FIG Topics of Interest



(Funny how Congress continues to get paid?)
A series of deadlines over the next seven weeks will increase pressure on the Government to cut a deal to end a shutdown that could soon become the longest in history. Hundreds of thousands of workers at nine Cabinet departments and other agencies will soon start to miss paychecks, and the longer the standoff continues, the more consequences Trump and Congress will face -- including shuttered courts, filth piling up in National Parks, and delayed tax refunds.
Jan. 11: Missed Paychecks
Jan. 12: Record Shutdown
Jan. 21: Davos Man
Jan. 29: State of the Union
Late January and February: Tax Returns
March 1: Debt Limit
All Year: Census


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“Given the many store closures across the U.S., the minimal changes in vacancy rates show how the retail sector has withstood the structural changes in the industry,” Barbara Denham, a senior economist at Reis, said. “Many feared that vacancy rates would soar and rents would plummet. This did not occur as the doomsday prognostications proved to be overblown.” 
Overall, U.S. retail vacancies remained flat at 10.2 percent during the latest quarter, Reis said. The vacancy rate at regional and super regional malls was 9 percent in the fourth quarter of 2018, based on a survey released Thursday by real estate research firm Reis of 77 metropolitan areas across the country. That’s down from 9.1 percent — a seven-year high — in the third quarter, but up from 8.3 percent at the end of 2017. That’s also above a 10-year average vacancy rate for these malls of 8.4 percent during the fourth quarter.

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To Apple investors:
Today we are revising our guidance for Apple’s fiscal 2019 first quarter, which ended on December 29. We now expect the following:

  • Revenue of approximately $84 billion
  • Gross margin of approximately 38 percent
  • Operating expenses of approximately $8.7 billion
  • Other income/(expense) of approximately $550 million
  • Tax rate of approximately 16.5 percent before discrete items

We expect the number of shares used in computing diluted EPS to be approximately 4.77 billion.
Based on these estimates, our revenue will be lower than our original guidance for the quarter, with other items remaining broadly in line with our guidance.

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"My prediction? More dysfunction than there should be, unfortunately," said Representative Peter King, a New York Republican.
The first test of the new dynamic in Washington may come as soon as Wednesday. Democratic and Republican leaders in the House and Senate will attend a meeting with Trump for a briefing on border security at the White House.
The 435-seat House will be controlled by at least 235 Democrats, including a number of progressive freshmen who may show little inclination to compromise. In the Senate, Republicans gained two seats to boost their majority to 53-47, and the only GOP senators who consistently took on the president, Jeff Flake of Arizona and Bob Corker of Tennessee, are retiring.
On policy matters, an early action item in the House and Senate will be legislation approving Trump’s trade agreement with Mexico and Canada. But Pelosi has dismissed the trade deal as a “work in progress” and says she wants to add environmental and labor protections. She also hasn’t indicated whether she would back the “fast track” up-or-down vote procedure Trump could need to easily clear the deal.

The trade agreement may also have trouble getting support in the Senate, although incoming Finance Chairman Chuck Grassley, an Iowa Republican, has praised it and promised to try to usher it through his panel.
McConnell told reporters after the November elections that Senate Republicans aren’t interested in a $900 billion infrastructure package Democrats are discussing, and said no proposal for roads and bridges should be considered without resolving how to finance it.

“You know what the sticking point is: How do you pay for it,” McConnell told reporters.
Leaders in both chambers must agree on raising the federal debt limit, which is now suspended but will go back into effect March 1. The Treasury Department likely can use so-called extraordinary measures to delay reaching the limit into mid-year, but eventually lawmakers must find a way to prevent a default on government obligations.
The two chambers almost certainly won’t agree on an annual budget blueprint like one that allowed the GOP Senate in 2017 to bypass a Democratic filibuster and enact a massive tax cut. Going forward, any tax changes would be subject to a 60-vote threshold, meaning they couldn’t be enacted without Democratic support.

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American farmers, already hit by low commodity prices and China’s punitive trade tariffs, are poised to endure further pain in 2019 now that a major Pacific trade deal has come into effect.
The Comprehensive and Progressive Agreement for Trans-Pacific Pacific Partnership, or CPTPP, was ratified by seven of its member countries on Sunday. Now that the massive free trade pact is a reality for Australia, Canada, Japan, Mexico, New Zealand, Singapore and Vietnam, the remaining four members — Brunei, Chile, Malaysia and Peru — are soon expected to follow suit.
The milestone agreement, a refurbished version of the Trans-Pacific Partnership, will slash tariffs among the 11 nations that cover 14 percent of global growth, making their exports cheaper in each other’s markets. Around 90 percent of planned tariff cuts will be immediately take place, HSBC said in a note on Sunday, adding that businesses will benefit from reduced administrative costs thanks to other benefits such as pre-arrival customs clearance.
“I’ve never seen such nervousness in the U.S. business community as I see now,” Steve Okun, senior advisor at McLarty Associates, an international trade consultancy, told CNBC last week, referring to developments such as the CPTPP. There is a sense that “the world is moving forward without us,” he said.

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The House increased the chances of a partial U.S government shutdown by voting to give President Donald Trump funds for his proposed border wall in a spending bill the Senate is sure to reject hours before a midnight Friday deadline.
The 217-185 House vote Thursday capped a tumultuous day in which Trump surprised fellow Republicans by insisting he won’t sign a bill without the border money, after the White House had hinted he would accept it. Now, the House and Senate have passed spending measures that differ in one crucial way -- the House bill includes the $5 billion Trump is demanding for a wall and the Senate version, passed a day earlier, does not.
The Senate is scheduled to convene at noon Friday. Senate Majority Leader Mitch McConnell of Kentucky is almost certain to advance the same measure, without wall money, that the GOP-controlled chamber easily passed by voice vote Wednesday.

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But buried in 439 pages of proposed regulations released by the Internal Revenue Service last month was an unfortunate surprise for investors in so-called trader hedge funds like Point72, which trade stocks or other assets frequently: Their tax bills might increase as a result of the deduction limit.
“The rules create the worst possible situation,” said David Miller, a tax lawyer at Proskauer Rose LLP.
Trader funds that borrow money to make their wagers could be hit hardest. Here’s how it works: Those funds can now only deduct a certain amount of the interest they pay on that borrowed money (previously they could deduct it in full). Any remaining interest costs get passed to fund investors.
Investors can only deduct those interest costs along with any of the fund’s investment interest expenses on their 2019 tax returns if the fund has had relatively strong performance and generated enough interest income against which to take the deductions.
With hedge funds overall down 3.62 percent this year through November, many funds won’t meet that hurdle -- and wind up saddling investors with a “double whammy” of non-deductible fund expenses, said Simcha David, a tax partner at accounting and advisory firm EisnerAmper, which works with investment funds.
Hedge funds that buy and hold assets -- so-called investor funds that aren’t engaged in quick trading -- aren’t affected by the deduction cap. And businesses with average annual gross receipts of less than $25 million are also exempt.

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Announced buybacks for 2018 are now at $1.1 trillion. And companies are using their authorizations. About $800 billion of stock has already been bought back, leaving about $300 billion yet to be purchased. We’ve seen buyback announcements recently from Lowe’s, Pfizer, and Facebook, but in the last few days, as stocks have moved to new lows, companies are picking up the pace of activity.
Several companies have announced new buyback programs, including Boeing, Johnson & Johnson, Universal Health Services, Shoe Carnival, and Playa Hotels, and several have announced accelerated buyback programs:

Allstate, for example, announced it had just bought back $1 billion in stock using an existing buyback program. Lincoln National, whose stock is down 18 percent this month alone, also announced an accelerated buyback.

What’s all this activity mean? It’s a sign that many CFOs believe their stock is undervalued. Traders tell CNBC much of the buying is based on the belief that the recent spate of selling is due largely to political issues (Brexit/China tariffs/Italy) that will resolve favorably and that global economic weakness may not be as pronounced as markets believe.

Will the buybacks continue into 2019? The answer is yes, providing two important conditions continue:

1. Companies continue to throw off significant free cash flow. While some companies borrow to fund buybacks, most fund them through free cash flow, which has been strong for the last several years. If there is a significant economic slowdown, that cash flow will likely diminish, and the pace of buybacks will diminish as well.

2. Companies need to continue to believe that reducing share count and boosting EPS is a more valuable use of their cash than making investments elsewhere, like actually investing in their businesses.

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“The United States remains the world’s most powerful nation, but national rivalries are surfacing and we recognize the importance of the strategic competition with both China and Russia as they challenge the regional order,” said a 10-year defense program outline approved by Prime Minister Shinzo Abe’s government on Tuesday.
Japan will accelerate spending on advanced stealth fighters, long-range missiles and other equipment over the next five years to support U.S. forces facing China’s military in the Western Pacific, two new government defense papers said.

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“It looks like we’re headed to a shutdown. But who knows? We’ve got time,” Senate Appropriations Chairman Richard Shelby, an Alabama Republican, told reporters at the end of last week.
"The president drew a pretty clear line in the sand and said he won’t compromise with anybody," said longtime Republican congressional aide Jim Dyer, now a senior adviser at the lobbying firm of Baker Donelson. "You’re at the point where you are looking around for somebody to talk to and that means we are looking at a shutdown."
Shelby floated a compromise this month in which Trump’s $5 billion would be split over two years. Trump privately said he was open to the idea, but Schumer rejected it. As a shutdown deadline approaches, this possibility could look more appealing.
All sides could agree to extend current funding until sometime next month and resume the fight over the wall then. House Republicans, in the waning days of their majority, are having trouble getting their own departing members to show up and fight for the wall, and Trump plans to spend 16 days at his Florida resort over the holidays.

Waiting until January would make the wall dispute a more direct confrontation between Trump and likely House Speaker Nancy Pelosi of California, while also stepping on her planned message of cooperation with the president in the new year.

Lawmakers could keep current spending levels into March or later. The federal debt ceiling comes back into effect March 1 and will require another negotiation, so both parties may decide it makes sense to combine the issues. Congress will also try to strike a new deal on budget caps to prevent automatic spending cuts now slated for 2020.

Click here to download a pdf of this article, Missile.pdf