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  • How Big Tech’s pandemic bubble burst | CNN Business

    How Big Tech’s pandemic bubble burst | CNN Business

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    New York
    CNN
     — 

    In January 2021, Microsoft CEO Satya Nadella spoke in lofty terms about how the first year of the pandemic had sparked a staggering shift toward online services, benefiting his company in the process. “What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry,” he said.

    Two years later, the situation appears much more stark. This week, Microsoft said it planned to lay off 10,000 employees as businesses rethink their pandemic-era digital spending and confront broader economic uncertainty. Microsoft’s customers, Nadella said, are now trying “to do more with less.”

    Microsoft isn’t the only company experiencing such a dramatic reversal. Days later, Google-parent company Alphabet followed suit, saying it plans to cut around 12,000 jobs, amounting to more than 6% of its staff.

    Over the past three months, Amazon, Google, Microsoft and Facebook-parent Meta have announced plans to cut more than 50,000 employees from their collective ranks, a stunning reversal from the early days of the pandemic when the tech giants were growing rapidly to meet surging demand from countless households living, shopping and working online. At the time, many tech leaders seemed to expect that growth to continue unabated.

    By September of 2022, Amazon

    (AMZN)
    had more than doubled its corporate staff compared to the same month in 2019, hiring more than half a million additional workers and vastly expanding its warehouse footprint. Meta nearly doubled its headcount between March 2020 and September of last year. Microsoft

    (MSFT)
    and Google

    (GOOGL GOOGLE)
    also hired thousands of additional workers, as did other tech firms like Salesforce

    (CRM)
    , Snap

    (SNAP)
    and Twitter, all of which have announced layoffs in recent weeks, too.

    But many of those same leaders appear to have misjudged just how much growth spurred by the pandemic would continue once people returned to their offline lives.

    In recent months, higher interest rates, inflation and recession fears causing a pullback in advertising and consumer spending have all weighed on tech companies’ profits and share prices. Wall Street analysts now project single-digit revenue growth during the all-important December quarter for Google, Microsoft and Amazon, and declines for Meta and Apple, when they report earnings in the coming weeks, according to Refinitiv estimates.

    The recent cuts in most cases amount to a relatively small percentage of each company’s overall headcount, essentially erasing the last year of gains for some but leaving them with tens or in some cases hundreds of thousands of remaining workers. But it nonetheless upends the lives of many workers now left to search for new jobs after their employers exit a period of seemingly limitless growth.

    “They went from being on top of the world to having to make some really tough decisions,” said Scott Kessler, global sector lead for technology, media and telecommunications at investment firm Third Bridge. “To see this dramatic reversal of fortunes… it’s not just the magnitude of these moves but the speed that they’ve played out. You’ve seen companies make the wrong strategic decisions at the wrong times.”

    Apple

    (AAPL)
    remains an outlier as the one major tech company that has yet to announce layoffs, although the iPhone maker has reportedly instituted a hiring freeze of all areas except research and development. Apple

    (AAPL)
    grew its staff by 20% from 2019 through last year, markedly less than some of its peers.

    “They’ve taken a more seemingly thoughtful approach to hiring and overall managing the company,” Kessler said.

    Tech CEOs, from Meta’s Mark Zuckerberg to Salesforce’s Marc Benioff, have blamed themselves for over-hiring early on in the pandemic and misreading how a surge in demand for their products would cool once Covid-19 restrictions eased. Pichai on Friday also took the blame for Alphabet’s cuts, and said he plans to return the company’s focus to its core business and “highest priorities.”

    “The fact that these changes will impact the lives of Googlers weighs heavily on me, and I take full responsibility for the decisions that led us here,” Pichai said in an email to employees that was posted to the company’s website Friday.

    Notably, however, none of the Big Tech company CEOs now overseeing layoffs appear to have been hit with any change to their compensation or title.

    The tech layoff announcements are likely to continue into the upcoming earnings season, Kessler said, amid ongoing economic warning signs. And even companies that might not yet be feeling the pain may follow their peers’ lead in trimming their workforces.

    “I think there is an element of [some companies saying], ‘We might not see this right now but all these other big companies, these companies that we compete with, that we know, that we respect, are taking these kinds of actions, so maybe we should be thinking and acting accordingly,” Kessler said.

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  • Here are the companies that have laid off employees this year — so far | CNN Business

    Here are the companies that have laid off employees this year — so far | CNN Business

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    New York
    CNN
     — 

    Just this week, Alphabet, Google’s parent company, Microsoft

    (MSFT)
    and Vox Media announced layoffs that will affect more than 22,000 workers.

    Their moves follow on the heels of job cuts earlier this month at Amazon, Goldman Sachs and Salesforce. More companies are expected to do the same as firms that aggressively hired over the last two years slam on the brakes, and in many cases shift into reverse.

    The cutbacks are in sharp contrast to 2022, which had the second-highest level of job gains on record, with 4.5 million. But last year’s job numbers began falling as the year went on, with December’s job report showing the lowest monthly gains in two years.

    The highest level of hiring occurred in 2021, when 6.7 million jobs were added. But that came on the heels of the first year of the pandemic, when the US effectively shut down and 9.3 million jobs were lost.

    The current layoffs are across multiple industries, from media firms to Wall Street, but so far are hitting Big Tech especially hard.

    That’s a contrast from job losses during the pandemic, which saw consumers’ buying habits shifting toward e-commerce and other online services during lockdown. Tech firms went on a hiring spree.

    But now, workers are returning to their offices and in-person shopping is bouncing back. Add in the increasing likelihood of a recession, higher interest rates and tepid demand due to rising prices, and tech businesses are slashing their costs.

    January has been filled with headlines announcing job cuts at company after company. Here is a list of layoffs this month – so far.

    Google

    (GOOGL)
    ’s parent said Friday it is laying off 12,000 workers across product areas and regions, or 6% of its workforce. Alphabet added 50,000 workers over the past two years as the pandemic created greater demand for its services. But recent recession fears has advertisers pulling back from its core digital ad business.

    “Over the past two years we’ve seen periods of dramatic growth,” CEO Sundar Pichai said in an email to employees. “To match and fuel that growth, we hired for a different economic reality than the one we face today.”

    The tech behemoth is laying off 10,000 employees, the company said in a securities filing on Wednesday. Globally, Microsoft has 221,000 full-time employees with 122,000 of them based in the US.

    CEO Satya Nadella said during a talk at Davos that “no one can defy gravity” and that Microsoft could not ignore the weaker global economy.

    “We’re living through times of significant change, and as I meet with customers and partners, a few things are clear,” Nadella wrote in a memo. “First, as we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less.”

    The publisher of the news and opinion website Vox, tech website The Verge and New York Magazine, announced Friday that it’s cutting 7% of its staff, or about 130 people.

    “We are experiencing and expect more of the same economic and financial pressures that others in the media and tech industries have encountered,” chief executive Jim Bankoff said in a memo.

    Layoffs are also hitting Wall Street hard. The world’s largest asset manager is eliminating 500 jobs, or less than 3% of its workforce.

    Today’s “unprecedented market environment” is a stark contrast from its attitude over the last three years,, when it increased its staff by about 22%. Its last major round of cutbacks was in 2019.

    The bank will lay off up to 3,200 workers this month amid a slump in global dealmaking activity. More than a third of the cuts are expected to be from the firm’s trading and banking units. Goldman Sachs

    (FADXX)
    had almost 50,000 employees at the end of last year’s third quarter.

    The crypto brokerage announced in early January that it’s cutting 950 people – almost one in five employees in its workforce. The move comes just a few months after Coinbase laid off 1,100 people.

    Though Bitcoin had a solid start to the new year, crypto companies were slammed by significant drops in prices of Bitcoin and other cryptocurrencies.

    McDonald’s

    (MCD)
    , which thrived during the pandemic, is planning on cutting some of its corporate staff, CEO Chris Kempczinski said this month.

    “We will evaluate roles and staffing levels in parts of the organization and there will be difficult discussions and decisions ahead,” Kempszinski said, outlining a plan to “break down internal barriers, grow more innovative and reduce work that doesn’t align with the company’s priorities.”

    The online personalized subscription clothing retailer said it plans to lay off 20% of its salaried staff.

    “We will be losing many talented team members from across the company and I am truly sorry,” Stitch Fix

    (SFIX)
    founder and former CEO Katrina Lake wrote in a blog post.

    As the new year began, Amazon

    (AMZN)
    said it plans to lay off more than 18,000 employees. Departments from human resources to the company’s Amazon

    (AMZN)
    Stores will be affected.

    “Companies that last a long time go through different phases. They’re not in heavy people expansion mode every year,” CEO Andy Jassy said in a memo to employees.

    Amazon boomed during the pandemic, and hired rapidly over the last few years. But demand has cooled as consumers return to their offline lives and battle high prices. Amazon says it has more than 800,000 employees.

    At The New York Times DealBook summit In November, Jassy said he believes Amazon “made the right decision” regarding its rapid infrastructure build out but said its hiring spree is a “lesson for everyone.”

    Even as he spoke, Amazon warehouse workers who helped organize the company’s first-ever US labor union at a Staten Island facility last year were picketing Jassy’s appearance outside the conference venue.

    “We definitely want to take this opportunity to let him know that the workers are waiting and we are ready to negotiate our first contract,” Amazon Labor Union President Chris Smalls said, calling the protest a “welcoming party” for Jassy.

    Salesforce

    (CRM)
    will cut about 10% of its workforce from its more than 70,000 employess and reduce its real estate footprint. In a letter to employees, Salesforce

    (CRM)
    ’s chair and co-CEO Marc Benioff admitted to adding too much to the company’s headcount early in the pandemic.

    – CNN’s Clare Duffy, Matt Egan, Oliver Darcy, Julia Horowitz, Catherine Thorbecke, Paul R. La Monica, Nathaniel Meyersohn, Parija Kavilanz, Danielle Wiener-Bronner and Hanna Ziady contributed to this report.

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  • What we learned at Davos: The economy is a mess, but there’s still hope | CNN Business

    What we learned at Davos: The economy is a mess, but there’s still hope | 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
     — 

    Friday marks the end of the annual World Economic Forum meeting in Davos, Switzerland, an elite gathering of some of the wealthiest people and world leaders.

    The glitzy retreat into the Swiss Alps looks increasingly out of date as the biggest war in Europe since 1945 deepens splits in the world economy. But that doesn’t mean it’s not important.

    The meetings between CEOs, politicians, and global figures at Davos can help set the tone for the year ahead. Here are some of the key talking points from this week.

    It’s a mess: The big stories coming out of Davos this year are full of phrases like “fragmenting global economy,” “economic uncertainty” and “the year of inflation.”

    While many executives and economists are now striking a more optimistic tone, global leaders are still fretting about the economic outlook. That’s not surprising since they’re contending with worrisome uncertainties — Russia’s war in Ukraine is still raging, inflation and interest rates remain elevated, there are looming energy and food crises, supply chain kinks and the debt limit standoff in the United States, not to mention the threat of global recession.

    The meeting began with a new report by the WEF that dubbed this decade the “turbulent 20s” and the “age of the polycrisis.” Business executives, politicians and academics, the report said, are bracing for a gloomy world battered by intersecting crises, as rising volatility and depleted resilience boost the odds of painful simultaneous shocks.

    Gita Gopinath, the number two official at the International Monetary Fund, said in an interview with the Wall Street Journal that the IMF is worried globalization is in retreat. “We’re very concerned about geoeconomic fragmentation,” she said. The issue had come up a lot in meetings with member countries at the conference, she added.

    CEOs and political officials are also worried about the United States hitting its borrowing cap on Thursday, forcing the Treasury Department to start taking “extraordinary measures” to keep the government open.

    If an agreement isn’t reached, markets could plunge (like they did the last time this happened in 2011) and the United States risks having its credit rating downgraded again. The situation is a “mess,” said Peter Orszag, CEO of financial advisory at Lazard.

    JP Morgan CEO Jamie Dimon told CNBC from Davos on Thursday that the reputation of the United States as creditworthy is “sacrosanct.” To even question it, he said, is the wrong thing to do. “That is just a part of the financial structure of the world. This is not something you should be playing games with at all.”

    But it may not be that bad: Many leaders’ economic forecasts actually struck a semi-positive tone, even as they factored in strong headwinds.

    So far, energy supplies have held up in Europe, and the US and China are engaging in diplomatic relations — Treasury Secretary Janet Yellen and Chinese Vice Premier Liu He met in Zurich on Wednesday.

    China’s removal of strict coronavirus restrictions late last year is also expected to unleash a wave of spending that may offset economic weakness in the United States and Europe.

    Climate change was a hot topic: The rich and powerful do love to flock to Davos in their carbon-emitting private jets to discuss climate change. But this year, severe warnings were issued to global leaders.

    The UN Secretary General accused fossil fuel producers and their financial backers of “racing to expand production, knowing full well that their business model is inconsistent with human survival.”

    Speaking at Davos on Wednesday, António Guterres said the commitment to limit global warming to 1.5 degrees above pre-industrial levels is “going up in smoke.”

    “We are flirting with climate disaster. Every week brings a new climate horror story,” he said.

    Swedish activist Greta Thunberg also made her way to Switzerland and delivered a “cease and desist letter” to fossil fuel CEOs — signed by more than 800,000 people.

    The AI revolution is here: Some CEOs at Davos admitted that they’re using the revolutionary new AI bot, ChatGPT, to do their work for them, reports my colleague Julia Horowitz.

    Jeff Maggioncalda, the CEO of online learning provider Coursera, said that he uses the tool to bang out emails.

    “I use it as a writing assistant and as a thought partner,” Maggioncalda told CNN from Davos.

    Christian Lanng, CEO of digital supply chain platform Tradeshift, said he uses the ChatGPT to write emails and claims no one has noticed the difference. He even had it perform some accounting work, a service for which Tradeshift currently employs an expensive professional services firm.

    “I see these technologies acting as a copilot, helping people do more with less,” Microsoft CEO Satya Nadella told an audience in Davos this week.

    There’s a saying on Wall Street that bad news for the economy is actually good news for the stock market and vice versa, reports my colleague Paul R. La Monica.

    That’s because investors often bet that dismal headlines will eventually prompt the Federal Reserve and other central banks to cut interest rates and provide more stimulus that can help boost corporate profits…and stock prices.

    But the debt ceiling debate in Washington is changing all of that.

    Wednesday’s big market sell-off and the continued slide Thursday might represent a turning point for market sentiment. Still, after a promising start to the year, stocks have seemingly taken a turn for the worse. Bad news actually might be bad news.

    “We’ve been snuggled up in expectations of a soft landing for the US economy,” said Kit Juckes, chief global foreign exchange strategist at Societe Generale, in a report Thursday. “Take away the blanket and it feels chilly.”

    Netflix announced Thursday that its founder Reed Hastings is stepping down as co-CEO at the company and will serve as executive chairman. Hastings will be replaced by co-CEOs Ted Sarandos and Greg Peters, reports my colleague Clare Duffy.

    Under Hastings’ leadership, Netflix disrupted legacy movie rental companies like Blockbuster and helped shake up Hollywood by kicking off an arms race investing in original content.

    Last year, however, Netflix saw its stock and reputation take a hit after losing subscribers amid heightened competition from rival streaming services. In response, Netflix introduced a lower-priced, ad-supported tier for the first time in its history.

    Those changes may be paying off. In its earnings report on Thursday, the streamer said it added more than 7.6 million subscribers during the final three months of last year, well above the 4.5 million additions it had projected, for a total of more than 230 million paying subscribers worldwide.

    “Reed Hastings stepping down from his current role raises a lot of questions about Netflix’s future strategy,” Jamie Lumbley, analyst at investment firm Third Bridge, said in a statement. “While the subscriber growth numbers are encouraging, revenue growth is sluggish with the backdrop of a potential recession looming on everyone’s mind.”

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  • CEOs at Davos are using ChatGPT to write work emails | CNN Business

    CEOs at Davos are using ChatGPT to write work emails | CNN Business

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    Davos, Switzerland
    CNN
     — 

    Jeff Maggioncalda, the CEO of online learning provider Coursera, said that when he first tried ChatGPT, he was “dumbstruck.” Now, it’s part of his daily routine.

    He uses the powerful new AI chatbot tool to bang out emails. He uses it to craft speeches “in a friendly, upbeat, authoritative tone with mixed cadence.” He even uses it to help break down big strategic questions — such as how Coursera should approach incorporating artificial intelligence tools like ChatGPT into its platform.

    “I use it as a writing assistant and as a thought partner,” Maggioncalda told CNN.

    Maggioncalda is one of thousands of business leaders, politicians and academics gathered in Davos, Switzerland this week for the World Economic Forum. On the agenda is an array of pressing issues weighing on the global economy, from the energy crisis to the war in Ukraine and the transformation of trade. But what many can’t stop talking about is ChatGPT.

    The tool, which artificial intelligence research company OpenAI made available to the general public late last year, has sparked conversations about how “generative AI” services — which can turn prompts into original essays, stories, songs and images after training on massive online datasets — could radically transform how we live and work.

    Some claim it will put artists, tutors, coders, and writers (yes, even journalists) out of a job. Others are more optimistic, postulating that it will allow employees to tackle to-do lists with greater efficiency or focus on higher-level tasks.

    It’s a debate that’s captivated many C-suite leaders, often after they tested the tool themselves.

    Christian Lanng, CEO of digital supply chain platform Tradeshift, said he was blown away by the capabilities displayed by ChatGPT, even after years of exposure to Silicon Valley hype.

    He’s also used the platform to write emails and claims no one has noticed the difference. He even had it perform some accounting work, a service for which Tradeshift currently employs an expensive professional services firm.

    To date, ChatGPT has mostly been treated as a curiosity and a harbinger of what’s to come. It relies on OpenAI’s GPT-3.5 language model, which is already out of date; the more advanced GPT-4 version is in the works and could be released this year.

    Critics — of which there are many — are quick to point out that it makes mistakes, is painfully neutral and displays a clear lack of human empathy. One tech news publication, for example, was forced to issue several significant corrections for an article written by ChatGPT. And New York City public schools have banned students and teachers from using it.

    Yet the software, or similar programs from competitors, could soon take the business world by storm.

    Microsoft

    (MSFT)
    , an investor in OpenAI, announced this week that the company’s tools — including GPT-3.5, programming assistant Codex and image generator DALL-E 2 — are now generally available to business clients in a package called Azure OpenAI Service. ChatGPT is being added soon.

    “I see these technologies acting as a copilot, helping people do more with less,” Microsoft CEO Satya Nadella told an audience in Davos this week.

    Maggioncalda has a similar perspective. He wants to integrate generative AI into Coursera’s offering this year, seeing an opportunity to make learning more interactive for students who don’t have access to in-person classroom instruction or one-on-one time with subject matter experts.

    He acknowledges challenges such as preventing cheating and ensuring accuracy need to be addressed. And he’s worried that increasing use of generative AI may not be wholly good for society — people may become less agile thinkers, for example, since the act of writing can be helpful to process complex ideas and hone takeaways.

    Still, he sees the need to move quickly.

    “Anybody who doesn’t use this will shortly be at a severe disadvantage. Like, shortly. Like, very soon,” Maggioncalda said. “I’m just thinking about my cognitive ability with this tool. Versus before, it’s a lot higher, and my efficiency and productivity is way higher.”

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  • Biden admin unveils new program to allow private citizen groups to sponsor refugees | CNN Politics

    Biden admin unveils new program to allow private citizen groups to sponsor refugees | CNN Politics

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    CNN
     — 

    The Biden administration on Thursday unveiled a new program to allow groups of private citizens to sponsor refugees from around the world to live in the United States.

    The program, called the Welcome Corps, was billed by US Secretary of State Antony Blinken as “the boldest innovation in refugee resettlement in four decades.”

    Under the program, groups of at least five individuals can apply to sponsor refugees and help them acclimate to life in the US, with the help of a consortium of non-profit resettlement organizations.

    The sponsor groups must raise a minimum of $2,275 per refugee, but they will not be required to provide ongoing financial support to the refugees they sponsor.

    That initial amount goes to “provide the initial support for the refugees during their first three months in the country,” a senior State Department official said Thursday, noting that money goes toward things like apartment security deposits, clothing and furniture.

    “The goal is for the refugees to become self-reliant as quickly as possible,” the official said.

    Julieta Valls Noyes, the assistant secretary of state for population, refugees and migration, said that the program requires groups of at least five people, rather than one person who might be able to raise the minimum amount, because the work to help the sponsored refugees is “a lot more than what the average American can do” alone.

    “It’s not about money. It’s about commitment. It’s about the community. It’s about bringing people together and forming a group so that the refugees have more than one person that they can refer to and can work with,” she said at a State Department briefing Thursday.

    “It’s a lot of work involved in sponsoring a refugee – finding schools, helping them find affordable housing, getting their kids signed up for school, helping them find jobs, showing them where the pharmacy is, what bus to take. It’s a lot more than what the average American can do. And so we think that providing a group of five or more Americans is more likely to be successful,” Valls Noyes said.

    She said the groups could be “from all walks of life, including community volunteers, faith and civic groups, veterans, diaspora communities, businesses, colleges, universities.”

    The senior State Department official noted that “all refugees being supported by private sponsors will be cleared through the same extensive security vetting required for all refugees admitted to the United States.”

    The sponsors will be screened, vetted and approved through the consortium of non-profits, which is receiving funding from the State Department. The sponsors will have to provide a detailed “welcome plan” laying out how they plan to receive the refugees and connect them to housing, jobs and schools.

    “The consortium will also provide training to the sponsors before they begin their sponsorship,” and will “check in regularly” with the sponsors and refugees, the official said.

    “There are many, many checkpoints, many, many fail-safes, vetting, all that is part of this program to prevent any abuses. That said I think we’re really excited about the program; we think it’s going to be really successful,” they said.

    Refugee admissions to the US have plummeted in recent years after former President Donald Trump slashed the refugee cap to historic lows. Although the Biden administration has raised the cap to 125,000 for the past two fiscal years, the admissions last year and thus far this year have fallen far short of that.

    “In the program’s first year, our goal is to mobilize at least 10,000 Americans to step forward as private sponsors and offer a welcoming hand to at least 5,000 refugees from around the world,” Blinken said in a statement Thursday.

    The Welcome Corps program is distinct from other programs unveiled by the Biden administration’s Department of Homeland Security to allow individuals to sponsor refugees from Ukraine and Venezuela.

    “In those programs, sponsors need to show that they can support the parolees financially during a two year parole period. The Welcome Corps, on the other hand, will enable private sponsors to support refugees from all nationalities who are being permanently resettled in the United States … and who ultimately may, and in many cases I am confident, will become US citizens,” the senior State Department official said.

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  • Retail sales continued to fall in December as shoppers battled inflation | CNN Business

    Retail sales continued to fall in December as shoppers battled inflation | CNN Business

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    Minneapolis
    CNN
     — 

    It was a ho-hum end to 2022 for spending in America.

    US retail sales continued their fall in December, dropping by 1.1% as inflation remained high, the Commerce Department reported Wednesday.

    That’s the largest monthly decline since December 2021, and practically every category (except for building materials, groceries and sporting goods) saw sales drop from the prior month.

    Economists had expected sales to fall by just 0.8% for the month, according to Refinitiv. The November number was revised down to -1%.

    All in all, the final retail sales report for 2022 shows a muted finish to a holiday season that crept even further into October versus the traditional late-November and December.

    October was the last strong retail sales month of 2022, as discounting and slowing inflation prompted consumers to shop more then, said Kayla Bruun, economic analyst at Morning Consult.

    “I think the hope was that this was going to lead to a little bit more momentum heading into the holiday season,” she said. “But really, it turned out to be more of just an early bump that actually took away from some of the spending that otherwise might have happened in November and December.”

    The Commerce Department’s retail sales data is not adjusted for inflation, which reached a 40-year high in June before falling during the second half of 2022, hitting 6.5% for the 12-month period ending in December, according to the latest Consumer Price Index reading released last week.

    Wholesale price growth is also cooling significantly: The Producer Price Index for December measured 6.2%, according to Bureau of Labor Statistics data released Wednesday.

    During the November and December holiday season, retail sales grew 5.3% over 2021 to $936.3 billion, the National Retail Federation reported Wednesday.

    The holiday total, which is not adjusted for inflation and excludes sales at auto dealerships, gas stations and restaurants, falls short of the trade association’s projections of 6% to 8% holiday sales growth.

    “We knew it could be touch-and-go for final holiday sales given early shopping in October that likely pulled some sales forward plus price pressures and cold, stormy weather,” said Jack Kleinhenz, NRF’s chief economist, in a statement. “The pace of spending was choppy, and consumers may have pulled back more than we had hoped, but these numbers show that they navigated a challenging, inflation-driven environment reasonably well. The bottom line is that consumers are still engaged and shopping despite everything happening around them.”

    Consumer spending has remained robust despite inflation, rising interest rates and recession fears. However, some economic data suggests that activity may be losing some steam and that Americans are running out of dry powder.

    “I think the consumers has gotten very active in managing their household budget and what they’re willing to spend on,” said Matt Kramer, KPMG’s national sector leader for consumer and retail. “They’re spending more time looking for the deals and being thoughtful about when they make purchases.”

    That’s seen in the monthly sales declines in categories like motor vehicles, which were down 1.2% from November; furniture, down 2.5%; and electronics, down 1.1%, according to Wednesday’s report.

    “Certainly on those large purchases, financed purchases where interest rates play in, the consumers are pushing those decisions out and extending their buying cycles around the larger categories,” he said.

    The next few months are traditionally the slowest for retailers, but headwinds like credit card debt and stubborn inflation may exacerbate that, said Ted Rossman, senior industry analyst for Bankrate.

    “A further slowdown in purchasing appears likely, at least in the near-term,” Rossman said in a statement.

    Discretionary spending is usually the first to go, with people typically cutting back on travel, eating out and other expenditures, said Amanda Belarmino, assistant professor of hospitality at the University of Nevada Las Vegas.

    However, the post-pandemic pent-up demand that fueled strong services spending in 2022 is still going strong. Spending on food services and drinking places was up 12.1% in December from the year before.

    “What we’ve seen in restaurants, tourism, hospitality is completely contrary to what we normally see in an economic slowdown,” Belarmino said. “We have seen consumers continue to make that spending. But where you’re seeing those slowdowns are things like people canceling their streaming services, canceling their Peloton, canceling their home services. So it seems that consumers are making those trade-offs.”

    However, shifts in tipping activity could be harbinger of shifts to come.

    “The average tip rate in the US had gone up to about 18% to 20%, and there are some indicators that’s going to be falling back down toward the 15% range,” Belarmino said. “It’s not a huge thing, but it’s a way for consumers to save money.”

    How spending activity holds up in the service industries will be a critical indicator in the coming months, Morning Consult’s Bruun said, adding that a strong labor market should help to prevent a dramatic collapse in spending.

    “That has been the component of consumer spending that’s been driving growth,” she said. “And it’s going to need to, going forward, because we’ve really seen that goods demand has been tapped out to a large extent.”

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  • The Federal Reserve is testing how climate change could hurt big banks | CNN Business

    The Federal Reserve is testing how climate change could hurt big banks | 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
     — 

    The largest six banks in the United States have been given until July to show the Federal Reserve what effects disastrous climate change scenarios could have on their bottom lines.

    Noting the risks could be “material,” the Fed said the banks will have to show how their finances fare under a number of climate stress tests, including heat waves, wildfires, floods and droughts, according to details of a new Fed pilot program released on Tuesday.

    “The pilot exercise includes physical risk scenarios with different levels of severity affecting residential and commercial real estate portfolios in the Northeastern United States and directs each bank to consider the impact of additional physical risk shocks for their real estate portfolios in another region of the country,” wrote the Fed.

    The Federal Reserve first announced the pilot program in September, noting that Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo would participate.

    Climate activists said that the project was long overdue (Federal Reserve Chair Jerome Powell has been questioned about it multiple times over the last year), and that other central banks are far ahead of the Fed on climate risk assessments. The Bank of England ran a similar exercise in 2021.

    They also said the proposal lacked any real teeth. In its announcement the Federal Reserve stressed that the exercise “is exploratory in nature and does not have capital consequences.” It also said that it would not publish individual banks’ results.

    San Francisco Federal Reserve President Mary Daly told CNN in October Thursday that this was a learning and exploratory exercise for the Federal Reserve. It would be “incredibly premature to jump to the conclusion that any new policies or programs would come out of it,” she said.

    The other side: Critics of the pilot program have argued that the Federal Reserve was overstepping its boundaries and that they might soon begin to enforce financial penalties.

    “The Fed’s new ‘pilot’ program is the first step toward pressuring banks into limiting loans to and investments in traditional energy companies and other disfavored carbon-emitting sectors,” wrote former Republican Senator Pat Toomey, then a ranking member of the Senate Banking Committee. “The real purpose of this program is to ultimately produce new regulatory requirements.”

    Powell said last week that the central bank would not become a “climate policymaker.”

    “Today, some analysts ask whether incorporating into bank supervision the perceived risks associated with climate change is appropriate, wise, and consistent with our existing mandates,” Powell said last Tuesday. “In my view, the Fed does have narrow, but important, responsibilities regarding climate-related financial risks. These responsibilities are tightly linked to our responsibilities for bank supervision. The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change.”

    The discovery, movement and use of oil has played an outsized role in shaping geopolitics over the past century and a half. But over the next 50 years, global interaction and wealth are more likely to be influenced by microchips, Intel CEO Pat Gelsinger told CNN Tuesday.

    “Where the technology supply chains are, and where semiconductors are built, is more important for the next five decades,” Gelsinger said in an interview with CNN’s Julia Chatterley at the World Economic Forum in Davos, Switzerland.

    Intel (INTC) is betting those predictions prove true. The company announced in 2021 it would invest $20 billion to build two new US chipmaking facilities, as well as up to $90 billion in new European factories, aimed at reasserting its position as the leader of the semiconductor industry, reports my colleague Clare Duffy.

    Gelsinger said the company’s investment in new manufacturing facilities in the United States, Europe and elsewhere is important not only for the company’s future, but for the “globalization of the most critical resource to the future of the world.”

    “We need this geographically balanced, resilient supply chain,” he said.

    The announcements also came amid concerns about the concentration of manufacturing for chips, in Asia, particularly China and Taiwan, during the Covid-19 pandemic and as geopolitical tensions grew. Issues in the chip supply chain in recent years have caused shortages and shipping delays of everything from desktop computers and iPhones to cars.

    “If we’ve learned one thing from the Covid crisis and this multi-year journey that we’ve been on it’s we need resilience in our supply chains,” Gelsinger said, adding that Intel’s manufacturing investments are aimed at “leveling that playing field so that good investment decisions can be made.”

    The years following the peak of the Covid pandemic have not been good for wealth equality.

    The world’s wealthiest residents have been getting far richer, far faster than everyone else over the past two years, reports my colleague Tami Luhby.

    The fortune of the 1% soared by $26 trillion during that period, while the bottom 99% only saw their net worth rise by $16 trillion, according to Oxfam’s annual inequality report released Sunday.

    And the wealth accumulation of the super-rich accelerated during the pandemic. Looking over the past decade, they netted just half of all the new wealth created, compared to two-thirds during the last few years.

    Meanwhile, many of the less fortunate are struggling. Some 1.7 billion workers live in countries where inflation is outpacing wages. And poverty reduction likely stalled last year after the number of global poor skyrocketed in 2020.

    “While ordinary people are making daily sacrifices on essentials like food, the super-rich have outdone even their wildest dreams,” said Gabriela Bucher, executive director of Oxfam International.

    “Just two years in, this decade is shaping up to be the best yet for billionaires — a roaring ’20s boom for the world’s richest,” she said.

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  • Yen falls after Bank of Japan maintains ultra-easy policy | CNN Business

    Yen falls after Bank of Japan maintains ultra-easy policy | CNN Business

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    Hong Kong
    CNN
     — 

    The yen plunged on Wednesday after the Bank of Japan decided to maintain its ultra-easy monetary policy, defying market expectations that rising inflation could force the central bank to move away from low interest rates.

    The BOJ kept its yield curve control (YCC) targets unchanged as it concluded a two-day policy meeting on Wednesday. It left the short-term interest rate at an ultra-dovish minus 0.1% and the 10-year Japanese Government Bonds (JGB) yield around 0%.

    The YCC policy is a pillar of the central bank’s effort to keep interest rates low and stimulate the economy.

    “Japan’s economy, despite being affected by factors such as high commodity prices, has picked up as the resumption of economic activity has progressed while public health has been protected from Covid-19,” the central bank said in its quarterly outlook report, adding that slowdowns in overseas economies could put downward pressure on growth.

    The Japanese yen tumbled against the US dollar shortly after the announcement. It last traded at 131.34 yen per dollar, down 2.5%. Last Friday, it hit a seven-month high of 127.46 against the greenback.

    Last month, the BOJ shocked global markets by allowing the 10-year JGB yield to move 50 basis points on either side of its 0% target, in a move that stoked speculation the central bank may follow the same direction as other major economies by allowing rates to rise further.

    The unexpectedly hawkish decision caused stocks to tumble, while sending the yen and bond yields soaring.

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  • Tesla video promoting self-driving was staged, engineer testifies | CNN Business

    Tesla video promoting self-driving was staged, engineer testifies | CNN Business

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    CNN
     — 

    A 2016 video that Tesla

    (TSLA)
    (TSLA) used to promote its self-driving technology was staged to show capabilities like stopping at a red light and accelerating at a green light that the system did not have, according to testimony by a senior engineer.

    The video, which remains archived on Tesla’s website, was released in October 2016 and promoted on Twitter by Chief Executive Elon Musk as evidence that “Tesla drives itself.”

    But the Model X was not driving itself with technology Tesla had deployed, Ashok Elluswamy, director of Autopilot software at Tesla, said in the transcript of a July deposition taken as evidence in a lawsuit against Tesla for a 2018 fatal crash involving a former Apple

    (AAPL)
    (AAPL) engineer.

    The previously unreported testimony by Elluswamy represents the first time a Tesla employee has confirmed and detailed how the video was produced.

    The video carries a tagline saying: “The person in the driver’s seat is only there for legal reasons. He is not doing anything. The car is driving itself.”

    Elluswamy said Tesla’s Autopilot team set out to engineer and record a “demonstration of the system’s capabilities” at the request of Musk.

    Elluswamy, Musk and Tesla did not respond to a request for comment. However, the company has warned drivers that they must keep their hands on the wheel and maintain control of their vehicles while using Autopilot.

    The Tesla technology is designed to assist with steering, braking, speed and lane changes but its features “do not make the vehicle autonomous,” the company says on its website.

    To create the video, the Tesla used 3D mapping on a predetermined route from a house in Menlo Park, California, to Tesla’s then-headquarters in Palo Alto, he said.

    Drivers intervened to take control in test runs, he said. When trying to show the Model X could park itself with no driver, a test car crashed into a fence in Tesla’s parking lot, he said.

    “The intent of the video was not to accurately portray what was available for customers in 2016. It was to portray what was possible to build into the system,” Elluswamy said, according to a transcript of his testimony seen by Reuters.

    When Tesla released the video, Musk tweeted, “Tesla drives itself (no human input at all) thru urban streets to highway to streets, then finds a parking spot.”

    Tesla faces lawsuits and regulatory scrutiny over its driver assistance systems.

    The U.S. Department of Justice began a criminal investigation into Tesla’s claims that its electric vehicles can drive themselves in 2021, after a number of crashes, some of them fatal, involving Autopilot, Reuters has reported.

    The New York Times reported in 2021 that Tesla engineers had created the 2016 video to promote Autopilot without disclosing that the route had been mapped in advance or that a car had crashed in trying to complete the shoot, citing anonymous sources.

    When asked if the 2016 video showed the performance of the Tesla Autopilot system available in a production car at the time, Elluswamy said, “It does not.”

    Elluswamy was deposed in a lawsuit against Tesla over a 2018 crash in Mountain View, California, that killed Apple engineer Walter Huang.

    Andrew McDevitt, the lawyer who represents Huang’s wife and who questioned Elluswamy’s in July, told Reuters it was “obviously misleading to feature that video without any disclaimer or asterisk.”

    The National Transportation Safety Board concluded in 2020 that Huang’s fatal crash was likely caused by his distraction and the limitations of Autopilot. It said Tesla’s “ineffective monitoring of driver engagement” had contributed to the crash.

    Elluswamy said drivers could “fool the system,” making a Tesla system believe that they were paying attention based on feedback from the steering wheel when they were not. But he said he saw no safety issue with Autopilot if drivers were paying attention.

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  • Ousted Disney CEO Bob Chapek will get $20 million exit pay | CNN Business

    Ousted Disney CEO Bob Chapek will get $20 million exit pay | CNN Business

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    New York
    CNN
     — 

    Ousted Disney chief executive Bob Chapek is set to receive a hefty paycheck following his exit.

    The Walt Disney Company said the former CEO, who took over in February 2020 after longtime CEO Bob Iger retired, is eligible to take home a severance pay package worth roughly $20 million, according to a regulatory filing Tuesday. That’s in addition to the $24 million he made last year — his $2.5 million base salary plus millions in stock options and awards. That’s down from the $32.5 million he made in 2021.

    Chapek abruptly exited the company in November after a hectic two-year stint marked by Covid-19 shutdowns, a PR debacle related to Florida’s “Don’t Say Gay” bill and a significant slowdown in demand for streaming services. He was replaced by his predecessor, Iger.

    The proxy filing said that the board determined that Chapek “was no longer the right person to serve in the CEO role,” even though it had voted to extend Chapek’s tenure for three years in June 2022.

    “The significant developments and change in the broader macroeconomic environment over this period informed how the board viewed the appropriate leader in light of the rapidly evolving industry and market dynamics,” the filing said.

    Disney shares, which were trading at about $170 in January 2022, have fallen to about $100 a share.

    Iger has returned to Disney at a tumultuous time. Its streaming business lost $1.5 billion in the fourth quarter, and Disney’s media networks are struggling as cord-cutting accelerates and once-lucrative outlets like ESPN lose household reach.

    Dan Loeb, the activist investor and Third Point CEO, made headlines in August when he suggested “a strong case can be made that the ESPN business should be spun off to shareholders with an appropriate debt load.”

    A Wells Fargo analyst also called on Disney to ditch ESPN in December.

    Disney

    (DIS)
    previously revealed that Iger earned a $1 million base salary. However, that compensation comes with an annual bonus of up to $1 million, as well as an annual incentive-based award with a target value of $25 million. That means that Iger has the potential of pulling in around $27 million.

    Last week, Disney named Nike executive chairman Mark Parker as its new board chair, replacing longtime director Susan Arnold, whose term limit is expiring.

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  • Federal student loan office has lots to do but no new money to do it | CNN Politics

    Federal student loan office has lots to do but no new money to do it | CNN Politics

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    Washington
    CNN
     — 

    Big headaches for student loan borrowers could be on the horizon.

    Their monthly payments could restart as early as this summer after a three-year pause. And the federal office that oversees the student loan system is operating under the same budget as last year – which could complicate any efforts to make sure the repayment process goes smoothly, as well as the office’s plans to overhaul the system.

    When Congress passed the government’s annual budget in December, the Federal Student Aid office got about $800 million less than what the Biden administration had asked for. After granting steady increases in previous years, lawmakers left funding for the office’s operations flat at about $2 billion.

    Republican lawmakers touted how Congress provided no new funding to help implement President Joe Biden’s controversial student loan forgiveness plan – which is currently tied up in the courts. If the Supreme Court allows the forgiveness program to move forward, it would also be a huge lift for the Federal Student Aid office.

    “I think it’s particularly unfortunate for borrowers that the political fight over loan forgiveness has resulted in flat funding this year,” said Jonathan Fansmith, assistant vice president of government relations at the American Council on Education, an advocacy group for colleges and universities.

    “Wherever the cracks start to show, borrowers are going to be impacted,” Fansmith added.

    The Federal Student Aid office, which has about 1,400 employees and provides about $112 billion in grant, work-study and loan funds annually, has a lot on its plate.

    The office oversees the $1.6 trillion federal student loan portfolio but has also taken on additional work to revamp the federal student aid application form, known as the FAFSA, and to overhaul some federal student loan programs. Last week, it announced a plan to start making significant changes to its income-driven repayment program this year.

    “I think certainly a number of their priorities will either not get done on the timeline that they had originally hoped for, or not get done at all,” said Michele Shepard, senior director of college affordability at The Institute for College Access and Success, an advocacy group.

    But the Department of Education says it can still meet the timelines it has set.

    “The several hundred-million-dollar shortfall will of course have an impact on these important bipartisan priorities, but we will continue to do everything we can with the available resources to better serve students and protect taxpayer dollars,” the department said in a statement sent to CNN.

    Still, that means the Federal Student Aid office would be doing more work with less money. Here are some of the tasks it is expected to tackle this year:

    Federal student loan borrowers have not had to make any payments since March 2020, thanks to a pandemic-related pause that has been extended by both the Trump and Biden administrations several times.

    Most recently, Biden extended the pause after his student loan forgiveness program was halted by federal courts. The administration had told borrowers debt relief would be granted before payments restarted.

    The payment pause will now last until 60 days after litigation over Biden’s student loan forgiveness program is resolved. If the program has not been implemented and the litigation has not been resolved by June 30, payments will resume 60 days after that.

    Bringing roughly 44 million borrowers back into repayment at one time is an unprecedented task. Many people may be confused about how much they owe, when to pay and how. Missing payments can result in monetary fees.

    The government contracts with several outside organizations, such as MOHELA and Nelnet, to handle servicing the federal student loans. But it’s up to the Federal Student Aid office to communicate with the servicers about when payments restart and how.

    “To be kind, the quality of student loan servicing has not been stellar,” Fansmith said.

    “If you multiply all of these issues, even if small, by 44 million borrowers, it’s a massive national problem,” he added.

    In late February, the Supreme Court will hear arguments in two cases concerning Biden’s student loan forgiveness program, which could deliver up to $20,000 of debt relief for millions of low- and middle-income borrowers.

    A decision on whether the program is legal and can move forward is expected by June. Until then, it is on hold and no debt will be discharged under the program.

    Biden’s student loan forgiveness program has faced several legal challenges since the president announced it in August. The Department of Education had received about 26 million applications for debt relief by the time a federal district court judge struck down the program on November 10.

    The legal back-and-forth has created confusion for borrowers around the status of the program. Adding to the uncertainty, about 9 million people received an email from the Department of Education in the fall that mistakenly said their application for student loan forgiveness had been approved.

    The Biden administration has plans to overhaul some of its student loan repayment programs and the Federal Student Aid office is charged with rolling those out.

    In July, the Department of Education plans to implement permanent changes to the Public Service Loan Forgiveness program to make it easier for government and nonprofit workers to qualify for debt relief after making 10 years of payments. The program has long been plagued with loan servicing problems.

    Big changes to the department’s income-driven repayment plans are also in the works, aimed at reducing monthly debt burdens as well as the total amount borrowers pay over the lifetime of their loans.

    The new regulations are expected to cap payments at 5% of a borrower’s discretionary income, down from 10% that is offered under most current income-driven plans. As a result, single borrowers making less than $30,600 per year would not need to make any payments under the proposal, up from the current $24,000 threshold.

    The changes would also forgive remaining balances after 10 years of repayment, instead of 20 or 25 years, as well as cover the borrower’s unpaid monthly interest.

    The Department of Education said last week that it expects to start implementing some of these provisions later this year.

    Each year, as part of its normal work, the Federal Student Aid office processes millions of FAFSA applications from students. Generally, the form is released in October for the following academic year.

    Every college student needs to fill out the FAFSA in order to qualify for federal student loans, grants and work-study aid. But it has long been criticized as too long and complicated.

    Congress passed a law in 2021 that simplifies the FAFSA form, and the Federal Student Aid office has been working on implementing the changes – which financial aid experts hope will be done before October this year.

    The office was supposed to have had the changes already done, but the effective date was pushed back by a year.

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  • How Ukraine became a testbed for Western weapons and battlefield innovation | CNN Politics

    How Ukraine became a testbed for Western weapons and battlefield innovation | CNN Politics

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    CNN
     — 

    Last fall, as Ukraine won back large swaths of territory in a series of counterattacks, it pounded Russian forces with American-made artillery and rockets. Guiding some of that artillery was a homemade targeting system that Ukraine developed on the battlefield.

    A piece of Ukrainian-made software has turned readily available tablet computers and smartphones into sophisticated targeting tools that are now used widely across the Ukrainian military.

    The result is a mobile app that feeds satellite and other intelligence imagery into a real-time targeting algorithm that helps units near the front direct fire onto specific targets. And because it’s an app, not a piece of hardware, it’s easy to quickly update and upgrade, and available to a wide range of personnel.

    US officials familiar with the tool say it has been highly effective at directing Ukrainian artillery fire onto Russian targets.

    The targeting app is among dozens of examples of battlefield innovations that Ukraine has come up with over nearly a year of war, often finding cheap fixes to expensive problems.

    Small, plastic drones, buzzing quietly overhead, drop grenades and other ordinance on Russian troops. 3D printers now make spare parts so soldiers can repair heavy equipment in the field. Technicians have converted ordinary pickup trucks into mobile missile launchers. Engineers have figured out how to strap sophisticated US missiles onto older Soviet fighter jets such as the MiG-29, helping keep the Ukrainian air force flying after nine months of war.

    Ukraine has even developed its own anti-ship weapon, the Neptune, based off Soviet rocket designs that can target the Russian fleet from almost 200 miles away.

    This kind of Ukrainian ingenuity has impressed US officials, who have praised Kyiv’s ability to “MacGyver” solutions to its battlefield needs that fill in important tactical gaps left by the larger, more sophisticated Western weaponry.

    While US and other Western officials don’t always have perfect insight into exactly how Ukraine’s custom-made systems work – in large part because they are not on the ground – both officials and open-source analysts say Ukraine has become a veritable battle lab for cheap but effective solutions.

    “Their innovation is just incredibly impressive,” said Seth Jones, director of the international security program at the Center for Strategic and International Studies.

    Meanwhile, the war in Ukraine has also offered the United States and its allies a rare opportunity to study how their own weapons systems perform under intense use – and what munitions both sides are using to score wins in this hotly fought modern war. US operations officers and other military officials have also tracked how successfully Russia has used cheap, expendable drones that explode on impact, provided by Iran, to decimate the Ukrainian power grid.

    Ukraine is “absolutely a weapons lab in every sense because none of this equipment has ever actually been used in a war between two industrially developed nations,” said one source familiar with Western intelligence. “This is real-world battle testing.”

    For the US military, the war in Ukraine has been an incredible source of data on the utility of its own systems.

    Some high-profile systems given to the Ukrainians – such as the Switchblade 300 drone and a missile designed to target enemy radar systems – have turned out to be less effective on the battlefield than anticipated, according to a US military operations officer with knowledge of the battlefield, as well as a recent British think tank study.

    But the lightweight American-made M142 multiple rocket launcher, or HIMARS, has been critical to Ukraine’s success – even as officials have learned valuable lessons about the rate of maintenance repair those systems have required under such heavy use.

    How Ukraine has used its limited supply of HIMARS missiles to wreak havoc on Russian command and control, striking command posts, headquarters and supply depots, has been eye-opening, a defense official said, adding that military leaders would be studying this for years.

    Ukrainian service members fire a shell from an M777 Howitzer at a front line, as Russia's attack on Ukraine continues.

    Another crucial piece of insight has been about the M777 howitzer, the powerful artillery that has been a critical part of Ukraine’s battlefield power. But the barrels of the howitzers lose their rifling if too many shells are fired in a short time frame, another defense official said, making the artillery less accurate and less effective.

    The Ukrainians have also made tactical innovations that have impressed Western officials. During the early weeks of the war, Ukrainian commanders adapted their operations to employ small teams of dismounted infantry during the Russian advance on Kyiv. Armed with shoulder-mounted Stinger and Javelin rockets, Ukrainian troops were able to sneak up on Russian tanks without infantry on their flanks.

    The US has also closely studied the conflict for larger lessons on how a war between two modern nations might be waged in the 21st century.

    A High-Mobility Artillery Rocket System (HIMARS) during military exercises at Spilve Airport in Riga, Latvia.

    The operations officer said that one lesson the US may take from this conflict is that towed artillery – like the M777 howitzer system – may be a thing of the past. Those systems are harder to move quickly to avoid return fire – and in a world of ubiquitous drones and overhead surveillance, “it’s very hard to hide nowadays,” this person said.

    When it comes to lessons learned, “there’s a book to be written about this,” said Democratic Rep. Jim Himes of Connecticut, a member of the House Intelligence Committee.

    US defense contractors have also taken note of the novel opportunity to study – and market – their systems.

    BAE Systems has already announced that the Russian success with their kamikaze drones has influenced how it is designing a new armored fighting vehicle for the Army, adding more armor to protect soldiers from attacks from above.

    And different parts of the US government and industry have sought to test novel systems and solutions in a fight for which Ukraine needed all the help it could get.

    Ukrainian soldiers are on standby with a US made Stinger MANPAD (man-portable air-defense system) on the frontline in Bakhmut, Ukraine

    In the early days of the conflict, the National Geospatial-Intelligence Agency sent five lightweight, high-resolution surveillance drones to US Special Operations Command in Europe – just in case they might come in handy in Ukraine. The drones, made by a company called Hexagon, weren’t part of a so-called program of record at the Defense Department, hinting at the experimental nature of the conflict.

    Navy Vice Adm. Robert Sharp, the head of the National Geospatial-Intelligence Agency at the time, even boasted publicly that the US had trained a “military partner” in Europe on the system.

    “What this allows you to do is to go out underneath cloud cover and collect your own [geointelligence] data,” Sharp told CNN on the sidelines of a satellite conference in Denver last spring.

    Despite intense effort by a small group of US officials and outside industry, it remains unclear whether these drones ever made it into the fight.

    Meanwhile, multiple intelligence and military officials told CNN they hoped that creating what the US military terms “attritable” drones – cheap, single-use weapons – has become a top priority for defense contractors.

    “I wish we could make a $10,000 one-way attack drone,” one of these officials said, wistfully.

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  • Forget inflation, it’s all about earnings | CNN Business

    Forget inflation, it’s all about earnings | CNN Business

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    New York
    CNN
     — 

    To everything there is a season and now is the time for earnings.

    Over the past few weeks investors have been squarely focused on inflation and Fed policy, but now market reactions are getting bigger for earnings (especially the misses) and smaller for economic data.

    What’s happening: “We expect earnings to take the center stage going forward,” wrote Bank of America strategists Savita Subramanian and Ohsung Kwon in a note on Friday. They noted that over the last three quarters, S&P 500 reactions to earnings beats and misses have soared higher and have now surpassed the one-day market reaction to both CPI inflation and Fed policy meeting decisions.

    Companies that missed on both sales and earnings-per-share during the last quarter underperformed the S&P 500 by nearly six percentage points on average the next day, the largest reaction to earnings misses on record.

    Shares of Disney sank 13.16% last November — their lowest level in more than two years — when they missed earnings estimates. Meta shares plummeted 24% after showing a drop in third-quarter revenue in October, the company’s second consecutive quarterly revenue decline. And shares of Palantir closed down more than 11% in November after it missed estimates only slightly.

    “We see this as a narrative shift in the market from the Fed and inflation to earnings: reactions to earnings have been increasing, while reactions to inflation data and FOMC meetings have been getting smaller,” wrote Subramanian and Kwon.

    So we can expect some serious volatility over the next few weeks as companies report their fourth quarter corporate earnings.

    Bank of America’s predictive analytics team analyzed earnings transcripts to calculate sentiment scores and found that corporate sentiment remained flat in the third quarter, well off its highs, which points to a potential earnings decline ahead.

    Similarly, companies’ references to of better business conditions (specific usage of the words “better” or “stronger” vs. “worse” or “weaker”) remained well below the historical average, and mentions of optimism dropped to the lowest level since the first quarter of 2020.

    So far, swings have been to the downside. S&P 500 fourth-quarter earnings-per-share estimates have dropped by about 7% since October. Early earnings reports from some of the largest financial institutions point to a bleak quarter.

    Bad news ahead: The estimated earnings decline for the S&P 500 in the fourth quarter of 2022 is -3.9%, according to a FactSet analysis. If that is indeed the actual drop, it will mark the first earnings decline reported by the index since the third quarter of 2020.

    Over the past few weeks, reported FactSet, earnings expectations for the first and second quarters of 2023 switched from year-over-year growth to year-over-year declines.

    The latest: JPMorgan beat estimates for fourth-quarter revenue but also increased the amount of money for expected defaults on loans. The bank added a $2.3 billion provision for credit losses in the quarter, a 49% increase from the third quarter.

    The move was driven by a “modest deterioration in the Firm’s macroeconomic outlook, now reflecting a mild recession in the central case,” said the report. On a subsequent call, JPMorgan CFO Jeremy Barnum told reporters that the bank expects a recession to hit by the fourth-quarter of 2023.

    Bank of America

    (BAC)
    also beat earnings expectations but CEO Brian Moynihan said Friday that the bank is preparing for rising unemployment and a recession in 2023. “Our baseline scenario contemplates a mild recession,” he said. The bank added a $1.1 billion provision for credit losses, a sharp change from last year when that number was negative.

    What’s next: Hold on to your hats. During the upcoming week, 26 S&P 500 companies are scheduled to report results for the fourth quarter.

    Apple CEO Tim Cook has responded to angry shareholders by recommending that the company cut his pay this year, reports my colleague Anna Cooban.

    Cook was granted $99.4 million in total compensation last year. The vast majority of his 2022 compensation — about 75% — was tied up in company shares, with half of that dependent on share price performance.

    But shareholders voted against Cook’s pay package after Apple’s stock fell nearly 27% last year. The vote is nonbinding, but the board’s compensation committee said Cook himself requested the reduction.

    “The compensation committee balanced shareholder feedback, Apple’s exceptional performance, and a recommendation from Mr. Cook to adjust his compensation in light of the feedback received,” the company said in its annual proxy statement released Thursday.

    But don’t cry for Tim Cook just yet. This year, the executive’s share award target is $40 million. About $30 million, or three-quarters, of that is linked to share price performance. The tech boss, who has headed up Apple

    (AAPL)
    since 2011, is estimated to have a personal wealth of $1.7 billion, according to Forbes.

    The bottom line: Apple’s share price, like other tech companies, plunged last year as coronavirus lockdowns shuttered some of its factories in China. Supply chain bottlenecks and fears that a global economic slowdown would crimp demand also dragged down its stock.

    Angry investors believe that the person at the helm of the company should also see a drop in pay.

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  • Elon Musk’s Twitter accused of unlawful staff firings in the UK | CNN Business

    Elon Musk’s Twitter accused of unlawful staff firings in the UK | CNN Business

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    New York
    CNN
     — 

    A law firm representing dozens of former UK Twitter employees is accusing the company of “unlawful, unfair and completely unacceptable treatment” of workers following recent mass layoffs, which the firm referred to as a “sham redundancy process.”

    In a letter sent to the company on Monday, law firm Winckworth Sherwood alleged that Twitter violated UK law by cutting off terminated employees’ access to internal systems without engaging in the required warning and consultation period. The letter also said Twitter has failed to provide information about the selection criteria used to determine the layoffs.

    The letter states that 43 affected UK employees are prepared to take the issue to an Employment Tribunal, a UK system for employees to bring legal disputes against their employers, if the company does not agree to cooperate with negotiations over the layoff process.

    The warning marks the latest challenge to Twitter from former employees affected by mass layoffs that took place after Elon Musk acquired the company in October. Twitter laid off half of its global staff in early November, and has continued to fire and push out additional employees in the months since, including through an ultimatum to work “hardcore.”

    More than 300 former US employees have filed demands for arbitration against the company, according to attorneys representing them. Twitter is also facing four proposed class action lawsuits in the United States related to the layoffs. Now, the backlash to the layoffs may be escalating in the UK.

    “Our clients have been aghast at the direction taken by their employer, whose mission they have genuinely believed in and, in a number of cases, whose growth and transformation they have supported for many years,” lawyers for Winckworth Sherwood wrote in the letter. “They remain resolved to protect their positions, professional reputations and legal claims against the Company should it now proceed to dismiss them unlawfully and unfairly.”

    Twitter, which cut much of its public relations team as part of the layoffs, did not immediately respond to a request for comment on the letter.

    UK trade union Prospect, which represents more than 100 UK Twitter employees, also wrote to the company this week raising concerns about its layoff process, including claims that Twitter is “choosing not to honor” its promise that employees laid off following Musk’s acquisition would receive severance with terms no less favorable than prior to his takeover.

    Prospect also said the company has given workers “an arbitrary date to sign their rights away” in order to receive better separation terms, although negotiations over the layoffs are ongoing. (Typically, negotiations over mass layoffs by UK companies involve discussions of the reasons for terminations and how to minimize their size and impact.)

    “It is to be celebrated that in the UK it is not possible to simply fire employees en masse at will as Twitter has done in other countries,” Prospect, said in the letter. “Rest assured, Prospect will continue to lobby the Government and raise public awareness about employers who treat their workers like commodities to be discarded on a whim.”

    In the United States, there have also been concerns among Twitter employees after they began receiving their severance packages last weekend. The offers promise one month’s pay in exchange for agreeing to various terms, including a non-disparagement agreement and waiving the right to take any legal action against the company, according to Lisa Bloom, a lawyer representing dozens of former Twitter employees affected by the layoffs.

    Many were dissatisfied by the offer, according to public posts and attorneys representing ex-employees, raising concerns about the terms and saying it falls short of what the company has previously promised to provide to affected employees.

    The amount is also significantly less than provided at rivals like Facebook-parent Meta, which laid off thousands of workers around the same time and guaranteed them 16 weeks of base pay plus two additional weeks for each year they were employed at the company.

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  • George Santos said accused ‘Ponzi scheme’ he worked at was ‘100% legitimate’ when accused of fraud in 2020 | CNN Politics

    George Santos said accused ‘Ponzi scheme’ he worked at was ‘100% legitimate’ when accused of fraud in 2020 | CNN Politics

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    CNN
     — 

    Republican Rep. George Santos, said a company later accused of running a “Ponzi scheme” was “100% legitimate” when it was accused by a potential customer of fraud in 2020, more than a year before it was sued by the US Securities and Exchange Commission. Once the company, where he worked, came under federal scrutiny, Santos claimed publicly that he was unaware of accusations of fraud at the firm, a CNN KFile review of Santos’ social media and statements found.

    Santos, the embattled freshman Republican, faces growing pressure to resign after he lied and misrepresented his educational, work and family history, including falsely claiming he was Jewish and the descendant of Holocaust survivors. Santos admitted to “embellishing” his resume, but has maintained he is “not a criminal.”

    Santos worked at Harbor City Capital Corp. in 2020 and 2021, a company the SEC said was a “classic Ponzi scheme” in an April 2021 complaint against the firm. A Ponzi scheme is a type of fraud where existing investors are paid with funds from new investors, often promising artificially high rates of return with little risk. Santos was not named in the SEC complaint.

    Joseph Murray, an attorney for Rep. Santos, told CNN in an email on Thursday that Santos was unaware of wrongdoing at the company.

    “As to any questions about Harbor City Capital, in light of the ongoing investigation, and for the benefit of the victims, it would be inappropriate to respond other than to say that Congressman Santos was completely unaware of any illegal activity going on at Harbor City Capital,” Murray told CNN.

    Santos told The Daily Beast in 2022 that he was “as distraught and disturbed as everyone else” to learn of allegations against Harbor City. But in a since-removed tweet on his since-deleted personal Twitter account, a potential customer questioned claims the company had a 100% bank guarantee on their investment in the form of a stand by line of credit (SBLC).

    “The market instability is leading to sever (sic) capital erosion. @HarborCityCap offers you a strategy that mitigates loss and risk while creating cash flow, meanwhile your principle is 100% secured by an SBLC held by various major institutions. #fixedincome #alternativeinvestment #win,” Santos tweeted in April 2020 under the name George Devolder, using his mother’s family name.

    In June, a potential customer responded to that tweet from Santos saying he looked into a SBLC from Harbor City and found it to be fraudulent.

    “George, this SBLC I received from Harbor City was looked into, and Deutsche Bank claims is a complete fraud and not signed by the bank officer on the document. How do you explain this?,” the user said.

    “I’m sorry I’m not following you. Could you please send me an email at George.devolder@harborcity.com and we can go over this together. Our SBLC is 100% legitimate and issued by their institution. I look forward to hearing from you,” responded Santos.

    In fact, according to the SEC complaint, “at no point” was Harbor City Capital “ever issued a SBLC,” despite claims from the company.

    Dylan Riddle, a spokesman for Deutsche Bank, told CNN on Monday that they had no affiliation with Harbor City Capital.

    “Harbor City Capital was not a client of Deutsche Bank,” he said.

    Attorney Katherine C. Donlon, the court-appointed receiver for Harbor City Capital told CNN in an email on Friday Santos was affiliated with Harbor City Capital from mid January 2020 through April 2021.

    On Wednesday, the Nassau County GOP and several New York Republican congressmen called on Santos to resign. Santos still has the tacit support of House Speaker Kevin McCarthy, who said it was up to the voters to decide.

    In other media reviewed by CNN’s KFile from 2020, Santos called himself “the head guy” at the Harbor City office in New York and the executive at the company. In one 2020 interview, Santos said he managed a $1.5 billion fund for the company with returns of 12% and 26% on investors’ money.

    “Currently at Harbor City Capital, I manage a 1.5 billion fund, right?,” said Santos. “And I know how to manage it well. I give record returns to anybody who watches this, they’ll understand. I’m giving, a 12% fixed yield income return a year, which nobody in the market’s giving four and we’re giving 12. We’re also giving up to 20 to 26% in IRR return on our investors’ capital. So if there’s something I know how to do, it’s manage dollars and grow them.”

    The SEC filed a complaint in April 2021 against Harbor City Capital and founder Jonathan P. Maroney, alleging that Maroney raised $17.1 million by deceiving more than 100 hundred investors through a series of unregistered fraudulent security offerings and used the money to enrich himself and his family. The SEC claimed that of the investor money collected and deposited into Harbor City Capital bank accounts “at most” only $449,000 were used for business expenses.

    Neither Santos nor other Harbor City Capital employees were named in the complaint.

    In October, Maroney was granted a stay in federal court for the SEC’s civil lawsuit, after Maroney noted that he “is currently the target in a related criminal investigation.” He is representing himself in the case.

    CNN reached out to Maroney for comment but did not receive a response.

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  • California cleans up from one storm as it prepares for another | CNN

    California cleans up from one storm as it prepares for another | CNN

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    CNN
     — 

    Days after California was hit by “the most impressive storm in nearly 20 years,” the state – fully saturated in many places – is gearing up this weekend for yet another series of atmospheric river events, with flooding, hail, powerful wind gusts and even funnel clouds possible in spots.

    TRACK THE STORMS HERE >>

    Another round of heavy rain already is falling Saturday on the Golden State, where extreme drought fueled by the climate crisis has given way in recent weeks to massive flooding amid a catastrophic sequence of ultra-wet atmospheric rivers – long, narrow regions in the atmosphere that transport moisture thousands of miles. Recent storms have killed at least 18 people and left tens of thousands at a time without power.

    Over 25 million people again are under flood watches across much of California’s central coastline, as well as the Sacramento and San Joaquin Valleys. Though this weekend’s rain tally will be lower than previous storms, the threshold for flooding also is much lower because the ground is fully saturated in many areas.

    “This atmospheric river is more progressive than some of the other atmospheric rivers that have occurred in recent weeks, which should help to limit the extent of the flooding potential,” the Weather Prediction Center said. “All that being said, just about all of California; from the coast and both the Shasta and Sierra Nevada on south to the Transverse Range feature soil moisture percentiles greater than 95%.”

    “Portions of the state have picked up 15-20+” of rain and >600% of normal rainfall in the last two weeks,” they added.

    And unfortunately, the rain chances don’t end there: Yet another storm will bring renewed rain chances and flooding to much of the state Sunday afternoon through Monday morning before drier conditions finally set in later next week.

    “A more intense surge of moisture is expected on Saturday ahead of a stronger Pacific storm system that will move inland through the day,” the prediction center said. “A broader slight risk of excessive rainfall is in place for both coastal northern California, where rainfall will continue from Friday, as well as upslope regions of the Sierra.”

    Rain and snow are also forecast to spread into the Pacific Northwest and Intermountain West Saturday into Sunday.

    Widespread rainfall totals through Monday will range between 2 to 3 inches along the coast and interior valleys, with 4 to 6 inches possible for the San Francisco Bay area and the nearby Santa Cruz and Santa Lucia mountains. This will likely lead to a few instances of flooding as well as mud, rock and landslides.

    “Rain is a certainty with (rain chances at) 100% areawide and with deep moisture and ample rainfall expected, flooding once again becomes a concern,” the National Weather Service office in San Francisco said.

    San Francisco already has recorded one of the top 15 wettest winters on record with more than a month to go. If it does end up picking up 4 to 6 inches of rain over the next three days, the city easily will crack the top five.

    A slight risk of excessive rainfall – Level 2 out of 4 – alert is in place, mainly due to extremely wet conditions preceding the forecast rainfall and leading to increased flooding concerns.

    “Forecast soundings have been showing quite a bit of instability over the Central Valley behind the front later Saturday afternoon and into the evening with hail likely to accompany stronger storms, and maybe some funnel clouds,” the weather service office in Sacramento said.

    River flooding is also a big concern, especially around the Russian River in Northern California and the Salinas River near Monterey. “Plan on additional disruptions to travel and mountain recreation through the weekend as periods of heavy snow return to the Sierra,” the weather service office in Reno said.

    Very heavy snow is also forecast for the Sierra, with 1 to 2 feet possible on Saturday and an additional 2 to 3 feet through Monday. “Heaviest snowfall days will be Saturday and Monday with less intense snow showers in between,” the weather service office in Reno said.

    Strong winds will also accompany this system, gusting up to 40 to 50 mph in the Sacramento Valley and up to 60 mph in the mountains. This could lead to downed trees and power lines staked in now-extremely saturated soils.

    “The system will be packing a decent amount of south winds and a high wind watch is in effect for the mountains of San Luis Obispo and Santa Barbara counties – the same strong winds will move into Ventura and LA counties Saturday evening,” the weather service office in Los Angeles said.

    The good news is that by week’s end, the forecast calls for much drier conditions across all of California, which will allow for the ground to dry out and river levels to recede.

    “It’s been a long time since California residents were happy to see an extended forecast of below-average precipitation,” CNN Meteorologist Brandon Miller said. “But after the past three weeks, they certainly are.”

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  • Bank earnings fail to impress investors as recession worries rise | CNN Business

    Bank earnings fail to impress investors as recession worries rise | CNN Business

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    New York
    CNN
     — 

    JPMorgan Chase, Bank of America, Citigroup and asset management giant BlackRock posted results that topped Wall Street’s forecasts Friday, but investors were nonetheless a little disappointed at first.

    Trading was choppy, with most bank stocks falling at the open before rebounding. Shares of JPMorgan Chase

    (JPM)
    were up about 2.5% in late afternoon trading while BofA

    (BAC)
    was up 2%. Wells Fargo

    (WFC)
    , which reported earnings that missed Wall Street’s targets, reversed earlier losses and was up 3%. Citi

    (C)
    was up 2% while BlackRock

    (BLK)
    was flat.

    “The earnings were solid, but the market is concerned with recession fears,” said John Curran, managing director and head of North American bank coverage at MUFG.

    Investors might have been concerned by the downbeat tone of the big banks. Executives are clearly still worried about inflation and the threat of a recession this year following several big interest rate hikes by the Federal Reserve.

    JPMorgan Chase CEO Jamie Dimon said in the bank’s earnings statement that although the economy is still strong and that consumers and businesses are spending and healthy, “we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher.”

    The bank added in the earnings release that it now expects a “mild recession” as a base economic case. CFO Jeremy Barnum added during a conference call with reporters that in addition to the slowdown that has already started in its home lending unit, it is starting to see “headwinds” in auto lending.

    Meanwhile, BofA CEO Brian Moynihan noted that this is “an increasingly slowing economic environment” and Wells Fargo CEO Charlie Scharf said “we are carefully watching the impact of higher rates on our customers.” Wells Fargo recently announced plans to pull back on its massive mortgage business.

    Banks are clearly worried about a looming recession, and Wall Street has taken notice.

    Moody’s Investors Service analyst Peter Nerby noted in a report that “credit provisions are rising” at JPMorgan Chase and that Citi “built capital and reserves in anticipation of a slowdown in core markets.”

    The Fed’s rate hikes aren’t helping either.

    “Higher than expected interest rates pose a significant risk to the outlook for credit quality, loan growth and net interest margins,” said David Wagner, a portfolio manager at Aptus Capital Advisors, in an email.

    Concerns about the economy were one reason why stocks plunged in 2022, suffering their worst year since 2008. As a result of the Wall Street slump, there was a major slowdown in merger activity and initial public offerings.

    That hurt the investment banking businesses for the top banks. JPMorgan Chase and Citi each said that advisory fees plummeted nearly 60% in the quarter.

    Goldman Sachs

    (GS)
    and Morgan Stanley

    (MS)
    will give more color about the health of Wall Street next Tuesday when they both report their fourth quarter results.

    Goldman Sachs, which has aggressively built up a consumer banking unit over the past few years, has struggled to make money in that division. Goldman Sachs disclosed in a regulatory filing Friday that it has lost more than $3 billion in its consumer business since 2020.

    There were some signs of optimism though. BlackRock, which owns the massive iShares family of exchange-traded funds, reported a rebound in assets under management from the third quarter to the fourth quarter as stocks soared in October and November.

    “The current environment offers incredible opportunities for long-term investors,” said BlackRock CEO Larry Fink in the earnings release.

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  • Tim Cook agrees to a massive pay cut | CNN Business

    Tim Cook agrees to a massive pay cut | CNN Business

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    London
    CNN
     — 

    Apple CEO Tim Cook has agreed to cut his pay this year after shareholders rebelled.

    The world’s largest tech company said it would reduce Cook’s target pay package to $49 million, 40% lower than his target pay for 2022 and about half Cook’s $99.4 million total compensation that he was granted last year.

    The vast majority of Cook’s 2022 compensation — about 75% — was tied up in company shares, with half of that dependent on share price performance.

    But shareholders voted against Cook’s pay package after Apple’s stock fell nearly 27% last year. The vote is nonbinding, but the board’s compensation committee said it took the vote into consideration.

    “The compensation committee balanced shareholder feedback, Apple’s exceptional performance, and a recommendation from Mr. Cook to adjust his compensation in light of the feedback received,” the company said in its annual proxy statement released Thursday.

    This year, the executive’s share award target has been cut to $40 million. About $30 million, or three-quarters, of that is linked to share price performance.

    Cook’s base salary of $3 million will stay the same, the company said, as well as a $6 million bonus.

    The board said it believes Cook’s new pay package is “responsive to shareholder feedback, while continuing both to align pay with performance and to recognize Mr. Cook’s outstanding leadership.”

    The tech boss, who has headed up Apple since 2011, is estimated to have a personal wealth of $1.7 billion, according to Forbes.

    Apple’s share price, like other tech companies, plunged last year as coronavirus lockdowns shuttered some of its factories in China. Supply chain bottlenecks and fears that a global economic slowdown would crimp demand also dragged down its stock.

    In January last year, the tech giant became the first publicly traded company to notch a $3 trillion market capitalization, yet has has shed nearly $1 billion of that value since.

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  • ‘This is the last thing we need:’ Millions of businesses hammered by the pandemic need to start paying back Covid loans | CNN Business

    ‘This is the last thing we need:’ Millions of businesses hammered by the pandemic need to start paying back Covid loans | CNN Business

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    CNN
     — 

    At Teddy & The Bully Bar restaurant near downtown Washington, DC, business has never been the same since the pandemic hit.

    “It’s very challenging,” owner Alan Popovsky said. “I’m still going to be climbing the hill for quite some time. Probably for the rest of my life.”

    The pandemic closed two of Popovsky’s four restaurants in the area. He said government loans saved the other two. But with city centers struggling to bring back commuters and foot traffic, he said revenue is still down more than 45%, and they’re fighting to stay open.

    To make matters worse, it’s time to start paying back those loans.

    “We just got over paying back the landlord,” Popovsky said. “It’s really a feeling that you’re just a hamster spinning on a wheel.”

    At the start of the pandemic, as business stalled, nearly 3.8 million small business owners took out Economic Injury Disaster Loans (known as EIDL loans) from the federal government, averaging roughly $100,000 per loan, according to the Small Business Administration. Unlike some other pandemic programs, these 30-year loans, carrying an interest rate of 3.75% for businesses, were intended to be paid back.

    After more than two years of deferrals, the first EIDL loan monthly payments have started to come due. Around 2.6 million businesses across the country will owe money by the end of January.

    Popovsky said he owes the federal government roughly $780,000, and started receiving monthly bills for more than $3,700 in October.

    “We can’t afford anything, but what we’re doing is paying the interest only right now,” he said. “We have not made a dent on the principal.”

    A new survey from the National Federation of Independent Business found only 36% of their small business members have reached their pre-pandemic sales levels, while 31% of businesses are still below 75% of their pre-crisis sales.

    Coming out of the pandemic, small businesses have faced difficult hurdles, like staffing shortages, supply chain issues and inflation.

    Now add a possible looming recession, just as these EIDL loans come due.

    “The challenges are immense for many of them and they’re having to navigate a lot of those headwinds,” said Holly Wade, executive director of the NFIB Research Center. “It is one more cost that they’re going to have to deal with, and some small business owners, unfortunately, are going to struggle with meeting those obligations.”

    Lisa Klein, who owns a physical therapy practice in the Washington, DC, area, said Covid-19 is still keeping some patients away.

    Lisa Klein, who owns and operates an outpatient physical therapy practice with offices in Virginia and in Washington, DC, said her practice is still trying to claw its way back after Covid-19, which is keeping some patients away or forcing costly last-minute cancellations.

    “The costs of everything have gone up,” Klein said. “The whole business is still suffering, and this is just kind of adding insult to injury.”

    Klein took out a $200,000 EIDL loan at the start of the pandemic but returned half of it after a year as the interest began piling up. The SBA estimates that businesses have accrued between $32 billion and $34 billion in interest over the 30-month deferment period.

    She’s now paying nearly $1,000 a month, with a total balance of just under $80,000.

    “It’s like you’re swimming and trying to catch up and get your head above water, and you just keep getting hit by something else,” Klein said. “But we have no choice, because if we don’t keep paying it, it’s going to accrue more interest.”

    Struggling businesses can declare hardship and make partial payments of 10% of the regular monthly payment with a minimum of $25 for six months, according to the SBA. But interest will keep accruing, forcing owners like Klein to weigh short-term protection against a big bill further down the line.

    Borrowers are still responsible for repaying loans even if their business closes, unless the debt has been discharged in bankruptcy, according to the SBA. For EIDL loans over $200,000, a personal guaranty was required for individuals with 20% or more ownership in the business.

    Popovsky said he has considered shutting down Teddy & The Bully Bear but has felt inspired to keep fighting by the memory of his father as well as his co-founder, Melvyn, who passed away in 2014, just one year after the restaurant opened.

    “I feel them saying keep pushing on, Alan, keep pushing on,” he said. “I feel like they’re the wind beneath my wings.”

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  • Egg prices exploded 60% higher last year. These food prices surged too | CNN Business

    Egg prices exploded 60% higher last year. These food prices surged too | CNN Business

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    Minneapolis
    CNN
     — 

    Eggs, milk, butter, flour … if you were making pancakes last year, it would have cost you. Food prices surged in 2022.

    Grocery prices remain stubbornly high (and nearly double the rate of overall inflation) at 11.8% year over year, according to data released Thursday by the Bureau of Labor Statistics.

    Blame Russia, the weather, disease and a host of other factors.

    “Even though we’re seeing inflationary pressures ease, we still have a war in Ukraine,” said Tom Bailey, senior consumer foods analyst with Rabobank. “Fertilizer costs have improved, but they still remain very high. Energy costs have improved, but they still remain relatively high. Labor costs still remain a problem — and the list goes on.”

    Weather and disease are heavily affecting certain products’ prices, too – and none have been more rotten than egg prices: They’re up 59.9% year over year, a rate not seen since 1973, when high feed costs, shortages and price freezes caused certain agricultural products to soar in price. Since early last year, a deadly avian flu has devastated poultry flocks, especially turkeys and egg-laying hens. That was compounded by increasing demand and higher input costs, such as feed.

    As a result, people like Jim Quinn are shelling out upwards of $6 and $7 for a dozen eggs.

    Quinn has run daytime eatery The Hungry Monkey Café in Newport, Rhode Island, with his wife, Kate, since 2009. As a breakfast and lunch joint, it leans heavily on eggs for the majority of dishes on its menu — and especially for the 15-egg King Kong omelet novelty food challenge at the restaurant.

    Even though eggs and seemingly every other ingredient have risen in price during the past year, Quinn and The Hungry Monkey have chosen to eat the cost.

    “I’m trying to hold the line on the prices without having to increase them,” Quinn said. “It makes it extremely challenging for a mom-and-pop [business].”

    He added: “We’re just trying to stay alive and hope that things will come down.”

    But there’s good news on the horizon. The cost of food is still hard to swallow, but the latest Consumer Price Index shows that those price increases — by and large — are at least growing at slower rates.

    In December, “food at home” prices increased 0.2% from the month before. That’s the smallest monthly increase since March 2021.

    The expectations are for food price increases to continue to moderate, Bailey said.

    “I suspect over the next 12 months we will see improvements in supply, improvements in the conditions that have been challenging across most of our food categories,” he said, “and we’ll finally start to see prices, at least upstream, really starting to come off. And then maybe it’s 2024 where we could eventually see some deflation for food.”

    Here’s a look at how prices are trending across certain food categories in December, according to BLS data:

    Eggs: +59.9% annually; +11.1% from November

    Butter and margarine: +35.3% annually; +1.7% from November

    Lettuce: +24.9% annually; +4% from November

    Flour and prepared flour mixes: +23.4% annually; -1% from November

    Canned fruits and vegetables: +18.4% annually; +0.3% from November

    Bread: +15.9% annually; +0.2% from November

    Cereals and cereal products: +15.6% annually; -0.3% from November

    Coffee: +14.3% annually; +0% from November

    Milk: +12.5% annually; -1% from November

    Chicken: +10.9% annually; -0.6% from November

    Baby food: +10.7% annually; -0.2% from November

    Fresh fruits: +3.4% annually; -1.9% from November

    Uncooked ground beef: +0.7% annually; -0.1% from November

    Bacon and related products: -3.7% annually; -2.9% from November

    Uncooked beef steaks: -5.4% annually; +0.9% from November

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