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Legal Dispensaries in LA Demand Regulators Crack Down on Unlicensed Pot Shops

Heavily taxed and closely regulated legal dispensaries are being undersold by outlaws who flaunt the law.


6 min read


Brought to you by Marijuana Business Daily

Los Angeles marijuana czar Cat Packer did an impromptu Oprah Winfrey impersonation during an appearance at a Mendocino County retreat earlier this month when asked what she’d do with an unlimited budget and staff.

“Everyone would get licenses!” the director of the Los Angeles Department of Cannabis Regulation said with a smile, spurring the audience to giggle, cheer and clap. “You get a license! You get a license! You get a license! Everyone would get licenses, and no one would get arrested.”

But the reality is, this is anything but a laughing matter for Los Angeles cannabis businesses.

To the California Minority Alliance (CMA), for instance, it’s an issue that rises to legal action. The trade group announced plans to sue City Attorney Mike Feuer’s office, contending that South Central L.A. has been “ignored” when it comes to cracking down on unlicensed MJ shops.

The lawsuit’s filing isn’t far off, CMA President Donnie Anderson told Marijuana Business Daily last week, noting his organization has met with several “powerhouse” lawyers interested in taking the case.

“We’re declaring war,” Anderson said, adding that the CMA has the support of both Gov. Gavin Newsom and L.A. Police Chief Michael Moore.

Soon after the CMA telegraphed its legal plans, the Southern California Coalition (SCC) sent a separate, more conciliatory letter to Feuer’s office, suggesting a number of different enforcement tactics it hopes will be more successful in closing rogue marijuana shops that have been undercutting legal retailers.

Related: What the U.S. Can Learn From Weed Legalization in Canada

“We feel like it’s the only avenue left,” SCC Executive Director Adam Spiker said with a tone of resignation.

Feuer’s office declined to comment on its “proprietorial decision making,” a spokesman wrote in an email to MJBizDaily and then referred to an April news release outlining Feuer’s efforts against the illicit MJ market. Anderson and Spiker said they’ve received no response from Feuer’s office to their letters.

The CMA and SCC’s actions represent an industry at the end of its rope, having been frustrated since the 2017 passage of Proposition M, a local ballot measure that was supposed to set the stage for a new regulatory structure and usher in a new era for L.A. marijuana businesses.

But it hasn’t.

Instead, insiders such as Anderson spent tens of thousands of dollars trying to get into the legal market while watching helplessly as unlicensed shops continued to lure away customers with lower prices. The rogue shops don’t pay taxes or compliance costs.

It’s a story that’s been ongoing since California’s legal market launched in January 2018.

Some L.A. industry insiders said they don’t expect the two letters — or even CMA’s expected lawsuit — to have any effect on the illicit market. One called the California Minority Alliance lawsuit an “empty threat” and said it’s the district attorney’s job, not the city attorney’s, to charge criminals with felonies, as the Southern California Coalition suggested.

“Everybody is at the same point … where we’re at a boiling point,” said Avis Bulbulyan, CEO of Siva Enterprises, a marijuana consultancy.

Related: Licensing Cannabis: A Giant Step Forward

Increased enforcement on the horizon?

There may be reason to hope that matters will improve, said Jerred Kiloh, president of the United Cannabis Business Association and operator of The Higher Path, one of L.A.’s 182 licensed retailers.

That’s because Feuer’s office is, for the first time, pursuing a civil case against one of the more “egregious” rogue shops, Kush Club 20, which Feuer’s office targeted in a lawsuit filed in April. So far, that’s the only known case of the city attorney attempting to use a $20,000-a-day fine against an unlicensed MJ retailer.

But it may not be the last, Kiloh said, because the city has to see what kind of ruling it can get.

“Let’s say this court case, which is a slam dunk, you get a judge who (fines Kush Club 20) $10,000, and the city attorney goes, ‘We just spent $70,000 and a jury trial and the LAPD and the SWAT team and lab testing for product, and we got $10,000 in return?’

“So, they’re waiting to see the (return on investment),” Kiloh said. “We’re all waiting for that.”

Related: Colorado Lawmakers Clear Path for Cannabis Cafes, Pot Delivery

Kiloh hopes authorities make an example of Kush Club 20, which could lead to more actions.

Bulbulyan, meanwhile, said he’s heard a big sweep of raids against illegal operators is in the works, with federal, state and local law enforcement agencies combining their efforts for a major crackdown on the illicit market.

“With all the frustration that’s been building up, all the ‘Whac-a-Mole’ enforcement, I think it’s gotten to a point not too different from what we saw in Anza (Valley),” Bulbulyan said, referring to a multiagency raid earlier this month on unlicensed MJ farms in that Southern California region.

Incremental progress

Though Anderson, Kiloh and others agree there has been progress in L.A., stakeholders would prefer more. Packer’s DCR has issued 111 temporary approvals for Phase 2 nonretail business license applicants, as well as 186 retailers that received permits under Phase 1.

But Phase 3, when more social equity permits will be granted and licensing will also open for the general public, won’t begin until at least September, a DCR spokeswoman wrote in an email to MJBizDaily. And there’s talk the timeline could be pushed further.

Once Phase 3 launches, Packer expects to hit an “undue concentration” limit for licenses that will automatically put a cap on permits. Packer believes that will happen in the coming fiscal year, which means there likely won’t be room in L.A. for everyone who wants a marijuana business license.

John Schroyer can be reached at johns@mjbizdaily.com

Source: Entrepreneur
Author: John Schroyer

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Keep Your Brand Weird: How Austin Inspires Advocates

Don’t be afraid to let your freak flag fly.


5 min read

Opinions expressed by Entrepreneur contributors are their own.


Austin might be the Steve Urkel of cities. Once assumed to be a bit player, the town’s bigger-than-life personality has turned it into the star of the show — not to mention Texas.

At the core of Austin’s winning quirkiness is a phenomenal brand presence that companies everywhere can only hope to emulate. But it takes more than flashy suspenders and nerd-worthy glasses to get attention. Organizations striving to hit Urkel-level pay dirt should study Austin’s awesomely weird rise to the top if they hope to re-create it.

Leveraging “decidedly different” as a competitive edge.

Austin’s bold city branding creates loyal advocates. Rather than downplay its unusual blue-in-a-red-state status, Austin flashes individuality like a neon sign at a BBQ joint. Every corner of the city oozes creativity, diversity and uniqueness.

As a result, tourism is booming, and so is the local economy. From realtors to hoteliers to restaurateurs, businesspeople love being part of the weirdness that makes the home of the annual SXSW festival the No. 1 destination experience in the southwestern U.S., according to a J.D. Power study.

Kate Bristow, chief strategy officer and partner at creative agency M&C Saatchi LA, is hardly surprised by these results. In a write-up for Travel Daily News, Bristow explains why Austin has benefited so comprehensively: “When a city’s brand hits the mark, it can also increase investment, attract new residents and workers and bolster civic pride.”

Of course, some naysayers wonder if the hype might be too good to be true. Can one city realistically take its oddities all the way to the bank? Is Austin’s energy buoyed by branding, or is its quirkiness a distraction in the long run? Consider similar cities such as Portland and Nashville, which are punctuated by a vibe all their own. If their success is any indication, Austin should stay brand-solvent for quite some time.

Locals are protective of the city’s reputation, and tourists are eager to understand it. If you crave brand advocates as passionate about your products and services as Austinites are about their town, consider mimicking some of the city’s branding strategies.

Related: Breaking Down the Business of SXSW

1. Champion inclusivity.

Austin’s middle name should be “Inclusivity” because weirdness is welcoming. Yet inclusivity is more than a checked box. For Austin, diversity represents the values of its residents and the visitors it seeks to attract. Whenever possible, the city allocates marketing resources to promote itself to diverse audiences at regional, national and international events, including New York Pride, meeting planner activations of the Congressional Black Caucus and International Gay and Lesbian Travel Association trade show events. It’s even created a diversity field guide series.

The same is true for brands such as ThirdLove, which has seen 180 percent annual growth in the last four years. ThirdLove sees itself as a company for anyone in need of its products, regardless of age, appearance or societal expectations — which is why it offers an astounding 78 sizes. Heidi Zak, ThirdLove co-founder and co-CEO, believes your specific inclusivity efforts should be guided by customer feedback. “If you make the effort, it’s not difficult to be an inclusive brand,” she says. “You just have to ensure everyone in the company is on board. Set the goal, listen to your customer, figure out what you need to do.”

Related: ThirdLove Founder Heidi Zak on How to Develop Authentic Connections

2. Tag-team.

The Austin effect hasn’t occurred in a vacuum. In fact, Austin’s leaders have partnered with plenty of other entities, including Waller Creek Conservancy and Austin Sunshine Camps, to co-brand and cross-influence. Each partnership elevates a specific aspect of the community while improving the visibility of the organizational partners.

Brands that find and woo partners with compatible outlooks can scale their marketing efforts in similar ways. For instance, forming relationships with social influencers and reviewers can be a low-cost, high-impact way to grow a fan base and penetrate untapped markets. A great example is H&M’s gender-nonconforming product collaborations on unisex products. In addition to partnering on neutral products with Eytys, the clothing company’s marketing teams joined forces with like-minded influencers, such as RuPaul’s drag queens, to show support and win consumer hearts.

Related: 7 Ways to Turn Your Everyday Customers Into Extraordinary Brand Advocates

3. Stay true.

Austinites embrace the weird because it comes from a genuine place. It is their authenticity that fans adore. When Eeyore’s birthday rolls around, expect Austin to be one of the few places to celebrate it in oddball, fun-filled style. The point is not that the city has to be weird: It just is. And that originality is infectious.

Brands need to find their authentic positioning, too, no matter what it might be. Otherwise, they can’t live and market the experience they want to give their customers. Logos, taglines, social media images and blog posts mean nothing without evidence. Sometimes, this means taking a controversial stand, as Gillette did with its #MeToo-inspired anti-toxic masculinity ad that made waves earlier this year. The company never backed down from its assertion that it stood with equality and healthier gender norms, not with men who choose to act aggressively.

Urkel and Austin are strange. Their attraction is not. People respond positively to charisma, whether from a TV icon, city or brand. And they won’t hesitate to put their money toward joining the party

Source: Entrepreneur
Author: Tiffany Delmore

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Financial advisory firms offer ‘returnship’ programs

Karen Simons

Source: Karen Simons

Karen Simons was out of the professional world for more than 20 years to raise her three children. Now she’s a financial planner at the investment advisory firm Yeske Buie.

She made that change happen through a “returnship,” the grown-up version of a college internship that companies are increasingly offering to professionals who’ve taken a break from the labor force.

“I never thought I would have an opportunity to explore an entirely new career,” said Simons, 60.

More from FA Playbook:
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Morgan Stanley launches new advisory technology platform

Goldman Sachs offered one of the first returnship programs, in 2008. More recently, Apple, Ford and Johnson & Johnson have launched programs, and Procter & Gamble has just announced they will be offering returnships.

In the last year or so, the reentry positions, which are paid and typically last between six weeks to six months, are growing among financial advisory firms. Northwestern Mutual, TD Ameritrade and Vanguard now offer them.

Firms must get creative in recruiting employees amid record low unemployment, and returnships provide a particularly good way to bring in women, who are largely underrepresented in the financial sector, experts say.

“In the financial advisory world, in particular, it is an asset to have life experience,” said Carol Fishman Cohen, CEO and co-founder of iRelaunch, which works both with professionals seeking to return to work and with employers interested in hiring them.

Nearly a quarter of educated mothers age 25 to 54 are not in the labor force, Cohen said. And research has found that most (93%) highly qualified women who are “off-ramped” from their careers want to return to them.

In 2017 the Certified Financial Planning Board partnered with iRelaunch to bring returnships to advisory firms. There are currently 11 companies involved in the initiative, including Fidelity and Edelman Financial.

In the financial advisory world in particular, it is an asset to have life experience.

Carol Fishman Cohen

chief executive and co-founder of iRelaunch

“Our goal is to encourage firms to widely adopt reentry internships as a vehicle to attract and onboard professional women into the profession,” said Marilyn Mohrman-Gillis, the executive director of the Certified Financial Planing Board Center for Financial Planning.

It’s not just mothers who are applying to returnships; veterans and retirees “unretiring” are also popular candidates, Cohen said. Wall Street and the financial services sector go on to hire more than half of returnship participants, Cohen said. Employment of financial advisors is projected to grow 15% by 2026, compared with 7% for all occupations.

Advisory firm Moisand Fitzgerald Tamayo is currently hiring for its first returnship role.

A Fidelity Investments branch.

Nicholas Pfosi | The Boston Globe | Getty Images

The position will last six weeks, although “ideally, this person will fill a need in our Melbourne office for a mature advisor down the road,” said Sara Nash, office manager at the advisory firm.

The job is open to candidates who’ve had a break from the workforce for two or more years. Applicants don’t need to be a certified financial planner, Nash said, “but must be willing to work toward that after hiring.”

Although Fidelity’s returnship program is open to women and men, it’s more the former the firm had in mind when it created the initiative, said Rachel Book, director of diversity recruiting partnerships at Fidelity.

“We know that more women tend to take career breaks for personal reasons and find it difficult to reenter the workforce,” Brook said.

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7 Brands Killing It With Humor on Twitter

It’s remarkable how brands connect with people when they stop taking themselves so seriously.


7 min read

Opinions expressed by Entrepreneur contributors are their own.


Everyone loves it when brands mix it up on Twitter. For some brands, Twitter is the perfect place to let your hair down and rebel against corporate culture. It’s where you can really define your brand voice and personality.

But humor isn’t a one-size-fits-all type of thing. Some brands do it well. Others bomb when they try it. The ones that get it right usually know their audience very well, and they know how to come across as funny, quirky, strange or cute rather than weird, inauthentic or gimmicky.

The best brands use humor to develop strong followings with shareable tweets that go viral. If you want to know what it takes, here are 7 of the funniest brands that are killing it daily on Twitter.

1. Oreo

If Oreo is the king of agile marketing, then Twitter is its crowning gem. The brand’s interaction on Twitter shows that it not only has a finger on the pulse of its audience, but it can react with whip-smart efficiency.

Remember when the power went out during the Super Bowl in 2013? Within minutes, @Oreo posted an ad on Twitter that showed a single Oreo in a shadowy backdrop with the title: “You Can Still Dunk in the Dark.” The caption below read: “Power out? No problem.” Viewers loved Oreo’s funny take on the power outage and retweeted the meme more than 10,000 times in one hour.

The quick-witted tweet likely had an even greater payoff than Oreo’s actual Super Bowl ad, which cost millions to create.

Related: How Oreo, Other Brands Dominated Twitter During the Super Bowl

2. Old Spice

Old Spice is best known for its surreal viral commercials featuring former NFL athlete Isaiah Mustafa. The company has managed to insert the same kind of outlandish and fun branding into all its social media accounts. Old Spice has developed its unique voice through its hilarious and sometimes ridiculous posts featured on both its Facebook and Twitter accounts.

Although the company has been diligently focused on being the loudest and quirkiest voice in preventing male stink, it’s not content to stay in its social media lane. For example, at one point @OldSpice decided to tweet at Taco Bell, taking umbrage at Taco Bell’s fire sauce because it didn’t contain actual fire, and claiming it was false advertisement. This apparently incited a Twitter “war” between the two brands. The witty and funny exchange piqued user interest and is a great example of how to stand out in an otherwise mundane Twitter feed.

Old Spice is an example of a brand that is at its best the further it allows itself to venture from routine and embrace its entertaining and just plain weird brand of humor.

3. Taco Bell

It makes sense that the fast food chain known for feeding many a midnight munchie would embrace playful banter and silly wisecracks on its social media accounts. Where @tacobell truly shines on Twitter is with the company’s witty one-liners, clever photo updates and hilarious comebacks that are sure to make you crack a smile.

One of the reasons their brand of humor works so well is that their hilarious tweets show that they’re human. They use their exchanges on social media to showcase their unique personality. That, and the fact that they react almost instantly if they’re called out, so you know they’re engaging with people in real time, give their Tweets a feeling of being relevant and authentic.

Related: 20 Facts You Probably Didn’t Know About Taco Bell

4. Charmin

Charmin is a great example of a brand that uses humor to align with the products it sells. Who would have thought that discussing toilet paper would result in one of the most engaged social media communities on the planet? But that’s exactly what Charmin has done, and has done quite successfully. Its presence on Twitter (@Charmin) is a must-follow.

In fact, the company was named among the top “Sassiest brands on Twitter” for its hilarious banter with its audience and #tweetfromtheseat posts, which it uses to incorporate bathroom humor puns and to sometimes chime in on current news or pop culture.

Charmin’s feed aspires to a simple motto: “We believe that life is full of little pleasures.” It works because they keep a playful “mischief-maker” tone to break through all the noise on social media and they often say something unexpected, relevant and funny. The company’s Twitter minders know they aren’t going to please everyone, but those who do “get” the company’s humor love it.

Related: 3 High-Risk Marketing Campaigns That Amazed Everybody by Working

5. Moosejaw

Outdoor retailer Moosejaw has truly nailed its brand voice and mastered the art of using Twitter by letting its personality shine through. The outdoor retailer makes a point of not taking itself too seriously, and even calls itself “the most fun outdoor retailer on the planet.”

@MoosejawMadness is all about being original and finding the humor in life’s absurd details. They’re also careful to stay completely non-gimmicky.

Take, for example, this random Moosejaw tweet: “My will contains only one request: I want a motion detector on my tombstone with a speaker that plays Thriller whenever anybody is around.” That’s the kind of thing that would make you chuckle no matter who it came from.

The takeaway from their success is that always being professional will only put you in the category of “boring.” You have to give your audience something unexpected that will stick with them. Food humor is often thought-provoking and tongue-in-cheek. You also need to nurture your brand’s unique personality and come up with what works for you and what doesn’t.

6. Casper

In the battle to decide how America sleeps, Casper is aiming to be the Goldilocks of mattress brands — the one everyone likes and wants to own. It’s also become the internet’s favorite mattress store because of its humorous one-liners and the riddles it asks Twitterdom to solve. The “Tweeting Mattress” won the Shorty Award for Best Overall Twitter Presence thanks to its laugh-out-loud tweets and culturally on-point humor.

Its main objective is to raise awareness of the brand, and Casper does this by focusing on its personality. Whether it’s something as simple as “Today’s forecast: cloudy with a chance of naps” or “Go big or go to bed” meme, @Casper has perfected its cute and appropriate humor and tone, resulting in widespread marketing success.

In short, the mattress company uses social fodder to help it gain comic notoriety, not to mention a sizeable following on Twitter.

7. Denny’s

Denny’s is like that funny friend you like to have around because you know they’ll always say something to make you laugh. And on Twitter, their 140-characters-or-less wisecracks seem to tap into that surreal and sometimes nonsensical atmosphere its restaurants have around 4 a.m. on a Saturday night.

Usually bizarre, and always funny, @DennysDiner is an irreverent page devoted to pancakes, syrup and amusing (and strangely thought-provoking) memes. In true Denny’s fashion, it serves a dollop of humor with whatever current melee is taking place on Twitter.

The chain’s Twitter presence has also helped establish the brand with Millennials and Generation Z. Denny’s understands the importance of staying culturally relevant and continuing to feed its audience something other than (boring) business as usual.

Source: Entrepreneur
Author: Deep Patel

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Investor Michael Farr: The market may have it wrong that major interest-rate cuts are coming

Federal Reserve Chairman Jerome Powell holds a news conference following a two-day Federal Open Market Committee meeting in Washington, June 19, 2019.

Kevin Lamarque | Reuters

Federal Reserve Chairman Jerome Powell’s performance last week received high marks. Not only did he re-establish Fed independence by not caving to White House pressure, but he was also able to craft a statement, deliver prepared remarks and answer questions without spooking the stock market.

The Fed’s decision to maintain a patient posture was not a foregone conclusion. In fact, I was becoming skeptical that the Fed would stand pat following significant pressure from the White House as well as recent comments coming from the Fed itself. (See my op-ed on CNBC.com.) At least for now, the impulse to act was avoided. Yet judging by the markets’ reaction, Powell & company appear to have set the expectation of rate cuts in the not-too-distant future. Are investors right to be so optimistic about the Fed’s next move?

First, let’s cover what we learned from the Fed’s statement and Powell’s press conference:

  • As expected, the Fed’s posture took a decidedly dovish turn. The central bank removed the word “patient” from its policy statement and said that risks related to the economic outlook have increased. The four areas of concern for the Fed are economic weakness outside the US, trade concerns, weaker business investment, and risk sentiment in the financial markets. These areas of concern are somewhat offset by a healthy labor market, rising wages, and strength in consumer spending. Strength in the services economy is supporting the growth in jobs and wages, while the manufacturing economy has clearly deteriorated.
  • The Fed views the deterioration in the economic outlook as a relatively new trend, and therefore it would like the benefit of more time and information before reacting to that new data. Powell does not believe there are significant risks associated with waiting for more data, but the evolving risk factors have clearly gotten the Fed’s attention.
  • The Fed said that inflationary pressures are muted, but the committee still expects the weakness in inflation to be transitory (although it may take longer to rise back to the committee’s target of 2.0%). Rising wages are not enough to increase inflation as weak global growth is contributing to downward price pressures.
  • Although 8 committee members continued to forecast that the Fed Funds target rate will remain unchanged at 2.25%-2.50% at year end, there were 7 other who lowered their forecast by 0.50% to 1.75%-2.00% and one additional member who lowered his forecast by 0.25% to 2.00%-2.25%. The new Fed projections translate to a weighted average Fed Funds target of 2.17% by the end of the year – a 0.32% decrease compared to the prior weighted average target of 2.49%. However, it must be noted that the Fed Funds futures markets are now pricing in a much bigger decrease by the end of the year. Based on those futures contracts, Fed Funds will be at 1.60% by the end of the year – a full 0.57% below the Fed’s weighted average target. Clearly the markets are still expected the Fed to do more. What do they know that the Fed doesn’t?

  • Although many members changed their forecast for Fed Funds, the support for taking no action was “quite broad.”
  • In response to a question about the possible impotence of rate cuts on business investment, Chairman Powell appeared to concede that rate cuts are a blunt instrument but the committee must use the tools at its disposal.

Not so fast

While the Fed may have managed to avoid major landmines this meeting, I remain concerned about the market perception that major interest-rate cuts will be forthcoming. I am not so sure that this scenario will ultimately come to pass. The reality is that over two-thirds of the economy is doing quite respectably. Unemployment is at 3.6% and wage growth, while falling a bit in recent months, is still better than 3% and well above inflation.

Consumers, especially lower-income consumers, are finally starting to earn more and more fully participate in the economic expansion. And the strength in the stock market to all-time highs, while mostly benefiting the well-to-do, should support continued improvements in consumer confidence and spending. Is now the time to be reverting back to maximum monetary support?

Earlier this month, President Trump reiterated his contention that the stock market (he is using the Dow Jones Industrial Average, or DJIA) would be 10,000 points higher if Powell were not the chairman of the Federal Reserve. The implication was that had the president appointed someone willing to implement the president’s desire for sharply lower interest rates, investors would have celebrated by bidding stocks up to major new highs.

Is he right? My answer is that it’s not entirely implausible. At the time of the president’s remarks, the DJIA was at about 26,100. A 10,000 point move in the DJIA would translate to about a 38% increase from that level. For simplicity, let’s use the benchmark index that that most professional investors use – the S&P 500. A 10,000 point increase in the DJIA from last week’s levels would translate into an S&P 500 level of about 4,000. Based on the expectation for S&P 500 earnings of about $176 over the coming year, this would take the price-to-earnings multiple for the S&P 500 from the current level of 16.7x to about 22.7x. In the chart below, you can see that a 22.7x multiple is also well above the long-term average of 15.7x, well outside of the standard deviation over the past 20 years (a range of 12.8x-18.7x, depicted by the gray bar), and well above anything we’ve seen since the Dotcom bubble. But is this level out of the realm of possibility? The answer is no.

An S&P 500 at 4,000 would clearly serve the president’s agenda (read: reelection), but at what cost? The problem is that artificially pumping up the stock market to these lofty heights without a corresponding increase in earnings would pose a significant risk to the economy. We all know what happened the last time stock prices were that high. The market collapsed and the economy fell into a recession.

Then there is the question of how effectively interest-rate cuts would be in addressing the economy’s current weaknesses. I noted earlier that consumer spending, representing over two-thirds of the US economy, is growing at a respectable pace (despite some first-quarter weakness). If this remains the case, which seems quite possible given the strong labor market, then the question becomes, are unreasonably high interest rates to blame for the current drags on economic growth? In particular, weak business investment has been the chronic source of disappointment. Is that likely to change if interest rates are, say, 1% lower? The answer is obviously no. US businesses just got a massive tax cut and used the spoils not to increase investment but rather to buy back stock. And trade-related uncertainty is undoubtedly a part of the problem as business leaders do not want to make investments before knowing the rules. But lower interest rates are not the answer!

In sum, the Fed is doing its job, and it must maintain its independence from political influence. Aggressively cutting interest rates will only juice asset prices, encourage more debt, pull forward more demand, and exacerbate the huge problem of economic inequality – all of which are detrimental to the economy’s long-term growth outlook. So as long as economic conditions don’t deteriorate meaningfully, it’s a great time for the Fed to reassert its independence and reduce the economy’s and stock market’s heavy dependence on artificially low interest rates. For now, though, while the market’s return to dependence on the Fed concerns me greatly, I must admit that the path of least resistance for stocks is likely higher.

Michael K. Farr is President and CEO of Farr, Miller & Washington, LLC, a Washington, DC-based wealth management firm.

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FedEx is a ‘bottom-fishing’ stock heading into earnings, technical analyst says

It’s return to sender for FedEx.

The delivery company heads into its earnings release Tuesday with major losses. The stock has tumbled 36% from a 52-week high set in September, more than any of its peers.

But the worst could be over for FedEx after its sharp sell-off, says Craig Johnson, chief technical analyst at Piper Jaffray.

“It has taken enough pain. I look at FedEx as a bottom-fishing candidate,” Johnson said on CNBC’s “Trading Nation ” on Friday. “It has pulled back about 44% off the highs you’ve seen in January of 2018 and it looks like you’re forming some sort of double bottom in here.”

A double bottom is formed when a stock falls to a low, rebounds, falls to another comparable low and rebounds once more. The twice-hit low marks a support level.

“You’ve got really good support at $150,” Johnson said. “Sentiment seems really negative. I’d be a buyer of this stock in here and I think a lot of the bad news is already baked into these shares.”

FedEx would need to fall 10% to find support at that $150 level. It came close to that level before bouncing back at the year’s lows in early June, and previously at the December bottom.

FedEx isn’t the only transports stock stuck in neutral. The group has fallen into a correction having dropped more than 10% from 52-week highs. Like FedEx, names including J.B. Hunt, American Airlines, and Avis are down at least 20% and stuck in a bear market.

Steve Chiavarone, portfolio manager at Federated Investors, says relief for the beleaguered transports is coming from the Federal Reserve.

“We know that the business sector has been a little bit weak. We see that in the freight volumes. We’ve had the overhang from trade and all the kind of uncertainty around that weighing on its sentiment,” Chiavarone during the same segment on Friday. “So when [the Fed does] eventually cut for those reasons, it’s going to help to have a reacceleration in the economy. We think that’s going to benefit all cyclicals, transports in particular.”

Markets are pricing in the near certainty of a fed funds rate cut at the end of July because Fed members dropped the word “patient” from their June statement and added that the “case for somewhat more accommodative policy has strengthened.” The chances of a 25-basis-point rate cut at the July meeting was at 67% on Monday, according to CME fed funds futures.

“The only thing for us is we prefer UPS over FedEx within our Federated fund — a little bit better yield, a little bit more of a self-help story. But we think the whole group can improve here, ” said Chiavarone.

Disclosure: Federated Investors holds UPS shares.

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Handicapping the chances for a second-half rally in stocks

Stocks last week made their fourth run to a new high in the past 17 months. All four have so far culminated within a 3-percent band between 2872 and 2950 for the S&P 500. None of the other three held for more than a few weeks before backsliding.

And it’s fair to say this trip to a record is most confusing in terms of how it happened and what comes next. January 2018 was about “synchronized global growth” and a huge tax cut. Last summer’s high was floated on 20% corporate-profit growth and a 3% GDP economy. Back in April, the Federal Reserve’s dovish “pivot” to patience was supposed to be the opening act for an imminent China trade deal.

The current record climb came with Treasury yields anchored near 30-month lows and manufacturing activity stalling. The rally has been driven by defensive sectors and gold has broken out to a multi-year high — even as speculative IPOs take flight and low-grade corporate debt is in heavy demand.

Stocks aren’t observably cheap, the S&P forward price/earnings ratio above 16.5, but with the S&P 500 dividend yield now equal to a 10-year Treasury note yield and corporate yields not much higher, how much cheaper would one expect stocks to be?

‘How I learned to stop worrying and love the bonds’

The easy explanation for all this is the Fed’s promise last week to act “as appropriate” to support the economy, which the market took to mean a near-certainty of a rate cut next month. In this way, the Fed gave investors permission to see compressed Treasury yields and their “inversion” — with three-month yields above the 10-year — as a bit less scary. “How I learned to stop worrying and love the bonds,” newly bullish traders might have said.

The market is acting as if it will get a “just to be safe” rate cut that the economy does not yet desperately need. And the Fed is not calling the market out for overreaching just yet.

The other element in the market advance has been just how pessimistic investors’ sentiment and how defensive their posture had become. Surveys by Bank of America and RBC Capital showed surprising levels of worry among professional investors in the past week. And in a rarity, the American Association of Individual Investors weekly poll had more bears than bulls even with the market about to reach a record high.

If this rebound rally to a fresh record has been largely about burning up excessive anxiety and punishing those under-invested in stocks, then it probably has more room to go before overconfidence becomes a headwind.

The obverse of this is bonds. Trader sentiment is extraordinarily bullish on Treasuries and the buying rush in “safe” government paper has just started showing signs of fatigue. Some lift in yields from such low levels would probably help the have-nots of the stock market: banks and industrial cyclicals.

‘Less graceful path?’

Strategists at Ned Davis Research, currently cautious on equities, note: “It is easy to imagine bullish paths for a second-half recovery. The self-sustaining route would be the natural rebound in the earnings cycle aided by an end to the trade war with China and a bottom in the global economy. The less graceful path would involve the Fed moving to an easing policy after economic data and/or equity markets clearly deteriorate.”

The middle way — moderate growth and low yields without a Fed easing move — would not likely benefit stocks, they say.

Purely based on the historical probabilities, a market at a new high and up more than 17% not quite halfway through the year are reasons to side with the bulls, but also to keep expectations in check.

Leuthold Group notes the Dow Industrials have made a record high in the month of June in 33 years. Second-half performance in those years is roughly the historical average for all years — a gain of more than 4%.

But when June’s high is “confirmed” by market breadth in the form of a new high in the stocks’ cumulative advance/decline trend — as is the case now — the second half is far more positive, up 8% on average. When breadth was lagging, stocks were down a bit the rest of the year on average.

Yet Bespoke Investment Group found when the S&P was up at least 15% by June 24, the following month and remainder of the year was positive just 5 of 9 times. And investment advisor Steve Deppe noted on Twitter that when the S&P 500 has gained at least 2% in a week and finished at a new weekly high — the case on Friday — the S&P was lower six weeks later 70% of the time.

Big picture: Sideways trading for a long time

Such historical studies provide context but no clear course of action. The big picture is, the market has been in a wide-swinging but ultimately sideways trading range for a year and a half. It’s now stretching the top of that range. Earnings have flattened but not begun falling. Disruptive, organic-growth companies remain in favor no matter the macro news flow and are crucial to index performance.

Last December’s dramatic market low and upside reversal continues to seem like a consequential bottom, and in recent weeks tactical indicators have perked up, such as the number of stocks making new 52-week highs.

We’ve had two other such sideways plateau phases in this bull market, most recently in 2015-2016, a period with strong resemblances too this one. (Global recession scare, controversial December Fed rate hike in both 2015 and 2018 followed by a dovish pivot, skeptical investor sentiment, defensive-stock leadership amid depressed bond yields).

That phase ended when the 2016 election flipped the story to tax-cut stimulus and global “reflation.” Can a trade deal or Fed rate cuts turn a similar trick?

Even if one or both happen, they won’t liberate us from that nagging question, “When will this long economic cycle end?”

But that question has stalked this bull market for years now, hasn’t it?

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Eldorado Resorts reportedly clinches an $18 billion cash and stock deal for Caesars

Caesars Entertainment Corp.’s Caesars Palace casino stands in Las Vegas, Nevada.

Jacob Kepler | Bloomberg | Getty Images

U.S. casino operator Eldorado Resorts has agreed to merge with Caesars Entertainment in a cash and stock deal that values its peer at about $18 billion including debt, people familiar with the matter said on Sunday.

The agreement comes three months after Reuters reported that Caesars had agreed to give Eldorado access to its books under pressure from billionaire investor Carl Icahn, who earlier this year was awarded seats on Caesars board.

The deal, which is expected to be announced on Monday, values Caesars at close to $13 a share, according to the sources. The combined company’s ownership would be split roughly between Eldorado and Caesars shareholders, the sources said.

The sources asked not to be identified because the matter is confidential. An Eldorado spokesman said the company did not comment on rumors or speculation. Caesars did not immediately respond to requests for comment.

The combination of the two companies would create a serious competitor to larger casino industry players, such as Las Vegas Sands, Wynn Resorts, and MGM Resorts.

Caesars’ shares closed on Friday at $9.99. The company, which emerged from bankruptcy in 2017, operates casinos with the Harrah’s and Horseshoe brands. It had 53 properties in 14 U.S. states and five countries outside the United States at the end of December.

Eldorado has a market value of $4 billion. It also had long-term debt at the end of March of $3.1 billion. It owns and operates 26 properties in 12 U.S. states.

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Iran is already in a ‘very dangerous’ economic position as US prepares major new sanctions

Dock workers haul the mooring rope of a cargo ship onto the dockside at Bandar Imam Khomeini (BIK) port in Bandar Imam Khomeini, Iran, on Friday, May 24, 2019. Iranian officials have said that the raft of U.S. sanctions against their country, which was tightened last month, is aimed at fueling popular dissent in an effort to topple the leadership.

Ali Mohammadi | Bloomberg | Getty Images

President Donald Trump is threatening to impose “major” new sanctions against Iran on Monday, ramping up the pressure on the Islamic Republic at a time when its economy is straining under the weight of financial restrictions.

Six oil tankers and a U.S. spy drone have been attacked since May either in, or near, the Strait of Hormuz — the world’s busiest transit lane for seaborne oil shipments that separates Iran from its neighboring Gulf states.

The flurry of attacks has escalated tensions between Washington and Tehran.

On Saturday, Trump said via Twitter that he would impose additional sanctions against Iran in a bid to prevent the country obtaining nuclear weapons. There are already U.S. sanctions on its oil industry and other sectors.

The U.S. president added economic pressure would be maintained unless Iran’s leadership changed course.

“We can safely say that Iran’s revenue from oil has been cut by at least two-thirds, so they are in a very dangerous economic position,” Cailin Birch, global economist at the Economist Intelligence Unit (EIU), told CNBC’s “Squawk Box Europe” on Monday.

“They are right to, kind of, put on a strong face to get themselves out of this conflict but they are not in a position to fight a war either,” Birch said.

Oil exports

Tensions between the U.S. and Iran have spiked since May last year when Trump withdrew from the 2015 nuclear deal and reinstated sweeping sanctions on the country.

The U.S. has also bolstered its military presence in the Middle East and blacklisted Iran’s Revolutionary Guard as a terrorist organization.

The EIU’s Birch estimated Iran had been exporting between 10 to 15 million barrels per week in seaborne crude oil exports in the first quarter of the year. Now, the EIU sees “nominal volumes” of 4 to 5 million barrels per week, but half of that was just shuttled in domestic ports, Birch said.

Iran’s oil exports, the government’s main source of revenue, have been hit hard by U.S. sanctions.

Washington has applied financial restrictions to nearly 1,000 Iranian entities, including banks, individuals and vessels tied to the country’s shipping and energy sector. In May, the White House prohibited the purchase of Iranian iron, steel, aluminum and copper.

The Trump administration has also revoked waivers that allowed eight countries, including China and India, to import Iranian oil despite U.S. sanctions. The U.S. is aiming to completely cut off Iranian oil exports in order to force Tehran to abandon support for militant groups in the Middle East and renegotiate the landmark nuclear accord.

Open to talks

Trump reportedly approved military strikes against Iran late Thursday in retaliation for the downing of an unmanned American drone, before abruptly reversing his decision.

The U.S. president has since said in an interview with NBC News that he does not want war with Iran but, if it comes, there will be “obliteration like you’ve never seen before.”

Amid the escalating tensions, international benchmark Brent crude climbed about 5% last week, while U.S. West Texas Intermediate (WTI) jumped more than 10% — its biggest gain since December 2016.

Brent crude was trading at around $65.48 on Monday morning, up around 0.4% while U.S. WTI stood at $57.92, almost 1% higher.

The U.S. president has said he remains open to negotiations with Iran, but Supreme Leader Ayatollah Ali Khamenei categorically ruled out talks with the Trump administration.

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Chances of US-Iran tensions escalating are ‘very, very high,’ says former advisor to Tehran

Chances of a U.S.Iran conflict escalating into something bigger are “very, very high” — though a full-blown war is unlikely, said a former advisor to the Iranian government on Monday.

Washington and Tehran nearly came to blows last week after Iran claimed it downed an American drone that entered its territory. The U.S. said its aircraft was operating in international airspace.

“We have to remember Iran is a regional superpower. U.S. says ‘I’ll put you in a box, please die.’ They (Iran) are not going to stay in a box and just die,” said Fereidun Fesharaki, who was a former energy advisor to the government in Tehran in the 1970s.

“They will strike back one way or the other; I think chances of tensions becoming bigger is very, very high in the near future,” Fesharaki, who is now chairman of oil and gas consultancy Facts Global Energy, told CNBC’s “Squawk Box.”

In response to the downing of the U.S. drone, President Donald Trump ordered military strikes against Iranian targets on Thursday — but eventually halted those plans.

Escalating tensions between the two countries sent oil prices higher, with U.S. crude up more than 9% in the week, while the global benchmark Brent gained 5%. Investors fear an attack on Iran, a major oil producer and exporter, would disrupt energy flows from the Middle East — a region that provides more than a fifth of the world’s oil output. Both oil indexes continued edging higher on Monday.

Chances of a conflict are at least 50% right now, said Fesharaki. It may not be a “full war,” he pointed out, “but conflict which would disrupt (energy) supplies.”

If Trump had carried out those military strikes as planned, the geopolitical risk premium on oil prices would have beed $5 to $10 a barrel, said Fesharaki. Now, the geopolitical risk premium “is only one or two bucks at the moment, it’s not really high enough,” he added.

Tensions between the U.S. and Iran have spiked since May last year when the U.S. withdrew from the international 2015 nuclear deal with Iran, and reinstated sweeping sanctions on the Islamic Republic.

The U.S. has also bolstered its military presence in the Middle East — announcing plans to send thousands of troops to the region — and blacklisted Iran’s Revolutionary Guard as a terrorist organization.

The June attacks on two oil tankers in the Gulf of Oman near the Strait of Hormuz also added to concerns of a military confrontation between the two countries. Washington blames Tehran for the attacks but Iran has denied those charges.

Iran has in the past threatened to block the Strait of Hormuz — one of the most important waterways in the world, which links crude producers in the Middle East with key markets in the rest of the world. Trump said earlier this month that if Iran were to block the Strait of Hormuz, “it’s not going to be closed for long.”

The narrow channel is critical to energy security and accounts for approximately 30% of the world’s seaborne oil traffic.

More than one-quarter of global liquefied natural gas trade transited the Strait of Hormuz in 2018 and there are limited options to bypass the waterway, according to the U.S. Energy Information Administration.

Asked if Iran might withhold from threats to block the Strait of Hormuz, because it needs to export energy products through the channel, Fesharaki said: “They get a little bit of money but the money is not big enough for them to … simply give up everything else that President Trump is asking them to.”

As for liquefied natural gas, Fesharaki said there are few fundamental concerns due to plenty of supplies and reserves worldwide.

However, panic may hit the LNG market sentiment if the Strait of Hormuz is disrupted, said Fesharaki.

“Supply-wise, will be okay, but the shock to the market or the fear of (it) getting worse, that could send the prices rocketing,” he said.

— CNBC’s Spencer Kimball and Sam Meredith, and Reuters contributed to this report.

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