Category Archives: Economy

Warren Buffett’s Berkshire Hathaway Becomes Bank of America’s Largest Shareholder

Warren Buffett has bought 700 million shares of Bank of America at a significantly reduced price, gaining more than $11 billion. The move comes after his $5 billion investment in 2011 when the bank was floundering, which left him with the option to purchase discounted shares by 2021.

“I am impressed with the profit-generating abilities of the franchise and that they are acting aggressively to put their challenges behind them,” Buffett said at the time.

In a press release last week, Bank of America CEO Brian Moynihan stated:

“In 2011, we welcomed Berkshire Hathaway as a shareholder, and we appreciate their continued support now as our largest shareholder.”

The press release revealed that Buffett’s holding company Berkshire Hathaway had claimed its right to purchase the shares at $7.14 per share- a dramatically reduced price from the $23.58 closing price. This investment has made Buffett the Bank’s largest shareholder.

Buffett had indicated his intentions earlier this year by stating that he would act on his right to buy the shares if Bank of America successfully increased its annual dividend 44 cents or more by 2021. Since his initial investment in 2011, Bank of America’s stock has climbed 209%.

Connecticut and the Changes for Corporate Taxpayers

Changes are being implemented in rules for Connecticut’s corporate taxpayers.  Earlier this year, on April 18, a Special Notice 2017(1) was issued by the Connecticut Department of Revenue Service (DRS).  This is applicable to both individual and corporate taxpayers.

These changes are not so simple to understand.  It is thus advisable for taxpayers to employ a local Connecticut financial advisor company such as BCI Financial Corporation, Connecticut Financial or Essex Financial Services to get the complete lowdown on how to proceed.  Making an error with new laws will ultimately cost an individual/corporation a lot more than initially using a company such as Connecticut’s Essex Financial.

People at these local firms make it their business to fully comprehend the implications of such changes and are therefore able to accurately counsel taxpayers conducting their business transactions.  These new amendments to the law impacts those working in multiple jurisdictions as well as Connecticut’s recent apportionment modifications.

Essex Connecticut is one firm that can advise on the new rules within the Special Notice 2017(1) which came into effect for taxpayers for tax years on or after January of this year.  Corporate taxpayers are now required to be restricted in the use of a single sales factor appointment formula simultaneous to the apportionment rules for tax years that begin on or after January 1, 2016.

Insurers Grapple with Economic Costs of Cyber Attacks

Lloyd’s of London partnered with risk-modeling firm Cyence to publish a report examining the potential economic losses which would be incurred from a major hack of a cloud service provider or a cyber-attack on computer operating systems which are used by business across the planet.

The report estimated that a major, global cyber-attack could result in an average of $53 billion in economic damage. That figure is on par with the cost of mega-disasters of the recent past, like Superstorm Sandy of 2012 and other unprecedented natural disasters.

“Because cyber is virtual, it is such a difficult task to understand how it will accumulate in a big event,” Lloyd’s of London chief executive Inga Beale stated.

The economic costs of an attack on a cloud provider could make the $8 billion in damages of the “WannaCry” ransom attack look like peanuts. That attack, which occurred this past May, spread to 100 countries.

The economic costs typically include interruptions in business plus the cost of fixing computers damaged in the attacks.

The report from Lloyds comes on the heels of a US government warning to industrial companies to be aware of a hacking campaign which could target the nuclear and other energy sectors.

In June a virus labeled “NotPetya” spread from infected computers in Ukraine to businesses all over the world. It worked by encrypting data on infected computers, thus causing them to be unusable. The attack interfered with activity at ports, factories and law firms. “NotPetya cost the world $850 million in economic losses.

World’s Largest Private Equity Fund Investing in Technology

Softbank Vision Fund, the world’s largest private equity fund, recently said that it has raised over $93 billion to invest in technology. As they said in a statement, “The next stage of the Information Revolution is under way, and building the businesses that will make this possible will require unprecedented large-scale, long-term investment.”

The fund is backed by Japan’s Softbank Group and Saudi Arabia’s main sovereign wealth fund. Other investors in the group include Abu Dhabi’s Mubadala Investment, Apple Inc., Qualcomm, Taiwan’s Foxconn Technology and Japan’s Sharp Corp.

Learn about more of the details here.

Economy Dragging in Q1 2017

Steven Mnuchin’s Official Portrait as the 77th U.S. Secretary of the Treasury.

First Quarter figures are in, and they are not pretty. The country’s GDP grew at a three-year low rate of only 0.7 percent during the first three months of 2017, the slowest growth since January-March 2014.

The news of the poor economic performance comes in stark contrast to the great expectations held by newly elected President Donald Trump who campaigned on the promise of raising the growth rate to 4 percent.

In an attempt to make good on that promise the White House announced last week that it would like to cut corporate taxes.

President Trump’s Treasury Secretary Steven Mnuchin released the administration’s tax plan, which includes a proposal to cut business tax to 15 percent, down from the current 35 percent. The plan also includes tax incentives for companies to return their overseas investments to the mainland, and cut the tax rate for individuals.

Reassuringly for the new administration, there has been a trend in recent years for the Q1 figures to be lower than the rest of the year.

“US GDP figures are typically weaker in the first quarter, so this reading is in line with the seasonal trend,” said Nancy Curtin, chief investment officer at Close Brothers Asset Management.
“We haven’t yet had the expected fiscal stimulus from Trump, the effects of which may not be seen until the end of this year or the start of 2018.”

Recent Nominations to the Trump Administration

In recent news, there have been a number of nominations for positions in the President Trump government that were just announced.

Elaine McCusker has been nominated as Principal Deputy Under Secretary of Defense, comptroller. She is the Director of Resources and Analysis at U.S. Central Command. Before this, she was a staff member on the Armed Services Committee, the Department of Navy Headquarters and the Office of the Under Secretary of Defense (Comptroller).

Another nominee, James Donovan, has been with Goldman Sachs since 1993 and has now been nominated to be Deputy Treasury Secretary. In this position, he will be the assistant to Steven Mnuchin and will work to carry out the administration’s economic policies. Jim Donovan became a partner at Goldman Sachs in 2000 and he is also an adjunct professor at the University of Virginia School of Law.

Another nominee is David Norquist for Under Secretary of Defense, Comptroller. He is currently a partner at Kearney and Company and he has been a staffer on the House Appropriations Defense Subcommittee and Chief Financial Officer for the Department of Homeland Security. Norquist previously had this job from 2006 to 2008.

Data Points to Strengthening Economy

The Commerce Department reported factory goods orders up by 1.2 percent in January. That increase followed a similar increase of 1.3 percent in December. The two data points signal that the recovery in the manufacturing sector is accelerating due to the rise in prices for commodities fuel a greater demand for machinery.

Factory orders are up by 5.5 percent compared to a year ago, while total shipments of manufactured items rose by 0.2 percent after a strong showing of 2.5 percent in December.

Manufacturing is an important factor when assessing overall economic strength in the US, as it accounts for about 12 percent of the overall economy. The data suggests that the economy is recovering from the pounding it took due to rock-bottom oil prices, a strong dollar, and an inventory lag.

The early stages of this recovery were highlighted by a poll conducted last week which showed that the country’s factory activity climbed to a 2.5 year high in February. In addition, there are hopes that promises made by the Trump administration for tax reform, including corporate tax cuts, could add to the economic upturn. Confidence is up although the prospect of future tax cuts has not yet translated into a stronger investment in capital goods.

Treasury Secretary Says No Cuts to Entitlements in Trump’s New Budget

Steven Mnuchin’s Official Portrait as the 77th U.S. Secretary of the Treasury.

Treasury Secretary Steven Mnuchin explained on the Fox News program “Sunday Morning Futures” that President Donald Trump’s first budget proposal will refrain from any cuts to government entitlement programs.

He also said that Trump’s scheduled address to the joint session of Congress this coming Tuesday will announce the new administration’s far-reaching plans to cut taxes for the middle class, simplify the tax system and to make US companies more globally competitive.

Mnuchin said that his top priority is tax reform, and stated that the budget will not ask for any drop in spending for federal benefits programs, known as “entitlements.”

“We are not touching those now. So don’t expect to see that as part of this budget, OK,” Mnuchin said of the programs, according to a transcript provided by Fox. “We are very focused on other aspects and that’s what’s very important to us. And that’s the president’s priority.”

Trump’s campaign promises included not touching Social Security, Medicare health care for seniors, and not the Medicaid programs, which is healthcare for the poor. Continuing to fund these programs at present levels, together with tax cuts for the middle class, would help the working class and retirees, who happened to be a large portion of his supporters.

Inventories, Sales Up in December

The Department of Commerce reported that US business inventories were up better than expected in December, while sales rose by their biggest percentage since 2011. The announcement said that inventories went up by 0.4 percent, while November’s figure had to be re-stated as 0.8 percent in place of the previously announced 0.7 percent.

Business inventories are a crucial factor in the determination of the gross domestic product, or GDP.

Retail inventories were also up by 0.1 percent in December and not the 0 which had been predicted before the report was disseminated. November’s inventories climbed by 0.9 percent. Without cars the retail inventories were 0.4 percent and not the predicted 0.2 percent. This is the figure that is used to calculate GDP. November’s rise was 0.5 percent.

Inventory investment factored in a whole percentage point to the 1.9 percent annualized growth rate for the economy in the fourth quarter of 2016. That was the second quarterly contribution to the growth of GDP in a row. Since the second quarter of 2015 inventories had been holding down the growth rate of GDP.

December’s business sales climbed by 2.0 percent, the largest since March of 2011, and came right after a 0.3 percent growth in sales of November. One way to look at the sales pace versus inventory is by the measure of how long it would take to clear the shelves. With December’s sales pace it would take 1.35 months for businesses to clear the shelves, while at November’s pace it would take 1.38 months.

Optimism Index Has Most Growth in 36 Years

Simpleicon Business by SimpleIcon.

December was a great month of optimism among America’s small businesses as it soared its greatest amount since 1980. The presidential election is partly responsible for the surge, according to observers.

Washington-based National Federation of Independent Business’s index climbed by 7.4 points in December, arriving at its highest since 2004, at 105.8. Seven of its 10 components went up last month. Seventy-three percent of the monthly surge was caused by happier opinions about the future of sales and the economy, said the group.

Many business owners declared that now is a good time to grow their businesses, while more companies said they plan to increase their investment in their companies as well as continue to hire more employees.

“We haven’t seen numbers like this in a long time,” Juanita Duggan, president and chief executive of the NFIB. “Small business is ready for a breakout, and that can only mean very good things for the U.S. economy. Business owners are feeling better about taking risks and making investments.”

The NFIB report was based on the answers 619 small-business owners gave to a survey taken throughout December, 2016. Small companies represent over 99 percent of all employers in the US. Small businesses are defined as a company with less than 500 workers.

Half of all those who answered the survey said they expect better business conditions in the coming six months, the largest percentage since March 2002.