Not in the Moody’s: China Gets a Downgrade; Tiffany & Co. Fails to Shine; Can’t Contain The Container Store’s Earnings

Awkward…

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Look like Moody’s wont be getting a warm reception from China in the near – and probably far – future. It took thirty years, but the investor service downgraded China’s sovereign credit rating. Moody’s is more than a bit skeptical that the country can get its debt issues under control while at the same time trying to maintain economic growth. Hence, it bumped China’s rating down a smidgen from a respectable A1 to a not-as-respectable Aa3.  On the bright side – though I highly doubt China sees it that way – Moody’s did upgrade its outlook for the country from negative to stable. That’s gotta count for something, right? Well, maybe not to the Chinese. In any case, even though China has enjoyed pretty fast growth rates that easily surpassed 6%, it is apparently due in large part to its mounting pile of debt, and Moody’s said that it expects that rate to soon come down closer to 5%. As for China, the Finance Ministry is, shall we say, unhappy about this downgrade and called the move “inappropriate”  and “absolutely groundless.” Oh well. So much for diplomacy.

Not so Gaga for Tiffany…

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All is not bling-y for Tiffany & Co. as the luxury jeweler took a nasty 4% hit on its comparable sales, even during the fiscal quarter that brings us Valentine’s Day. Of course, with that ugly bit of news came an even uglier hit to its stock, taking it down around 10%. Like with so many other brands, the company just can’t seem to get a hold on that finicky demographic we call millennials.  And that’s even after the luxury brand made Lady Gaga its poster gal while poaching Coach’s Creative Director, Reed Krackoff to add a little millennial-desirability to the the label.  Naturally, some blame also went to that pesky strong dollar of ours which seemed to put a crimp on tourist spending.  Net sales were up close to $900 million. Too bad expectations were for $914 million On the bright side, Tiffany & Co. added 74 cents to its shares, beating analyst estimates by four cents. Last year at this time, the company hauled in over $891 million in revenue with 69 cents added per share.

Can’t contain myself…

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Shares of The Container Store Group surged 37% after announcing it not only beat expectations, but it also has a restructuring plan in the works. If any company knows a thing or two about restructuring and organization, it’s gotta be The Container Store, right? At least when I walk into one of their stores, I always find myself feeling grossly inadequate and disorganized. In any case, the company took in sales of $221 million, easily blowing expectations of $213 million out of the water. The company also took in 17 cents per share which was 140% higher than last year at this time. Yes, you read that correctly. 140%. Analysts expected 11 cents per share. But mind you, the company’s stock had been down around 50% since it hit a one year-high back in December.  As for the restructuring plan, sadly, there will be layoffs. It’s an unfortunate result of trying to combat all the e-commerce competition that has dogged The Container Store and countless other businesses.

Apple Throws Billions Towards U.S. Manufacturing; Ferrari Speeds into Double Digit Margins; Republicans Wage War on Dodd-Frank

iManufacture…

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China’s about to get some very unwelcome manufacturing competition from Apple. The tech giant just announced that it is starting a $1 billion fund promoting advanced manufacturing. Gosh, is the President going to take credit for this too? In fact, CNBC host Jim Cramer had the dubious distinction of being the first person to hear the news on his show “Mad Money.”  For those of you wondering what the difference is between manufacturing and “advanced manufacturing,” it means Apple will basically have to offer specialized skills and training for the latter and fill job gaps with these newly-trained, highly-skilled workers. In any case, Apple has thus far created some two million jobs in the U.S. and can hardly wait to create even more. But how does Apple plan on spending that $1 billion it’s setting aside for this latest project? Well, don’t get too excited just yet, because some of that cash is first going to a company that Apple has partnered with for this initiative. And the name of that lucky company has yet to be announced.

Magnifico!

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Ah Ferrari. What could be better than tooling around in a machine like that? How about its earnings, for one. The Italian automaker just released its first quarter earnings report and they were everything you’d expect from the maker of one of the world’s finest sports cars. Shares are up well over 6% today after the company announced a 36% earnings increase along with a 50% surge in deliveries. And by the way, those earnings were even better than expected, coming in at around $265 million  – which equals 242 million euros – in case you were curious. Estimates, mind you, were for 222 million euros. Revenues also impressed and elated investors, as they increased 22% to 821 million euros, easily beating expectations of 767 million euros.  Sure, those numbers are almost magical, but that’s not really what’s got Wall Street tongues wagging. It was Ferrari’s margins, which are now right up there with the aforementioned tech giant we call Apple. But I guess that’s to be expected when you’re selling cars whose ticket prices start well into the six-figures and can exceed $2 million. After all, we are talking about a company who sold out of a car, the Aperta convertible, before the car even made its official debut.

Let’s me be Dodd-Frank with you…

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Things are looking grim for Dodd-Frank, the Wall Street Reform and Consumer Protection Act. The Republican-led House Financial Services Committee argued that the law sucks for the economy since it slows it down, and today passed a bill that would overhaul and repeal parts of it. It certainly helps Republicans that President  Trump promised way back in his campaign to overhaul the law, which he says costs banks a fortune in compliance and limits lending way too much. Democrats argue the opposite and are convinced that the bill, if passed, will once again create the same conditions that led to the 2008 fiscal crisis. In case it wasn’t obvious, the law was initially passed under President Barack Obama. Naturally, Democrats voted against the bill and lost 34-26.

Fed Chairwoman Shuts Down Congressman; Mattel Goes For Big With Alibaba; Apple Hits New High On iPhone Dreams

Sit back down…

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Almost everyone’s favorite Federal Reserve Chair, Janet Yellen, was in the hot seat today. First she graciously explained in a letter to Republican Congressman Patrick McHenry that, in fact, the Fed possess the authority and has the responsibility to work and consult with foreign entities with regard to financial industry oversight and the development of international banking rules. McHenry, who is Vice Chairman of the House Financial Services Committee, didn’t appreciate that the Fed had already engaged in international talks before President Trump had a chance to put his peeps into play to conduct their own reulatory review. But no dice for McHenry as Chairwoman Yellen explained that such efforts were to the benefit and in the best interests of the United States and its financial stability. In other news, Ms. Yellen was mum on whether the Fed would raise rates at its next meeting in March but said waiting too long wouldn’t be a good idea. Besides inflation and the labor market, Yellen and co. are looking to see what policy changes President Trump is going to make before making any major announcements from the Fed’s end. Which seems like a prudent plan, especially from someone who was appointed by President Obama, but is doing her best to keep from playing sides since she has still has a few years left on her term during the current administration. And also because Trump criticized her during the campaign when he said that she was deliberately keeping rates low in order to benefit President Obama. Yikes.

Ni-Hao Barbie…

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Mattel’s wound licking might just be on hold for now, despite losing some major Disney-Princess licensing mojo to Hasbro awhile back. The toy company has begun to forge a new path with Chinese e-commerce giant Alibaba. Nothing like gaining a foothold in the $7 billion Chines toy marketplace to ease those Disney-licensing blues. By the way, the United States’ toy industry is estimated at over $20 billion. Just saying. The company that makes Barbie dolls and Hot Wheels cars is in a partnership with Alibaba to create and promote interactive and educational toys, in addition to producing entertainment content based on Mattel products. Because hey, who doesn’t love shows based on toys – and vice-versa? Mattel will be selling its new wares via Tmall.com, which is Alibaba’s business-to-consumer retail site. Incidentally, Mattel had already been selling on Tmall.com for about six years now and rumor has it that its selection of Fisher-Price toys have actually been the top-sellers for five years in a row on Alibaba’s November 11 Singles Day. Mattel’s new products for Alibaba will hit Alibaba’s virtual shelves by mid-2017.  Mattel could really use the boost, especially since sales of Barbies have not been doing as well as they have in the past, and despite throwing some more realistic features onto the doll. Also, the company reported an earnings miss February 1, taking in 52 cents per share on an 8% revenue decline to $1.83 billion, when analysts expected 71 cents per share. But with Alibaba boasting over 440 million active buyers, chances are Mattel has the ability to turn that last earnings report into a mere distant bad memory.

Apple of my i-Phone…

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For the first time in two years, Apple hit a new high of $134.90 and a market cap of $701 billion. And in case you don’t own any shares, that probably means a whole lot of nothing to you. The last time it hit a new high was back on April 28, 2015, when the stock hit $134.54. But that 36 cents means a whole lot to investors who are hoping, and probably betting, that Apple will release a new iPhone, dubbed the iPhone 8, or the iPhone X – if you dare –  that will magically lift blah sales for the tech giant. While the company reported impressive earnings in its last earnings report, its outlook was less so, and the fact that Apple’s revenue decreased by 8% for 2016 didn’t help the mood on Wall Street as of late, even if it is the most valuable company in the world.  Rumor has it, the new phone is going to be even more expensive than previous ones, which is always a good way to get Wall Street tongues wagging.

Trump Tweets Threats of Big Taxes to GM Over Small Cars; Ford Rearranges Plants Much to Trump’s Delight; Trump’s Trade Pick China’s Worst Nightmare?

Small-fry…

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Trump is tweeting again, this time going after General Motors. The President-elect wants to slap some big ugly taxes on the auto company because it imports Chevrolet Cruzes from Mexico instead of making them in the United States. But here’s where things get dicey: According to GM, only the hatchback version of the car is made in Mexico, and are meant for global distribution. The sedans, however, are made in Ohio. Ohio. In fact, of the 172,000 Cruzes sold last year, only 4,500 of them came from Mexico.  Even the United Auto Workers Union doesn’t care if GM does assemble those cars in Mexico since the Ohio factory isn’t equipped to make the hatchbacks. (Incidentally, over 1,000 employees at this plant are getting laid off soon.)  Besides, it’s alot of fuss to make about a car whose sales were down 18% in November.  The fact is, low gas prices are leading to higher sale of of SUV’s and trucks.  And the Chevrolet Cruze doesn’t figure in very nicely here.  Which all probably explains why this latest Trump tweet didn’t even harm the stock.  While it did lose some juice early on, it rebounded into positive territory very very quickly.

Adios…

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In the meantime, just hours after Trump used his social media account to lash out at GM, Ford announced that it is officially scrapping plans to build a $1.6 billion assembly plant in Mexico. But that doesn’t mean its ditching our neighbor to the south. Instead, Ford will continue making Ford Focus compact cars in an existing plant there while taking $700 million from that budget to upgrade a plant in Michigan for building electric cars. And bonus: 700 jobs would be added to the mix for that Michigan plant. It’s all part of a bigger $4.5 billion plan that Ford had in place to manufacture 13 new models of both electric and hybrid cars. A win-win, no?  There are plenty who think it’s just a win for Trump, who made it clear that he’s not into NAFTA and that manufacturing cars in Mexico only hurts the U.S. economy.  They also think Fields scrapped his original plans in an effort to make nice with the incoming President, not to mention, avoid tariffs. However, Fields said he was planning to make this move anyway, whether Trump was elected or not. Which doesn’t explain why construction on the new plant already started in May. But anyway, you needn’t cry for Mexico…just yet. The existing plant in Mexico will be adding 200 jobs there as well, so that country doesn’t come out a total loser either. While shares of Ford rose on the news today, can you guess what happened to the peso? It took a .9% hit against the dollar.  How do you say “ouch” in Spanish?

In other Trump business news…

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The President-elect has set his sights on his pick for the U.S. Trade Representative post. Enter Robert Lighthizer, a Reagan administration alum, who has spent the last thirty years representing major companies in anti-dumping and anti-subsidy cases. Presumably, he was incredibly successful in that aspect of his career, or else Trump might not have looked in his direction.  According to Trump,  Lighthizer has made some very effective deals that protected significant sectors and industries in the U.S. economy. Yowza. Trump’s banking that Lighthizer will do something about “failed trade policies which have robbed so many Americans of prosperity.” That’s a definite plus for working in the Trump administration. As Trump’s top trade negotiator, one of Lighthizer’s major duties will be to try and reduce that pesky trade deficit and apparently, he has a knack for making deals that do just that. Lighthizer doesn’t care for the trade policies we have in place for China, so be sure to watch the drama that unfolds as he goes after one of the world’s largest economies. You can expect some big changes in that arena and damned be the Word Trade Organization rules if it comes to that. Which it just might considering Lighthizer’s not that into the WTO.

Trump Must Say Buh-bye to DC Namesake Hotel; Amazon’s Latest Tricks Up its Sleeve; The Urge to Merge: Alaska Airlines and Virgin America

Give it up…

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The official word out of Washington DC and, more importantly, the General Services Administration (GSA), is that Donald Trump has to give up his beloved hotel that is housed in the Old Post Office, just a few blocks from the White House. It’s the one that he opened back in September and has been the site for so very many Trump protests. That particular building is especially off limits to the President-elect because it is leased from the Federal government. The GSA, in case you were wondering, manages property owned by the Federal government. So it stands to reason that it has a say in what Donald Trump can and can’t do in this particular situation. Incidentally, Federal law does not exactly prohibit a president’s involvement in private business. However, members of Congress and lower ranked executive branch officials cannot. So weird, huh? As for a president’s assets, those have been typically put into blind trusts in an effort to avoid any appearance of impropriety – which seems logical. The owners of these blind trusts have no knowledge of how the assets are being managed and are typically managed by independent third parties. Donald Trump’s daughter, Ivanka, has apparently been dealing with the GSA to resolve this particular issue. However, her involvement is sort of iffy, according to some, since she is an official member of Trump’s transition team.

Droning on and on…

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Amazon’s unleashing plenty of big news today while Jeff Bezos is kicking up his heels at Trump Tower, trying to make nice with the President-elect. First, the online retailer giant announced its first drone delivery, called Prime Air, which took place December 7 in the U.K. A Fire TV device, along with a bag of popcorn found its way to its buyer just thirteen minutes after the order was made. The drop was made in an area in Cambridge that has been authorized for drone testing. So far, two customers have access to this new delivery method. But in the coming months that number is expected to grow by leaps and bounds. The drones fly no higher than 400 feet, are guided by GPS and can carry up to five pounds of merchandise. But best of all, for Amazon anyway, is that drone delivery of small packages are an excellent way to keep delivery costs really low. How does a dollar a drop sound?  Then, Amazon also announced the launch of its very own live streaming video service available just about everywhere. Except China. That must warm Donald Trump’s heart a little.  In any case, the new service is giving Netflix   – which also has yet to conquer China – some very unwanted competition. By the way, Amazon’s launch was eerily reminiscent of Netflix’s global launch almost a year ago. Just saying. The new service, aptly called Prime Video, would get bundled with your average Amazon Prime subscription. The idea is to get people to sign up for Amazon Prime service and from watching all of Amazon’s amazing (it really is) programming, viewers will then have an insatiable urge to buy even more stuff on Amazon. It’s meant to be a win-win. Just not necessarily for your bank account. In Amazon’s defense, however, the company wants to make sure that you’re getting a lot of value from your annual Prime subscription. I can live with that.

Take wing…

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The Alaska Airlines/Virgin America merger is in effect with the official blessing from the U.S. Justice Department. But to be clear, Alaska Airlines is actually buying Virgin America – which has only been around since 2007 –  for about $2.6 billion. The total cost, after all is said and done, is expected to hit closer to $4 billion.  Alaska Airlines is currently the sixth biggest airline operator in the United States, while Virgin America holds steady at number eight. But once these two babies unite, they’ll become the fifth largest airline in the industry. The top four airlines, however, still control 80% of the country’s domestic market. At least the merger will allow for the new entity to become a major player in the highly competitive West Coast region. Combined, the two airlines have around 40 million customers and have so far this year generated $2.4 billion in revenue.

How Trump Is Dulling Tiffany & Co.’s Sparkle; Just Another Multi-billion Dollar Monday; Oil Vey! OPEC Squabbles Over Oil Cuts

Occupying 5th Ave…

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Despite occupying some of the the best real estate in the world, Tiffany & Co.’s New York flagship store is having some sales troubles no thanks to president-elect Donald Trump,  whose nearby police barricades, protests and secret service detail have taken a big chunk out of the store’s traffic. And that’s a huge problem, especially because the U.S. is Tiffany & Co.’s biggest market, and its Manhattan store accounts for 8% of the company’s sales. At least there’s China and Japan, whose currency fluctuations allowed consumers in those regions to take advantage of a strong yen that had them picking up all kinds of nifty goods from the iconic jeweler. Mainly because of that, the company posted a surprise 1.2% sales increase – the first sales rise in eight quarters. Same store sales didn’t fare as badly either, even though experts thought they would. Instead of declining an expected 2.8%, they fell just 2%. In the United States, presumably in locations where Trump does not reside, Tiffany & Co. experienced a smaller than expected drop, falling just 2% compared to last year at this time. The luxury jeweler scored a $95 million profit, pulling down 76 cents per share on sales of $949.3 million. Analysts only expected 67 cents to be added to shares with sales totaling $923.7 million.

Shattered…

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Move over $3.36 billion. Move over $3.39 billion. The original sales estimates for cyber-Monday proved no match for the actual numbers. Adobe Digital Insights whipped out the results for this year’s post-Thanksgiving shopping extravaganza, which blew estimates out of the water and came in at a whopping $3.45 billion – over a 12% increase from last year’s cyber-Monday purchases. But what’s super weird is that apparently there were less deals on cyber-Monday than on Black Friday. However, Black Friday’s numbers were looking awfully green as well, setting a record with a 22% increase over last year and coming in at just $110 million less than cyber-Monday. Some analysts were a bit concerned that the abundance of web sales on Thanksgiving would put a dent in cyber-Monday’s digits. But wouldn’t you know it? That didn’t happen. Purchases made using Wall-Mart’s app jumped 150% while Amazon is expecting to report its best cyber-Monday. Ever. But you’re just going to have to take their word for it. As for losers, look no further than Macy’s. Perhaps it was karma for opening its doors at 5:00 pm on Thanksgiving Day, but the company experienced outages on its website that kept a lot of shoppers from making a lot of purchases on the company’s site. The amount of money the retailer likely lost was probably not enough to offset the fact that it opened its doors on Thursday. Boohoo.

Why can’t we oil just get along?

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The Organization of the Petroleum Exporting Countries, also known as OPEC, is having a big fancy meeting in Vienna tomorrow. At issue is the problem that there is way too much oil floating around all over the world. This oil glut is making oil prices low which makes for really good prices at the pump. However, the countries that produce all this oil don’t like that one bit and are trying to agree on how to fix it so that prices go up again and they can start making cold hard cash. Saudi Arabia, Iran and Iraq are the biggest oil producers and the logical step would be for each country to cut their production. But none of them want to do that. There’s a lot of ego involved. It’s like color war, but with actual valuable commodities at stake, besides national pride. Saudi Arabia is proposing cuts of 1.2 million barrels per day. However, Iran’s not down for making any cuts because it feels it needs to make up for lost time from all those years of Western sanctions it faced – and totally deserved – and still does deserve. Iraq is using ISIS as a very convenient, if somewhat legit excuse since it is, after all, fighting a war against a psychopathic terrorist organization, and the money it gets from selling oil helps fund that lofty endeavor. Rumor has it that Iran and Iraq are coming around but no word on whether Saudi Arabia will play ball. So stay tuned to see if and when more OPEC drama plays out, and how this drama will affect your wallet and your green car aspirations.

 

Tesla Banks a Profit. Finally; Twitter’s Getting Rid of Employees Despite a Beat; Latest IPO Fails to Wow Wall Street

Booyah!

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Tesla’s CEO Elon Musk is super-pleased with himself after his electric car company posted a quarterly profit for the second time since the company went public. The first time that happened was waaaaay back in 2013. And Musk is banking on the fact that he can pull it off again next quarter. The news was particularly welcome to Musk since he is eager to merge Tesla with his other company, SolarCity. Except investors aren’t as enthusiastic about the prospect or presumably the $2.6 billion cost of the merger. But come November 17 Musk is going to find out if shareholders will have a change of heart and are willing to embrace the move when a vote takes place. In any case, Tesla’s profit came in at a very lofty $21.9 million with a record $2.3 billion in revenue. That would be a 145% increase over last year’s same quarter revenue. Yes you read that right.  The company also scored 14 cents per share when analysts only expected 4 cents. Add that to the fact that last year the stock lost 58 cents per share and we’ve quite a nice comeback story. So what made this quarter different from all other quarters? Ramped up production of Tesla’s Models S sedans and Model X Crossovers. With Musk urging employees to move the vehicles with all their heart and soul, a 92% increase was seen on deliveries of 25,185 cars. But it wasn’t just the current crop of cars that contributed to Tesla’s winning quarter. Apparently, 373, 000 people already pre-ordered the $35,000 Model 3, which won’t even hit the streets until 2017.

Boohoo…

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Twitter announced its third quarter results and yet again, failed to impress anybody. One of the more significant highlights, or rather lowlights, is the company’s decision to lose about 9% of its workforce, or roughly three hundred employees, out of over 3,800 worldwide. That number could go higher but the ultimate goal is to help the company reorganize sales, partnerships and marketing efforts. And who doesn’t like to reorganize, right? The social media company did manage to pull down revenues of $616 million, beating estimates of $605.5 million. Some might consider that an impressive achievement. Except it’s not, since it marked Twitter’s ninth straight quarter of declining growth. And while the company also earned 13 cents per share, once again beating estimates of just 9 cents, growth of monthly active users stayed relatively flat, despite all kinds of exciting new changes.  In the meantime, both Disney and Salesforce.com have passed on potentially acquiring Twitter, as CEO Jack Dorsey said that he’s done talking about reports of possible acquisitions.

That’s NYSE…

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Chinese company ZTO Express made its big Wall Street debut today but failed to dazzle the Street. Unlike the Chinese IPO darling of 2014, Alibaba, ZTO dished out over 72 million shares for $19.50 a pop, only to open today for the first time on the New York Stock Exchange at $18.40. The stock later slid even lower to $17.70. But considering that the company’s original range fell between $16.50  – $18.50, its slide isn’t exactly tragic. Just disappointing. In any case, ZTO still managed to raise $1.4 billion and the company plans to use $720 million of that to purchase more trucks, land, facilities and equipment. In other words, big expansion plans are in the works. As a package delivery company, it handled close to 21 billion parcels just in 2015. It should come as no surprise, however, that ZTO’s main business deals with delivering shipments for Alibaba. In fact, Alibaba accounted for 75% of ZTO’s business in the first half of the year.  You might be wondering why Chinese companies like to list on stock exchanges in the United States. Well, for one, there are currently about 800 companies lined up in China who have filed applications to list on indexes on the country’s indexes.  It’s a considerably slower process and some feel it’s less reliable. Besides, given the volatility of the Chinese economy, raising money in U.S. dollars as opposed to a weaker Chinese currency only sweetens the pot for plenty of companies.