5/9/2016

Facebook Hires PayPal President

Facebook just hired PayPal President David Marcus to be the head of Facebook's messaging products. For Facebook, the hire has been greeted with much speculation about what this says about the social network’s plans to play a central role in moving money between people. Perhaps payments will be coming to Facebook messaging. Facebook may replicate the success of China’s WeChat. But regardless of Facebook’s future plans for messenger, hiring David Marcus is a strategic move because he has a bright product mind and is an excellent marketer.

Default Fears in China

In China, there are fresh fears that bond defaults at state-run enterprise would roil the mainland markets and trigger new rounds of capital flight from the country. The market’s long-held assumption that Beijing would do whatever it takes to keep state-run companies afloat has been shaken. China’s $3 trillion corporate bond market is beginning to unravel amid a surge in defaults at state-run companies. The combination of slower growth, tumbling profits and poor management are making it difficult for companies to service their debt. According to The Wall Street Journal, China has experienced 22 bond defaults so far this year, matching the total number in all of last year.

A sharp slowdown in China’s domestic economy has made it difficult for the country’s hugely inefficient state sector to keep its head above water. On May 1 the government implemented its new value-added tax reforms in an effort to speed up China’s painful economic transition away from exports and investment toward consumption and services.

The Value Added Tax Reforms replace corporate tax with a value-added tax (VAT) in the construction, property, financial and consumer services sectors. Policymakers believe the proposed plan to will reduce corporate tax payments by 500 billion yuan ($77 billion) this year alone.

This will help stabilize economic growth… and also help improve economist structures.

Beijing is willing to let more state-run companies default suggests that policymakers are finally willing to address the growing risk imbalances in the bond market. However, some suggest this could trigger massive capital flight from the country, as investors are unable to assess which bonds are safe.

Allowing defaults to rise in an opaque and unpredictable way could have undesirable implications, making lenders and banks more unwilling to disperse credit, leading to a hard landing.

Uncertainty over the health of the world’s second largest economy is creating a tepid investing climate throughout Asia, which threatens to spillover into Europe and North America, as it did in January and August – two periods characterized by extreme volatility.

Job Report Silver Lining

Analysts expected over 200,000 jobs to be added in April but The Labor Department reported that the U.S. economy added 160,000 jobs. Employers evidently felt the weight of last quarter's GDP growth of just 0.5%—making this the slowest rate of hire in the past seven months.

However, there is a silver lining. 67,000 of these new jobs were added in the business sector, which helped to alleviate fears of a looming slowdown. Plus, the employment rate held steady at 5%, and perhaps most importantly, wages rose 0.3%—and are now up 2.5% over the past 12 months, outpacing inflation considerably.

In addition to a tighter labor market, which has prompted some major employers to raise their wage floor, dozens of states and cities either have already carried out or are considering increases in the minimum wage. Combined, those forces are helping push up pay at the low end of the job market.

“We’ve hit a tipping point,” Ms. Swonk said. “It’s showing up in low-wage jobs, for waiters and waitresses, in retail and in leisure and hospitality.”

Saudi Arabia’s Oil Mogul Overthrown

Saudi Arabia, the world's largest crude exporter, unveiled major economic reforms in April, aimed at ending the country's dependence on oil. About 70% of its revenues came from oil last year, but it has been hit hard by falling prices.

Over the weekend, Saudi Arabia officially overthrew the most powerful man in the oil industry. We're talking about Ali al-Naimi, Saudi's oil minister for the past 30 years, and who pretty much is the one to blame for the massive oversupply and low oil prices.

Over the past few years, he has been involved in a battle to protect Saudi Arabia's share of global oil sales in the face of competition from newer producers in the US. His refusal to cut oil production led to a glut of supply - more than the market needed. This resulted in a sharp fall in the price of oil, and so cheaper petrol at the pumps. It has also meant the Saudi kingdom has earned less money.

Ali al-Naimi has characterised this as a fight to secure oil sales in the long term, one he hopes Saudi Arabia will win and US fracking companies will lose. But it is a gamble. The fall in the price of oil has been much more extreme - and longer-lasting - than many analysts expected.

While we've certainly enjoyed the low gas prices, Saudi Arabia—now under the leadership of 36-year-old upstart Mohammed bin Salman—sees his dismissal as a way to get on track for a less oil-dependent economy.

Takata Motors do the Biggest Recall in Auto History

Takata air bags that can deploy too forcefully, rupture and spray plastic and metal shards at vehicle occupants have already prompted auto manufacturers led by Honda Motor Co. and Toyota Motor Corp. to recall about 62.5 million air bags worldwide. Moisture seeping into Takata’s inflators was determined to be the reason the air bags may rupture. With no moisture, the air bags could not be preserved properly.

Over the weekend, a Nikkei newspaper reported that Honda would be expanding its Takata airbag recall to an additional 20 million airbag parts (bringing the total recall count to nearly 120 million), including in European countries, where there were no reported problems…until now. This precautionary measure is estimated to cost around $2 billion, and could create a precedent for other auto manufacturers to follow suit in what has become one of the largest safety crises in the history of the automotive industry.

Uber and Lyft to Boycott Austin, TX

Uber and Lyft lost their very expensive campaign to avoid some regulations in Austin, Texas — so they’re now threatening to storm out of the city altogether.

By Uber's own estimate, the withdrawal will put more than 10,000 drivers for the two companies out of work.

The ride-share services have vowed to stop operating in the Texas capital city Monday morning because they didn’t get their way on Proposition 1, a ballot measure over how the services will be regulated.

The new regulations — including fingerprint background checks and "trade dress" for drivers, and a ban on picking up customers at travel lanes and bus stops.

China’s Manufacturing Supply Glut

China is continuing its efforts to keep unprofitable factories afloat despite years pledging to curb excess capacity, adding to a glut of basic materials flooding the global economy.

The country’s overproduction of steel, aluminum, diesel and other industrial goods has driven down prices and crippled competitors, leading to thousands of lost jobs in the U.S. and elsewhere.

China’s continuing aid for unneeded factories is triggering a sharp rise in trade disputes and protectionist sentiment, especially in the U.S., where trade has emerged as one of the pivotal issues in the U.S. presidential election.

Chinese government support includes billions of dollars in cash assistance, subsidized electricity and other benefits to companies. Recipients include steelmakers, coal miners, solar-panel manufacturers, and other producers of other goods including copper and chemicals.

Earlier this year, the U.S. Commerce Department slapped preliminary import duties of 266% on imported Chinese cold-rolled steel. The decision came after U.S. Steel Corp lost $1.5 billion last year, closed its last blast furnace in the South and laid off thousands of workers, blaming China.