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nicoleusinclair-blog · 8 years

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CSX CEO explains why the rail business will win regardless of who becomes president

yahoo

The transportation sector (^DJT) remains closely watched as a market leading indicator, as it reflects the underlying industrial economy of the country.

This week’s results from one of the major US rail operators, CSX (CSX), confirmed underlying struggles in the economy but demonstrated a tempering of declines.

CSX Chairman and CEO Michael Ward reiterated some of the headwinds to industrial growth.

“The strength of the dollar and the low commodity prices have really dramatically impacted the industrial sector of the United States,” he told Yahoo Finance.

But he added that declines are starting to moderate.

Infrastructure winner

When asked if his spending decisions have been impacted by the contentious election campaign cycle between Donald Trump and Hillary Clinton, Ward explained that CSX remains uniquely well-positioned.

“We’re very fortunate in our industry,” Ward said. “Transportation and infrastructure is a very bipartisan topic. There’s general recognition by both political parties that having a strong infrastructure is really key to having a strong economy.

In fact, both candidates have focused on expansionary fiscal policies from current levels.

Clinton has proposed a $275 billion infrastructure plan over five years. And Trump has proposed what he calls an even bigger plan—to spend $500 billion to rebuild US infrastructure—though he hasn’t provided many details.

Ward explained that the company invests 16%-17% of revenue every year on infrastructure.

“So for CSX that’s $2.3 billion to improve our infrastructure,” he said. “I think all the policymakers realize that’s critical and both support us continuing to invest”

One area of government that poses a challenge? Regulation.

Ward explained that regulation of his customers is impacting his underlying growth.

“When I talk with our customers, usually one of the top things that’s impacting their business and slowing their growth is all the regulations coming out of Washington, D.C.,” Ward said. “So we really have a regulatory onslaught in my view. It’s not just the rail industry but the industries we touch.”

Coal conundrum

The coal industry—which has come under pressure as a result of low natural gas prices on the domestic side and the strong dollar on the export side—has been a headwind for the rails and CSX specifically.

The Energy Information Administration (EIA) forecasts coal will be used for 20% of electricity generation in 2030, down 38% in 2014.

CSX has lost more than half of its coal business over the last five years—In 2011, CSX reported $3.7 billion of coal revenue compared to $1.7 billion this year. But this decline may be moderating at last.

Source: CSX Presentation

“We don’t think it’s completely bottomed at this point but the rate of decline on a year-over-year basis has slowed down,” said CSX Chairman and CEO Michael Ward. Coal volumes were down 20% in the third quarter year-over-year versus a decline of 30-35% in the first half of the year.

While third quarter revenue down 8% was impacted significantly by declining coal shipments, Ward said he has emphasized diversifying the business and operating more efficiently.

While coal will remain an important part of the business going forward, it will become a smaller driver, according to Ward, who emphasized the company’s “CSX of Tomorrow” strategy.

“We’re reorienting the company to realize we need to grow our automotive and intermodal businesses as well as other merchandise more rapidly,” Ward said.

Source: CSX Presentation

The company is making investments in facilities to aid this transition, specifically for intermodal, where Ward sees an opportunity of 9 million truckloads to convert to rail, as trucking faces hurdles including over-crowded highways.

A bet on rails, as Warren Buffett famously said when Berkshire Hathway (BRK-A, BRK-B) acquired Burlington Northern in 2009, is a bet on America.

Please also see:

How improved infrastructure could end America’s vicious cycle of poverty

People haven’t talked about fiscal stimulus this much since the financial crisis

Obama on the consumer and economy- exclusive interview

#rail #CSX #investment #industrial #Infrastructure #$csx #$^DJT #_yfinance:segment=market_pulse #_ymedia:video-channel=investing #_uuid:11070142-cd0b-3f03-9190-a888a642a185 #_wp:175479

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Healthy retail sales number belies rapidly evolving industry dynamics

yahoo

Retail sales rose 0.6% in September, which was in line with expectations. This marked the highest increase in three months.

This highly anticipated data release is important as consumers are the biggest driver of US GDP. Consumer spending, which accounts for more than two-thirds of GDP, has been helped by gradually rising wages. This is encouraging amid the weak business investment cycle as seen in durable goods numbers.

But when it comes to individual names, there is still a world of pain as many companies try to contend with changing shopping dynamics—notably the shift to online retail. While major department stores like Macy’s (M) and Nordstrom (JWN), along with specialty retailers like Gap Stores (GPS), have somewhat stabilized, same-store sales remain in the red and promotional activity remains aggressive.

One of the groups most under pressure? Teen retailers, which reflect most significantly quick-changing fashion preferences, given their younger customer base. And one name in particular trying to boost traffic and turn around trends is none other than Abercrombie & Fitch (ANF), once a pop culture iconic brand.

Abercrombie woes

On Thursday, Abercrombie & Fitch rolled out a new ad campaign. The teen retailer is trying on a new message that focuses on being positive and inclusive. Maybe it’s part of a broader reaction to Donald Trump.

However, it may be too little, too late. After all, it’s been two years since former CEO Mike Jeffries stepped down as CEO in December 2014. Jeffries became CEO in 1992 and had been credited with the company’s focus on the appeal of exclusivity (and racy catalogs).

He said things like, “we go after the cool kids. We go after the attractive all-American kid with a great attitude and a lot of friends. A lot of people don’t belong, and they can’t belong.” Or “I don’t want our core customers to see people who aren’t as hot as them wearing our clothing.” Or “I think that what we represent sexually is healthy. It’s playful. It’s not dark. It’s not degrading.”

The promise for a new image hasn’t followed through to investors. The stock is down over 40% over the past two years.

And the company’s new advertising campaign may be too little, too late, according to analysts.

“This new brand position is the product of an 18-month effort to create a brand identity that communicates our focus on our customers’ needs and aspirations,” said Abercrombie CMO Fran Horowitz in the company’s press release on Thursday. “Rather than buying clothes that symbolize membership in an exclusive group, today’s consumer celebrates individuality and uniqueness. Our new brand reflects that confidence and independence of spirit as well as our own dedication to a more diverse and inclusive culture.”

With comparable store sales down 4% in its most recent quarter, a turnaround may not be a slow process.

Meanwhile, the company continues to contend with a difficult, promotional teen shopping environment, according to Stifel. And tourist spend in the US has also declined significantly.

A stand-out retail growth name

One bright spot amid dismal retail results? Ulta Salon (ULTA), which has surged almost 45% year-to-date.

The stock spiked over 11% on Thursday after pre-announcing third quarter comparable store sales increased 14% to 15%, up from previous guidance of 11% to 13%.

CEO Mary Dillon upped the company’s long-term store outlook to 1,700 doors, above its previous 1,200 door target introduced in 2012 and with significant upside from its current 907 locations at the end of its second quarter.

The company’s analyst day focused on its role as an essential analytics company, benefitting from a strong loyalty customer base and growing category.

And while the stock is expensive, Ulta’s unique positioning makes it attractive. And Morgan Stanley analyst Simeon Gutman said not to overthink valuation.

“There are few, if any, stories like Ulta in retail.; comping low teens, generating 20% EPS growth. The category is fragmented, the store is experiential and business is benefitting from a shift away from malls to strip centers,” he wrote in a recent note.

While Abercrombie’s underperformance and new brand efforts may seem to offer an attractive entry point for investors, risks—including the difficulty to turn around its distinct brand—prevail. Ulta, meanwhile, continues to ride its data-driven momentum in the beauty category, bucking the difficult trends in the retail sector.

Please also see:

Wall Street is blown away by this red-hot retailer

Why deep discount is winning retail

Everyone’s been way too pessimistic about department stores

#retail #ulta #malls #retail sales #beauty #video #abercrombie #$ULTA #$ANF #_yfinance:segment=the_final_round #_ymedia:video-channel=investing #_uuid:821febe7-2a4d-3093-81b0-c1928354025d #_wp:175956

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Gutsy analyst argues that already-expensive stock prices will get even more expensive

yahoo

Many Wall Street analysts point to the expensive market—especially amid uncertain times—as a key reason for downside ahead.

After all, the S&P 500 (^GSPC) price-earnings multiple is up 55% over the past five years, increasing from 10.5x to 16.2x currently. It’s not surprising that many investors would question the sustainability of this rise.

But RBC’s Jonathan Golub said multiples could expand even further.

Cash Flow Generation: Companies have become much more efficient, Golub explained, and are generating over 20% more free cash flow from every dollar of earnings.

Return of Capital: Right now, the S&P “total yield”—which is dividends and buybacks—stands at 4.7%, higher than 4.4% for the 20-year corporate bond. In other words, stocks are undervalued on this metric relative to alternatives.

Volatility: Golub explained that volatility has been running 30% below normal. “This should equate to a similar reduction in equity risk premia,” he said.

Overall valuation Trends: Equity valuations tend to move from low to high and back over very long periods, Golub said. “With multiples well within a normal band, the current swing higher appears far from over.”

Few Excesses: Golub explained that at this point there is not one sector that is “unreasonably priced.” While energy sector multiples remain elevated due to falling oil prices, valuations aren’t over stretched across sectors—even in consumer staples.

The bottom line: While the S&P multiple taken by itself may appear stretched, the underlying dynamics in the market speak to more upside. Meanwhile, it’s attractiveness relative to bonds and international equity markets remains attractive.

Please also see:

3 top strategists debate the impact of the Fed, the election and earnings

Why the jobs report is good for stocks

HBS’ Michael Porter: The biggest economic myths from the debate

Dismal start to earnings season becomes market driver

#video #$^DJI #$^GSPC #$^IXIC #$TNX #_yfinance:segment=market_movers #_ymedia:video-channel=investing #_uuid:6c715cf0-a785-308b-b38b-ca90c5b60fdd #_wp:174634

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Dismal start to earnings season becomes market driver

yahoo

While the contentious presidential race and the Fed have dominated headlines, it turns out company earnings—and commentary from management teams—may return to being more of a market driver.

And the kick-off hasn’t been too pretty.

Alcoa (AA) unofficially marked the start of third-quarter earnings on Tuesday morning. And it wasn’t the company’s miss-versus-expectations that had broader market implications, it was commentary from CEO Klaus Kleinfeld about the source of weakness.

Specifically, the company disappointed relative to heightened investor expectations for the company’s value-add aerospace and auto components business, known as its “Arconic” segments. The company will separate this business from its upstream commodity aluminum and alumina business next month.

Arconic segment revenues declined by 1%, which reflects “customer adjustments of the delivery schedules in the aerospace industry, softness in the North American commercial transportation market, pricing pressures,” according to Kleinfeld. He went on to explain that the aerospace industry is undergoing transition, reflecting uncertainty.

This followed negative announcements from other industrial companies.

Honeywell (HON), the diversified industrial company that makes aerospace components and climate control systems businesses, cut its sales projections last Thursday, as CEO Dave Cote cited delays and Goldman Sachs removed the company from its conviction buy list after the announcement. Shares declined 8% on Friday.

Also at the end of last week, chemical company PPG (PPG) also fell over 8% after pre-announcing it expects to report a third-quarter loss, its first since 2009.

“We are disappointed with this quarter’s EPS growth rate as we continue to operate in a sluggish economic environment with no clear near-term catalyst for improving global GDP growth,” CEO Michael McGarry said in the company’s press release.

This Monday, Dover Corporation (DOV) also pre-announced a disappointing number. The manufacturer of refrigeration systems, compression valves and artificial lifts said results were “well below our expectations.” CEO Robert Livingston added that “results were principally impacted by a weak global economy and ongoing production inefficiencies in our retail refrigeration business.”

The carnage extended to the healthcare sector when Illumina (ILMN), which makes DNA sequencing machines, issued a revenue warning on Monday, potentially suggesting a slowing of core business. Sparse on details, investors punished the company, sending shares down 25% on Tuesday. This further put a damper on the sector that has been under pressure from political rhetoric surrounding pricing.

Expectations do remain low for earnings results, with S&P 500 companies expected to post a fifth consecutive quarter of earnings contraction, continuing the so-called “earnings recession.” However, commentary on the underlying macro environment from management teams—along with forward guidance—will be a key driver of investment sentiment.

With expectations for a November rate hike now hovering at a low 10%, trading moves around economic data and Fed commentary has become more muted, emphasizing a waiting game until a potential rate hike in December. Meanwhile, mixed market reaction to potential election outcomes continues—save for the Mexican peso.

That means more focus on earnings and commentary on the underlying economy from management teams. And so far it’s not looking too good.

Please also see:

3 top strategists debate the impact of the Fed, the election and earnings

Why the jobs report is good for stocks

HBS’ Michael Porter: The biggest economic myths from the debate

#_yfinance:segment=the_final_round #_ymedia:video-channel=investing #_uuid:6bebf49b-bcc5-3570-bc66-29a980a8b780 #_wp:171144

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How the Mexican peso became tied to the whims of the American voter

yahoo

While some firms have attempted to forecast the economic and market consequences of Hillary Clinton or Donald Trump presidential win, it has been much more difficult to track in real-time how the market is pricing the various scenarios running up to Nov 8.

One proxy has captured the attention of market-watchers: the Mexican peso (MXN).

The peso proxy

The peso has shown increased sensitivity to the US election, with currency weakness corresponding to shifts in opinion polls that have suggested a higher likelihood of a Republican victory.

Uncertainty surrounding the US presidential election appears to have contributed to the currency’s weakness this year. In fact, the Mexican peso is the worst performing emerging market currency year-to-date and the only major emerging market currency—other than the yuan (CNY)—that has meaningfully depreciated against the US dollar, as HSBC highlighted in a recent note.

Certainly the declining peso has other influences including falling oil prices. Wells Fargo analyst Erik Nelson explained that the Mexican peso, given it is among the most liquid of emerging market currencies, is often used as a hedge to offset bets on the broader emerging markets. (Daily average turnover for the Mexican peso is $112 billion for 2016 compared to $135 billion in 2013).

Nonetheless, it appears to show trading correlation with US election prospects.

This has been particularly evident after it didn’t participate in a recovery in oil prices or global equity recovery, as Wells Fargo points out below.

While economists have highlighted the difficulty of deciphering how much US election premium is priced into the peso, according to Goldman Sachs, a 10% increase in the probability that Secretary Clinton wins the election is associated with a 3% appreciation of the peso.

Trump peso impact

Why would a potential Trump presidency have such a significant impact on the peso?

Ever since he declared his candidacy in June 2015, and infamously called Mexicans rapists, the country has been a focal point for his proposed policy measures.

Most significantly, Trump has proposed double-digit tariffs on Mexico and ending or renegotiating the North American Free Trade Agreement (NAFTA), which has been key to opening Mexico’s economy to global export over the past twenty years. Mexico is an export-oriented economy with more than 90% of Mexican trade is under free trade agreements, NAFTA being the most influential. In fact, 80% of exports go to the United States.

And while Congressional pressure could mitigate the degree of presidential proposals, if he were elected president, Trump could have a significant influence over US trade deals. Congress has delegated authority to the presidency to regulate trade via several statutes, the Peterson Institute has noted. For example, under the Trade Act of 1974, the president can impose temporary tariffs of up to 15% for up to 150 days against a country if there’s a large balance of payments surplus. Under the Trade Expansion Act of 1962, the president can impose tariffs or quotes if there’s a finding of an “adverse impact on national security from imports.”

Additionally, Trump has said he may block worker remittances to Mexico, make Mexico pay for a border wall, and deport Mexican undocumented workers from the United States.

Increased uncertainty has put downward pressure on the emerging market currency. And the threat of Trump’s policy proposals to the Mexican economy has caused more downward pressure on the currency, according to Nelson.

Even Bank of Mexico officials have commented on the election, with Bank of Mexico chief Agustín Carstens saying a Trump presidency would be “a devastating hurricane of major intensity.”

Even as probability of a Trump president has declined in recent days following the leak of his Access Hollywood tape, HSBC warns “never say never,” especially after low expectations for a Brexit vote that were proven wrong.

Central bank policy

The weakness in the peso has influenced Mexican central bank policy. Even though Mexico has not experienced an overheating economy—the economy shrank for the first time in three years in the second quarter—rate increases have come in response to election influence on the peso.

At the end of September, Mexico’s central bank, Banxico, raised rates by 50 basis points to 4.75%.

The bank has been explicit in explaining their close watching of the currency in rate decisions.

And HSBC added that, under a Trump presidency, the peso could weaken further. In turn, the central bank would likely increase the policy rate—potentially to 6%—to defend the currency on concerns over potential financial instability. This of course comes as the US Federal Reserve is expected to raise rates come December, which could put further downward pressure on the peso.

Mexico’s continued rate increases could come despite economic growth deterioration, which could be further dragged down from trade policy, declining domestic incomes, falling remittances, and higher unemployment (inflated by a return of an undocumented workers from the US—in 2014, 5.6 million Mexican illegal immigrants worked in the US according to PEW Research Center.).

#us election #trump #peso #currency #video #_yfinance:segment=midday_movers #_ymedia:video-channel=investing #_uuid:b5c98090-0e08-386d-a71a-007982154731 #_wp:170126

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Why the jobs report is good for stocks

The headline number for the jobs market came in as a big miss, with US companies adding just 156,000 jobs. Economists were looking for 172,000. Meanwhile, the unemployment rate ticked up from 4.9% to 5.0%.

The report, however, reflects underlying economic strength.

And all this means good things for stocks. Why? The disappointing headline doesn’t increase pressure on the Fed to raise rates near-term, something that has caused at least temporary downward pressure on indices. But the underlying economic strength reflects long-term improvement. In other words, the so-called “Goldilocks scenario”—which the latest jobs report fits perfectly into–continues to mean good news for the markets, according to Renaissance head of economics Neil Dutta.

“This is a good number for the equity market,” Dutta said. “Steady growth in aggregate hours and gains in earnings imply solid consumer spending. Meanwhile, the unemployment rate ticked up …This allows the Fed to move slowly as it implies rising potential growth,” Dutta said.

Incomes up, labor force growing, housing market strong

Incomes in September grew the most since January, according to Renaissance Macro Research. Aggregate hours worked in September rose 9.4% month-over-month while average hourly earnings rose 0.2%. Total private income rose 0.6%, up 4.3% over the last year. Compared to headline inflation growth of 1.1%, this implies health gains in real income, according to Dutta. Average hourly earnings grew 2.6% over the last year and 2.8% so far this year.

Also importantly, the closely watched participation rate rose to 0.1 percentage points to 62.9%, the highest level since March. The prime-age participation rate (those aged 25 to 54) rose 0.2 percentage points to 81.5%, the highest level in almost three years.

In fact, as Deutsche Bank’s Torsten Slok pointed out, the jobs report marked a decline in the number of people outside the labor market for the first time in almost 20 years.

This reinforces that we have reached full employment, given that the participation rate reflects what what we saw in the mid-1990s and 2006 (both periods of full employment), according to Slok.

“The fact that there are fewer outsiders in the labor market to come in and take jobs from insiders has given more bargaining power to insiders and resulted in more upward pressure on wages, in particular for non-managers,” he said.

Housing market strength remains an important driver for the labor market as well. Residential construction jobs grew for the fourth straight month, up 15,700. Real estate employment rose 4,900, up 3.2% over the last year. And architectural and engineering services jobs rose for a fifth straight month, this time by 1,500. And wages in construction are also surging, something the home builders have discussed on recent conference calls as well.

Leading indicators strong

Meanwhile, leading indicators of labor market activity rose. Temporary help employment rose 23,000 in September, up three of the last four months and marking the strongest one-month gain since December to a new cycle high.

Additionally, the workweek—which, as Renaissance Macro Research pointed out, tends to rise ahead of actual headcount—extended to 34.4 hours from 34.3 hours.

Status quo for Fed

Despite all this strength, the lackluster headline number takes pressure off the Fed for the upcoming meeting in November, according to analysts.

After all, this may be the least important jobs report of the year. With the next Fed meeting slated just about a week before the presidential election and with no press conference, expectations are low for any action then—odds of a hike in November sank to 10% from 15% after the data came out. (Fed Chair Janet Yellen has repeatedly defended the Fed’s separation from political considerations, responding to attacks from Republican presidential candidate Donald Trump).

This comes despite increased calls for a near-term hike, from the likes of Cleveland Fed President Loretta Mester, who was one of the three dissenters calling for a hike in the Fed’s most recent September meeting.

Odds of a hike during the Fed’s December meeting increased to 66% on Friday, up from 63%.

#jobs report #participation rate #wage growth #Housing #Wages #fed #_uuid:3025ff8f-d6fc-3b99-8091-889e228ac1c5 #_wp:163888

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It’s all bad news in the restaurant chain business

Olive Garden never-ending pasta passes have historically been a traffic driver

“To say that the bloom is off the fast casual rose is an understatement,” says Bernstein’s Sara Senatore. In other words, people are eating out less.

Industry comparable store sales continued their negative streak in the most recent quarter, and management teams are citing everything from US political uncertainty to terrorism for the decline—raising concerns about broader consumer spending patterns.

Source: Canaccord Genuity estimates, Knapp-Track, Blackbox Intelligence

And Cosi—a struggling player in the industry—filed for bankruptcy, also reflecting challenges.

Olive Garden parent Darden (DRI) said in its first quarter report on Tuesday that the industry was under pressure.

“We assume the industry is going to stay where the industry is going to stay,” Darden CEO Gene Lee said. “We’re not assuming the industry is going to get a whole lot better.”

And on Thursday, Yum Brands (YUM)—parent of Taco Bell, KFC and Pizza Hut—also pointed to industry pressures, specifically competition and reiterated some competitive pressure as well, particularly with its Pizza Hut comparable store sales decline.

“The US market was influenced by an unsuccessful promotion and the competitive environment,” said CEO Greg Creed of the company’s weakest brand. YUM has aimed its value creation efforts on the spin-off of its China business, coming at the end of the month.

The pre-announcement from Sonic (SONC) in September set the tone of even worse-than-expected results to come.

“The shortfall was largely driven by lower-than-expected traffic, reflecting lower consumer spending in restaurants and continued aggressive competitive activity,” said CEO Cliff Hudson in the company’s press release.

These traffic issues come amid company-specific pressures at former industry leader Chipotle (CMG)—which accounted for 19% of industry sales in 2015. Chipotle saw comps decline nearly 27% in first half of the year.

What about the consumer?

So if all of these lackluster results tumble in, should we be worried about the consumer? Not necessarily. Factors working against the fast-casual dining and quick-serve companies may be industry-specific and not suggest underlying weakness for consumers, where strong data continues to be steady, according to Canaccord Genuity’s Lynn Collier.

“We believe the consumer overall is in decent shape given a strong housing market, improving employment and a rising stock market,” Collier wrote in a note.

Instead, a number of issues have had an outsized impact on the restaurant space.

Pricing

Commodity costs are down, making competition more fierce.

Specifically, the gap between “food at home” inflation and “food away from home” inflation has been increasing since the beginning of 2015, according to Collier, which has made the value proposition less attractive for restaurants.

Meanwhile, while declining commodity prices are a good thing for quick-serve input costs, a promotional environment adds more competitive pressure to names, according to analysts.

Wages

Across company conference calls, quick-serve and fast-casual management teams were vocal about labor pressures extending into 2017.

Wage inflation rose 5% in July versus a post-recession average of 2.5%, according to William Blair Research.

Since the beginning of 2016, 12 states have increased their minimum wage, including California, which is up 11% (from $9.00 to $10.00), which is the largest restaurant state in the country.

Meanwhile, the change to the Fair Labor Standards Act (FLSA) in May—which expanded overtime regulation in the US—added additional pressure to restaurants.

While companies—like Panera (PNRA)—have used technology to combat labor pressure, these efforts also require investment dollar outlay.

Unit Growth

Additionally, the US has too many restaurants. According to Canaccord Genuity, supply has been increasing steadily in recent years, with few closures during the recession.

After bottoming in 2009, restaurant employment has been on the rise, reflecting a potential oversupply issue.

In fact, the recent family of initial public offerings in the space in recent years—including Potbelly (PBPB) and Noodles (NDLS)—emphasized unit growth, reflecting the pressure in the space to grow.

More competition

Meanwhile, grocery stores—including Whole Foods (WFM)—have continued to offer more prepared food options, offering formidable competition to quick-serve and casual dining options. And meal delivery options (like Blue Apron) also offer competition for those that are looking to cook at home.

Plus, particularly in large urban areas, novelty options offering an alternative to big chains have increased. While trends don’t look good for fast-casual, the good news is that this doesn’t tell the whole story of consumer sentiment.

#fast causal #quick serve #QSR #restaurants #$SONC #$CMG #$YUM #$DRI #_uuid:9191fca4-d59f-38a6-803f-d97771823ab9 #_wp:158250

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3 top strategists debate the impact of the Fed, the election and earnings

yahoo

The final three months of 2016 comes with the answers to many lingering questions. We’ll get the results of a contentious presidential election in the US, an assessment of third quarter corporate financial health, and—if the markets are right—the first rate hike from the Federal Reserve since December.

So as the fourth quarter kicks off, what should we expect into the end of 2016 and next year?

To help tackle the biggest questions facing the market, three top experts joined Yahoo Finance for a roundtable discussion: Torsten Slok, Chief International Economist from Deutsche Bank; Gina Martin Adams, Head of Equity Strategy at Wells Fargo Securities; and Jonathan Golub, Chief Equity Strategist at RBC Capital Markets.

Fed expectations

The Fed—and commentary from Chair Janet Yellen along with other members—have continued to drive markets. After the Fed passed on raising rates at their meeting in September, the market’s expectations for a rate hike by December have climbed to over 50%.

Slok, Golub and Adams agreed expectations of a 25 basis point rate hike are largely priced into the markets, but Slok explained the lower-for-longer rate environment reflects a Fed that has been too optimistic for too many years.

As seen in the chart below, expectations for rate hikes were significantly higher going back several years.

“A striking development over the last five or six years has been that continuously the Fed has said rate hikes are just around the corner,” Slok said. “But again and again, we have seen that they haven’t been able to deliver on that because the economy didn’t quite perform as they expected … That’s why I think there is this point where the market is not believing that rate hikes are coming. There’s an incredible amount of skepticism around whether the Fed will actually hike and what the speed of rate hikes will be.”

Slok added there is a lot at stake if the Fed doesn’t hike in December, particularly after holding off in March because of China, holding off in June because of Brexit, and holding off in September because of still-low inflation.

Adams added the biggest long-term threat is the flattening of the yield curve, which could result in what’s called an “inverted yield curve”—where long-term debt has a lower yield than short-term debt. This is often a leading indicator of recessions.

“If the 10-year only rallies on a Fed rate hike and the yield curve flattens even more … it means something more about the broader economy,” Adams said.

That said, with the Fed’s dual mandate almost achieved—full employment and 2% inflation—the Fed’s credibility is on the line this December, according to the panelists.

The Trump-Clinton factor

Meanwhile, the continued low-growth macro environment despite an accommodative Fed has been a focus of the contentious presidential race between Donald Trump and Hillary Clinton.

Slok argued that the election won’t have much of an impact on markets, particularly given the low likelihood of new legislation given a divided Congress and continued gridlock. Golub, meanwhile, added that Trump’s policies could significantly impact markets. And Adams pointed out particular sector risks, with healthcare and financials to the downside and late-cycle sectors like industrials to the upside. Of course, protectionist rhetoric and potential policies could impact international conglomerates.

One thing both candidates seem to agree on is fiscal stimulus, which Golub explained may be necessary to drive markets, even as it may not solve underlying structural issues with the economy.

“Even if we have a big push on Keynesian stimulus or infrastructure build, I still think that the underlying backdrop is a tough one in terms of growth. I do think over the next couple of years we are going to see a pickup in economic stimulus. We’re seeing it already in Canada under Trudeau, in Japan under Abe, we’re seeing it in China. There’s buzz about this in Europe, the UK and the US…I think this may be most important story in 2017.”

Earnings season kicking off

Meanwhile, with earnings season just weeks away, there may be hope for company commentary to once again take the driver’s seat. At least market participants are eager for that, according to the panelists.

“We’ve had this ‘earnings recession‘ but the market would like to see those numbers back in positive territory, and from a sentiment point of view, that’s something that’s going to be important to see,” Golub said.

Slok echoed the eagerness of market participants to return to focusing on long-term fundamentals rather than short-term swings in sentiment.

“When I meet with equity investors, I sense there’s some frustration here that a lot of what’s been driving the equity markets for the last many years has been the macro and the Fed,” Slok said. “People I meet say something along the lines of ‘can we please go back and look at earnings as the driver of the market instead of having Fed speak and Fed meetings and the ECB meetings and other macro events being the risk-on, risk-off trade. So that it comes back to really what we all really would prefer—namely that company valuations are really driven by what is the profitability and earnings of the company.”

Groups that could be particularly well positioned ahead of earnings are late-cycle industries, according to Adams. These include energy, materials and industrials. Adams argues they are well-positioned for more growth relative to more defensive sectors like the telecoms and utilities, which outperformed in 2016.

Nonetheless, all sectors may remain in the cross-hairs of Fed commentary and election prognoses—at least for the next couple of months.

For more from Nicole Sinclair please see below:

HBS’ Michael Porter: The biggest economic myths from the debate

Obama to sign executive order to ignite corporate competition

Starbucks CEO: One currency matters most with the consumer

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How one startup is trying to revolutionize the way US companies find talent

yahoo

US companies are having a tough time finding workers with the appropriate skills these days, but a startup called Catalant may have one solution to the so-called skills gap.

Co-founder and CEO Rob Biederman, who said he aims to transform the future of work, explained that his company can help corporations find skilled labor by making the labor market more efficient.

“Labor markets are inefficient and it’s often very difficult to match talent to opportunity when you weren’t able to forecast that far in advance,” he explained.

Catalant: Inspiring the freelance economy

Catalant — which Biederman and two of his Harvard Business School classmates launched in 2013 — initially built its business to match business school students to mostly small- and medium-size companies for freelance assignments.

Now, the company has expanded its freelance base to experienced professionals, typically between 35 and 45 years old who just left management consulting or investment banking. And they’re working with some of the world’s largest companies, including GE (GE), Pfizer (PFE), and Fidelity.

Catalant currently has over 30,000 freelancers — “experts” vetted by the company — on tap and works with over 100 Fortune 1,000 companies.

Experts, along with companies looking for projects, work together to set the fee for a given project. Catalant helps to facilitate a smooth deal — using its online platform — and takes a percentage of the fee. At certain clients, Catalant collects a software fee for additional features or functionality.

Biederman explained that large companies like GE benefit greatly from on-demand expertise, as it allows them to be more nimble and to react to developments in the market.

Meanwhile, more and more workers are looking for non-traditional jobs.

“On our site, [freelancers] can browse any project and put in a bid to work in it. That leads to a professional life that they find more fulfilling,” Biederman said.

New research has shown that that the number of people working as independent contractors — versus holding traditional jobs — has increased significantly, up to 15.8% of total workers currently versus 10.1% a decade ago. This has been aided by technological advancements but also perhaps has been accelerated by gaps in full employment opportunities.

Biederman explained that the contractors at Hourly Nerd — the service powered by Catalant — appreciate flexibility and tasks that align with their specific interests. But there are some drawbacks to freelance work as well, including lack of health insurance and protection measures like paid medical leave.

Still, a study by Intuit found some people choose freelance or contract work because they’re looking to create and control their own schedules, with greater flexibility and the ability to avoid reporting to someone else. In other words, it’s not just that they can’t find a full-time job.

Skills mismatch runway

This may just be the beginning of on-demand growth, according to Biederman.

“This is the first pitch of the first inning in this new sector,” he said. “Work is still thought about as a job description and maybe a 30-year career with the same company. That is a relatively inflexible way to have talent address opportunity.”

Catalant aims to fit into a trend of learning platforms and educational institutions equipping people with skills that can allow them to take tasks and projects on in a more dynamic way, Biederman said.

“So a lot of the ridiculous fluctuations you see in the business cycle come from how hard it is to adjust full time employment. But when everybody is staffable on a moment’s notice, you can react to needs much more quickly,” he explained.

Private company funding

In July, Catalant closed $22 million in Series C funding, led by General Catalyst Partners with participation from Highland Capital Partners, GE Ventures, Mark Cuban, Greylock Partners and Bob Doris of Accanto Partners. This new funding round brought the company’s total amount raised to more than $33M.

But Biederman said while he feels fortunate to have raised cash, there is wariness in the funding market more broadly.

2013 to 2015 was a frothy time for private capital markets, Biederman said, particularly for the new class of on-demand startups that provide a great consumer experience at negative gross margin.

Those companies, he added, have faced difficulty turning profits, which has prompted him to further emphasize a sustainable economic model that can be monetized well, he explained.

Nicole Sinclair is markets correspondent for Yahoo Finance.

#Catalant #freelance #on demand economy #General Catalyst Partners #skills gap #funding #$PFE #$GE #_yf-market-pulse #_yfinance:segment=market_pulse #_ymedia:video-channel=investing #_uuid:fd913043-c14c-3bba-b6bc-48d1cdb8454f #_wp:152100

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How the cloud has helped revive a once-troubled tech company

yahoo

One of the stocks damaged during the dot-com bubble in 2000 has been continuing its comeback.

Ciena (CIEN), the optical telecom equipment maker, saw its revenue drop from $1.6 billion in 2001 to $361 million in 2002, an 80% decline. This hurt the stock significantly, as shown in the chart below—and the company has never fully recovered.

Aggressive network build-outs by communications service providers during the now-termed “dot com bubble”—in anticipation of high-traffic growth—led to network overcapacity. And as the telecommunications industry experienced a severe downturn in early 2001, equipment suppliers like Ciena were vulnerable.

Meanwhile, the threat of new competitors, emerging technology and price competition caused operators to cut back on network build-outs, with industry spending on optical networking equipment falling 65% from $27 billion in 2001 to $9.4 billion in 2002.

But CEO Gary Smith told Yahoo Finance the company is firmly in a new era of growth.

The cloud effect

From 2001 to 2005, Ciena made six acquisitions to broaden its markets and include new customer segments. This diversification then extended to an aggressive global roll-out.

And Smith explained that the Ciena of today—which supports more than 1,300 customers worldwide—is benefitting from early stages of increased demand for data.

As more people around the world migrate data and applications to the cloud, we need a lot more physical infrastructure to support that build-out, according to Smith. The company benefits from both the build-out of telecommunications companies and from internet 2.0 companies.

Telecom companies like AT&T (T) and Verizon (VZ)—Ciena’s traditional bread-and-butter customers—have been continuing to spend to build out their infrastructure, Smith explained. That’s happening even as both companies also focus on acquisitions—DIRECTV and Yahoo Finance parent company Yahoo (YHOO), respectively.

“There’s a big build-out right now,” Smith explained. “They’re building out infrastructure to get content to the users.”

But importantly, over 37% of Ciena’s business came from non-traditional telcom infrastructure in its latest quarter. That includes content companies like Facebook (FB) that have been focusing on developing data center connectivity, which Smith said is a key growth market.

Meanwhile, the optical business—known traditionally as a cyclical one—is less vulnerable to fluctuations because it has a more diverse customer base today, Smith said.

“I think we’ve demonstrated that in the last five or six years if you look at the company’s growth,” Smith said.

Ciena is also benefiting from the growing “internet of things,” which includes even more “smart devices,” including self-driving cars.

“They require mobile connectivity,” Smith explained, adding that Ciena is key for growth in this area. “The thing about mobile is that it’s only mobile for a short distance … So all of those demand characteristics we stand to benefit from.”

Last quarter, Ciena reported revenue growth of 11%, citing share gains and market opportunities, and reiterated its ability to resist pricing pressure.

International sweet spot

While internet upgrades and growth in the US are key drivers, Smith emphasized the real push is in international markets, particularly in developing countries.

India, which is Ciena’s fastest growing market, may hold the greatest potential, particularly from mobile, he said.

“You’re seeing big-build out basically skipping out the terrestrial, fixed line evolution that the rest of the industrial world has gone into,” Smith said. “Their first experience of the internet is most often on the mobile phone.”

Nicole Sinclair is markets correspondent for Yahoo Finance.

#Ciena #optical #internet of things #technology #$CIEN #$FB #$YHOO #$VZ #$T #_uuid:5d1034fa-b02d-3055-a1d0-eb706425321a #_wp:152057

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How a thriving theme park chain reflects a shift in consumers' mentality

yahoo

The theme park business is thriving because of a “shift” in consumers’ mentality, according to Matt Ouimet, CEO of Cedar Fair (FUN)—which owns and operates 11 amusement parks and 2 water parks across North America.

“I think what we’re experiencing is this shift of the consumer from a retail mentality to an experience mentality,” Ouimet said. “Clearly consumers are looking for experiences and we’re part of that.”

Indeed, earlier this year the Washington Post reported that shoppers continue to choose experiences over stuff, as reflected in surges in airline tickets, restaurant sales and streaming services. Meanwhile, traditional retailers like Macy’s (M), Nordstrom (JWN) and Gap (GPS) continue to report declining sales.

Cedar Fair, which announced record results through Labor Day weekend, serves as a value-oriented “staycation,” according to Ouimet.

And while summer may be over, the company has aimed to expand the momentum into fall with Halloween—with 15% of the year’s business coming in October—and winter, with a WinterFest offering.

Low gas prices have helped to some degree as well, Ouimet added, though he doesn’t see that as being as important a driver to his parks, which include Dorney Park and Kings Dominion.

Ouimet added his company doesn’t compete directly with Disney (DIS)—which has struggled amid concerns about ESPN subscribers and future growth despite its theme park strength—but instead offers a value-oriented alternative.

Shareholder return

Ouimet also said he credits much of the stock’s strength to its commitment to return capital to shareholders.

The company, a master limited partnership (MLP), sports a 6% dividend yield.

“People do own us to a great degree because of that 6% yield,” he said. “Over the last 30 years on average, we’ve returned 17% to our investors.”

While the company continues to invest to improve its parks—especially to retain its ticket holders, 50% of whom are season pass holders—the top priority is returning cash to shareholders, Ouimet said.

Nicole Sinclair is markets correspondent for Yahoo Finance.

#theme parks #consumer #$FUN #$gps #$M #$JWN #$DIS #$SIX #_uuid:7980e889-6087-3a2c-8972-2f53368415fb #_wp:152084

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HBS' Michael Porter: The biggest economic myths from the debate

yahoo

The first presidential debate failed to tackle key economic issues head-on, according to Harvard Business School (HBS) Professor Michael Porter.

“The debate was disappointing,” Porter said. “It continued a pattern that we’ve seen for multiple election cycles now of the players focusing on dividing as opposed to reflecting on the valid perspectives that have to be put together.”

Porter added the issues were portrayed too simplistically and were too politicized.

“We’re not talking about what the country really needs,” he said. “We’re talking about a political game. We’re talking about how to get people who are confused and angry and uncertain and scared to vote for one or the other. We’re doing it through lack of sophistication in talking about the issues.”

“Let’s focus on what we really have to change and not blame somebody else for ultimately what we all have to do together,” he said.

Instead of blaming one another, Porter said, the candidates should focus on how US workers can compete in the global economy.

“There’s no doubt that people at lower incomes and lower skill levels are the ones that have been taking the brunt of things lately, but ultimately the root cause of that is not evil business … It’s actually our skills training where we are falling behind,” he said.

Porter emphasized eight key issues the candidates need to address, as highlighted in HBS’ recent report on competitiveness.

The state of the economy

Porter explained that the debate moderator, NBC’s Lester Holt, portrayed the US economy as rosier than it actually is when he referenced “a record six straight years of job growth” and incomes that “increased at a record rate.” In reality, Porter said, the US is still well behind despite the recovery since the 2009 recession.

Source: HBS Competitiveness Study

Still, Trump offered few solutions to America’s economic woes, instead making an apparent attempt to appeal to voters’ emotions.

“Our jobs are fleeing the country,” Trump said during the debate. “They’re going to Mexico. They’re going to many other countries. You look at what China is doing … They’re devaluing their currency, and there’s nobody in our government to fight them.”

Blame game: Trade deals

Negative rhetoric surrounding trade deals was high during the debate—Trump declared the North American Free Trade Agreement (NAFTA) a failure. Clinton, meanwhile, defended her disapproval of the proposed Trans-Pacific Partnership (TPP), which she had previously supported.

Porter said politics—simplistic and divisive—has overpowered logic in this category.

“We want trade,” Porter said, crediting Clinton’s acknowledgement of this need. “Ninety-five percent of people live outside the United States. If we just sell to ourselves and we can’t export, we’re not going to do very well as an economy. Trade deals are fundamentally about opening up markets for American exports.”

“On NAFTA, Trump’s just wrong,” Porter said. “There’s no evidence that NAFTA had a disastrous impact on anything in the US economy. On the TPP, I was disappointed with Hillary Clinton—she had it right the first time. The place where we face the most obstacles to trade in America right now that matter the most are in Asia. So that Trans Pacific Partnership that’s finally opening up some of these Asian economies that already have opened imports to the US, those are good.”

Tax reform necessary

Porter emphasized the near-term need for corporate tax reform—given that the US has the highest tax rate in the world—something both candidates support. However, again, the candidates aren’t acknowledging the important nuances of potential reforms, he said.

For example, Porter explained that Trump wants to decrease corporate taxes to 15% from 35%.

“We don’t need to do that—we only need to get it down to around 25%,” Porter explained. “And if we eliminate a bunch of loopholes that allow companies to deduct things that they shouldn’t really deduct, we can actually bring that tax rate for corporations down revenue neutrally.”

The role of business

The way business was portrayed during the debate was negative in many ways; Trump talked about how it was “good business” to take advantage of the 2009 housing crisis while Clinton talked about big business as predatory.

“This is the great paradox of the whole discussion that has emerged in America,” Porter said. “It’s pretty hard to be pro-jobs and anti-business.”

Clinton emphasized small business growth, but Porter explained that elevating all business is key —especially as large businesses create most of the jobs now.

Porter emphasized that we need a “real plan” versus “one or two hot areas to distinguish themselves from the other side.” A number of things need to happen in America, he explained.

“Claiming that it’s just about raising taxes on the wealthy or ending trade deals, that’s just not going to get us there,” Porter said.

The good news? The US decline in competitiveness is largely self-inflicted, meaning we can come back, Porter said. As long as politicians can be honest about how we’re really doing and what really needs to happen—avoiding “simple magic wands.”

For more information on the HBS competitiveness report, please see below:

Harvard economist never thought his new study would take him where it did

Harvard professor identifies the ‘worst nightmare’ in America right now

Harvard study singles out a game-changing economic opportunity: TAX REFORM

There’s a silver lining behind the dark clouds hanging over US businesses

Harvard Business Dean tells us what this huge 5-year study is all about

Harvard Business Dean: The post-crisis monetary policy is ‘running out of runway’

How improved infrastructure could end America’s vicious cycle of poverty

Some companies have taken the next obvious step to filling jobs that sit vacant

There’s one piece of tax reform that would have a real impact with little resistance America’s outdated education system isn’t producing the workers companies need Revitalizing small businesses is key to drive America’s economic growth

#_yf-market-pulse #_yfinance:segment=market_pulse #_ymedia:video-channel=investing #_uuid:a666331f-9cef-3689-aff5-efc04d1ef388 #_wp:145632

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Two different ways a Trump presidency could affect the markets

Credit: Gage Skidmore/Wikimedia Commons

Ahead of Monday’s highly anticipated presidential debate, analysts—including Morgan Stanley’s Michael Zezas—say the markets are not anticipating a Donald Trump victory.

But that could change soon, especially since Trump has experienced recent gains in the polls over Hillary Clinton. If those gains hold, or even improve, then the markets may begin to anticipate the early priorities Trump has laid out, according to a new Morgan Stanley note led by Zezas.

Specifically, Zezas argues that Trump will have both the motive and opportunity to act on tax and trade reform in the early days of his presidency, given that he may face less resistance on these two issues than he would on others. Both these priorities have implications for the markets.

If a Trump presidency moves from “policy incrementalism” to real action on proposals, there could be some potentially disruptive consequences.

The “accidental stimulus”

In this scenario, Trump does not take immediate action on trade but instead decides to move forward with tax reform because it would be an “easy win,” as Morgan Stanley notes.

“While we do not expect Republicans, at least in Congress, to sell a tax cut as stimulus in the textbook sense (i.e.,a near-term increase in government deficit), it could be effectively so in reality,” the Morgan Stanley note explained.

This could lead to a “Brexit-like” outcome for markets, Morgan Stanley explained: “We think investors should, for example, at least consider the possibility of a Brexit-like outcome for markets in this scenario, where a Trump win is initially jeered by risk markets based on heightened uncertainty, but recover over time when the ‘accidental stimulus’ becomes apparent.”

‘Fortress America’

A centerpiece of Trump’s campaign rhetoric has been protectionism and pointing to trade deals as “disasters,” supporting his likely push for new measures. As Morgan Stanley notes, Trump could attempt to unilaterally withdraw from trade agreements like the North American Free Trade Agreement (article 2205 of NAFTA would let the US withdraw with six months’ notice).

Morgan Stanley says in a reality where Trump pushes forward these measures—a “fortress America scenario”—the market could have a negative reaction.

If he were elected president, Trump would have some influence over US trade deals. Congress has delegated authority to the presidency to regulate trade via several statues, the Peterson Institute has noted.

For example, under the Trade Act of 1974, the president can impose temporary tariffs of up to 15% for up to 150 days against a country if there’s a large balance of payments surplus. Under the Trade Expansion Act of 1962, the president can impose tariffs or quotes if there’s a finding of an “adverse impact on national security from imports.”

Tariffs would be disruptive to the economy, according to Morgan Stanley, especially if paired with renegotiation of trade agreements like NAFTA. And even if these changes face legal scrutiny over time, Morgan Stanley explains the short-term impacts could affect the market significantly.

The bottom line: Ultimately, tension is high between the potential positives of Trump’s tax proposals versus the risks of his protectionist policies. Ultimately the uncertainty of how it will all pan out may be the biggest near-term risk to the market.

Nicole Sinclair is markets correspondent for Yahoo Finance.

#donald trump #hillary clinton #_uuid:b991c9d3-af98-37be-8041-c5561c7ed94c #_wp:143115

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Senator Tom Coburn on drug pricing and political gridlock

yahoo

When it comes to hot-button political topics, soaring drug prices are at the top of the list.

Companies from Mylan (MYL) to Valeant (VRX) have come under fire for soaring prices, and Tom Coburn, former Republican Senator from Oklahoma, says more medical innovation is necessary to keep this from happening.

“There are a lot of products that aren’t available to American citizens because of our regulatory environment,” Coburn said. “As a practicing physician for almost 30 years, not having available things that we should have available because we have a complex regulatory environment doesn’t make any sense to me, especially when there’s no risk associated.”

He emphasized that being overly cautious has put the US and consumers at a disadvantage—with the average cost of a new drug today at $1 billion to get through the FDA.

“So you gotta have pretty good pricing or have a whole lot of people that need it of you’re gonna ever recapture your costs and make a profit,” Coburn said. “It’s not about lessening safety standards. It’s about being smart, cogent and competitive on the world market.”

Given that competition does lower prices, Coburn explained that once safety and efficacy can be proven, there should be a “faster and less costly approval mechanism which would also lower the cost.”

Bottleneck in Washington

Lack of progress in tackling rising drug prices is emblematic of the slow pace of progress in DC, Coburn said.

“What we really lack is leadership,” he said. “It’s a problem with leadership in our country at multiple levels in both parties that say, ‘I’d rather have an election win than do what’s good for the country.’ And I think that’s unfortunate for us,” Coburn said.

Coburn, who was floated as an independent presidential candidate, said polarization is disappointing.

“I’m gonna vote for Donald Trump simply because I’m another one of those disaffected Americans that I’m tired of the political class and what they’ve done to me,” he said. “That’s why I got in politics in the first place. That’s why I left the Senate, because it wasn’t fixable there. It is not fixable in the Senate,” Coburn said.

Coburn said he remains pessimistic on the possibility of progress.

“A president isn’t gonna change our country unless we see real visionary leadership that calls us all to a higher purpose,” he said. “That’s what needs to happen.”

#concordia #Tom Coburn #gridlock #drug pricing #$vrx #$myl #_yfinance:segment=market_pulse #_ymedia:video-channel=investing #_uuid:a8eb9687-ab49-350f-b7d5-259b75f76c21 #_wp:133448

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Refugee and Boston Marathon winner: ‘Unless you are a Native American, we are all immigrants'

yahoo

Over 65 million people worldwide have been forced to flee their homes as a result of poverty, inequality, violent conflict, and climate change—including over 21 million refugees, 3 million asylum-seekers and over 40 million internally displaced people.

Meb Keflezighi, a refugee who came to the US from Eritrea in Africa in 1987, joined Yahoo Finance at the Concordia Summit to talk about the refugee crisis.

“Refugees and immigrants are people,” he said. “But sometimes you hear the negative aspects about refugees and immigrants … It’s tough to be an immigrant and displaced from your home and finding a new beginning.”

Keflezighi inspired the nation with his 2014 Boston Marathon victory, one year after the finish-line bombing.

“Unless you are a Native American, we are all immigrants,” he said. “The Boston Marathon bombing happened by terrorists. I came back and won the title for us,” he said.

When it comes to refugees, Keflezighi said they should not all be painted with the same brush.

“There are some here and there that you hear—probably like 1 or 2%—that are horrible contributors to society. But there’s 99% that are positive contributors to society. So do we want to focus on the 1% or the 99%?” he said.

Keflezighi added there were many challenges (including learning a new language and being part of a new culture) when he came over to the US—having lived in a village in Eritrea with no electricity where his brothers hid in the bushes so they would not be forced to join the military to fight against Ethiopia. He added he remains grateful to the many who helped him along the way.

#Skittles #refugee #Meb Keflezighi #boston marathon #Don Jr #_yfinance:segment=market_pulse #_ymedia:video-channel=investing #_uuid:276eb743-f3e7-30b3-a081-0a405a19275e #_wp:133444

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Revitalizing small businesses is key to drive America's economic growth

yahoo

Small businesses are considered the backbone of the economy, particularly as half the people who work in this country own or work for a small business.

But America’s policies surrounding small businesses are in dire need of reform, according to a recent Harvard Business School (HBS) report on competitiveness.

Professor Karen Mills, who was a member of President Barack Obama’s cabinet running the Small Business Administration (SBA), explained that in order to make America more competitive, leaders need to focus on small business.

“What drives our economy? What drives innovation? Really our entrepreneurs. So if we don’t have all our entrepreneurs working, creating jobs, our economy won’t be as vibrant as it needs to be, and in some ways that’s one of the things we’re worried about right now,” Mills said.

Mills explained that she sees promise in Hillary Clinton’s recently unveiled small business plan, which aims to tackle some of the gravest inequities between big corporations and smaller operations.

A path to the middle-class

While venture-backed companies have been able to thrive in this economy—with tech behemoth Facebook (FB) being the most high-profile example of success—the majority of small businesses are struggling, according to Mills.

After all, not all small businesses are the same.

“On the one hand, entrepreneurs at the higher end, the high tech companies, the venture-backed companies, are thriving, and on the other hand, the rate of entrepreneurship in this country is going down,” Mills explained.

The challenge to build the middle class falls largely on small business creation, she added.

“Entrepreneurship absolutely is a path to the middle class,” Mills said. “It’s traditionally been the American dream….Now, half the people in this country don’t believe the American dream is available to them. And that’s partly related, we think, to this decline in the rate of startups.”

One key solution, explained Mills, is the availability of capital—not just for the venture startups in Silicon Valley but for the smart ideas in Iowa and in South Carolina and Mississippi.

“If we don’t have what we call an inclusive view of entrepreneurship, women, minority-owned businesses, different geographies, we’re not going to get all of our new startups and all of our entrepreneurs to contribute, and we won’t have the economy and the growth that we need,” Mills explained.

For more on the HBS Competitiveness study, please see below: