• Mike V.

Weekend Reading


WSJ: Morgan Stanley Fires Financial Advisor Linked To College Admissions Scandal


Perhaps we shouldn't be surprised, but the latest financial services firm to get caught up in the sprawling college admissions scandal is Morgan Stanley. The firm has fired one of its financial advisors for not cooperating with an internal investigation into his relationship with admissions consultant Rick Singer, whom he introduced to a wealthy Chinese family that paid a staggering $6.5 million in 2017 to get their child into Stanford. Morgan Stanley advisor Michael Wu, based in Pasadena, introduced Singer to the unnamed Chinese family that paid the largest sum in the scandal. Chinese families and students actually have a good defense of their participation in the scheme. Given endemic levels of corruption in their home country, most said they simply assumed this was how things worked in the US, and that there was nothing wrong about the scheme.


Bloomberg: Fiat Flags a $2 Billion Credit Bill That Will Be a Boon to Tesla


Fiat Chrysler entered into various agreements in the first quarter to secure emissions-related regulatory credits that will cost the company $2 billion over the next three years. The Italian-American automaker said last month it had reached a deal to pool its fleet with Tesla Inc.’s to comply with stricter European Union rules on carbon-dioxide emissions. Without making dramatic changes to its fleet that would have hurt profit, Fiat Chrysler probably would have had to pay a fine, CEO Mike Manley said. “The route that we’ve taken has dramatically reduced that number and we will achieve compliance.” Around the globe, automakers are increasingly required to sell a greater portion of electric and other non-polluting vehicles. If manufacturers don’t sell enough of them in jurisdictions including the U.S., European Union and China, they have to purchase credits from competitors like Tesla to make up the difference.


GM's self-driving business Cruise is now worth $19 billion


The new round is $1.15 billion, and it comes from a group of institutional investors: GM, Japan's SoftBank Vision Fund, and Honda. Cruise, General Motors' autonomous mobility business, keeps raking in the funding. Following major investments last year from Japan's SoftBank and Honda. Cruise said that the funding round is coming from a "group comprising institutional investors, including funds and accounts advised by T. Rowe and existing partners General Motors, SoftBank Vision Fund and Honda."

GM acquired Cruise in 2016, for an all-in price of $1 billion. The company has now brought in $7.25 billion in total investment.


Ford plans to take medical transport venture nationwide


Ford Motor Co plans to expand its GoRide medical transportation service to 40 cities nationwide over the next four years, moving into Ohio and Florida this year and other large states by 2020. Ford has been testing various ways to grow beyond its traditional business of building and selling cars and trucks, aiming to compete with technology industry startups such as Uber Technologies Inc for a share of money spent on transportation as a service. GoRide uses Ford Transit and Transit Connect vans to give rides to people who need medical care but do not need an ambulance. GoRide last year agreed to provide medical transport for the Beaumont Hospital system of Southeast Michigan. The service has since expanded to Toledo, Ohio. The unit plans to launch in Miami and other Florida cities later this year. Next year, GoRide plans to move into North Carolina, Louisiana, Texas and California, GoRide chief executive Minyang Jiang said. "By the end of the year we expect to have over 130" vans in service, Jiang said. "By the end of next year over 200."


Bloomberg: China Defaults Hit Record in 2018. 2019 Pace Is Triple That


This year is shaping up to be the biggest by far for defaults in China’s $13 trillion bond market, highlighting the widening fallout from the government’s campaign to rein in leverage.


Companies defaulted on 39.2 billion yuan ($5.8 billion) of domestic bonds in the first four months of the year, some 3.4 times the total for the same period of 2018, according to data compiled by Bloomberg. The pace is also more than triple that of 2016, when defaults were more concentrated in the first half of the year, unlike 2018. The trend is clear: unless something changes, 2019 will be the new high. China continues to press banks to extend credit to the private sector, and small and medium-sized companies especially. The latest move came Monday, when the central bank loosened some reserve-requirement rules for lenders. But President Xi Jinping’s team has also focused on shrinking the shadow-banking system, where credit decisions were made with less regulatory oversight and where it was easier to build up unsustainable leverage. It’s that funding squeeze that explains the default surge that began in late 2017 and continues today. By contrast, 2016 was more a story of China’s push to shrink excess industrial capacity having reverberating effects in credit markets.


US Student Loans


There are currently 44 million student loan borrowers who owe approximately $1.6 trillion in student debt. Student loan borrowers are feeling the pressure of insurmountable debts as borrowing costs rise. As a result of taking out debt, new evidence shows an undeniable impact on borrowers' mental health. Program to relieve student debt proves unforgiving. Student Loan Planner surveyed 829 people, which revealed data about debt load. 43% of respondents were suffering from burnout. 13% of borrowers said the interest was never-ending, is their highest concern. 12% of respondents said making the student loan payments contributed to anxiety, 12% reported low wage jobs made them feel powerless. Congress set up a way to erase student debt for people who hold public-sector jobs. More than 73k people have applied for debt forgiveness, 864 have had their loans erased.


FCA completes sale of Magneti Marelli for 5.8 billion euros


Fiat Chrysler Automobiles said it had completed the sale of its car parts unit Magneti Marelli to Calsonic Kansei for 5.8 billion euros ($6.5 billion), slightly below the initial price tag due to the unit’s changed financial position. Fiat Chrysler (FCA) last year agreed to sell Magneti Marelli to CK Holdings - the parent of Japan’s Calsonic Kansei and a vehicle of U.S. investment firm KKR - for 6.2 billion euros to form the seventh-largest independent car parts supplier. Board of Italian American carmaker FCA also approved distributing a extraordinary cash dividend of 2 billion euros.


Bloomberg: Stock Market's Health


“We did a year’s worth of gains in four months,” said Donald Selkin, chief market strategist at Newbridge Securities Corp. “All of a sudden when you have all of these monkey wrenches being thrown into it, ‘Oh yeah, gee whiz, maybe we pushed things higher than they should’ve been.”’ There was no earnings growth to speak of in the S&P 500 during the first quarter, and probably won’t be in the second or third, either. Semiconductor makers, whose market return approached 40 percent in 2016 and 2017, just saw profits plunge 20 percent.


“Commodity prices have been rising, wage costs have been rising,” David Joy, the chief market strategist. “If all of a sudden now other good inputs are rising, there’s all of a sudden a little pressure on margins that wasn’t there before.” With little expected to materialize in the first three quarters, bullish Wall Street says earnings will be up 8% in the fourth, turning the full-year green. Waiting that long was never going to be easy if it happens at all. “You really need to have the global economy kick in to drive S&P earnings for the second half of the year,” Alicia Levine, BNY Mellon Investment Management chief strategist. For 10 years, investors learned to live with scraps when it came to the domestic economy. Alongside the longest bull market ever has been one of the weakest economic recoveries ever. Hank Smith, co-chief investment officer at Haverford Trust “The real impact is on confidence. On business confidence, CEO confidence. So if we have an extended battle, there’s going to be an impact because you’re going to see companies be more cautious.”



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