Activist Investor Continues to Shake Up GE

General Electric has granted Mr. Garden, co-founder of the activist investor Trian Asset Management, a seat on the board of directors. This will give Mr. Peltz, the Chief Investment Officer at Trian, more influence over the conglomerate’s future cost-cutting programs. Mr. Flannery, the current CEO and Chairman of GE, has already announced initiatives to reduce costs by cutting corporate staff, delaying construction of the new Boston headquarter, and selling the company’s corporate fleet used for executive trips. Expect to see additional drastic cuts when Mr. Flannery unveils new cost-cutting plans in November.

The effect of Mr. Garden joining General Electric’s board of directors and the additional of new c-level executives at the conglomerate will be recognized soon. November may change the future of General Electric as there are investors who question the long-standing tradition of General Electric’s dividend payments. Mr. Flannery is under enormous pressure to meet the expectations of the conglomerate’s investors.

https://www.wsj.com/articles/trian-takes-board-seat-at-general-electric-1507549221

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Amazon’s Luxury Problem

Amazon hopes to penetrate the fashion industry, increase revenue, and build loyalty among high-income customers by establishing itself as a distributor of luxury fashion merchandise.

However, Amazon has faced a lot of friction in this pursuit because many luxury brands do not want to undermine the exclusivity and price of their goods. Companies including Swatch have requested that Amazon must implement higher security and regulation measures to ensure that counterfeit goods will not circulate as a condition for the arrangement. In response, Amazon argues that the responsibility for controlling circulation of merchandise lies with the company.

Amazon has indicated that it will take action against counterfeit goods and unauthorized retailers. However, Amazon is reluctant to stop legitimate products from being sold by outside distributors. Amazon has secured its place to be a direct distributor for many brands including Nike.

WSJ

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Intel Potential Repatriation

Intel’s treasurer, Ravi Jacob, said Intel Corp. could repatriate up to $10 billion as a result of the potential U.S. tax overhaul. The Trump administration could lower the rate of repatriation to 10% or less. Intel has about $20 billion in cash and the current tax to repatriate cash held overseas is 35%.

The Company has more than 50% of its cash held offshore and could use some of it to settle the company’s $32 billion debt and for a special dividend coupled with a share buyback.

Intel’s plans could change should Congress and President Trump move ahead and require companies pay a one-time tax, regardless of whether they bring that money back to the U.S. or keep it offshore.

U.S. companies held a record $1.3 trillion overseas as of 2016, according to Moody’s Investors Service. Total U.S. corporate cash holdings was $1.84 trillion.

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Procter & Gamble vs. Nelson Peltz

Activist investor Nelson Peltz wants P&G to radically revise its strategy. The Cincinnati giant has recently launched a new extra-long overnight pad in China called the “Koala HuHu,” that targets teenage girls with cartoon marsupials snoozing on the box. The product is beating competitors despite its higher price.

The activist investor, by contrast, argues the company should shift direction and target millennials by offering small brands “with emotion, brands that’s got a story behind it, a brand that brings value to the environment or is organic.”

Many of the largest consumer companies have found it harder to adapt to rapidly changing consumer tastes and the rise of smaller brands. The battle between Peltz and P&G will ultimately help determine the industry’s future direction.

WSJ

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General Electric Loses Top Executives

Three top executives are leaving General Electric Co. as John Flannery, new CEO since August, starts laying out what his long-term plans are. Jeff Bornstein, GE’s chief financial officer, Beth Comstock, chief marketing officer, and John Rice, top international executive, will depart at the end of 2017.

Mr. Bornstein, GE vice chair and chief financial officer will leave the Company after 28 years of service. He was being considered as a potential successor to former CEO Immelt and Mr. Flannery said, “He has been a valuable change agent, most notably in overseeing the highly successful disposition of more than $190 billion of assets at GE Capital as we completed our pivot to a more focused industrial company.”

Vice Chair Beth Comstock, top female executive, will be retiring from GE after 27 years of service and Mr. Rice, who has led several of the business units, will leave after 39 years at GE.

The company is going through extensive cost cuts and leadership changes after a long record of struggles and lower margin businesses. The reform also comes after investors, including activist Nelson Peltz, were said to be unhappy with the company’s performance under the former CEO Mr. Immelt.

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Indexes at All-Time Highs – Fear at All-Time Lows

The markets broke their previous highs on Friday and continue to juggernaut through the beginning of the final quarter of 2017.  Auto sales have risen at the fastest pace of the year. Expected corporate tax cuts from the Trump presidency has also been a stimulus driving stock prices upwards. Similar to US markets, markets in Japan and Europe have also been steadily rising. This provides a stable intercontinental marketplace and should allow rate increases to push treasury yields upwards without heavily impacting inflation.

As markets continue to slowly surge, consumer confidence has also been on the rise. The CBOE Volatility index has dwindled to all-time lows, falling 4.6% on Thursday. This can be dangerous as investors are lulled into a sense of security and have not been purchasing portfolio insurance. A recession can be around the corner, and investors are not well-prepared.

WSJ

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Will Harvey and Irma Aftermath Affect Rate Hikes?

September US job reports have shown a monthly decrease for the first time in seven years with 33,000 jobs lost. The market believes these numbers are ephemeral and a result of Harvey and Irma’s repercussions in primarily the restaurant industry. Furthermore, the market maintains 90% confidence in a third rate hike at the Fed’s final meeting this year on December 12th and 13th.

Before the hurricanes, Thomson Reuters announced a jobs increase of 90,000 in September, pushing the unemployment rate down to 4.2% from 4.4%. Another bullish sign for the economy was the 12 cent increase in average hourly salary, a 2.9% gain for the year. This is a reassuring sign that inflation is above 2%, a trend that has recently been called into question with the impending rate hikes, which would favor further rate hikes at the end of this year and into the next.

CNBC – Rates Are Jumping      CNBC – Fed’s Kaplan

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