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Tag: securities

  • ‘San Francisco is not dead’: Not everyone is shunning the city’s reeling office market

    ‘San Francisco is not dead’: Not everyone is shunning the city’s reeling office market

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    Barry DiRaimondo, chief of SteelWave, a West Coast property developer that in the past half-century has partnering with many of the biggest names in commercial real estate, is looking for diamonds in the rough, distressed office properties located in the American city that many have given up on.

    Others may be shunning San Francisco while it’s down on its luck, but DiRaimondo sees better days ahead, despite the city’s threat of a growing deficit, its fentanyl crisis, homelessness and a reluctant return of office workers to its financial core.

    “Not much is coming up right now,” DiRaimondo said of buying opportunities, while speaking from his office in the heart of San Francisco’s financial district. But he was eager to point out several nearby buildings that could be candidates to buy, at the right price.

    “I think over the next 12 to 18 months, you’re going to see a tsunami,” of distressed office properties, DiRaimondo said.

    Like in many big cities, a wave of office buildings bought at peak prices before the pandemic now have a pile of debt coming due, at much higher rates. But San Francisco’s financial core only recently has begun to show flickers of hope in its weak recovery post-COVID.

    “Whether it’s San Francisco, Oakland or anywhere here, and your debt is rolling, you’re having a conversation with your lender,” DiRaimondo said. “There’s either a restructuring going on or a foreclosure going on.”

    A number of high-profile property owners this year surrendered local properties to lenders, including Westfield’s namesake shopping center downtown and a string of well-known hotels, a blow to the city’s comeback efforts.

    Still, DiRaimondo expects the bulk of property ownership transfers in this boom-and-bust cycle to take place quietly, behind the scenes, often through a building’s debt changing hands. It’s a familiar playbook for veteran real-estate developers like SteelWave and its partners, especially when San Francisco office property values tumble and new loans remains expensive and hard to come by.

    “Office is a nasty word, right now. Especially tech office,” he said. “We are doing something that’s a bit different.”

    Booms, busts

    San Francisco’s history as a boom-and-bust town perhaps is best suited for real-estate developers able to take a bunch of lemons and make lemonade.

    That has been SteelWave’s signature move in the notoriously rough-and-tumble commercial real-estate industry, through its ups and downs. It has bought over $17.5 billion in properties and developments in the past five decades, first under the Legacy Partners Commercial brand before it was renamed in 2015.

    It has partnered with some of the biggest names in commercial real estate, including with Angelo Gordon & Co. in 2021 on two Silicon Valley office buildings, but also distressed debt titans that include Rialto Capital, and with Chenco, one of the largest Chinese-owned U.S. real-estate investment firms.

    Its stronghold is the Bay Area and DiRaimondo is now looking to raise a $500 million fund to buy distressed buildings, including in downtown San Francisco, a place major Wall Street lenders have been backing away from for months.

    “It’s hard to raise equity to buy this stuff right now,” he said, but argues his strategy, which includes expanding its reach to potential investors in the U.A.E., Israel and parts of Europe, will pan out.

    SteelWave’s model of buying a property includes a final tally of costs often three to four times the initial purchase price, due to extensive overhauls.

    “Typically, what we do is buy something, tear it apart, put it back together, lease it, sell it,” DiRaimondo said.

    It’s niche in the distressed world that’s already produced overhauls of buildings from Seattle to Colorado to Los Angeles, places the tech industry wants to lease.

    In the southern California town of Costa Mesa, that meant partnering with Invesco to turn an old newsroom and printing press for the Los Angeles Times into a creative work campus. An opinion piece in 2022 from the newspaper described the revamp as turning, “the glum newspaper architecture into something inviting.”

    Forget being a ‘rent bandit’

    “In New York, people rushed back and refilled the apartments, streets, and subways. Restaurants and stores flooded with customers again,” a team from Moody’s analytics wrote in a recent “tale of two cities” report. “San Francisco, on the other end, battled safety concerns, homelessness, and population exodus which existed before but only became more obvious with barren neighborhoods.”

    SteelWave thinks the old days of landlords raking in top-dollar commercial rents in San Francisco, while adding little back to office buildings, are a thing of the past.

    “You have to have owners who want to create cool work environments to attract people back into the city,” DiRaimondo said of downtown San Francisco’s long slog back from the brink.

    That means buying properties at low prices, but also risking putting money down for major improvements. He isn’t a distressed investors looking to become a “rent bandit,” he says, because the strategy will fail to get quality tenants.

    Like the Moody’s team, DiRaimondo thinks San Francisco eventually will bounce back, but he thinks not before reality hits older office properties.

    Take a “commodity” building downtown, often older and midblock with generic features, that previously might have been worth $750 to $800 a square foot. It now looks worth less than $300 a square foot, he said.

    The early stages of fire-sales have begun already, with the 22-story tower at 350 California, nearby to DiRaimondo’s office, reportedly fetching $200 to $225 a square foot.

    “San Francisco is not dead,” DiRaimondo said. “I think there are opportunities in San Francisco.”

    See: San Francisco’s office market erases all gains since 2017 as prices sag nationally

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  • ‘San Francisco is not dead’: Not everyone is shunning the city’s reeling office market

    ‘San Francisco is not dead’: Not everyone is shunning the city’s reeling office market

    [ad_1]

    Barry DiRaimondo, chief of SteelWave, a West Coast property developer that in the past half-century has partnering with many of the biggest names in commercial real estate, is looking for diamonds in the rough, distressed office properties located in the American city that many have given up on.

    Others may be shunning San Francisco while it’s down on its luck, but DiRaimondo sees better days ahead, despite the city’s threat of a growing deficit, its fentanyl crisis, homelessness and a reluctant return of office workers to its financial core.

    “Not much is coming up right now,” DiRaimondo said of buying opportunities, while speaking from his office in the heart of San Francisco’s financial district. But he was eager to point out several nearby buildings that could be candidates to buy, at the right price.

    “I think over the next 12 to 18 months, you’re going to see a tsunami,” of distressed office properties, DiRaimondo said.

    Like in many big cities, a wave of office buildings bought at peak prices before the pandemic now have a pile of debt coming due, at much higher rates. But San Francisco’s financial core only recently has begun to show flickers of hope in its weak recovery post-COVID.

    “Whether it’s San Francisco, Oakland or anywhere here, and your debt is rolling, you’re having a conversation with your lender,” DiRaimondo said. “There’s either a restructuring going on or a foreclosure going on.”

    A number of high-profile property owners this year surrendered local properties to lenders, including Westfield’s namesake shopping center downtown and a string of well-known hotels, a blow to the city’s comeback efforts.

    Still, DiRaimondo expects the bulk of property ownership transfers in this boom-and-bust cycle to take place quietly, behind the scenes, often through a building’s debt changing hands. It’s a familiar playbook for veteran real-estate developers like SteelWave and its partners, especially when San Francisco office property values tumble and new loans remains expensive and hard to come by.

    “Office is a nasty word, right now. Especially tech office,” he said. “We are doing something that’s a bit different.”

    Booms, busts

    San Francisco’s history as a boom-and-bust town perhaps is best suited for real-estate developers able to take a bunch of lemons and make lemonade.

    That has been SteelWave’s signature move in the notoriously rough-and-tumble commercial real-estate industry, through its ups and downs. It has bought over $17.5 billion in properties and developments in the past five decades, first under the Legacy Partners Commercial brand before it was renamed in 2015.

    It has partnered with some of the biggest names in commercial real estate, including with Angelo Gordon & Co. in 2021 on two Silicon Valley office buildings, but also distressed debt titans that include Rialto Capital, and with Chenco, one of the largest Chinese-owned U.S. real-estate investment firms.

    Its stronghold is the Bay Area and DiRaimondo is now looking to raise a $500 million fund to buy distressed buildings, including in downtown San Francisco, a place major Wall Street lenders have been backing away from for months.

    “It’s hard to raise equity to buy this stuff right now,” he said, but argues his strategy, which includes expanding its reach to potential investors in the U.A.E., Israel and parts of Europe, will pan out.

    SteelWave’s model of buying a property includes a final tally of costs often three to four times the initial purchase price, due to extensive overhauls.

    “Typically, what we do is buy something, tear it apart, put it back together, lease it, sell it,” DiRaimondo said.

    It’s niche in the distressed world that’s already produced overhauls of buildings from Seattle to Colorado to Los Angeles, places the tech industry wants to lease.

    In the southern California town of Costa Mesa, that meant partnering with Invesco to turn an old newsroom and printing press for the Los Angeles Times into a creative work campus. An opinion piece in 2022 from the newspaper described the revamp as turning, “the glum newspaper architecture into something inviting.”

    Forget being a ‘rent bandit’

    “In New York, people rushed back and refilled the apartments, streets, and subways. Restaurants and stores flooded with customers again,” a team from Moody’s analytics wrote in a recent “tale of two cities” report. “San Francisco, on the other end, battled safety concerns, homelessness, and population exodus which existed before but only became more obvious with barren neighborhoods.”

    SteelWave thinks the old days of landlords raking in top-dollar commercial rents in San Francisco, while adding little back to office buildings, are a thing of the past.

    “You have to have owners who want to create cool work environments to attract people back into the city,” DiRaimondo said of downtown San Francisco’s long slog back from the brink.

    That means buying properties at low prices, but also risking putting money down for major improvements. He isn’t a distressed investors looking to become a “rent bandit,” he says, because the strategy will fail to get quality tenants.

    Like the Moody’s team, DiRaimondo thinks San Francisco eventually will bounce back, but he thinks not before reality hits older office properties.

    Take a “commodity” building downtown, often older and midblock with generic features, that previously might have been worth $750 to $800 a square foot. It now looks worth less than $300 a square foot, he said.

    The early stages of fire-sales have begun already, with the 22-story tower at 350 California, nearby to DiRaimondo’s office, reportedly fetching $200 to $225 a square foot.

    “San Francisco is not dead,” DiRaimondo said. “I think there are opportunities in San Francisco.”

    See: San Francisco’s office market erases all gains since 2017 as prices sag nationally

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  • Hate to spoil the party but there’s a new risk in town — a ‘no landing’ economy

    Hate to spoil the party but there’s a new risk in town — a ‘no landing’ economy

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    For the last 18 months, all you’ve heard from the markets is that the U.S. economy is three months away from a recession. Now, the popular analysis is that that inflation is on a smooth glidepath down and the economy will never have a downturn again.

    Worries about a recession have evaporated, and all the talk is about a “soft landing,” with the Federal Reserve not having to hike interest rates more than once more, at most.

    But behind the scenes, in some economic circles, there is growing concern about another risk for the economy, dubbed a “no landing” scenario.

    What does “no landing” mean? Essentially it’s marked by economic growth that’s too strong to allow inflation to fall all the way to 2%, where the Federal Reserve aims for it to be, and therefore an economy that will need more Fed rate hikes, according to Chris Low, chief economist at FHN Financial.

    So instead of the U.S. central bank starting to cut rates early next year, there may be more rate hikes in store.

    “There is still considerable work to do before the inflation beast is fully tamed,” Low said.

    Former Fed Vice Chair Richard Clarida described the risk in crystal-clear terms. “If the Fed finds itself  in March 2024 with an unemployment rate of 4% and an inflation rate of 4% with some of that temporary good news behind them, they are in a very tough spot,” Clarida said in a recent interview with Bloomberg News.

    “It is a risk. It is not the base case. But if I was still there [at the Fed], I would be assessing it,” he added.

    So why does this matter? Why would the Fed be in such a tough spot? Two words: presidential election.

    A Fed that is dedicated to bringing inflation down might have to slam the brakes on the economy forcefully to get the job done. That gets tough during an election year, especially one that already seems poised to be filled with acrimony.

    “The Fed does not play politics with monetary policy. The FOMC will do what is right for the economy, election year or not. Nevertheless, FOMC participants are already sensitive to triggering a recession. Doing it in an overt way when Congress, a third of the Senate, and the White House are up for grabs would be reckless,” Low said.

    Andrew Levin, professor of economics at Dartmouth College and a former top Fed staffer, said “raising interest rates sharply in the midst of an election cycle could be a delicate matter. Even the vaunted inflation fighter, Paul Volcker [the Fed’s chairman from 1979 to 1987], decided to ease off the brakes midway through the 1980 presidential campaign.”

    Ray Fair, a Yale economics professor, thinks that, whether or not the Fed successfully lowers consumer-price inflation to the vicinity of 2% will be what really matters for the 2024 presidential election. If inflation does not go gently and the Fed is still fighting next year, it would likely be negative for President Joe Biden and the Democratic Party, he said.

    See: Inflation could rebound later this year. And that might be a good thing.

    To avoid hiking rates next year, the Fed, in Low’s view, will raise interest rates to 6% by the end of this year. That is an out-of-consensus call. Financial markets think the Fed is done hiking with its benchmark policy interest rate in a range of 5.25% to 5.5%.

    Many economist and the financial markets are talking more about prospective Fed rate cuts in early 2024 than any more hikes.

    Asked during a recent radio interview if he thought a “no landing” scenario was taking shape, Philadelphia Fed President Patrick Harker replied: “I don’t think so.”

    Harker said the economy was likely on track to return to the low-interest-rate and low-inflation environment of 2012-19.

    “I think about this a lot, and I asked myself what’s different fundamentally about the U.S. economy now then the way it was before the pandemic,” Harker said. He concluded that there wasn’t much difference.

    The big trend Harker mentioned was demographics, with baby boomers still moving in large numbers into retirement. “I don’t think we have to stay in a high-inflation regime. I think we can get back to where we were,” he said.

    Steve Blitz, chief U.S. economist at research firm GlobalData.TSLombard, said he puts the probability of a “no landing” scenario at about 35%.

    Blitz added it was a common mistake for economists, policy makers, traders and journalists “to presume that the expansion to come is going to look like the expansion that was.”

    “At least in the United States, that was never the case,” he added.

    Blitz said that if the U.S. economy were growing at a rate below 2% with an inflation rate higher than 3%, the Fed would have to raise the policy rate to about 6.5%. But if the economy is humming along with 3% growth and inflation over 3%, that would be a trickier spot. “Does the Fed really want to slow that down?” he asked.

    See: The U.S. economy is aiming for a three-peat: 2% GDP growth

    The range of possible outcomes for the economy remains wide. Some economists still believe that a recession early next is the most likely outcome.

    Other economists, like Michelle Meyer, chief U.S. economist at Mastercard, think the economy will continue to grow, with inflation coming down. Meyer described that outcome as “a soft landing with bumps.”

    Stephen Stanley, chief economist at Santander U.S., said he thinks the U.S. economy will “muddle through” next year with subpar growth in the range of 1% for several quarters and inflation slowing gradually.

    “Obviously, that optimism melts away if we’re back to readings of 0.4% and 0.5% on core CPI in three months or six months,” Stanley said.

    Economic calendar: See what’s on the U.S. economic-data docket in the coming week

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  • SoftBank looking to buy remaining 25% stake in Arm from its Vision Fund: report

    SoftBank looking to buy remaining 25% stake in Arm from its Vision Fund: report

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    SoftBank Group Corp. is reportedly in discussions to purchase the 25% stake in chip designer Arm Ltd. that is held by its Vision Fund 1, ahead of a highly anticipated IPO.

    Reuters reported Sunday that Japan’s SoftBank
    9984,
    +0.37%
    — which owns 75% of Arm — is negotiating a deal with VF1, the $100 billion investment fund it created in 2017, and noted that a deal could give VF1 investors a big boost after years of meager returns. Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala Investment Co. are among VF1’s largest investors.

    SoftBank is planning to launch a long-awaited initial public offering for British chip designer Arm as soon as September. That will likely be the biggest IPO of the year on Wall Street, aiming to raise $8 billion to $10 billion at a valuation around $60 billion to $70 billion.

    A number of large tech companies, including Amazon.com Inc.
    AMZN,
    -0.11%    ,
    Intel Corp.
    INTC,
    +0.61%
    and Nvidia Inc.
    NVDA,
    -3.62%    ,
    are reportedly in the mix to be anchor investors in Arm’s IPO.

    Last week, SoftBank reported its tech-heavy Vision Funds turned a quarterly profit for the first time in 18 months

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  • S&P 500, Nasdaq finish lower, logging back-to-back weekly losses

    S&P 500, Nasdaq finish lower, logging back-to-back weekly losses

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    U.S. stocks finished mostly lower on Friday, with only the Dow hanging on to gains, as the S&P 500 and Nasdaq Composite capped off their first back-to-back weekly losses in months. The S&P 500
    SPX,
    -0.11%
    fell by 4.65 points, or 0.1%, to 4,464.18 on Friday, according to preliminary closing data from FactSet. The Nasdaq Composite
    COMP,
    -0.68%
    shed 93.14 points, or 0.7%, to 13,644.85. The Dow Jones Industrial Average
    DJIA,
    +0.30%
    gained 105.32 points, or 0.3%, to 35,281.46. The Nasdaq has fallen for two straight weeks for the first time since a four-week losing streak ended on Dec. 30, according to Dow Jones Market Data. The roughly 4.7% drop during that period is the biggest two-week decline for the index since the week ending Dec. 16.

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  • Founder of failed crypto exchange FTX, Bankman-Fried, jailed in New York

    Founder of failed crypto exchange FTX, Bankman-Fried, jailed in New York

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    FTX founder Sam Bankman-Fried was sent to jail Friday to await trial after a bail hearing for the fallen cryptocurrency wiz left a judge convinced that he had repeatedly tried to influence witnesses against him.

    U.S. District Judge Lewis A. Kaplan ordered Bankman-Fried’s bail revoked after prosecutors said he’d tried to harass a key witness in his fraud case last month when he showed a journalist her private writings and in January when he reached out to the general counsel for FTX with an encrypted communication.

    His lawyers insisted he shouldn’t be jailed for trying to protect his reputation against a barrage of unfavorable news stories.

    Kaplan said he had concluded there was probable cause to believe Bankman-Fried had tried to “tamper with witnesses at least twice” since his December arrest.

    A defense lawyer said an appeal of the incarceration order would be filed and asked for an immediate stay of the order.

    The 31-year-old has been under house arrest at his parents’ home in Palo Alto, California, since his December extradition from the Bahamas on charges that he defrauded investors in his businesses and illegally diverted millions of dollars’ worth of cryptocurrency from customers using his FTX exchange.

    Bankman-Fried’s $250 million bail package severely restricts his internet and phone usage.

    Two weeks ago, prosecutors surprised Bankman-Fried’s attorneys by demanding his incarceration, saying he violated those rules by giving The New York Times the private writings of Caroline Ellison, his former girlfriend and the ex-CEO of Alameda Research, a cryptocurrency trading hedge fund that was one of his businesses.

    Prosecutors maintained he was trying to sully her reputation and influence prospective jurors who might be summoned for his October trial.

    Ellison pleaded guilty in December to criminal charges carrying a potential penalty of 110 years in prison. She has agreed to testify against Bankman-Fried as part of a deal that could lead to a more lenient sentence.

    Bankman-Fried’s lawyers argued he probably failed in a quest to defend his reputation because the article cast Ellison in a sympathetic light. They also said prosecutors exaggerated the role Bankman-Fried had in the article.

    They said prosecutors were trying to get their client locked up by offering evidence consisting of “innuendo, speculation, and scant facts.”

    Since prosecutors made their detention request, Kaplan has imposed a gag order barring public comments by people participating in the trial, including Bankman-Fried.

    David McCraw, a lawyer for the Times, had written to the judge, noting the First Amendment implications of any blanket gag order, as well as public interest in Ellison and her cryptocurrency trading firm.

    Ellison confessed to a central role in a scheme defrauding investors of billions of dollars that went undetected, McGraw said.

    “It is not surprising that the public wants to know more about who she is and what she did and that news organizations would seek to provide to the public timely, pertinent, and fairly reported information about her, as The Times did in its story,” McGraw said.

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  • You can invest in market winners and still lose big. Here’s how to avoid the hit.

    You can invest in market winners and still lose big. Here’s how to avoid the hit.

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    Investors should think twice before picking an actively managed mutual fund according to its style category. By “style category,” I’m referring to the widely used method of grouping mutual funds according to the market-cap of the stocks they invest in and where those stocks stand on the spectrum of growth-to-value.

    This matrix traces to groundbreaking research in 1992 by University of Chicago professor Eugene Fama and Dartmouth College professor Ken French, and has since been popularized by investment researcher Morningstar in the form of its well-known style box.

    In urging you to think twice before picking a fund based on this matrix, I’m not questioning the existence of important distinctions between the various styles. Fama and French’s research convincingly showed that there are systematic differences between them. My point is that there also are huge differences within each style as well. You can pick a style that outperforms all others on Wall Street and still lose a lot of money, just as you can pick the worst-performing style and turn a huge profit.

    This points to the two types of risk you face when picking an actively managed fund. You have the risk associated with the fund’s style (category risk) and you also have the risk associated with the particular stocks that the fund’s manager selects (so-called idiosyncratic risk). Idiosyncratic risk often overwhelms category risk, especially over shorter periods.

    To illustrate, consider the midcap-growth style. As judged by the Vanguard Mid-Cap Growth ETF
    VOT,
    this style produced a 28.8% loss in 2022. Yet, according to Morningstar Direct, the best-performing actively managed midcap-growth fund last year produced a gain of 39.5%, while the worst performer lost 67.0%.

    This best-versus-worst performance spread of over 100 percentage points is illustrated in the accompanying chart. Notice that the comparable spread was almost as wide for many of the other styles as well. Though I haven’t done the research to compare 2022’s spreads with those of other calendar years, I have no reason to expect that they on average were any lower.

    “ The only way to eliminate idiosyncratic risk when investing in particular styles is to invest in an index fund.”

    The only way to eliminate idiosyncratic risk when investing in particular styles is to invest in an index fund benchmarked to the style in question. If you are enamored of a particular fund manager and willing to bet he will significantly outperform the category average, just know that you also incur the not-significant idiosyncratic risk that the fund will lag by a large amount.

    The bottom line? By investing in an actively managed fund in a style category, you will be incurring the risk not only of that category itself but also the not-insignificant idiosyncratic risk of that particular fund. Fasten your seatbelt if that’s the path you take.

    Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

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  • State and local pensions look healthier — even with asset market turbulence

    State and local pensions look healthier — even with asset market turbulence

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    My colleagues JP Aubry and Yimeng Yin just released an update on state and local pension plans. Their analysis compared 2023 to 2019 – the year before all the craziness began. Think of the unusual events that have occurred in the last few years: 1) the onset of COVID; 2) the subsequent COVID stimulus; 3) declining interest rates; 4) rising inflation; and then 5) rising interest rates. 

    Despite the volatility of asset values over this period, the 2023 funded status of state and local pension plans is about 78%, which is 5 percentage points higher than in 2019 (see Figure 1). Of course, the numbers for 2023 are estimates based on plan-by-plan projections, but these projections have an excellent track record.   

    While the aggregate funded ratio provides a useful measure of the public pension landscape at large, it also can obscure variations in funding at the plan level. Figure 2 separates the plans into thirds based on their current actuarial funded status. The average 2023 funded ratio for each group was 57.6% for the bottom third, 79.5% for the middle third, and 91.1% for the top third.

    The major reason for the improvement in plans’ funded status is that, despite the turbulence in the economy, total annualized returns, which include interest and dividends, have risen noticeably for almost all major asset class indexes over the 2019-2023 period (see Figure 3). The exception over this short and volatile period is fixed-income assets, which have declined in value.

    The effect of fixed income’s decline on overall portfolio performance has been modest because, since 2019, fixed income has averaged only about 20% of pension fund assets (see Figure 4).

    So, things are looking a little better for state and local pensions. Yes, the funded ratios are biased upward because plans use the assumed return on their portfolios – roughly 7% – to discount promised benefits. That said, trends are important, and the trend is good. 

    Moreover, annual state and local benefit payments as a share of the economy are approaching their peak for two reasons. First, most pension plans do not fully index retiree benefits for inflation, which lowers the real value of benefits over time. Second, the benefit reductions for new hires – introduced in the wake of the Great Recession – have started to have an impact.

    With liabilities in check and solid asset performance, maybe we can all relax a bit about the future of the state and local pension system.

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  • $1.8 million to retire? Are you kidding?

    $1.8 million to retire? Are you kidding?

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    This time it’s in the latest Charles Schwab Retirement Survey. Among 1,000 people surveyed, the average respondent figured he or she needed to save $1.8 million to retire. (That figure is up from $1.7 million in the same survey a year earlier.)

    Touchingly, 86% also told Schwab they were either “somewhat” or “very” likely to achieve their goals.

    Er, no.

    If the numbers show anything, it’s that most people don’t understand math, don’t understand finance and are wildly out of touch with reality.

    Some simple calculations will show that these figures are all wrong.

    First, let’s start with the bad news. There is no way 86% of people should be “very” or “somewhat” confident that they are going to hit that $1.8 million target, or anything like it. Let alone that 37% think they are “very” likely to hit it.

    Median retirement-account balance at the moment? Try $27,000 and change, says 401(k) giant Vanguard.

    Even that’s overstating the picture. The Federal Reserve’s most recent triennial Survey of Consumer Finances says the median American household has $26,000 in total financial assets, including savings accounts, life insurance, 401(k) plan and the like. Among those aged 45 to 54, the figure is $37,000, and among those 55 to 64 it’s $47,000. How anyone thinks they are getting from there to $1.8 million by retirement age is a mystery. Magic carpets? Magic beans?

    Granted, the survey is from 2019, but the intervening pandemic period won’t have changed the picture that much — in either direction.

    It’s not clear from the survey whether those polled included the value of the equity in their homes. Throw that in, and the median household’s total net worth rises to $122,000. Among those aged 45 to 54 it rises to $169,000, and among those 55 to 64 to $213,000. COVID policies helped drive up average U.S. home prices by about 30%, so those figures will have risen since 2019.

    But again we are not nearing $1.8 million.

    Not even close.

    The good news, though, is that you don’t actually need this amount or anything like it to retire.

    Naturally if someone hasn’t figured life out by the time they retire, and they still think that buying yet more stuff is the route to happiness, no amount is going to be enough.

    How much we’d like and how much we need are very different things.

    A $1.8 million balance would buy a 65-year-old couple an immediate annuity paying a guaranteed lifetime income of $9,500 a month, or just over $110,000 a year.

    The average Social Security benefit on top of that for a retired couple is just under $3,000 a month, or $36,000 a year. So in total you’d be on about $146,000 a year. What are these people planning to do in retirement?

    Even with a 3% annual rise, to account for inflation risk, that annuity will pay out $83,000 a year, and that’s for a couple, not just for one person. The money continues until both of you have gone.

    How much do we really need? Well, while acknowledging that each person and each person’s situation is going to be different, let’s do some simple math.

    Actual seniors are living on median annual incomes of around $45,000 to $50,000, says the Federal Reserve. And most of them say they are either reasonably satisfied with retirement or actually happy. So, at least, they tell Gallup and the Employee Benefit Research Institute.

    Meanwhile, a new survey from Schroders finds that the average person thinks a comfortable retirement can be had on around $5,000 a month, or $60,000 a year.

    The average Social Security benefit for a retired couple is $36,000 a year. To bring that income up to $50,000 you’d need an annuity paying $14,000 a year.

    Current cost in the annuities market: $225,000.

    To bring that up to $60,000 the annuity would cost $385,000.

    For $350,000 you can get an income of $18,000 with a 3% annual increase to deal with inflation.

    For $800,000 you can double your Social Security income, bringing in another $36,000 a year — with a 3% annual increase to deal with inflation.

    The cost of housing is a major component for retirees. No, someone doesn’t have to move to Iowa to be able to retire in comfort. But they can move the dial by cashing in their home in an expensive neighborhood — especially the kind of location they may have moved to for a high-paying job or the best schools — and moving somewhere cheaper. Away from coastal California or the “Acela” corridor in the Northeast, a lot of U.S. homes are really cheap.

    Retirement savings generally are grossly inadequate, and many people face genuine hardship in their senior years. And, of course, pretty much everyone could use more money. On the other hand, you can retire in comfort with a lot less than $1.8 million.

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  • You just won the Mega Millions jackpot — what should you do next?

    You just won the Mega Millions jackpot — what should you do next?

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    Robert Pagliarini, author of “The Sudden Wealth Solution,” has been guiding lottery winners for decades. And he has seen plenty of people run through their winnings faster than you can say “jackpot!” Or, friends and family (and certainly office lottery pool players) can see their winnings tied up in legal battles for years, as the parties argue over who gets how much. About 70% of lottery winners lose or spend all the money in five years or less, after all. 

    “Money — especially when you’re talking about this level of money — absolutely upends people’s lives,” Pagliarini, the president of Pacifica Wealth Advisors, told MarketWatch. “You should be excited, but you should also be prepared, for sure.” 

    These are his five tips for what to do if you win the lottery or get another windfall.

    Document that the winning ticket is YOURS

    Sign your name on the winning ticket, take a picture of yourself holding the winning ticket — in fact, take a video of yourself holding the signed, winning ticket, for good measure. 

    “The first step is really all about securing the ticket … because whoever has it is the owner,” says Pagliarini. “There’s no record of you having purchased that ticket with those numbers. So having that ticket is everything.” 

    Related: Hoping to win Mega Millions? This woman hit a $112 million Mega Millions jackpot.

    You have to document that this ticket is yours, which is why Pagliarini says legal experts recommend signing it. “I would absolutely sign it myself,” he adds. 

    And then put that ticket in a safe place, like a home safe or lockbox.

    Don’t tell anyone yet!

    You may want to sing the good news from the rooftops that your financial troubles are over. Problem is, everyone else’s troubles aren’t — and Pagliarini warns that, for your own personal safety and peace of mind, it’s better not to let the world know you’ve just become a billionaire overnight — if you can help it. Unfortunately, most states make you disclose that you’ve won.

    “We’re used to seeing people with the big check on TV, which looks pretty cool — but now everybody in the entire world knows that you’re worth $1 billion. And that’s not really the kind of publicity that you want,” says Pagliarini. “You’re going to be hit up for lots of money requests as people come out of the woodwork. And that adds such a huge amount of stress when you’re in a situation that is already stressful.” 

    You generally have 180 days to collect the winnings, and you’re going to have to make some big, life-changing decisions during that time. Staying anonymous, if you can, will give you the space to make those decisions with a clear head. 

    Unfortunately, as noted, most states compel lottery winners to come forward publicly. If you have to reveal yourself and do press interviews, protect your personal information. Some past Powerball winners didn’t answer questions about any meaningful or personal significance associated with the winning numbers that they played, for example, or they refused to share details about their children. One couple simply moved out of their house and refused to speak with the media at all while they settled their affairs.

    “My rule is basically, you tell one family member, and then you immediately try to get professional help,” Pagliarini adds. Which leads us to…. 

    Get a lawyer and a financial adviser

    Bring in the professional help as soon as you can. An attorney can help you decide the best time to claim your lottery prize, and offer more advice on keeping your ticket safe. They can also help navigate your rights and protect your best interests with regards to how much you need to present yourself publicly. And they can also help you manage your safety. 

    Meanwhile, a financial adviser can assess your financial situation and help you decide whether it makes sense to take a lump sum of cash, or to collect your winnings over annual payments. A financial adviser can also help you manage your money so that you can check things off your bucket list without overspending.

    “You know you’ve won, and then typically you have about 180 days to collect the winnings,” says Pagliarini. “So you’ve got to do some serious planning.” You need all the help you can get.  

    Do you take the lump-sum payment or the annuity payment?

    Pagliarini considers staying anonymous as the first big decision a lottery winner makes. The second most important question, however, is how they collect their winnings. Do you want to take a lump sum, or do you want to take the annuity (aka, a payout over time)?

    “This is really the biggest financial decision you’ll ever make in your entire life,” he says. (Granted, it’s one that most of us will never have to make, since the odds of winning the lottery, let alone a jackpot of this size, are infinitesimal.)  

    He notes that most people take the lump-sum payment, and in some circumstances this can be a better decision. But keep in mind that if you win a $1 billion Powerball jackpot, for example, you are not getting $1 billion.

    “They send you about 60-ish percent of whatever the lump sum is,” Pagliarini notes. So for a $1 billion prize, for example, “you would get around $600 million instead of $1 billion,” he said. And after state taxes, depending on where you live, and federal taxes, that jackpot may be closer to $300 million in the end. Whereas, the annuity is given as 30 payments over 29 years, which will come closer to hitting the advertised $1 billion jackpot than lump-sum takers would get. So being patient can pay off in the long run, especially with a bigger prize like this.

    As far as taxes are concerned, Pagliarini still leans toward annuity — especially for a smaller jackpot, like if it was $1 million. That’s because you would get a lump-sum payment of about $600,000, which would put you in the highest federal and state income tax bracket (for single filers anyway) that year — versus taking an extra $30,000 a year for 30 years. “That annuity payment is probably not going to catapult you into the highest tax bracket,” he says. But for a $1 billion-plus jackpot like this, you’re going to be in the highest tax bracket whichever payout you choose, he says.

    But there’s another reason to consider going the annuity route, Pagliarini says — it can save you from yourself. 

    “The biggest advantage of the lump-sum payout is that you get most of the money up front, and then you can do whatever you want with it,” he says, such as pay off debt, invest it, buy a house, etc. “But that actually happens to be the biggest disadvantage of the lump sum,” he continues. And that’s because, if you overspend your winnings and run out of cash with your lump sum, then you are out of luck. But the annuity payments are almost like a do-over each year, he says, because you can learn from your mistakes and spend the next annual windfall more wisely. “I’ve advised most people honestly to take the annuity,” he says. “It just allows you to really make mistakes, but have them not be a total derailment.” 

    If you still can’t make up your mind, he also has a free online quiz to help you decide whether you should take a lump sum or an annuity payment. 

    Keep it simple when deciding where to put your new money.

    So you’ve secured your ticket, tried to keep it quiet, hired some professional help, and decided how you are going to collect your winnings. Then what do you do with all of this cash? 

    Every financial situation is different, of course, which is where a financial adviser can help you sort out the nuances to make this lottery win a real dream come true for you. But in general, Pagliarini recommends keeping things simple — even considering that this $1 billion jackpot (even whittled down after taxes) would allow you to do basically whatever you wanted to do. 

    “If I were meeting with you, we would sit down and make some serious decisions, and prioritize what you want to do,” he says, “such as paying off debt, and discussing what is on your wish list. Do you want to buy a new house or a second house, or buy your family houses?” He suggests pricing out your wish list together with your adviser to see whether you could afford to do everything you want.

    But you still want money left over to live on. “We want to make sure the money left over is generating enough income so that they could survive on that for as long as they wanted — and particularly in this case, I’m sure generations would be able to survive on this amount of money,” he says. “I would invest in index funds. I wouldn’t get esoteric with limited partnerships and venture capital. Just go for a diversified portfolio, because as soon as you start deviating from ‘simple’ you can really increase your chances of just losing it all.” 

    He notes that because lottery winnings don’t feel “earned,” the prize may not feel like “real” money — which is one of the reasons so many lottery winners don’t manage their newfound wealth well. Again, about 70% of lottery winners lose or spend all that money in five years or less. “If the money doesn’t feel earned or real, you’re going to make decisions with that money that are probably not going to be in your best interest,” he adds. “You’re giving it away more freely, spending more freely, or freely investing in things a lot riskier than you would have done if you had to sweat and earn that money.” 

    So keep it simple. “Don’t think just because you have x-millions of dollars now that you really have to get ‘sophisticated,’” he adds.

    And some bonus advice for office pools

    This is more of an extra, hindsight tip for before you and your co-workers start throwing in a buck apiece for a long-shot bid at a jackpot like this. Pagliarini warns that office pools can get “tricky,” so it’s good to sign a contract setting some ground rules before you all pool together. 

    “There’s been a lot of litigation around office pools, because maybe somebody forgets to play one week, and that’s the week everyone wins. Or someone thought they played this week, but on this particular week they didn’t,” he says. “So loosey-goosey situations can end up in court to battle it out.”

    A much simpler solution to avoid this is to have an office pool contract that spells out who is in this pool, how much they are contributing, and it also determines in advance whether the group will take the lump-sum payment or the annuity payment. 

    “Because the last thing that you want is to win $1 billion or $100 million dollars, and then to be tied up in court for four years,” says Pagliarini. “That’s no fun.”

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  • Rising Treasury yields spooked the stock market. Now, a key test lies ahead.

    Rising Treasury yields spooked the stock market. Now, a key test lies ahead.

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    A worsening U.S. fiscal situation caught stock and bond investors off guard in the past week and now a round of approaching government auctions is about to provide a crucial test for Treasurys.

    The question in the days ahead is whether risks to the demand for U.S. government debt are growing. If so, that could put upward pressure on Treasury yields, which would undermine the performance of stocks. However, if investors end up caring less about the fiscal situation than they do about the possibility of slowing economic growth and decelerating inflation, government debt’s safe-haven appeal could be reinforced, putting a limit on how high yields might go.

    Concern about the deteriorating fiscal outlook was a factor behind the past week’s rise in long-term Treasury yields. Ten-
    BX:TMUBMUSD10Y
    and 30-year yields
    BX:TMUBMUSD30Y
    respectively jumped to 4.188% and 4.304% on Thursday, the highest levels since early November, as investors sold off long-term government debt — which took the shine off U.S. stocks. By Friday, though, a moderating pace of U.S. job creation for July sent yields into reverse, giving equities a temporary lift during the final trading session of the week.

    At issue is the extent to which potential buyers of Treasurys may be deterred by Fitch Ratings’ Aug. 1 decision to cut the U.S. government’s top AAA rating, at a time when the government is about to unleash what Barclays rates strategists describe as a “tsunami” of supply. A total of $103 billion in 3-, 10-and 30-year Treasurys come up for sale between Tuesday and Thursday. In addition, a spate of Treasury bills are scheduled to be auctioned starting on Monday.

    Gene Tannuzzo, global head of fixed income at Boston-based Columbia Threadneedle Investments, said that while he and his team still have room to add T-bills to the government money-market funds they oversee during the week ahead, they haven’t made up their minds about whether to buy more longer-dated maturities for their bond funds.

    “While we are comfortable that the Fed is at or near the end of its rate hikes, there are a lot more questions about the durability of the economic recovery, the degree that inflation will remain low, and the risk premium that needs to be put in at the long end,” Tannuzzo said via phone.

    Treasury’s $1 trillion third-quarter borrowing plans, along with some technical issues and the Bank of Japan’s decision to switch to a more flexible yield-curve control approach, might reduce demand for U.S. government debt, he said. Columbia Threadneedle managed $617 billion as of June.

    “One can’t ignore the risk of an unruly rise in yields, but our view is that this is a low risk and what the Treasury auctions may produce instead is ‘indigestion,’ driven by poor technicals and low liquidity, Fitch’s downgrade, and the Bank of Japan action — and by the end of August, we should be past much of this,” he told MarketWatch.

    Key Words: Warren Buffett dismisses Fitch downgrade: ‘There are some things people shouldn’t worry about’

    Risks to the demand for Treasurys may become obvious soon, given Tuesday-Thursday’s $103 billion in total sales of 3-, 10- and 30-year securities, according to analyst John Canavan of U.K.-based Oxford Economics. The main “question mark” for the market’s ability to absorb the increased Treasury issuance will be whether or not domestic investment funds continue to show interest, Canavan wrote in a note distributed on Friday.


    Source: Oxford Economics.

    “ ‘My suspicion is that with higher rates comes equally solid demand’ at upcoming auctions.”


    — John Flahive, head of fixed income at BNY Mellon Wealth Management

    Market players have had little difficulty absorbing Treasury coupon issuances in recent years because of flight-to-safety trades made after the U.S. onset of the Covid-19 pandemic in 2020. Now, however, increased auction sizes are being accompanied by still-elevated inflation, better-than-expected economic growth, and the possibility of more rate hikes by the Federal Reserve — which is likely to complicate the market’s ability to absorb the increased supply “without hiccups,” Canavan said.

    Read: Who is buying all the Treasury auctions? Domestic funds got a record share, but another deluge is coming.

    On the flip side of the debate is John Flahive, head of fixed income at BNY Mellon Wealth Management in Boston, which managed $286 billion in assets as of June. He said equity markets will continue to be much more focused on economic developments and earnings. And as long as the latter of the two remains robust, stocks “can grind higher in a low-volatility environment,” Flahive said via phone.

    Saying he does not expect his team to be a major participant in the Treasury auctions, Flahive said that the bond market’s reaction in the past week was “a little overdone” and “we always felt that there was a limited to how much yields could go up to reflect more government debt.”

    “My suspicion is that with higher rates comes equally solid demand” at upcoming auctions, he said. “I’m still optimistic about rates going back down over time as the result of a slowing economy and decelerating inflation. We continue to like the bond market and see a better-than-even chance that yields go down as the economy continues to weaken in the quarters ahead.”

    Friday’s reaction to July’s official jobs report, which showed the U.S. added a modest 187,000 new jobs, provided a breather from the past week’s run-up in Treasury yields.

    On Friday, the 30-year Treasury yield fell 9 basis points to 4.214%, yet still ended with its biggest weekly gain since early February. The 10-year rate, which dropped 12.8 basis points to 4.06%, finished with a third straight week of advances.

    Stocks fell Friday, leaving major indexes with weekly declines. The Dow Jones Industrial Average
    DJIA
    posted a 1.1% weekly fall, while the S&P 500
    SPX
    shed 2.3% and the Nasdaq Composite
    COMP
    retreated 2.9%. The soft start to August comes after a run of sharp gains for equities. The S&P 500 remains up 16.6% for the year to date.

    The economic calendar for the week ahead includes U.S. inflation updates.

    On Monday, June consumer-credit data is set to be released. Tuesday brings the NFIB’s small business optimism index, plus data on the U.S. trade balance and wholesale inventories. Then on Thursday, weekly initial jobless claims and the July consumer-price index are released. That’s followed on Friday by the producer-price index for last month and an August consumer-sentiment reading.

    Meanwhile, portfolio manager and fixed-income analyst John Luke Tyner at Alabama-based Aptus Capital Advisors, which manages roughly $5 billion in assets, said he plans to follow the Treasury auctions, but doesn’t usually participate in them.

    “One of the biggest trends we’ve seen is the continued increase in the issuance amounts from Treasury. Whatever we are budgeting for is never enough, which justifies the Fitch downgrade,” Tyner said via phone. “It’s tough to say people aren’t going to buy U.S. debt, but you’ve got to entice them to buy duration and take the risk.

    “The U.S. is not an emerging market, but ultimately we are going to see the market rate that participants require be higher, with a notable uptick in term premia,” he said. “What we could see in the face of all this issuance is a grind up in yields on an auction-by-auction basis. If I look at the technicals, a 4.9%-5% yield on the 10-year note seems in the cards,” and “it will be difficult for stocks to hold or expand from full valuations as rates run up.”

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  • Stocks close lower, S&P and Dow post first weekly loss in 3 weeks after historic U.S. downgrade

    Stocks close lower, S&P and Dow post first weekly loss in 3 weeks after historic U.S. downgrade

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    US. stocks closed lower Friday, capping off a volatile week that finished with losses after Fitch took away its top AAA ratings for the U.S. and government bond yields embarked on a wild ride. The Dow Jones Industrial Average
    DJIA,
    -0.43%
    fell about 150 points, or 0.4% on Friday, ending near 35,065, according to preliminary FactSet data. The S&P 500 index
    SPX,
    -0.53%
    shed 0.5% and the Nasdaq Composite Index closed 0.4% lower. For the week, the Dow posted a 1.1% decline, the S&P 500 a 2.3% drop and the Nasdaq shed 2.9% since Monday, according to FactSet. Investors were focused on July jobs data released on Friday for clues to the health of the economy and potential next moves by the Federal Reserve on rates. The 10-year Treasury yield
    TMUBMUSD10Y,
    4.045%
    swung almost 13 basis points lower on Friday to 4.06%, after briefly climbing to about 4.2% earlier in the week, according to FactSet data.

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  • Icahn Enterprises’ bonds see buying after bond-friendly halving of distribution

    Icahn Enterprises’ bonds see buying after bond-friendly halving of distribution

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    Icahn Enterprises Inc.’s bonds saw better buying on Friday, after Carl Icahn’s investing arm announced it was halving its quarterly distribution, a move that disappointed unit holders but is positive for its bonds.

    Bondholders are typically focused on making sure a company can make its interest payments and repay the principal when a bond matures.

    The company said it would now make a distribution of $1, down from $2 previously. The news came as the company posted a surprise loss for the second quarter and a $1 billion decline in revenue.

    Icahn placed the blame for the fund’s poor performance on Hindenburg Research, the short seller that published a report about IEP on May 2, accusing it of overstating asset values. Hindenburg also revealed that Icahn himself had borrowed from the company, among other issues.

    For more, see: Icahn Enterprises’ stock slides 30% after company halves quarterly distribution to $1 per unit

    The stock promptly tumbled and was last down 24%, putting it on track for its biggest one-day selloff since it went public 36 years ago. The next biggest drop was 20.0% on May 2, when the Hindenburg Research report was released.

    As the chart below from data-as-a-service provider BondCliQ Media Services shows buyers emerging after 8:00 a.m. Eastern, immediately after the news was announced. By midmorning, some sellers had emerged.


    Icahn Enterprises net customer flow (intraday). Source: BondCliQ Media Services

    The following table shows there was net buying over the last 10 days, focused on the 6.35% notes that mature in 2026.


    Most active Icahn Enterprises issues with net customer flow (last 10 days). Source: BondCliQ Media Services

    In a letter to unit holders accompanying the results, Icahn acknowledged missteps in the past several years as the company has shifted away from its core activist strategy and shorted far more than was necessary.

    “While we made money on the long side through our activism efforts, our returns have been overwhelmed by our overly bearish view of the market and related oversized short (hedge) positions,” Icahn wrote. “Over the past six months, we have significantly reduced our hedges. Going forward, we intend to stick to our knitting and focus on our activist strategy while remaining appropriately hedged.”

    For more, see: Carl Icahn admits he was wrong to take a huge short position on the market that lost $9 billion

    Activism is the best investment paradigm because “there is no accountability in Corporate America,” he wrote.

    With many exceptions, “most CEOs are incapable of creating great businesses (or even improving them) and the desire to empire build is rampant. “

    Many are not the best person for the job or even the most talented individual in the organization, he continued. Far too often, they have climbed through the ranks by being agreeable and presenting no threat to their superiors.

    “Those CEOs are generally too busy playing at the proverbial country club to realize what improvements can be made or what hidden jewels can be unlocked,” he said.

    CEOs are hard to unseat, as they can pack a board with loyal cronies and use company funds to defend against an activist campaign by hiring expensive legal and financial experts, further depleting the coffers.

    Icahn has himself waged endless activist campaigns against companies and their management teams, and most recently succeeded in his effort to shake up management at gene sequencing test maker Illumina Inc.
    ILMN,
    +1.85%    ,
    as the Associated Press reported.

    Past activist campaigns by Icahn’s company have generated billions of dollars for shareholders and helped boards and CEOs capture untapped value, Icahn has argued, citing Reynolds, Netflix
    NFLX,
    +0.66%    ,
    Forest Labs, Apple
    AAPL,
    -3.72%    ,
     CVR Energy 
    CVI,
    -0.40%    ,
     Herbalife
    HLF,
    -0.32%
    eBay
    EBAY,
    -0.73%    ,
     Tropicana, Cheniere
    LNG,
    +0.27%
    and Occidental 
    OXY,
    +3.14%
     as examples.

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  • Blackstone’s Steve Schwarzman says numbers ‘justify’ Fitch downgrade of U.S. credit rating

    Blackstone’s Steve Schwarzman says numbers ‘justify’ Fitch downgrade of U.S. credit rating

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    “ ‘The numbers justified it, regrettably.’”


    — Steve Schwarzman, CEO, Blackstone

    Blackstone chief executive officer Steve Schwarzman said Fitch Ratings’ recent downgrade to long-term U.S. debt was justified, and it is a “shot across the bow” after repeated debt-ceiling standoffs over the borrowing limit make the U.S. government less trustworthy than before. 

    “We’ve had an explosion of debt since the global financial crisis and we don’t appear to have a lot of discipline going forward,” Schwarzman said in a CNBC interview on Friday. “We’re running huge deficits now.” 

    Fitch Ratings late Tuesday lowered its rating on the U.S.’ long-term foreign currency issuer default rating to AA+ from AAA, saying that it reflects “expected fiscal deterioration,” a “high and growing” government debt burden and an “erosion of governance” in face of multiple debt-limit standoffs.

    See: What Fitch’s U.S. credit downgrade means for investors

    Fitch’s ratings downgrade was the first for the U.S. sovereign debt since Standard & Poor Global Ratings took the same step in 2011, cutting the nation’s credit rating to AA+ from AAA also after a debt-ceiling standoff in Congress. Moody’s Investors Service has kept its U.S. credit rating at Aaa, its highest, and remains the last of the three major credit credit-rating firms to maintain a top rating for the country. 

    Treasury Secretary Janet Yellen on Wednesday slammed the move by Fitch Ratings, calling it “arbitrary and based on outdated data” as it came two months after a debt-ceiling agreement that averted a U.S. default. She said the decision “does not change what Americans, investors, and people all around the world already know: that Treasury securities remain the world’s pre-eminent safe and liquid asset, and that the American economy is fundamentally strong.”

    See: Warren Buffett dismisses Fitch downgrade: ‘There are some things people shouldn’t worry about’

    Schwarzman said regardless of the rating, the U.S. dollar is the world’s reserve currency. “We do defend a large part of the world including people who have triple As, and when there’s a crisis in the world, they buy our securities,” he said on Friday. 

    “Now that doesn’t last forever if you don’t keep some discipline. And so in a way, it’s a bit of a shot across the bow,” Schwarzman said. 

    U.S. stocks were holding gains Friday following the July jobs report, with the Dow Jones Industrial Average
    DJIA
    up 170 points, or 0.5%, while the S&P 500
    SPX
    also advanced 0.5%.

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  • ‘The Fed will take comfort from moderating job growth’ — economists react to July’s employment report

    ‘The Fed will take comfort from moderating job growth’ — economists react to July’s employment report

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    The July jobs report on Friday showed the U.S. economy gained 187,000 jobs last month, with the unemployment rate dipping to 3.5% from 3.6%.

    Economists polled by The Wall Street Journal had expected an addition of 200,000 jobs and unemployment staying at 3.6%.

    See: U.S. adds 187,000 jobs in July

    Below are some initial reactions from economists and other analysts, including their views on what the jobs report means for the Federal Reserve as the central bank considers how to proceed with interest-rate hikes. U.S. stocks
    ES00,
    +0.48%

    SPX
    looked set to trade up modestly following the data on nonfarm payrolls.

    • “The Fed will take comfort from moderating job growth, but will continue to fret about the tight labor market. So far, the July employment and CPI reports are a wash for the Fed’s September 20 decision (we expect no change in rates), placing extra pressure on the August releases to add some clarity.” — Sal Guatieri, senior economist at BMO Capital Markets, in a tweet

    • “This month’s slow job growth is a sign the economy is continuing to cool; while a negative in some senses, this is a positive indicator for the Fed and may soon end its interest rate hikes. … Moving forward, we anticipate the unemployment rate will remain low.  We also expect unemployment will rise to its natural long-run rate of 4.5% over the next two years.” — Steve Rick, chief economist at TruStage, previously known as CUNA Mutual Group, in a note

    • “Since bad news is good news these days, Jay Powell will be smiling this morning, if not entirely happy. The below consensus reading in hiring in the July payrolls is the type of labor market softening the Fed is looking for. … But there were some more mixed elements in the report as well. The unemployment rate ticked down a notch to 3.5% and average nominal wages grew 0.4% for the second consecutive month. The Fed will continue to be looking for a broader set of data and will be focused on a further deceleration in prices before throwing in the towel for September.” — Ali Jaffery, economist at CIBC, in a note

    • “The wage data is stronger than the payroll data, suggesting that demand for labor is still robust, and that the slowing pace of hiring is more due to a lack of supply of labor. [Average hourly earnings] rose 0.4% in July, same as May and June. AHE Y/Y was steady at +4.4%. This, combined with the firmer household survey data, should keep the Fed on their toes for another rate hike as soon as next month, but the [consumer price index] data next week will have a big influence in that decision as well.” — Thomas Simons, U.S. economist at Jefferies, in a note

    • “If you were to write the script of what a soft landing looks like, this is it. Payrolls grew a strong +187k, signaling a slower yet still strong — and more sustainable —pace.” — Justin Wolfers, University of Michigan economics professor, in a tweet

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  • Icahn Enterprises’ stock slides 30% after company halves quarterly distribution to $1 per unit

    Icahn Enterprises’ stock slides 30% after company halves quarterly distribution to $1 per unit

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    Icahn Enterprises L.P.’s stock tumbled 30% on Friday, after the company said it’s cutting its quarterly distribution to $1 from $2 previously.

    The company
    IEP,
    -23.23%
    made the announcement as it reported a surprise quarterly loss with Chairman Carl Icahn, the billionaire activist investor, blaming the news squarely on one thing.

    “I believe the second quarter partially reflected the impact of short selling on companies we control or invest in, which I attribute to the misleading and self-serving Hindenburg report concerning our company, “Icahn said in a statement.

    “It also reflected the size of the hedge book relative to our activist strategy.”

    Icahn was referring to a report by short seller Hindenburg Research published on May 2 that accused IEP, Icahn’s publicly traded investing arm, of overstating asset values. Hindenburg also revealed that Icahn himself had borrowed from the company, among other issues.

    That had been disclosed in a footnote to financials that Wall Street had overlooked.

    Read: What we know about Carl Icahn’s margin loan

    See also: Carl Icahn rebuts short seller Hindenburg Research’s report. It’s already cost his company $6 billion in market cap.

    The report shaved billions off IEP’s market cap and was firmly rebutted by Icahn, who recently said he has finalized amended loan agreements with banks that untie his personal loans from the trading price of his company’s shares.

    Icahn said IEP has paid out distributions for 73 continuous quarters and does not intend for a “misleading” report to interfere with that practice.

    “The payment of future distributions will be determined by the board of directors quarterly, based upon current economic conditions and business performance and other factors that it deems relevant at the time that declaration of a distribution is considered,” said Icahn.

    On a call with analysts, IEP’s Chief Executive David Willetts highlighted the long-term “lumpiness” of the business, given its many moving parts.

    “We have large wins at times and we have volatility, we’re not a company that necessarily has predictable cash flow, there are no guarantees,” he told analysts.

    But IEP is not changing its strategy on distributions, he added.

    The stock was headed for the biggest one-day selloff since it went public 36 years ago. The next biggest drop was 20.0% on May 2, when the Hindenburg Research report was released.

    The company, which is 84% owned by Icahn and his son, Brett, offers exposure to Icahn’s personal portfolio of public and private companies, including petroleum refineries, car-parts makers, food-packaging companies and real estate. Its unit holders are mostly retail investors.

    The fund has performed poorly in the past decade. For many years Icahn has publicly expressed suspicion of the bull market that raged around him. He shorted the stock market in a big way as a hedge against his long activist positions. Going into 2021, for example, Icahn’s investment fund had a short exposure of 142%, SEC filings show.

    For more, see: Carl Icahn admits he was wrong to take a huge short position on the market that lost $9 billion

    Hindenburg, the short selling firm founded by Nate Anderson, took a victory lap on Elon Musk’s X platform, the renamed Twitter, noting that it had predicted that IEP’s poor investment performance would eventually force it to cut the distribution.

    Icahn has himself waged endless activist campaigns against companies and their management teams, and most recently succeeded in his effort to shake up management at gene sequencing test maker Illumina Inc.
    ILMN,
    +1.26%

    In June, that company accepted the resignation of its Chief Executive and director, Francis DeSouza, ending a monthslong heated battle over its $7.1 billion acquisition of cancer test maker Grail that has faced regulatory hurdles, as the Associated Press reported.

    Icahn had urged shareholders to vote out its chairman, John Thompson, and DeSouza. Company shareholders voted out Thompson in late May.

    Past activist campaigns by Icahn’s company have generated billions of dollars for shareholders and helped boards and CEOs capture untapped value, Icahn has argued, citing Reynolds, Netflix
    NFLX,
    +0.14%    ,
    Forest Labs, Apple
    AAPL,
    -4.80%    ,
     CVR Energy 
    CVI,
    -0.98%    ,
     Herbalife
    HLF,
    -0.69%
    eBay
    EBAY,
    -1.28%    ,
     Tropicana, Cheniere
    LNG,
    -0.95%
    and Occidental 
    OXY,
    +2.11%
     as examples.

    IEP said it had a loss of $269 million, or 72 cents per depositary unit, for the second quarter, wider than the loss of $128 million, or 41 cents per depositary unit, posted in the year-earlier period.

    Revenue fell to $2.684 billion from $3.796 billion.

    The FactSet consensus was for income of 25 cents per depositary unit and revenue of $2.657 billion.

    Meanwhile, investors are waiting to see the outcome of a federal probe of IEP’s corporate governance and other issues, which was disclosed along with first-quarter earnings.

    IEP’s stock is down 35% in the year to date, while the S&P 500
    SPX
    has gained 18%.

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  • Trump pleads not guilty in Jan. 6 case

    Trump pleads not guilty in Jan. 6 case

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    Former President Donald Trump entered pleas of not guilty Thursday at an arraignment in Washington, D.C., giving his formal response to his four-count indictment over his efforts to overturn the 2020 presidential election, including his role in the Jan. 6, 2021, attack on the U.S. Capitol.

    Trump, the frontrunner in polls for the 2024 Republican presidential nomination, has denied wrongdoing, and earlier Thursday he continued to criticize the legal proceedings as largely about helping President Joe Biden, a Democrat, in next year’s election.

    “The Dems don’t want to run against me or they would not be doing this unprecedented weaponization of ‘Justice.’ BUT SOON, IN 2024, IT WILL BE OUR TURN,” Trump said in a post on his Truth Social platform.

    In Tuesday’s 45-page indictment, Trump was hit with charges that included conspiracy to defraud the U.S. and conspiracy to obstruct an official proceeding.

    Related: Bill Barr says Jan. 6 indictment is ‘legitimate’ and that Trump knew he lost the election

    The former president’s appearance in Washington is just one step in a legal battle that will likely take months or even years to play out.

    Special counsel Jack Smith on Tuesday said his office “will seek a speedy trial” in the Jan. 6 case, but Trump defense attorney John Lauro has pushed back repeatedly on Smith’s statement, telling NPR on Wednesday that his side wants “a just trial, not simply a speedy trial,” and that the trial itself “could last six months or nine months or even a year.”

    Trump’s legal team looks likely to make change-of-venue requests, with the former president talking up West Virginia in a Truth Social post late Wednesday. He said the Jan. 6 case “will hopefully be moved to an impartial Venue, such as the politically unbiased nearby State of West Virginia! IMPOSSIBLE to get a fair trial in Washington, D.C., which is over 95% anti-Trump.”

    The next hearing in the case was reportedly scheduled for Aug. 28, which would be five days after the first GOP presidential primary debate.

    Trump also entered pleas of not guilty earlier this year in a Manhattan case over hush-money payments and in a Miami case over classified documents. Another investigation, in Georgia’s Fulton County, centers on efforts by Trump and his allies to undo that state’s 2020 election result. The county prosecutor said over the weekend that she will announce charging decisions by Sept. 1 in that probe.

    Biden told CNN Thursday that he was not planning to follow Trump’s arraignment, responding with an emphatic “no” when asked about it during a bike ride in Rehoboth Beach, Del., where he is vacationing this week.

    Now read: ‘You’re too honest’: Donald Trump’s alleged Jan. 6 conspiracies, explained

    And see: Trump indictment: What does arraignment mean, and what happens next?

    Plus: How DeSantis is leading Trump in cash on hand, even as the former president dominates in polls

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  • S&P 500 books biggest drop since April after U.S. loses AAA ratings for a second time

    S&P 500 books biggest drop since April after U.S. loses AAA ratings for a second time

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    Stocks fell on Wednesday, a day after Fitch Ratings lowered its U.S. debt ratings to AA+ from the top AAA category, pointing to its growing debt burden and “erosion of governance” over the past two decades. The S&P 500
    SPX,
    -1.38%
    fell about 63 points, or 1.4%, ending near 4,513, booking its biggest daily percentage decline since April 25, according to preliminary Dow Jones Market Data. The Dow Jones Industrial Average
    DJIA,
    -0.98%
    shed about 1%, while the Nasdaq Composite Index
    COMP,
    -2.17%
    closed 2.2% lower. Stocks already had been taking a breather from their march toward record levels when Fitch on Tuesday evening made good on a threat to downgrade its U.S. debt rating a notch to AA+. Longer-dated Treasury yields rose Wednesday, with the 10-year Treasury rate
    TMUBMUSD10Y,
    4.105%
    touching 4.07%, according to FactSet. Treasurys and other haven assets are viewed as likely to benefit from a flight to safety in a scenario where investors get more jittery about the U.S. economic outlook.

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  • Tupperware stock tumbles toward snapping five-day win streak in which it soared more than 300%

    Tupperware stock tumbles toward snapping five-day win streak in which it soared more than 300%

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    Shares of Tupperware Brands Corp.
    TUP,
    -31.78%
    tumbled 18.8% in morning trading Wednesday, which puts them on track to snap a five-day win streak, and to suffer the biggest one-day drop since it sank 27.5% on May 8. The food-storage container company’s “meme”-like stock, which closed Tuesday at the highest price since Nov. 15, 2022, had rocketed 304.5% over the previous five-sessions, and skyrocketed 767.7%. amid a 10-session stretch through Tuesday in which it had gained nine times. The stock has run up 273.5% over the past three months, but was still down 39.3% over the past 12 months, while the S&P 500
    SPX,
    -1.38%
    has gained 10.8% over the past year.

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