American Airlines: Going for Great or Going for Racial Insensitivity?; Congress Lets Banks Off the Hook. For Now; Things Aren’t Looking Sunny at Tesla Lately

Something racially insensitive in the air…

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Some say there’s no such thing as bad publicity but I’m skeptical about that. Take for example American Airlines. The NAACP just issued an advisory cautioning African Americans about traveling on American Airlines because the organization found an alarming pattern of “disturbing incidents” by the airline where black passengers were removed from flights. And the NAACP might just be onto something since it listed four distinct incidents where African American passengers were either taken off flights or moved to other sections of the aircraft despite holding tickets for higher class cabins. The NAACP said that the incidents “suggest a corporate culture of racial insensitivity” which I am pretty certain counts as bad publicity no matter how you slice it. Of course, American Airlines is “disappointed” about the advisory, and not just because it looks sooooooo bad. However, it still plans to reach out to the NAACP and invite representatives to its corporate offices in Texas to discuss the situation. Of course, just like with any bad publicity, American Airlines shares are down over 2%. Rightfully so, I suppose.

Don’t bank on it…

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You might not remember when, during President Obama’s presidency, a regulation was passed that allowed consumers to file class-action suits against banks.  But Congress remembered and today duly killed the regulation from the Consumer Financial Protection Bureau that was established back in July. Just. Like. That.  The rule went like so: If a consumer was unhappy with a financial product or service, think of Wells Fargo or Equifax, and wanted action and accountability from the institution, the said financial institutions could not force a consumer into mandatory arbitration. And if a consumer wanted to participate in a class-action lawsuit, they could. Financial institutions had to nix clauses in their contracts that effectively forced consumers into arbitration. Before that rule came about, consumers could not sue. Could. Not. Sue. There was no option to settle lawsuits. Dems are hopping mad because they wanted that rule to stay put arguing that it allowed consumers to hold banks and financial institutions accountable and that arbitration always seemed to go more in favor of the banks. Republicans argued that class-action suits do not benefit the consumers anyway and have the potential to greatly harm businesses that ultimately and adversely affect the economy. Consumers are no better off, they argued, whether they go through arbitration or are part of a class-action lawsuit. Republicans even cited information from a Treasury report supporting those claims.  Of course, the recent scandals at Wells Fargo and Equifax didn’t exactly help the Republicans argument. Yet miraculously, Congress still managed to put the kibosh on the rule. Consumer advocates are all over this and insist that the war is not over. Except that a key battle was just lost.

Rolling heads…

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While the ranks at Tesla continue to get smaller by the hundreds following an ugly recall of 11,000 Model X SUV’s, employees at Tesla-owned SolarCity are starting to smell the stench of unemployment too.  Over 200 employees were dismissed from their jobs at SolarCity with the dismissed being told that they lost their jobs for performance reasons, or lack thereof. However,  that proved to be an awfully strange excuse considering that several of the aforementioned employees said they hadn’t even received performance reviews since Tesla acquired SolarCity last November for $2.6 billion. Things that make you go hmmm.Tesla did announce it would be firing employees from SolarCity’s Roseville, California office. And it did. Except the carnage didn’t stop there. Apparently, SolarCity employees all over the country were also fired.  As for the Roseville office, some say the office will stay open with 50 employees while others insist that the whole office is being shut down.  In any case, I’m guessing the holidays are going to be awkward this year for Elon Musk and his family since SolarCity was founded by his cousins Lyndon and Peter Rive back in 2006. Critics of Musk’s plan to buy the solar company felt that it would distract the CEO from making great cars.  Maybe. Maybe not. But one thing is for sure: A lot of people are wondering how much longer it is going to be until Elon Musk finally rolls out the super-hyped but affordable Model 3.

 

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Look Out Tesla! Volvo Plans to Disrupt Electric Car Industry; Plus Tesla’s Major Q2 Miss; Losing My Religion: Denim Company Goes Bust

Tesla disrupt…

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With all the attention Tesla has been getting – and seeking – lately, a major company just threw down the automotive gauntlet in the electric car arena. Enter Volvo, the perennial boxy but safe, Swedish import, which just announced that come 2019, it will only sell hybrid or electric vehicles. That’s right. The ultra-reliable, ever dependable Volvo will likely be giving Tesla a serious run for its money. The fact that its got a solid, dependable reputation to back it up only sweetens the pot. Lucky for Volvo, its parent company Geely Automobile Holdings of China has already sold tons of electric vehicles and now Volvo gets to tap into all those tech resources. And it’s not just Tesla that should be worried. Toyota, Honda and BMW, to name a few, should also look to up their game now that Volvo has entered the field. This announcement is epic since it means that Volvo becomes the very first major automobile manufacture to make the decision to completely kick internal combustion engines to the curb. Interestingly enough, hybrids accounted for only about 2% of auto sales in the U.S. last year, in part because gas prices have fallen so much, that people don’t mind getting cars with traditional gas-guzzling engines.

Speaking of which…

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Shares of Tesla took a nasty little drop today after the company reported that its second quarter sales were flat as a pancake. To add insult to fiscal injury, the company also reported that it delivered just 22,000 vehicles. That seems like a good thing except for the fact that Tesla had built over 25,000 cars. Demand is good. Oversupply is not so good. At all. And the fact that consumers have stopped demanding the Model S sedans and the Model X utility cars leaves Wall Street feeling less than stoked about Tesla. Especially Goldman Sachs, which just released a report documenting its concern over Tesla’s slow growth. It’s never good when Goldman Sachs is concerned about you. Naturally, Tesla pointed its finger at the ever-reliable and handy excuse of “production issues” to explain the shortfall of deliveries. Too bad Wall Street didn’t seem to care what excuse Tesla used.

Another one bites the dust…

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Today’s Chapter 11 bankruptcy filing is brought to us by True Religion, purveyor of super-pricey denim. True Religion brass is pointing the finger at e-commerce and the shift in consumer spending habits, since customers are choosing to purchase their goods from their devices instead of heading into actual stores where True Religion merchandise is typically sold. Fortunately, the company was able to come up with a restructuring agreement with several of its lenders that should get rid of approximately $350 million of its debt, while its creditors would get paid in full, at least the ones critical to the company’s operations. In the meantime, with 140 stores still under its belt, the company is going to explore ways to “reinvigorate the brand.” In other words, it is going to try to figure out how to get people to spend hundred of dollars on True Religion’s pricy merchandise once again.

Alphabet Soup: Google Parent Hits a Milestone; Premium Quality: Tesla Could Get Even Pricier; SEC Gets SCOTUS-Smacked

Whoa…

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Google’s parent company, Alphabet, broke the $1000 per share ceiling and yes, that is a vey impressive feat. Even for Google. What’s more impressive, is that this milestone happened on the very same day that shares of Apple, the world’s most expensive company, was downgraded. Not that Google would be experiencing any schadenfreude, or anything of the sort. In any case, Alphabet can pat itself on the back for becoming the third S&P 500 company to break the $1000 barrier, following in the illustrious footsteps of Amazon – who achieved that milestone just last week – and Priceline. Yes, Priceline. Remember them? To be fair, Google had, once upon a time, hit $1,200 a share but then the stock split. And then it became Alphabet, and the rest is S&P history.  Of course Berkshire Hathaway also trades above $1000. Way above $1000. In fact, if you’re inclined to spending $250,156.00, you could pick up a single solitary share of Warren Buffett’s company. But then again, what’re you gonna do with just one share?

Cry me a river…

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A new Tesla was sounding really good, at least up until the weekend when Automotive News reported that AAA is gearing up to raise its insurance rates on the super-shmancy electric automobiles. But that’s just AAA insurance. The verdict is still out on whether other insurers will follow suit. It’s all because of some very unflattering data detailing Tesla’s higher-than-usual and more expensive claims for both the Models S and Model X. In fact, those pricey claims could mean a 30% premium increase on Teslas, which makes you wonder if the fuel savings is even worth it. Tesla seems to be offended by the new data, calling it “severely flawed” and “not reflective of reality.” Apparently, the data had the audacity to compare a Tesla to a Volvo station wagon. I mean, c’mon? A Volvo station wagon? Not that I have anything against Volvo station wagons. Some of my best friends drive Volvos. And station wagons. It’s just that a station wagon is the last thing on my mind when fantasizing about being behind the wheel of a Tesla. Just saying.  In all fairness, however, Tesla boasts some of the most advanced safety features in their automobiles. Yet, none of that seems to help given the car’s expensive collision costs. In fact, claims for the Model S are 46% higher than other cars, and its losses come in at 315% higher. Yikes. Station wagons aside, those are some very un-sleek numbers. Ironically, Tesla’s medical payment claim frequency is below average while its personal injury protection losses are very low. So take that, Volvo!

Can’t touch this!

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Score one for Wall Street because it looks like the SEC won’t get to grab all those ill-gotten gains like it used to. At least according to the U.S. Supreme Court, which just ruled – in a 9-0 decision –  that the SEC’s use of “disgorgement” now has to face the wrong end of a five year statute-of-limitations. Disgorgment is the act of repaying money that was attained illegally, typically by people and firms in the financial industry.  For this latest Wall Street victory, the securities sector can thank Charles Kokesh, a New Mexico-based investment adviser. It all started back in 2009 when the SEC sued Kokesh for misappropriating funds from his investors. He may not be a saint, but he was ordered to pay $2.4 million in penalties plus another $35 million – which was for disgorgement purposes. The problem, Kokesh and his lawyers argued, was that much of that $35 million disgorgment figure had happened outside a five year statute of limitations. Instead of $35 million, the disgorgment should have been closer to $5 million, which is quite a substantial difference. As for the SEC, this new ruling is going to prove to be a real downer for the agency seeing as how it has since collected $3 billion for disgorgment claims.  Oh well. Maybe it’ll discover a new way around that minor, yet pesky obstacle.

 

American Airlines Wants You to Fly the Cramped Skies; New York Times “Trumps” Estimates; Tesla’s Big Losses and Bigger Gains

Low-class…

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As if customers aren’t irritated enough, and because American Airlines maybe just doesn’t give a hoot, the airline just announced plans to make its flights even more cramped and unpleasant. In economy class, mind you. And this un-strategically timed announcement comes the day after airline execs took a truly deserved congressional beating over how poorly they treat those customers. American Airlines spokesman Joshua Freed said, “We believe we’re still providing a good product for customers.” Of course they do. So if you didn’t feel squeezed and claustrophobic enough before, you can now look forward to even 1-2 inches less of legroom. In fact, that will leave so little legroom, that it will almost put American Airlines in the same legroom class as low-cost carriers like Spirit Airlines and Frontier Alines. That’s classy, alright. What’s worse, is that if American Airlines ends up getting away with these new seating arrangements, then you can expect other major airlines to follow suit. Because that’s how these cats work.

Sign of the “Times”…

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The New York Times whipped out some impressive earnings this quarter and they can thank its very own Public Enemy Number One: President Donald Trump. Oh, the irony.  The Newspaper of Record took in 308,000 new digital subscribers, a 60% increase over last year that marked the company’s best-ever quarterly growth, and now brings its total digital viewership to 2.2 million subscribers. But then it gets even more interesting. Print ad revenue took an 18% dive since apparently a lot of companies just don’t see the value in placing ads in newspapers anymore. However, lo and behold, digital ad revenue was up 19%. See how well that worked out for the media company? Even its revenue grew 5% to almost $400 million, with the company picking up 11 cents per share, a whole penny more than last year at this time. Bonus: it beat estimates of 7 cents per share. Despite the President’s insistence that the company is failing, the fact – not an alternative one, mind you – is that it enjoyed its best quarterly revenue growth in six years. Naturally, shares rose 12% on the not fake news.

Solar-ious…

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Tesla whipped out some quarterly earnings that were not exactly electrifying, given that it had losses that were much much bigger than expected, but also not bad. At all. The company took a $1.33 hit on it earrings, when estimates were for a less severe 83 cents per share loss. That’s where the bad news ends. Revenue came in at $2.70 billion, more than double last year at this time, and nowhere near the expected $2.61 billion. But then we get to the part about vehicle deliveries. Tesla delivered a record breaking 25,000 cars, a number that sent shares of the company up up and away. It was that impressive of a number. Elon Musk made sure to rub that into the faces of traders who were shorting the stock by tweeting, “Stormy weather in Shortville…” That’s just trading humor on Wall Street. Anyway, the stock is up 46% in the last twelve months, so they must be doing something right over at Tesla. One can only hope…

Tesla Takes On Ford; J. Crew Says Bye to Own Icon; Burberry Wants to Go Big

Race to the finish…

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Tesla’s market cap just left Ford Motor Co. in the eco-friendly dust today. It’s all because of a much anticipated, yet massive Model 3 rollout scheduled for later this year. Assuming everything goes smoothly with that massive rollout – and why wouldn’t it? – Tesla has pinned some very pricey hopes and dreams in the form of growth targets. Those growth targets sent the company’s stock up 5.7% and why shouldn’t they? After all, the luxury electric car company smacked down analysts estimates when it reported a shipment of 25,000 vehicles for its first quarter. In case you were wondering – because I know you were – that was almost a 70% increase from last year at this time. To be fair, however, the increase is not as impressive at second glance considering that Tesla experienced some production pains beginning in October. So the company was basically making up for the pains. In the meantime, as the second largest auto company in the United States, Ford delivered 6.7 million cars and trucks last year while Tesla delivered less than 80,000. Then, last year Ford hauled in a revenue of close to $152 billion while Tesla took in just $7 billion. Yet Tesla’s very magical market capitalization now comes in at $47.6 billion, compared to the much much older Ford Motor Co.’s $44.9 billion. Let that one sink in for a bit. And in case you were in the market for some Tesla shares, its stock is currently trading at around $293 a share.

Crew-cuts…

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J. Crew’s long-time creative director, Jenna Lyons, is out after just five years on that gig and over 20 years at the label. Which is just so cray cray since she is responsible for making so much of what made J. Crew…well, J. Crew. She is credited with turning the brand around a few years ago and making it super-popular and ultra-hip. In fact, she was so good at what she was doing that she became the face/icon of the prepster brand. But then there were a bunch of unfashionable issues, a 6.7% sales drop, following a more than 8% drop the year before.  The company, if you recall – and it’s okay if you don’t – was purchased for $3 billion back in 2011. Now the retailer is staring at the wrong end of $1.5 billion in debt. All that had company brass scratching its preppy head and wondering where did things go south and how could they be remedied. Apparently, part of that remedy involved saying goodbye to Lyons. Despite that, J. Crew is a retailer like any other, and we all know how darn ugly the fiscal landscape has been like as of late for all the players, big and small. But back to Lyons, rumor has it that her exit was a mutual decision.  Although, I’ve often wondered if the word mutual takes on a very different definition when describing people who find themselves leaving their high-level executive jobs.

Just so ya know…

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Pish-posh designer Burberry just signed a $225 million licensing deal with Coty. – as in the musk-maker. However, rest assured as there will be no trench coats involved. Instead, Coty will get exclusive global rights to Burberry’s make-up and fragrance brands – which might make zero sense to you but makes plenty of cents – and dollars for both Burberry and Coty. And here’s how it’s going to work: Burberry, which pulled down revenue of 203 million pounds last year (well, it is an English company) has got the creativity end covered because, well, it does. There is a reason, after all, why Burberry can charge so much money for its merchandise. But Coty is all about distribution, and in fact, the company is quite accomplished in that arena. Burberry was shrewd enough to recognize where it could use a little oomph. Or in this case, the English brand needed a lot of oomph. So the brand did some research and shopped around before it settled on a deal with Coty.  And Burberry will be in good company at Coty, as it will join other premium fragrances including Balenciaga, Gucci and Marc Jacobs, not to mention the Clairol and Rimmel brands.

You Bacon Believe It! It’s Getting A Lot More Expensive; Tesla’s Going Through Some Changes – Whether You Care or Not; Hip-Hop Mogul Takes Rap for Debit Card Glitch;

This little piggy…

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Savor that bacon while you can. Or rather the price of it. The price of pork belly increased 20% just in the first three weeks of January. It seems the supply of frozen pork belly, which is essentially bacon, is shrinking. Rapidly. In fact, according to U.S. agricultural data, pork belly levels are at a fifty year low, having fallen from 53.4 million pounds in December of 2015 to 17.8 million pounds in December of 2016. But what’s weird is that pig farmers are actually producing more pigs.  Apparently, supply is dwindling because demand is pretty big, not just in the U.S., but also outside the U.S., as pig farmers here find themselves exporting 26% of their product. Bon appetite!

Say my name…

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A Tesla by any other name might not be a Tesla. Or might it? Hmmm. According to a regulatory filing, Tesla Motors CEO Elon Musk changed the name of his company from Tesla Motors to…wait for it… Tesla Inc. Really. That’s it. Anti-climactic, huh? Musk decided to drop the word “Motors” lest people think the company only makes cars. Because it doesn’t. It also has a whole big solar power business too. If you recall, Musk brought in his other company, SolarCity, into the Tesla family back in November, to the tune of $2 billion. It was undoubtedly a big bonus for Musk that he already owned 20% of both companies, which probably helped the deal close more swiftly. He wants Tesla to be the known as a one-stop shop for products that utilize clean, renewable energy.  And he’s well on his way towards achieving that goal.

No need to rush…

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Hip hop mogul Russell Simmons is making some headlines today in the finance world. It seems the debit card company he founded called “RushCard” was just slapped with a very nasty $3 million fine following a 2015 outage that left its customers unable to access their cash.  But RushCard, together with its payment processor, MasterCard, also has to pay about $10 million in restitution to the customers who were left in a very big lurch because of the system failure.  The Consumer Financial Protection Bureau explained that back in 2015, RushCard wanted to switch its payment processor to MasterCard which would require a simple software upgrade. Except it didn’t work out so simply and the system went down leaving thousands of RushCard holders unable to access their cash, make deposits or get their balance information. What’s worse is that because many RushCard holders tended to be in a low-income bracket, and they couldn’t even afford to buy basic necessities nor access their money for days, or in some cases, weeks.  Of course, nobody should point the finger at Russell Simmons because it’s not like he was the one installing the software. But that hasn’t stopped him from taking personal responsibility and even using his own funds to help out some of the affected RushCard customers. Affected customers will receive awards based on the transactions they made, deposit delays, returned deposits and incorrect balance information.  In the meantime, RushCard has since been scooped up by pre-paid debit card company GreenDot for $147 million. And no, GreenDot will not be paying any of  RushCard’s fees and fines.

Tesla Deliveries Anything But Electrifying; Sec’y of State Nominee’s Future Looks Green; Trump’s SEC Chairman Pick

Not electrifying…

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Tesla’s fourth quarter sales rose 27%, yet deliveries fell short with CEO Elon Musk pointing to production delays. And Tesla didn’t fall short according to Wall Street’s predictions but rather its very own.  It may seem like a convenient excuse, but it’s a valid one that was also used to blame the company’s second quarter shortcomings. The electric car company delivered 22,000 cars in its last quarter, which was over 5,000 more than the same time last year. That might seem awfully impressive except that Tesla wanted that figure to top 25,000 vehicles. So now, that 3,000 car miss becomes an ugly smudge on the company’s fourth quarter earnings report. Tesla’s grand total of car deliveries for the year hit over 76,000. But once again, because Tesla went ahead and predicted that number would hit 80,000, it disappointed only itself.  Setting forecasts he just can’t meet is a nasty habit that Elon Musk can’t seem to break.  Production delays or not, maybe Tesla’s should stop trying to predict the future.  Shares were down 11% for 2016 which marks the first time that Tesla reported an annual decline since its 2010 IPO. But miraculously those shares still rose today because Wall Street clearly has a thing for Elon Musk. Well, his company, anyway.  Wall Street and consumers alike are waiting with bated breath to see if the much anticipated $35,000 Model 3 will actually surface this year. Some experts, however, think the more affordable model will only be making its grand debut in 2018. That still has’t stopped loyal Tesla buyers and enthusiasts from shelling out a total of $350,000 worth of deposits for the car.

Hatched…

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President-elect Donald Trump’s pick for Secretary of State, Rex Tillerson, reached a very lucrative retirement deal with ExxonMobil. If Tillerson does in fact get confirmed – and that’s still kind of iffy – then he’ll walk away from his post with $180 million comfortably nestled in a trust account. And that’s the approximate value of Tillerson’s 2 million deferred shares of the energy giant. Because he would not be allowed to own shares of the company if he took the post, the shares would get cashed out and put into an independently managed trust account. Besides dumping his ExxonMobil shares, Tillerson will not be allowed to work in the oil and gas industries for a period of ten years. Plus, he has to give up a cash bonus and other benefits that are worth another $7 million because he won’t be there in March, when he’ll have reached the company’s official retirement age that affords him the opportunity to collect on that $7 million package. But, that $180 million ought to tide him over. He’ll also need to agree to sever ties in order to avoid any conflicts of interest. Should he decide to return to the industry, then all that money would be given to charities of the main trustee’s choosing. But I did write that his confirmation is”iffy” because there are plenty of Congressional members who aren’t down with Tillerson’s cushy relationship with Russian president Vladimir Putin. That’s going to come up a lot during the confirmation hearings and it’ll probably be ugly, if not wholly entertaining.

And I choose you…

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Trump just announced his pick for Securities and Exchange Commission Chairman and it’s one that should surprise…no one. Enter Jay Clayton, a lawyer with the law firm Sullivan and Cromwell, who has plenty of experience with banks. Well, representing them, anyway. Besides banking clients, Clayton also defended a variety of “large financial institutions” against such entities as the Department of Justice, other government agencies and regulators and – get this – even the SEC itself.  Some of his more notable achievements include representing everybody’s favorite Chinese e-commerce giant, Alibaba, when it made its grand IPO debut. He’s also represented Barclays when it unceremoniously scooped up Lehman Brothers, and Bear Stearns when JP Morgan took it on. You didn’t think we’d leave out Goldman Sachs, did you?  Because he repped that one too.  Word on the street is that Carl Icahn interviewed Clayton, along with several other candidates for the post. Presumably the two gentlemen discussed how to best undo obstructive banking regulations, Dodd-Frank and all those other pesky rules that have been casting a major downer on the financial world.