view, to think about or be talking about pausing.”

    But Powell did add an important caveat. The Fed could start to slow the pace of those painful hikes as soon as December. “Our decisions will depend on the totality of incoming data and their implications for the outlook for economic activity and inflation,” Powell said on Wednesday.

    So what will the Fed be looking at between today and its next policy decision on December 14?

    The labor market: The Fed’s biggest worry is the super-tight US labor market, and Friday’s jobs report isn’t likely to soothe any nerves.

    The government report is expected to show the economy added another 200,000 positions in October — down from last month, but still a very solid number as demand for employment continues to outpace the supply of labor.

    That means more inflation. Businesses have to pay higher wages to attract employees and are able to charge more for their goods and services. The Fed will be looking closely at hourly wage growth in the report. In September, wages rose by 5% from a year ago.

    There is a possible upside: Another jobs report in December is expected ahead of the Fed meeting. If both reports show a downward trajectory in employment, that could be enough to placate Fed officials, even if the unemployment rate remains historically low.

    Inflation data: Expect new data from two major indexes that measure the pace of inflation ahead of the next Federal Reserve meeting.

    The Consumer Price Index (CPI) for October, which tracks changes in the prices of a fixed set of goods and services, is out on November 10.

    Core CPI prices, which exclude oil and food, rose 0.6% in September month-over-month, matching August’s pace and coming in well above expectations of a 0.4% increase, not a great sign for the Fed. And analysts expect to see another large 0.5% increase in October.

    The Fed will also get to see October data from its favored measure of inflation, Personal Consumption Expenditures (PCE), on December 1.

    PCE reflects changes in the prices of goods and services purchased by consumers in the United States. The Fed believes the measure is more accurate than CPI because it accounts for a wider range of purchases from a broader range of buyers.

    Core PCE climbed by 5.1% on an annual basis in September, higher than the August rate of 4.9% but below the consensus estimate of 5.2%, per Refinitiv.

    Housing: The housing market has been deeply impacted by the Fed’s efforts to fight inflation, and is one of the first areas of the economy to show signs of cooling.

    The 30-year fixed-rate mortgage averaged 6.95% last week, up from 3.09% just a year ago, and elevated borrowing costs are leading to a decline in demand.

    “The housing market was very overheated for the couple of years after the pandemic as demand increased and rates were low,” said Powell on Wednesday. “We do understand that that’s really where a very big effect of our policies is.”

    October’s new and existing home sales numbers, due on November 18 and 23, will show the continued impact of that policy ahead of the next meeting.

    The US economy is still standing strong in the face of rising interest rates, but things are softening much more quickly across the pond.

    The United Kingdom will face hard economic times and elevated interest rates well into next year, officials warned this week.

    The Bank of England raised interest rates by three-quarters of a percentage point on Thursday, the biggest hike in 33 years, as it attempts to fight soaring inflation.

    But the bank also issued a stark warning. It said that economic output is already contracting and that it expects a recession to continue through the first half of 2024 “as high energy prices and materially tighter financial conditions weigh on spending.”

    A two-year recession would be longer than the one that followed the 2008 global financial crisis, though the Bank of England said that any declines in GDP heading into 2024 would likely be relatively small.

    The central bank also doesn’t think inflation will start to fall back until next year. That will require more interest rate hikes in the coming months, warned policymakers.

    Elon Musk has been busy over at Twitter HQ. Aside from tweeting and deleting a conspiracy theory, he’s talked about implementing some big changes at his $44 billion acquisition. Here’s what’s happened so far:

    Layoffs begin: Elon Musk began laying off Twitter employees on Friday morning, according to a memo sent to staff. The email sent Thursday evening notified employees that they will receive a notice by 12 p.m. ET Friday that informs them of their employment status.

    The email added that “to help ensure the safety” of employees and Twitter’s systems, the company’s offices “will be temporarily closed and all badge access will be suspended.”

    Twitter had around 7,500 employees prior to Musk’s takeover.

    Several Twitter employees have already filed a class action lawsuit claiming that the layoffs violate the federal Worker Adjustment and Retraining Notification Act.

    The WARN Act requires any company with over 100 employees to give 60 days’ written notice if it intends to cut 50 jobs or more at a “single site of employment.”

    Consolidating strength: In less than a week since Musk acquired Twitter, the company’s C-suite appears to have almost entirely cleared out, through a mix of firings and resignations.

    Twitter’s board of directors was also dissolved last week, according to a securities filing.

    The company filing states that all previous members of Twitter’s board, including recently ousted CEO Parag Agrawal and chairman Bret Taylor, are no longer directors “in accordance with the terms of the merger agreement.” That makes Musk, according to the filing, “the sole director of Twitter.”

    Cashing blue checks’ checks: Musk on Tuesday said he planned to charge $8 a month for Twitter’s subscription service, called “Twitter Blue,” with the promise to let anyone pay to receive a coveted blue check mark to verify their account. That’s a steep haircut from his original plan to charge users $19.99 a month to get or keep a verified account.

    In a tweet, the world’s richest man used an expletive to describe his assessment of “Twitter’s current lords & peasants system for who has or doesn’t have a blue checkmark.” He added: “Power to the people! Blue for $8/month.”

    Advertisers hit pause: Elon Musk wrote an open letter to advertisers just hours before cementing his acquisition of Twitter, explaining that he didn’t want the platform to become a “free-for-all hellscape.” But that attempt at reassuring the advertising industry, which makes up the vast majority of Twitter’s business, doesn’t appear to be working.

    General Mills

    (GIS)    , Mondelez International

    (MDLZ)    , Pfizer

    (PFE)     and Audi

    (AUDVF)     have reportedly joined a growing list of companies hitting pause on their Twitter advertising in the wake of Musk’s acquisition.

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  • Amazon stock falls 14% on light holiday quarter sales forecast | CNN Business

    Amazon stock falls 14% on light holiday quarter sales forecast | CNN Business

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    CNN Business
     — 

    Amazon

    (AMZN)     stock fell some 14% in after-hours trading Thursday after the company forecast its holiday quarter sales would be lighter than analysts had expected.

    The e-commerce giant said it expects revenue for the final three months of the year to be between $140 billion to $148 billion, significantly below the $155 billion analysts surveyed by Refinitiv had expected. The weaker forecast comes as rising inflation and looming recession fears weigh on consumer purchasing decisions.

    Amazon reported revenue of $127.1 billion for its third-quarter, a 15% increase from the prior year but just missing Wall Street estimates.

    “There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets,” Amazon CEO Andy Jassy said in a statement accompanying the earnings release.

    The company reported its Amazon Web Services segment sales increased 27% year-over-year to $20.5 billion – representing a slower pace of growth for a closely-watched business unit than Wall Street had expected.

    But Amazon’s cloud computing division continues to be a strong profit driver for the company. Amazon posted a $2.9 billion profit for the three-month period, much improved from the prior quarter when it posted $2 billion net loss largely due to its investment in electric vehicle maker Rivian.

    The latest results comes at a precarious time for the e-commerce giant. Amazon initially saw its business boom during the pandemic, as more consumers relied on online shopping. This year, however, the company is confronting a shift back to in-person shopping as well as a souring economic outlook has hampered consumers’ demand.

    Jesse Cohen, a senior analyst at Investing.com, said Amazon’s earnings report “proves it’s not immune to the challenges facing the tech industry at large as it struggles in the face of worsening macroeconomic headwinds, such as soaring inflation and worries about a possible recession.”

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  • Google’s core business is slowing down amid recession fears | CNN Business

    Google’s core business is slowing down amid recession fears | CNN Business

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    New York
    CNN Business
     — 

    Google may be the giant in the digital advertising world, but even it is not immune to the impact that the economic downturn and recession fears are having on the online ad market.

    Google parent company Alphabet

    (GOOGL)     on Tuesday reported earnings results for the third quarter that fell short of Wall Street analysts’ estimates for both sales and profits, due in large part to a sharp slowdown in the growth of its core advertising business.

    It reported revenue of nearly $69.1 billion, up just 6% from the same period in the prior year. Google’s advertising revenues grew just 2.5% year-over-year, compared to the 43% growth it posted a year ago. YouTube’s ad business, which competes with TikTok, was especially hard hit, with revenue declining nearly 2% from the year-ago quarter.

    Google’s net income, meanwhile, came in at $13.9 billion, down more than 26% from the year prior and well below the $16.6 billion analysts had projected.

    The company’s shares fell 6% in after-hours trading Tuesday following the report.

    Sundar Pichai, CEO of Alphabet and Google, nodded to the tougher economic climate in a statement included with the results.

    “We’re sharpening our focus on a clear set of product and business priorities,” Pichai said. “We are focused on both investing responsibly for the long term and being responsive to the economic environment.”

    Tech companies, including Google, reported that they’d started to feel the impact of declining online ad spending in the prior quarter. High inflation, looming recession fears and the ongoing war in Ukraine have all continued to weigh on the industry.

    Growth in other areas of Google’s business also appear to be slowing. Google Cloud revenue grew 37% year-over year, a deceleration from the nearly 45% growth it posted in the year-ago quarter, and the segment’s net loss increased to $699 million from $644 million during the same quarter last year.

    Net loss from Google’s “Other Bets” segment, which includes business efforts such as its self-driving car unit Waymo, also accelerated year-over-year during the quarter to $1.6 billion.

    “Google delivered a disappointing quarter with the search giant underperforming our expectations across almost all business units, most importantly its core ad search segment,” said Investing.com Senior Analyst Jesse Cohen.

    During a call with analysts Tuesday, Pichai said the company has begun “realigning resources to invest in our biggest growth opportunities.”

    “Over the past quarter, we have made several shifts away from lower priority efforts to fuel highest growth priorities,” Pichai said, adding that the company plans to cut back on headcount additions during the final three months of the year.

    Google CFO Ruth Porat said on the call that strong growth in the fourth quarter of 2021 will make year-over-year ad revenue growth comparisons to the current quarter difficult, and that the strength of the US dollar is expected to increasingly weigh on the company’s results. The company did not provide detailed financial outlook for the current quarter.

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  • Analysis: Elon Musk owning Twitter should give everyone pause | CNN Business

    Analysis: Elon Musk owning Twitter should give everyone pause | CNN Business

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    CNN Business
     — 

    In late May, something unusual happened at Twitter. Shareholders voted to approve two proposals to change how the company operates — and did so against Twitter’s recommendations.

    While shareholder votes are often nonbinding for management, these nonetheless pushed for good corporate governance practices. The first proposal required Twitter to compile a report on the risks of using concealment clauses, such as nondisclosure agreements, to ensure greater accountability for the company and protections for staff. The second proposal required Twitter to disclose its spending on elections.

    The developments, however, were overshadowed by something else unusual happening at the company. Elon Musk, the mercurial billionaire, had agreed to buy Twitter for $44 billion the month before only to begin raising doubts about the deal soon after. The deal to take Twitter private, which was finally completed this week, likely renders the votes moot; Musk will have final say, not shareholders, a power he wields over numerous entities.

    In the tech industry, and especially in the social media sector, annual shareholder meetings have long been something of a farce that captures the broader power imbalance in Silicon Valley. Rather than hold management accountable, shareholders typically run into an unbreachable wall of opposition from founders like Meta’s Mark Zuckerberg, Snap’s Evan Spiegel, and Google’s Larry Page and Sergey Brin, who control a majority of voting shares at their respective companies.

    Twitter was different. The company billed itself as a “town square,” and also operated in a more democratic fashion than many of its peers, sometimes to its detriment. The company’s CEOs, of which there have been several over the years, clashed with the board and left or were pushed out. Twitter was vulnerable to an activist investor, shareholder proposals and ultimately a takeover from the world’s richest man. It was messy, sure. Zuckerberg once allegedly described Twitter as a “clown car.” But at least it was a clown car that partly belonged to the public.

    Now, Musk joins the list of rich, white men who single-handedly control social platforms that collectively reach and shape the lives of billions of people around the world. And Musk, who will reportedly have “absolute control over Twitter” according to a shareholders’ agreement, promises to be uniquely disruptive.

    In an effort to support his maximalist vision of “free speech,” the Tesla CEO plans to rethink Twitter’s content moderation policies and permanent bans for users who previously violated the platform’s policies, including former President Donald Trump. He also reportedly wants to gut Twitter’s staff. and has already fired several top executives.

    Each of these moves has the potential to undo the work of employees who have labored to make Twitter a better platform with “healthy” conversations after years of complaints from users about harassment and toxic discourse. These moves could also upend the many corners of society shaped to some degree by Twitter. While it is barely a tenth the size of Facebook, Twitter has always had an outsized influence over the worlds of media, politics and tech.

    That influence now belongs to Musk. There are two vastly diverging views of the billionaire. Many think of him as a generational figure who is a hybrid of Thomas Edison, Steve Jobs and the fictional Tony Stark — an innovative spirit who defies skeptics to build big businesses that better the world. The others can’t look past his history of false promises, erratic behavior and incendiary remarks.

    To those in the first camp, Musk serving as the sole decider at Twitter may be cause for celebration. To those in the second, quite the opposite. But both camps have cause for concern.

    More than any other figure, Musk has become the embodiment of a level of concentration of power and wealth that would have seemed almost unthinkable just a couple of decades ago.

    The world’s richest man, worth more than the GDPs of many countries, is now in control of one of the world’s most influential social networks. One individual now owns or oversees businesses that are shaping the automotive and space industries, rethinking core infrastructure with freight tunnels and satellite internet, building humanoid robots and brain-interface machines and determining how millions connect with each other and find news.

    Musk, prone to self-aggrandizement, insists his interest is to aid humanity, but he also insists that he knows best how to do so at each turn and does not seem to take criticism very well. He and his supporters have been known to lash out at detractors on Twitter, where he spends an unusual amount of time for someone running multiple companies. And now, rather than take his ball and going home when countless users criticize him for, say, offering unsolicited advice on how to end Russia’s war in Ukraine, he is buying the whole field for $44 billion.

    In 2022, many people may be accustomed to the tremendous power wielded by tech founders. Jeff Bezos, a fellow billionaire and Musk’s rival, also owns a rocket company and used his vast wealth to acquire The Washington Post. But Musk isn’t buying a newspaper, he’s buying the news, or at least one of the key platforms that shape it.

    It’s a level of unimpeachable power perhaps only rivaled by Zuckerberg, and there have been clear downsides in this sphere. Zuckerberg, whether he was being truthful or not, tried to downplay his platforms’ influence in the 2016 US presidential election only to spend years trying to extinguish scandals related to it. Facebook has since tried to push off its most difficult decisions to an independent oversight board, but the buck still stops with Zuckerberg. The same will go for Musk.

    Elon Musk is a conglomerate, and each arm of his empire potentially gives him more leverage, real or imagined, in advocating for the others. Before lawmakers choose to speak out about concerns with Tesla, for example, some may also weigh whether Musk might discontinue offering his Starlink broadband internet system in Ukraine, or whether he might put his thumb on the scale to promote certain content on Twitter that may disadvantage them.

    More immediately, however, owning a social network ensures Musk a different kind of personal power increasingly sought by other controversial billionaires, including Trump (with Truth Social) and Musk’s friend Ye (with a proposed deal to buy Parler). It is the power of knowing that, no matter what he says and no matter how offensive it may be, he can never be turned off.

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  • Microsoft earnings hit by personal computing slowdown | CNN Business

    Microsoft earnings hit by personal computing slowdown | CNN Business

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    CNN Business
     — 

    Microsoft posted a double-digit profit decline in the three-month period ending in September as the company confronted a slowdown in the personal computing industry and a broader economic downturn.

    The tech giant on Tuesday reported net income of $17.6 billion for the quarter, a decrease of 14% from the year prior. Microsoft

    (MSFT)    ’s revenue, meanwhile, grew a modest 11% to $50.1 billion. Both results were better than analysts had expected.

    Microsoft’s Azure cloud services unit saw revenue increase by 35% from the prior year, but the growth was slower than some analysts had hoped for a division that has been one of the company’s biggest bright spots in recent years.

    Other parts of Microsoft’s business declined. Microsoft said revenue from its Windows OEM operations fell 15% from the year prior, which comes as demand for personal computers has fallen sharply on the heels of a pandemic-fueled boom. Consulting firm Gartner reported earlier this month that worldwide PC shipments declined 19.5% in the third quarter of 2022, compared to the same period last year. This marks the steepest market decline since Gartner began tracking the PC market in the mid-1990s.

    Microsoft also said revenue from Xbox content and services declined by 3%. The company reportedly recently laid off employees in its Xbox division, among other parts of the company, as it — like many other tech companies right now — looks to cut costs.

    Shares of Microsoft fell 2% in after-hours trading Tuesday following the earnings report.

    Microsoft’s stock has fallen more than 25% since the beginning of the year, amid a broader market downturn as rising inflation, geopolitical uncertainty from the war in Ukraine and more macroeconomic headwinds continue to wreak havoc on the tech industry.

    “In this environment, we’re focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way,” Satya Nadella, CEO of Microsoft, said in a statement Tuesday announcing the quarterly earnings.

    Haris Anwar, senior analyst at Investing.com, called Microsoft’s earnings report a “mixed bag” in a commentary after the results were released on Tuesday.

    “It shows that Microsoft is weathering the economic storm better than other technology players and its diversified business model is playing a big role in doing so,” Anwar said. But he added that the slowing cloud computing growth was cause for concern.

    “If this growth deceleration continues, it could harm an investment case in the company’s stock which is considered a safe-haven amid the market turmoil, with these concerns reflected in the company’s shares being down in extended trading,” Anwar said.

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  • Meta’s stock falls 17% as its quarterly profit is cut in half | CNN Business

    Meta’s stock falls 17% as its quarterly profit is cut in half | CNN Business

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    New York
    CNN Business
     — 

    Meta on Wednesday posted the second quarterly revenue decline in its history since going public and warned that it is making “significant changes” aimed at cutting costs ahead of 2023, as it confronts an economic downturn that is hitting its core online advertising business.

    For the three months ended in September, Meta

    (FB)     posted revenue of $27.7 billion, down 4% year-over-year and slightly above Wall Street analysts’ expectations. The Facebook parent company posted its first-ever quarterly revenue decline during the June quarter.

    The company reported net income of nearly $4.4 billion — less than half the amount it made during the same period in the prior year and below analysts’ projections.

    “We’re approaching 2023 with a focus on prioritization and efficiency that will help us navigate the current environment and emerge an even stronger company,” Mark Zuckerberg, Meta’s founder and CEO, said in a statement.

    Meta’s stock fell almost 17% in after-hours trading Wednesday following the results.

    Demand for online advertising has declined in recent months amid rising inflation and fears of a looming recession. Tech companies like Google and Snap have also seen hits to their ad revenues. Meta CFO David Wehner said on a call with analysts following the report that the average price per ad across Meta’s platforms fell 18% during the quarter.

    At the same time, Meta’s user growth is slowing amid heightened competition from rivals like TikTok. Meta reported having 2.96 billion monthly active users on its core Facebook app at the end of the quarter, up 2% year-over-year. That’s down from the 6% growth rate it posted in the year-ago quarter. Daily active users on Meta’s family of apps grew 4% to 2.93 billion, down from the 11% increase it posted the year prior.

    Zuckerberg noted on the call that Instagram now has more than 2 billion monthly active users and WhatsApp has more than 2 billion daily active users.

    These challenges to its core business come as Meta is funneling billions of dollars into an ambitious new bet to build a future version of the internet called the metaverse that likely remains years away.

    Wehner said operating losses from the company’s metaverse ambitions, which are categorized under its Reality Labs unit, are expected to “grow significantly year-over-year” in 2023. Reality Labs lost nearly $3.7 billion in the September quarter, and has cost the company a total of $9.4 billion so far this year. Revenue from the Reality Labs unit also fell by nearly 50% year-over-year in the September quarter.

    Altimeter Capital, a Meta sharehoder, last week wrote an open letter calling on the company to reduce its headcount expenses by at least 20% and its annual capital expenditure by at least $5 billion, and to limit its investment in the metaverse to no more than $5 billion per year.

    In Wednesday’s report, Wehner said the company is “making significant changes across the board to operate more efficiently.” Executives said the company expects headcount at the end of 2023 will be roughly in line with or slightly smaller than the 87,314 it reported as of the end of September (an increase of 28% from the year prior).

    “We are holding some teams at in terms of headcount, shrinking others and investing headcount growth only in our highest priorities,” Wehner said. He also hinted that the company could shrink its physical office footprint.

    Zuckerberg said on the call that the three key areas of investment for the company in the coming year are its AI discovery engine that’s powering Reels and other recommendations, ads and business messaging, and its future vision for the metaverse. Meta earlier this month unveiled its newest virtual-reality headset, the Meta Quest Pro, and touted its potential for business customers.

    In the final three months of the year, Meta expects quarterly revenue between $30 billion and $32.5 billion. On the high end, the projection would mark a 3.5% year-over-year decline from the same period in the prior year.

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  • Stock picking isn’t dead. But for most investors it might as well be | CNN Business

    Stock picking isn’t dead. But for most investors it might as well be | CNN Business

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    New York
    CNN Business
     — 

    What’s the best way to invest? Plenty of active traders are out there trying to make a quick buck on meme stocks like AMC and GameStop, fads like Snap and Peloton or bitcoin and other cryptocurrencies. Professional money managers try to identify stocks that can beat the broader market over the long haul.

    But for most individual investors, a strategy of buying and holding so-called passive funds that track top indexes like the S&P 500 and Nasdaq 100 makes the most sense if you want to accumulate wealth for retirement. It’s like that popular old rotisserie chicken infomercial slogan: Set it and forget it.

    Index funds tend to be cheaper. New data from S&P Dow Jones Indices showed that investors saved more than $400 billion in fees with index funds over the past quarter of a century.

    Obviously, index provider S&P Global

    (SPGI)     has a vested interest in promoting passive funds backed to various benchmark indexes.

    The company, along with competitors like iShares owner BlackRock

    (BLK)     and index provider MSCI

    (MSCI)    , offers many options for investors looking to get exposure to the broader market without trying to pick individual winners and losers.

    Even legendary investing guru Warren Buffett of Berkshire Hathaway

    (BRKB)     has extolled the virtues of index funds for average investors. That’s because Buffett, despite being one of the most successful stock pickers ever, doesn’t believe most active investment managers can beat the broader market.

    The 92-year-old Oracle of Omaha famously wrote in Berkshire’s 2014 annual shareholder letter that his advice for the trustee of his estate is to “put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund” for his wife. (Buffett suggested one from Vanguard.)

    “I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers,” he wrote.

    And given how some high-profile active investors have lagged the market lately, there is something to be said for conservative investors with a long-term horizon betting on the S&P 500 over a handful of stocks.

    Just look at Cathie Wood at Ark, who has made big, high profile bets on companies like Tesla

    (TSLA)    , Zoom

    (ZM)    , Roku

    (ROKU)     and Teladoc

    (TDOC)    . Ark’s flagship Innovation ETF has plunged 60% this year, compared to “just” a 20% drop for the S&P 500.

    “Actively managed funds have failed to survive and beat their benchmarks, especially over longer time horizons,” said Bryan Armour, director of passive strategies research for North America at Morningstar, in a report last month. He noted that just one of every four active funds beat their passive benchmarks over the ten years ending in June.

    Of course, buying index funds is no guarantee of investing success either…especially not in the short-term. After all, the S&P 500 has plunged this year, too.

    “Diversified portfolios do okay usually, but they’ve been hit hard lately by the rise in rates,” said Shamik Dhar, chief economist at BNY Mellon Investment Management, in an interview with CNN Business.

    Even the vaunted 60/40 asset allocation recommendation for investors, i.e. owning 60% stocks and 40% bonds, has so far failed to beat the market in 2022.

    “This year, it seems like there has been a broad-based source of fear. It’s shock therapy. There is slowing growth and inflation. That is disorienting investors,” said Adam Hetts, global head of portfolio construction and strategy at Janus Henderson Investors, in an interview with CNN Business.

    Along those lines, any investor with decent exposure to bonds, hoping that they’d hold up better as stocks tanked, has gotten a rude awakening. The iShares 20+ Year Treasury Bond ETF

    (TLT)    , a top proxy for long-term bonds, has done even worse than the stock market, plunging more than 35% this year.

    That’s why some investors aren’t singing a funeral dirge for active stock picking – just yet.

    “A 10-year ‘secular bear market’ is underway,” said Stifel chief equity strategist Barry Bannister in a recent report, who predicts that the market may be stuck in a narrow range throughout the rest of the decade.

    “We believe this environment favors the following approach: active (not broad passive) management,” he said.

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  • China’s yuan tumbles to all-time low amid fears about Xi’s third term | CNN Business

    China’s yuan tumbles to all-time low amid fears about Xi’s third term | CNN Business

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    Hong Kong
    CNN Business
     — 

    China’s yuan tumbled to an all-time low on international markets on Tuesday, as investors fled Chinese assets amid fears about Xi Jinping’s shocking move to tighten his grip on power at a major leadership reshuffle.

    In trading outside of mainland China, the yuan briefly plunged to around 7.36 per dollar early Tuesday, the lowest level on record, according Refinitiv, which has data going back to 2010. It then pared losses, trading at 7.33 by 1 pm Hong Kong time.

    On the tightly managed domestic market, the yuan also dropped sharply on Tuesday, hitting the weakest level in nearly 15 years.

    The declines came alongside a historic market rout for Chinese assets worldwide. On Monday, Chinese stocks plummeted in Hong Kong and New York, wiping out billions of dollars in their market value. Hong Kong’s benchmark Hang Seng

    (HSI)     Index closed down 6.4%. The Nasdaq Golden Dragon China Index also dived more than 14%. On Tuesday, the Hang Seng

    (HSI)     rebounded slightly, up 0.8% by noon.

    The huge sell-offs came just days after the ruling Communist Party unveiled its new leadership for the next five years. In addition to securing an unprecedented third term as party chief, Xi packed his new leadership team with staunch loyalists.

    A number of senior officials who have backed market reforms and opening up the economy were missing from the new top team, stirring concerns about the future direction of the country and its relations with the United States.

    International investors spooked by the outcome of the Communist Party’s leadership reshuffle dumped Chinese assets despite the release of stronger-than-expected GDP data. They’re worried that Xi’s tightening grip on power will lead to the continuation of Beijing’s existing policies and further dent the economy.

    China’s leadership reshuffle “sparked worries about the continuation of market-unfavourable policies and increasing risk of policy mistakes under President Xi’s power domination in coming years,” said Ken Cheung, chief Asian forex strategist at Mizuho Bank.

    “Foreign investors took action to cut their exposure on Chinese assets,” he said, adding that the Chinese currency was faced with mounting capital outflow pressure.

    The Chinese yuan, together with other major global currencies, has weakened rapidly against the dollar in recent months. The greenback has surged to the highest level in two decades against a basket of major counterparts, boosted by a hawkish Fed that attempts to contain runaway inflation.

    So far this year, the yuan has slumped more than 15% against the dollar, on track to log its worst year since 1994 — when China devalued its currency by 33% overnight as part of market reforms.

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  • Hong Kong stocks plunge 6% as fears about Xi’s third term trump China GDP data | CNN Business

    Hong Kong stocks plunge 6% as fears about Xi’s third term trump China GDP data | CNN Business

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    Hong Kong
    CNN Business
     — 

    Hong Kong stocks had their worst day since the 2008 global financial crisis, just a day after Chinese leader Xi Jinping secured his iron grip on power at a major political gathering.

    Foreign investors spooked by the outcome of the Communist Party’s leadership reshuffle dumped Chinese equities and the yuan despite the release of stronger-than-expected GDP data. They’re worried that Xi’s tightening grip on power will lead to the continuation of Beijing’s existing policies and further dent the economy.

    Hong Kong’s benchmark Hang Seng

    (HSI)     Index plunged 6.4% on Monday, marking its biggest daily drop since November 2008. The index closed at its lowest level since April 2009.

    The Chinese yuan weakened sharply, hitting a fresh 14-year low against the US dollar on the onshore market. On the offshore market, where it can trade more freely, the currency tumbled 0.8%, hovering near its weakest level on record, even as the Chinese economy grew 3.9% in the third quarter from a year ago, according to the National Bureau of Statistics. Economists polled by Reuters had expected growth of 3.4%.

    The sharp sell-off came one day after the ruling Communist Party unveiled its new leadership for the next five years. In addition to securing an unprecedented third term as party chief, Xi packed his new leadership team with staunch loyalists.

    A number of senior officials who have backed market reforms and opening up the economy were missing from the new top team, stirring concerns about the future direction of the country and its relations with the United States. Those pushed aside included Premier Li Keqiang, Vice Premier Liu He, and central bank governor Yi Gang.

    “It appears that the leadership reshuffle spooked foreign investors to offload their Chinese investment, sparking heavy sell-offs in Hong Kong-listed Chinese equities,” said Ken Cheung, chief Asian forex strategist at Mizuho bank.

    The GDP data marked a pick-up from the 0.4% increase in the second quarter, when China’s economy was battered by widespread Covid lockdowns. Shanghai, the nation’s financial center and a key global trade hub, was shut down for two months in April and May. But the growth rate was still below the annual official target that the government set earlier this year.

    “The outlook remains gloomy,” said Julian Evans-Pritchard, senior China economist for Capital Economics, in a research report on Monday.

    “There is no prospect of China lifting its zero-Covid policy in the near future, and we don’t expect any meaningful relaxation before 2024,” he added.

    Coupled with a further weakening in the global economy and a persistent slump in China’s real estate, all the headwinds will continue to pressure the Chinese economy, he said.

    Evans-Pritchard expected China’s official GDP to grow by only 2.5% this year and by 3.5% in 2023.

    Monday’s GDP data were initially scheduled for release on October 18 during the Chinese Communist Party’s congress, but were postponed without explanation.

    The possibility that policies such as zero-Covid, which has resulted in sweeping lockdowns to contain the virus, and “Common Prosperity” — Xi’s bid to redistribute wealth — could be escalated was causing concern, Cheung said.

    “With the Politburo Standing Committee composed of President Xi’s close allies, market participants read the implications as President Xi’s power consolidation and the policy continuation,” he added.

    Mitul Kotecha, head of emerging markets strategy at TD Securities, also pointed out that the disappearance of pro-reform officials from the new leadership bodes ill for the future of China’s private sector.

    “The departure of perceived pro-stimulus officials and reformers from the Politburo Standing Committee and replacement with allies of Xi, suggests that ‘Common Prosperity’ will be the overriding push of officials,” Kotecha said.

    Under the banner of the “Common Prosperity” campaign, Beijing launched a sweeping crackdown on the country’s private enterprise, which shook almost every industry to its core.

    “The [market] reaction in our view is consistent with the reduced prospects of significant stimulus or changes to zero-Covid policy. Overall, prospects of a re-acceleration of growth are limited,” Kotecha said.

    On the tightly controlled domestic market in China, the benchmark Shanghai Composite Index dropped 2%. The tech-heavy Shenzhen Component Index lost 2.1%.

    The Hang Seng Tech Index, which tracks the 30 largest technology firms listed in Hong Kong, plunged 9.7%.

    Shares of Alibaba

    (BABA)     and Tencent

    (TCEHY)     — the crown jewels of China’s technology sector — both plummeted more than 11%, wiping a combined $54 billion off their stock market value.

    The sell-off spilled over into the United States as well. Shares of Alibaba and several other leading Chinese stocks trading in New York, such as EV companies Nio

    (NIO)     and Xpeng, Alibaba rivals JD.com

    (JD)     and Pinduoduo

    (PDD)     and search engine Baidu

    (BIDU)    , were all down sharply Thursday afternoon.

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  • Twitter stock falls after report says Biden admin weighing security review of Musk ventures | CNN Business

    Twitter stock falls after report says Biden admin weighing security review of Musk ventures | CNN Business

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    New York
    CNN Business
     — 

    Shares of Twitter dropped as much as 8% in pre-market trading Friday as investors braced for some last-minute uncertainty around Elon Musk’s $44 billion deal to buy the company.

    The stock reaction, which rebounded somewhat later in the morning, followed a Bloomberg report that Biden administration officials are in early discussions about possibly subjecting some of Musk’s ventures to national security reviews, including the planned Twitter

    (TWTR)     takeover. Asked by CNN, the administration pushed back on the report, which cited people familiar with the matter.

    “We do not know of any such conversations,” National Security Council Spokesperson Adrienne Watson said in a statement. A Treasury spokesperson said that the Committee on Foreign Investment in the United States “does not publicly comment on transactions that it may or may not be reviewing” by law and practice.

    Among the equity investors who committed to provide financing to help Musk fund the deal are several foreign entities, including the Qatar sovereign wealth fund and Saudi Arabian Prince Alwaleed bin Talal, who was already one of Twitter’s largest investors prior to Musk’s proposed takeover.

    In response to a tweet about the Bloomberg report, one user wrote: “It would be hysterical if the government stopped Elon from over paying for Twitter.” Musk responded to that tweet with a “100” emoji, which typically indicates emphatic agreement, and a crying laughing face emoji.

    It’s unclear what, if any, impact the reported security review could have on completing a deal that has already been subject to months of uncertainty. Musk has one week remaining to close the deal or face a rescheduled trial in the Delaware Court of Chancery that could result in him being forced to acquire the social media firm.

    Twitter declined to comment on the report about the possible review; representatives for Musk did not immediately respond to a request for comment.

    By other accounts, the deal appears to be moving toward completion. In a separate report Thursday evening, Bloomberg said that bankers and lawyers for both Twitter and Musk are preparing the paperwork needed to complete the deal. Bloomberg also last week reported that the company had frozen employees’ stock accounts in anticipation of the deal’s completion.

    On a conference call this week to discuss Tesla’s earnings results, Musk said he was “excited” about the Twitter deal, but also admitted that he is “obviously overpaying” for it. “The long-term potential for Twitter, in my view, is an order of magnitude greater than its current value,” he said.

    The Washington Post on Thursday reported that Musk told prospective investors in the deal that he planned to get rid of nearly 75% of the company’s staff, and that Twitter had already planned massive layoffs even if the deal did not go through, citing internal documents and interviews with people familiar with the matter. Neither Twitter nor representatives for Musk responded to requests for comment regarding layoff plans.

    Following the Washington Post report, Twitter General Counsel Sean Edgett sent a memo to staff saying the company does “not have any confirmation of the buyer’s plans following close and recommend not following rumors or leaked documents but rather wait for facts from us and the buyer directly,” according to a report from Bloomberg. A Twitter spokesperson confirmed to CNN the authenticity of the memo.

    Musk had previously discussed dramatically reducing Twitter’s workforce in personal text messages with friends about the deal, which were revealed in court filings, and didn’t dismiss the potential for layoffs in a call with Twitter employees in June.

    – CNN’s Matt Egan contributed to this report.

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  • 3 things that will help reduce the sting of high inflation | CNN Business

    3 things that will help reduce the sting of high inflation | CNN Business

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    There’s really nothing nice to say about inflation when it comes to your bottom line.

    It’s hard on your wallet. It’s hard on your savings because it reduces the buying power of the dollars you socked away. And it’s hard on your paycheck, because chances are your last raise did not keep pace with headline inflation, which the latest reading puts at 8.2%.

    But that same high inflation has led to a couple of changes that might offer you a little relief. And every little bit helps.

    Starting next year, your paycheck could be a little bigger thanks to inflation adjustments that the Internal Revenue Service will make to 2023 federal income tax brackets and other provisions.

    The net effect of those adjustments is this: More of your 2023 wages will be subject to lower tax rates than they were this year. And you may be able to deduct higher amounts of income.

    Here’s the skinny on that.

    When you save money in a tax-deferred workplace retirement plan like a 401(k) or 403(b), you can reduce your taxable income because you get a deduction for your contribution the year you make it. The more you save, the more you cut your tax bill.

    Starting next year, you will be allowed to contribute up to $22,500 into your 401(k), 403(b), most 457 plans or the Thrift Savings Plan for federal employees.

    That’s $2,000 – or roughly 9.8% – more than the current $20,500 federal contribution limit, a direct result of higher inflation. Those are the biggest adjustments made to the contribution limit in decades.

    More about those changes and changes to IRA contribution limits can be found here.

    Social Security recipients will receive an annual cost-of-living adjustment of 8.7% next year, the largest increase since 1981.

    The spike will boost retirees’ monthly payments by $146 to an estimated average of $1,827 for 2023.

    No one will be living large on that amount, but the extra cash will offset some of the higher prices for everyday expenses that seniors incur.

    Here’s more on the coming boost to Social Security checks, along with welcome news that there will be a drop in Medicare Part B premiums next year.

    – CNN’s Tami Luhby contributed to this report

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  • Judge dismisses GOP states’ challenge to Biden student debt relief program | CNN Politics

    Judge dismisses GOP states’ challenge to Biden student debt relief program | CNN Politics

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    Washington
    CNN
     — 

    A federal judge rejected a lawsuit brought by six Republican-led states challenging President Joe Biden’s student debt relief program.

    US District Judge Henry Edward Autrey said Thursday he was dismissing the case because the states had not overcome the procedural threshold known as standing, which requires that plaintiffs show that a policy is causing them direct and traceable harm.

    Student loan cancellations, worth up to $20,000 per eligible borrower, could begin on Sunday.

    The states are expected to appeal the judge’s ruling, sending the case to the 8th Circuit Court of Appeals, where it is likely to face a panel of conservative judges.

    The lawsuit was filed in a federal court in Missouri last month by state attorneys general from Missouri, Arkansas, Kansas, Nebraska and South Carolina, as well as legal representatives from Iowa.

    The states had argued in court documents that the Biden administration does not have the legal authority to grant broad student loan forgiveness, as well as that the program would hurt them financially.

    Lawyers for the government have argued that Congress gave the education secretary the power to discharge debt in a 2003 law known as the HEROES Act. They also argue that the plaintiffs don’t have standing to ask for an injunction.

    In another victory for Biden, Supreme Court Justice Amy Coney Barrett rejected a separate challenge to the administration’s student loan forgiveness program on Thursday, declining to take up an appeal brought by a Wisconsin taxpayers group.

    The Biden administration faces other lawsuits from Arizona Republican Attorney General Mark Brnovich, and conservative groups such as the Job Creators Network Foundation and the Cato Institute.

    But the legal challenge filed by six states that was dismissed Thursday was widely seen as the most formidable. It was the “most plausible legal challenge to the Biden Jubilee,” said Luke Herrine, an assistant law professor at the University of Alabama who previously worked on a legal strategy pushing for student debt cancellation, in a tweet Thursday.

    Biden’s student loan forgiveness program, first announced in August, aims to deliver debt relief to millions of borrowers before federal student loan payments resume in January after a nearly three-year, pandemic-related pause.

    While the application officially opened on Monday, the Biden administration has agreed in court documents to hold off on canceling any debt until October 23. Once processing begins, most qualifying borrowers are expected to receive debt relief within weeks.

    Under Biden’s plan, eligible individual borrowers who earned less than $125,000 in either 2020 or 2021 and married couples or heads of households who made less than $250,000 annually in those years will see up to $10,000 of their federal student loan debt forgiven.

    If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 of debt forgiveness.

    This story has been updated with additional information.

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  • Snap stock falls nearly 25% after revenue hit by shrinking advertiser budgets | CNN Business

    Snap stock falls nearly 25% after revenue hit by shrinking advertiser budgets | CNN Business

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    CNN
     — 

    Snap’s bad year continues.

    Snap on Thursday reported revenue of $1.13 billion for the three months ending in September, a slight 6% increase from the year prior and less than Wall Street had expected, as the company confronts tightening advertiser budgets in an uncertain economy.

    In a letter to investors, Snapchat’s parent company said its revenue growth was slowed by several factors, including growing competition and jitters from the advertisers who make up its core business.

    “We are finding that our advertising partners across many industries are decreasing their marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressures, and rising costs,” the company said in the letter.

    Shares of Snap fell nearly 25% in after hours trading following the earnings report.

    Snap’s report kicks off what is expected to be a sobering tech earnings period, as layoff announcements, hiring freezes and other cost-cutting measures have become increasingly common in the industry amid fears of a looming recession.

    Snap helped set off a wave of anxiety among tech investors when it warned in May that the economy had worsened faster than it expected, cutting into its revenue and profit forecast for the quarter. In late August, Snap announced plans to lay off some 20% of its more than 6,400 global employees, or more than 1,200 staffers.

    Like other tech companies, Snap has had to confront headwinds from rising inflation, a stronger dollar and broader economic jitters that are leading some advertisers and consumers to rethink their spending in the United States and abroad.

    Snap has also faced increasing competition from fast-growing competitors like TikTok, and is still navigating its digital ads business in the wake of privacy changes implemented by Apple that have made it more difficult for marketers to target users with ads.

    There were some glimmers of hope in Snap’s report, including that the number of daily active users grew 19% year-over-year to reach 363 million in the third quarter. Its net loss was also smaller than Wall Street had expected, but the company nonetheless lost $360 million in the quarter, compared to a loss of $72 million in the year prior. Much of that loss ($155 million) came from restructuring charges related to layoffs.

    Snap declined to provide financial guidance for the final three months of the year. In its letter to investors, the company said: “We expect that the operating environment will continue to be challenging in the months ahead and believe the actions we are taking provide a clear path forward for Snap.”

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