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What does homeowners insurance cover? Here's how a standard policy works

Sun, 10/06/2019 - 10:45am

  • Homeowners insurance covers two main types of loss: damage to property and belongings and liability for personal injury. 
  • Most standard policies also cover loss of use, meaning the insurance company will pay for the homeowner to stay elsewhere while the home is being repaired.
  • Basic homeowners insurance covers financial loss caused by weather (e.g. lightning and hail) and catastrophic events (e.g. fire and explosions). 
  • Most homeowners policies do not, however, protect against flooding, earthquakes, neglect, power failure, war, or intentional loss.
  • Read more personal finance coverage.

A home is a huge financial asset, so it's always a good idea to have protection.

When you take out a mortgage to buy a home, you'll likely be required by the lender to have homeowners insurance to protect the home itself and everything (and everyone) inside it.

Generally, homeowners insurance covers two main types of loss: damage to property and belongings and liability for personal injury that involves the homeowner or their family members.

What does homeowners insurance cover?

A basic coverage policy will protect a homeowner from loss caused by fire, lightning, windstorm (including tornadoes), hail, aircraft, riot or civil commotion, vehicles, smoke, explosion, theft, volcanic eruption, and vandalism.

Broad coverage adds six more perils, including damage from falling objects; weight of ice, snow, or sleet; and accidental damage caused by water, steam, household appliances, electrical currents, sprinkler systems, heating or air conditioning, and plumbing.

Most standard homeowners policies do not protect against flooding, earthquakes, neglect, power failure, war, or intentional loss. Homeowners who live in danger zones for these specific perils often need to buy a separate policy endorsement. 

The most broad form of coverage, open perils, will cover all forms of loss, except the specific exclusions listed above.

Section I covers the home itself, the belongings inside, and loss of use

Section I of a homeowners policy protects the home itself (Coverage A); other structures on the property, like decks or garages (Coverage B); and the homeowner's personal property (Coverage C). Personal property typically excludes pets, motorized land vehicles, property of non-related inhabitants like renters, and credit cards. And there are maximum coverage limits for items like jewelry, art collections, and cash.

Section I also covers loss of use (Section D). This means the insurance company will reimburse the cost of temporary housing if the home is uninhabitable.

Section II covers liability for personal injury and medical payments

Section II of a homeowners policy covers legal personal liability (Coverage E) and medical payments to others (Coverage F). 

Coverage E protects the homeowner from financial liability if a person gets injured and they are at fault, whether it occurs on their property or not. It also covers the cost of legal defense if needed. Medical payments and funeral costs for these incidents are covered by Coverage F, regardless of who is at fault.

Homeowners have to pay one monthly premium to get Section I and Section II coverage. The amount paid depends on several factors, including the amount of coverage. Some coverages also require the policyholder to meet a deductible and pay coinsurance.

Related coverage from How to Do Everything: Money

Join the conversation about this story »

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THE RISE OF BANKING-AS-A-SERVICE: The most innovative banks are taking advantage of disruption by inventing a new revenue stream — here's how incumbents can follow suit

Sun, 10/06/2019 - 10:02am

Fintechs are encroaching on incumbents' share in the banking game, forcing them to explore new business models — but tech-savvy legacy banks can treat this as an opportunity rather than a threat by moving into the Banking-as-a-Service (BaaS) space.

BaaS platforms enable fintechs and other third parties to connect with banks' systems via APIs to build banking offerings on top of the providers' regulated infrastructure. This means banks that launch BaaS platforms can actually benefit from fintechs entering the finance space, as it turns fintechs into customers rather than just competitors. Other benefits from launching a BaaS platform include being able to monetize such platforms, establishing strong relationships with fintechs, getting ahead of the curve in terms of open banking, and accumulating additional data from third parties.

In The Rise of Banking-as-a-Service, Business Insider Intelligence looks at the benefits banks stand to gain by offering BaaS platforms, discusses key players in the industry that have already successfully launched BaaS platforms, and recommends strategies for FIs looking to move into BaaS.

The companies mentioned in this report are: BBVA, Clearbank, 11:FS Foundry, Starling.

Here are some key takeaways from the report:

  • Offering BaaS also allows banks to unlock the opportunity presented by open banking, which is becoming a vital part of the financial services industry.
  • There are two key types of players — BaaS-focused fintechs and BaaS providers with a retail banking arm — that banks will need to learn from and compete against in the BaaS space.
  • Banks that have embraced digital will have an easier time ensuring that their infrastructure and systems are suitable for third parties.
  • It's vital for incumbents to accurately assess third-party needs to create an in-demand portfolio of white-label BaaS products.

 In full, the report:

  • Outlines what BaaS is and how it relates to open banking. 
  • Highlights the benefits of launching a BaaS platform, including two different monetization strategies.
  • Explains what BaaS players are currently doing in the space, and outlines the services they offer.
  • Discusses what incumbent players can do in order to launch their own successful BaaS platform.

Interested in getting the full report? Here are four ways to access it:

  1. Purchase & download the full report from our research store. >> Purchase & Download Now
  2. Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to this report and more than 250 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> Learn More Now
  3. Join thousands of top companies worldwide who trust Business Insider Intelligence for their competitive research needs. >> Inquire About Our Corporate Memberships
  4. Current subscribers can read the report here.

Join the conversation about this story »

What's next at WeWork, a secret superpower in the cloud wars, and inside Refinery29

Sun, 10/06/2019 - 9:32am

Hello!

We're still picking through the wreckage left behind from WeWork's IPO debacle here at Business Insider. 

First off, Julie Bort and Meghan Morris talked to 20 current and former WeWork employees, executives, and business partners, and unveiled fresh details on life at the company under former CEO Adam Neumann. They reported on an atmosphere in which boundaries between work and play did not exist. You can read their story here:

(If you're interested in how Meghan and Julie went about reporting this story, you can read this Q&A with Meghan.)

WeWork's methods in delivering outsized growth under Neumann are now facing fresh scrutiny. Troy Wolverton, Meghan, and Alex Nicoll reported that in some cases, WeWork offered deep discounts to convince existing customers to move in to its new locations as it went on a growth binge:

Following the excesses of the Neumann era, WeWork's two new co-CEOs, Artie Minson and Sebastian Gunningham, are trying to clamp down on costs. Meghan teamed up with Becky Peterson to report that WeWork's planning on shedding up to a quarter of its staff:

Meanwhile, there's a broader question of whether WeWork's failed IPO somehow marks the top. Venture capitalists like Bill Gurley and Fred Wilson have weighed in from Silicon Valley. As Marley Jay reports, the view from Wall Street is less favorable:

And then there's the question of what's next for Neumann himself. Dakin Campbell reported Friday that Neumann is in talks with banks about getting new terms on a credit line:

What have we missed? Let me know.

-- Matt

Moving markets

Ashley Rodriguez reported Friday on exclusive data which suggests Netflix's international growth has bounced back, a story that triggered a spike in Netflix's stock price. The data has a solid track record: Ashley previously reported that in the second quarter the data suggested that Netflix was faltering overseas, just before the streaming giant announced it underperformed on subscriber growth in all regions internationally.

Earlier in the week, Bradley Saacks and Casey Sullivan had the scoop on Silicon Valley cybersecurity company FireEye hiring Goldman Sachs for a potential sale. That too sent FireEye's stock surging.

Prime members had exclusive access to these market moving stories. 

Reminder

We're hosting an event focused on the future of transportation in San Francisco on Tuesday, October 22. IGNITION: Transportation will feature speakers like Zoox cofounder Jesse Levinson, Waymo chief external officer Tekedra N. Mawakana, and JetBlue Technology Ventures president Bonny Simi.

The event is complimentary. You can get more information on the event and apply to attend right here

Finance and Investing

Here are the top bankers raising money, putting together deals, and raking in millions in the global cannabis industry

Cannabis companies have been going public, merging, and acquiring competitors in a race for a competitive edge as cannabis legalization continues to sweep the globe.

Merrill Lynch hiked starting salaries for trainee advisers by $10,000 and has taken on 1,700 newbies so far this year. We have the details.

Bank of America's Merrill Lynch Wealth Management has sweetened starting salaries for trainee financial advisers, hired 1,700 newbies so far this year, and deployed performance managers around the country to coach them.

Dan Fuss is revered as 'the Warren Buffett of bonds.' He walked us through the investing approach that's delivered market-beating returns and turbocharged his 61-year career.

It is often said that the bond market is smarter than the stock market.

Tech, Media, Telecoms

Fantasy-sports site DraftKings is looking to raise new funding at a $2 billion valuation in march toward IPO

The fantasy-sports site DraftKings is raising hundreds of millions of dollars in fresh funds in a new round that could value the company at as much as $2 billion, two people familiar with the matter told Business Insider.

VMware CEO Pat Gelsinger explains how the 'traumatic' decision to work with Amazon Web Services led to it becoming a secret superpower in the cloud wars

Technically speaking, Pat Gelsinger retired in 2009.

How Refinery29 bootstrapped for 8 years, caught fire, and raised $133 million — only to end up selling to another struggling startup, Vice Media, for mostly stock

Once a quarter, Justin Stefano and Philippe von Borries would gather Refinery29's staff to celebrate victories and share the goals of their women's lifestyle media company.

Healthcare, Retail, Transportation

A wave of private-equity cash has poured into doctors' practices. We got an inside look at how the largest medical group in the US is weighing the benefits and pitfalls.

For investors like private-equity firms, medicine is an increasingly lucrative target. The trend has aroused concerns among doctors, who worry that it is affecting patient care.

Why $45 billion pharma giant Roche is teaming up with a buzzy health-insurance startup to find new treatments for diseases

When it comes to data, Genentech has its eyes out for all types.

Join the conversation about this story »

NOW WATCH: 7 lesser-known benefits of Amazon Prime

I toured one of Kentucky's most legendary horse farms, where horses live in immaculate barns, security teams sweep the grounds at night, and Secretariat is buried. Here's what it looks like.

Sun, 10/06/2019 - 9:07am

  • Lexington, Kentucky, is known as the "horse capital of the world."
  • The region is home to about 450 horse farms as well as Keeneland, the world's largest thoroughbred auction house.
  • One of the most prestigious farms in this area is Claiborne Farm, a 3,000-acre, 109-year-old farm that's been visited by Queen Elizabeth II — twice.
  • Legendary racehorses Secretariat and Seabiscuit both lived at the farm, and 2013 Derby winner Orb currently resides there.
  • Claiborne is home to one of the world's most expensive breeding stallions, War Front, whose stud fee — or cost to breed with him — is $250,000.
  • On a tour of Claiborne, I saw just how exceptionally well-cared-for the farms' prized stallions are.
  • They live in immaculate barns where each stallion has its own spacious windowed stall with a personal fan, and an automated fly spray system keeps away the biting insects.
  • Visit Business Insider's homepage for more stories.

In Lexington, Kentucky, horses are a way of life.

With more than 450 horse farms in the region, Lexington is known as "the horse capital of the world." It's also home to Keeneland, the world's largest thoroughbred auction house.

Riley Kirn of Bluegrass Sotheby's International Realty described Lexington's horse farms as "kind of like English country estates" with huge, stately homes and "barns that don't look like barns."

"We call them farms, but I tell people to think of them more as estates or ranches because they're just massive," Mary Quinn Ramer, president of VisitLex, or the Lexington Convention and Visitors Bureau, said.

And Claiborne Farm is considered to be a step above the rest.

"[Claiborne Farm] is absolutely stunning [and has a] very winning track record in terms of what they do for the thoroughbred industry," Ramer said.

I got a tour of Claiborne Farm one morning — here's what it looks like.

SEE ALSO: I spent 4 days in the 'horse capital of the world,' where the barns look more like estates and billionaires convene for the world's largest horse sale. Here's what life looks like in Kentucky's second-biggest city.

DON'T MISS: One of Kentucky's premier 4-star hotels is a castle on the side of a highway. I spent a night there, and its bourbon bar and Versailles-inspired decor didn't make up for what it lacked in sense of place.

Lexington, Kentucky and its surroundings are known as the "horse capital of the world."

The region is home to about 450 horse farms as well as Keeneland, the world's largest thoroughbred auction house.

Horse farm tours have become a popular tourist attraction in Kentucky, particularly after the 2014 establishment of Horse Country, a nonprofit for promotion and ticket sales to many of the state's horse farms.

Niki Heichelbech-Goldey, the director of communications for VisitLex, the Lexington Convention and Visitors Bureau, told me that visiting a horse farm has been the No. 1 request for information from their office for the past decade.



One of the Lexington area's most prestigious horse farms is Claiborne Farm, a 109-year-old thoroughbred farm in the town of Paris, about 20 miles from Lexington.

The farm was established in 1910 by the Hancock family, who still control the farm today.

Walker Hancock has been running the farm since 2014 after taking over from his father, Seth Hancock. 



On a recent September morning, I drove out to Claiborne from Lexington. The road took me through bucolic farmland.

The morning sunlight shining through the mist hovering over the grass gave the countryside a tranquil glow. I saw horses grazing and occasionally, tucked away in the hills, a stately home with white columns.

I rolled down the car window and was struck by the smell freshly cut grass ... and manure.



I got to Claiborne Farm at about 9:45 a.m. and made my way down a long driveway lined with tall trees.

Mist was still rising off the grass, but the air was already warm.



Claiborne Farm has been home to some of the most legendary racehorses in history, including Secretariat, whose 1973 Belmont Stakes victory is often still considered one f the greatest achievements in the history of horse racing.

"Riding [Secretariat] was like flying a fighter jet compared to an ordinary airplane," Secretariat's jockey, Ron Turcotte, now 77, told Aly Vance for CNN's Winning Post.

Including Secretariat, 54 horses who called Claiborne home have been inducted into the Racing Hall of Fame.

John, our Claiborne tour guide, described the farm as "sacred ground in American Thoroughbred breeding industry."



Seabiscuit, the underdog racehorse who became a beloved champion, grew up and was trained at Claiborne Farm.

Seabiscuit, smaller than the average racehorse with chunky legs and an awkward gait, wasn't originally a promising contender. His first trainer said the horse was "lazy."

But after he came under the care of a new owner, trainer, and jockey, Seabiscuit started winning major races.

In 1938, he went on to beat the fan-favorite War Admiral, a Triple Crown winner, in what ended up being called the "Race of the Century."

Seabiscuit was inducted into the Racing Hall of Fame in 1958.



Upon arriving at the farm, I parked my rental car and followed the directions to the Visitors Center. Claiborne Farm offers guided tours that start at $20 and can cost upwards of $600.

I booked the basic $20 stallion complex tour, which includes a walk through the thoroughbred breeding area, the stallion barns, and the cemetery. The tour is conducted in small groups and takes about an hour.

Then there's the all-farm shuttle tour for $30, which lasts an hour and a half and transports guests around the 3,000-acre farm, including the foaling barn, vet barn, training track, sales prep facilities, maintenance division, and nursery. This tour does not include the stallion complex.

A separate $40 tour allows guests to meet one of the farm's star breeding mares and her foal.

And for those who want a more private experience, the farm offers a private version of the stallion tour for small groups that starts at $600. 



The farm has a small visitors center with bathrooms and a gift shop.

The shop sells t-shirts and various horse-themed memorabilia and gifts.



Claiborne Farm, which sits on more than 3,000 acres, has about 20 miles of roads and driveways, 50 barns, and 100 miles of fences.

Self-filling water troughs are scattered throughout the pastures on the farms. 

When Secretariat lived at Claiborne, the farm reportedly had to install a wooden privacy fence along the road because fans were trying to reach over the fence to touch him, and a few even climbed over.

There are about 24 houses on the property that are mainly occupied by employees, according to John, my tour guide.

At night, a watch crew patrols the farm with a security detail to ensure the safety of the horses. 



Our first stop on the tour was the breeding shed, part of Claiborne's stallion complex.

The path leading to the breeding shed is made of rubber to prevent any slips from excited stallions.

There were 10 stallions at Claiborne at the time of my visit — all Kentucky bred — seven of which were born on the farm, John told our tour group.

It's the mares that make up most of the horse population on the farm, though. There were about 240 mares on the farm at the time of my visit in early September — and 201 of them were pregnant.



The horse breeding industry is a huge money-maker for farms like Claiborne.

To breed with a stallion, the farm charges a stud fee that can change each year. At Claiborne, the 2019 fees ranged from $2,500 to $250,000 for their most prized stallion. 

During this year's breeding season, from about the second week of February to early July, Claiborne Farm's stallions bred with 754 mares. Some stallions breed three times a day: at 8 a.m., 3 p.m., and 7 p.m.

John described it as a "very efficient process," as up to 10 mares can be bred every hour.

At least four humans are present for each breeding process: one to handle the stallion, one to hold the mare, and two others to hold the mare's tail to the side and assist in any other way they're needed. Each breeding is video recorded for liability reasons.

The floor of the breeding shed is made of a special polytrap material that prevents horses' hooves from slipping and avoids injuries during the breeding process.

"Some of our top stallions are worth tens of millions," John said. "Some mares are worth millions. So we try to keep our horses safe."



The barns where the stallions live at Claiborne are painted bright white with yellow-gold trim and shingled roofs.

While the stallions each have their own stall in the barn, they also get plenty of time out at pasture.

The stallions are taken out to pasture individually in their own pens, because otherwise they will fight, John told us. The mares and foals, however, go out to pasture in groups.

Our group headed over to the first barn, eager to meet some of Claiborne's prized stallions.



The first stallion John brought out was a 7-year-old former racehorse named Runhappy. The stallion is about 1,400 pounds and bred with 125 mares this year.

Runhappy was playful and energetic, bobbing his head around and frequently attempting to nibble on various parts of John.

He won the Breeders' Cup Sprint at Keeneland when he was 3 years old and had several other wins. Now, he makes the farm $25,000 each time he breeds with a mare.

With the 125 mares he bred with in 2019, that adds up to more than $3 million from a single breeding season. And Runhappy is far from the most expensive stallion at the farm.



Each member of the tour group got the chance to approach Runhappy and stroke his shoulder.

John warned us not to pet up near their faces because thoroughbred stallions like to bite, which made a few members of the group noticeably nervous. Since I grew up around horses and John clearly had a firm grip on the stallions' lead, I was more than happy to give the stallion a pat.

Still, almost every single person in the group ended up giving Runhappy a pet and posing for photos before John led him back into his stall.

 



Inside the barn, we said hello to Orb, the Kentucky Derby winner in 2013.

According to John, Orb is a troublemaker. The farm employees joke that he's the "most likely to bite his groom."

Orb was a big and burly horse, with a physique similar to Secretariat, John said. 



The inside of the stallion barns was immaculate.

I expected the barns to be smelly, but I could only detect the slightest scent of manure. 



The barns even had what can only be described as horse-specific amenities.

Each horse has its own fan circulating cool air in the stall.

And to protect the horses from biting flies, the stallion barns have an automated spray system that mists fly spray every 30 minutes.



And in addition to the grain and water buckets, each horse has its own salt block to lick in its stall.

The floors of the stalls are covered by clean straw.



Shiny golden placards on the stalls denote the name of each stallion.

The stallions had a lot of personality, and they were eager to be fed the peppermints that John pulled out of his pockets and allowed us to offer up to the horses.



Toward the end of the tour, we got to meet Claiborne's most precious and expensive stallion: War Front. Each time War Front successfully breeds with a mare, the farm makes $250,000.

As a racehorse, War Front made $425,000 in career earnings.

But as a breeding stallion, he's worth millions.



This year, War Front bred with 81 mares and brought in $10 million in revenue for the farm.

Most of Claiborne's stallions are owned by multiple shareholders. John told us that a share in War Front is worth about $2 million — and there are 40 shareholders.

Mares come from all over the world to breed with him — from France, England, Ireland, Dubai, John said.

A stallion can keep breeding as long as he's physically capable. After he retires, he lives out the rest of his life in peace on the farm.



In a small, simple cemetery behind the farm office, 22 of Claiborne's most legendary horses are buried, including five Kentucky Derby winners.

In the horse racing industry, the tradition is to bury only the hooves, heart, and head of the horse.

But for some special thoroughbreds, they make an exception.



Secretariat, considered one of the greatest racehorses to ever live, was buried at Claiborne in his entirety.

Secretariat was buried whole in a six-foot by six-foot oak casket lined with orange silk, the color used by Claiborne's racing stables, according to The Los Angeles Times.



After my tour of Claiborne, I was blown away by the attention and effort that goes into caring for thoroughbreds — and the money made from breeding them.

From the barns with fans and automated fly spray systems to the security detail that sweeps the farm at night, it was clear that horse farms go all-out to care for and protect their greatest assets.

I'd always assumed that the real money in the horse industry came from racing. But after learning that a single stallion can earn a farm $10 million in less than a five-month period, I saw just how lucrative an industry thoroughbred breeding is in itself. 

My only regret was that I didn't get to see more of the farm.

I'd only seen a tiny part of it — the stallion complex and the cemetery. I didn't get a glimpse of any mares, foals, or the farm's 48 other barns.

In hindsight, I think the best option would have been to take the all-shuttle farm tour in combination with the stallion complex tour I booked. But at a combined 2.5 hours, that would've been trickier to fit into my schedule.



Here's why you still can't get a raise, even with unemployment at a 50-year low

Sun, 10/06/2019 - 8:04am

  • The latest jobs report from the Bureau of Labor Statistics revealed a 50-year low for the US unemployment rate. But it also showed wage growth slowing to its slowest pace in more than a year.
  • The phenomenon of slowing wage growth and rising employment levels has persisted for years, and is likely the result of several trends in the national labor market.
  • Here are some of the factors likely stifling wage growth around the US, and why a low unemployment rate isn't necessarily linked to improved earnings.
  • Visit the Business Insider homepage for more stories.

The latest jobs report from the US Bureau of Labor Statistics showed the unemployment rate dropping to a 50-year low in September. But the data isn't wholly positive.

The US added 136,000 nonfarm payrolls last month, lower than analysts' 147,000 estimate and August's 168,000 gain. Average hourly earnings grew by 2.9% from the year-ago period, the metric's slowest pace of growth since July 2018 — and just 1.2 percentage points higher than the last recorded US inflation rate.

And though the unemployment rate may be at a five-decade low, slowing wage growth is a dire threat to the nation's economy. Lower income generally begets decreased spending, kicking off a cycle that could threaten employment, investment, and economic growth.

Here are some reasons why a lower unemployment rate hasn't brought steady wage growth, and what could be pulling average hourly wages down across the US:

Prime-age participation

The labor market as a whole might be weaker than the 3.5% unemployment rate implies. While the metric is critical to measuring economic growth, the prime-age labor force participation rate lends a closer look at who is working and how that's changed over time.

The prime-age participation rate tracks those aged 25 to 54 who are employed as a proportion of those in the age range available to work.

Read more: A self-taught hedge fund manager who's returned 19%-plus annually to investors since 2012 shares the 3 books that 'put it all together' for him

The latest BLS report pegged the prime-age participation rate at 82.6% in September, nearly hitting highs not seen since the 2008 financial crisis.

The latest reading signifies more prime-age individuals are entering the work force after post-recession woes pulled the rate as low as 80.6%. As more people apply to enter the workforce, companies can delay wage increases as they no longer need to entice potential employees with raises.



Polarization

America's middle-income jobs — such as those in construction, production, and repair — are disappearing as wage polarization sets in. The New York Federal Reserve detailed the trend in a December 2018 report, showing the state's labor force becoming more saturated in low and high-income roles in the years since the 2008 crisis.

Globalization and automation have wiped out much of America's manufacturing industry, and as it's more difficult to scale the job ladder than descend it, many of the workers have been forced into lower-paying roles. The trend may explain the slowing wage growth seen nationwide.



The security trade-off

Private sector union membership has plummeted from roughly 20% in the early 1980s to 6.4% in 2018. The average pay for workers in unions is typically higher than nonunion workers, making the drop in union membership a fairly direct driver of lower average wage growth.

Unions even benefited those not involved, as industries and areas with large union presences typically pay all workers more compared to those where collective bargaining is scarce. The lack of organization between workers grants companies greater leeway for slowing wage growth.



Inflation vs. legislation

The gap between the minimum wage and the minimum wage adjusted for inflation was widest in the 1970s, and has since gradually closed as minimum wage laws have been driven by state legislatures more than the federal government.

The federal level of $7.25 hasn't changed since 2009, and inflation has nearly caught up with that level over the past decade.

Read more: As WeWork bleeds cash, Bernstein lays out 4 ways the struggling company can stay afloat

If workers aren't able to improve their pay through education, collective bargaining, or moving up a corporate ladder, increasing the minimum wage is a safe way to ensure American workers earn a steady living wage.

Though opponents of such legislation argue raising the wage floor would stave off job creation, the latest research from the New York Fed noted the state's gradual wage hikes haven't killed off payrolls.

It's unlikely any single trend noted above is responsible for slowing wage growth across the US. Yet it's worth considering them as parts of a whole as the US job market faces the puzzling phenomenon of high employment and stagnant wage growth.

 



Hedge funds have billions on the line at PG&E's bankruptcy hearing — and equity-holder Seth Klarman is pitted against bond-holder Paul Singer

Sun, 10/06/2019 - 8:00am

  • Pacific Gas & Electric, the bankrupt California utility that's been found partially responsible for causing two of the state's devastating wildfires, has been a target for dozens of hedge funds. 
  • In a bankruptcy hearing on Monday, a judge will decide between a deal put forth by the equity holders, which would benefit Seth Klarman's Baupost Group, and a settlement from bond holders, led by Paul Singer's Elliott Management and supported by victims of the wildfires. 
  • Major shareholders in the company agreed to an $11 billion Chapter 11 bankruptcy plan in early September that would have paid out funds like Baupost and TPG that held insurance claims at a premium, but that plan no longer has support of wildfire victims.
  • Click here for more BI Prime stories.  

The final decision in the sprawling multi-billion-dollar bankruptcy of Pacific Gas & Electric will make some well-known hedge fund managers very happy, and ruin the years-long work of others. 

The California utility that was found partially responsible for some of the state's recent massive wildfires had the backing of its major shareholders — including David Abrams' Abrams Capital, John Paulson's hedge fund, Fidelity, and dozens of other managers — for an $11 billion Chapter 11 plan that would have paid out insurance claims at a rate that would make Seth Klarman's Baupost Group hundreds of millions.

Baupost owns more than $3 billion in insurance claims that the Boston-based manager would have been paid back 59 cents on the dollar for under the bankruptcy plan — double the amount of what the firm paid for some of the claims.  

But the plan has been challenged by another high-powered group of hedge funds and asset managers, led by Paul Singer's Elliott Management and Pacific Investment Management Company, who own the utility's bonds. They have put forward a bankruptcy proposal where the group of bondholders would pump $29.2 billion into the company to take control of it — and basically push the equity-holders out of the equation. 

One important group representing the victims of the wildfires has made its allegiance known. It has sided with bondholders, under a plan in which $14.5 billion would go to those who lost homes, cars, and loved ones in the natural disasters. 

The latest iteration of the saga will play out on Monday, when Judge Dennis Montali is set to rule on whether both plans would be able to move ahead. Below is a rundown of the funds that will be hanging on his every word. 

The equity heavy-hitters

Two of the biggest equity-holders in the company — hedge funds Abrams Capital and Knighthead Capital — own nearly 40 million shares of the utility between them, and have formed a separate group known as the Jones Day group, as they are being advised by the well-known law firm.

Originally, the group used to include Redwood Capital, and the three funds were looking at returns in the hundreds of millions in April after the stock jumped up to $23 a share on news of a restructuring proposal. The stock is currently trading at less than half of that. 

Abrams Capital is run by David Abrams, a former protege of Seth Klarman when Abrams worked at Baupost. Now, Abrams and Knighthead are the leading proponents of the bankruptcy proposal that would net Klarman hundreds of millions thanks to the insurance payouts. 



The rest of the stockholders

The stockholders that are not a part of the Abrams-Knighthead duo include some big shots in their own right — like billionaire John Paulson, whose firm owns more than 2 million shares.

Other funds include mutual fund giant Fidelity, D.E. Shaw, BlueMountain, HBK, Centerbridge Capital and roughly two dozen more.

The biggest shareholders other than Abrams Capital, according to bankruptcy filings, are Baupost Group, which owns 24.5 million shares, and Anchorage Capital, which owns more than 21 million shares. 

See more: $21 billion hedge fund BlueMountain Capital has upped its bet on PG&E, the utility that's crashed 60% since the California wildfires. Here's why.



Baupost's big bet and the other owners of insurance claims

Baupost may have taken some hits on its large equity stake in the California utility, but, if the equity-holders' plan goes through, the firm will make hundreds of millions on the insurance payout.

The manager led by billionaire Seth Klarman owns $3.4 billion in subrogation claims, according to bankruptcy filings, more than any insurer or manager. Private equity firm TPG Sixth Street Partners owns nearly $400 million in claims, while insurers like State Farm and Farmers Insurance Exchange own billions each in claims. 

Klarman has added to the amount of claims Baupost owns since the first quarter. Records for California agencies show Baupost owned $2.5 billion in claims at the end of March — which is $900 million less than what the firm owns now. 

 



Elliott, PIMCO, and the wildfire victims

The fight is between asset classes — bond-holders versus equity-holders. And the bond-holders are not lacking for star power. 

Leading the fight for the bond-holders is Elliott Management, the $38 billion hedge fund founded by Paul Singer. The firm owns $1.4 billion in senior utility notes and is well-known for its prowess in the courtroom. 

Other firms include mutual fund managers like PIMCO, which owns $2.1 billion in senior utility notes, and hedge funds like Dan Loeb's Third Point, Ken Griffin's Citadel, and Howard Marks' Oaktree.

Citi, Deutsche, Capital Group, Apollo, Angelo Gordon, Farallon and many others are also a part of the high-powered bondholders group that is hoping to give $14 billion to victims and $11 billion to insurance agencies, and give bondholders a controlling stake in the company when it emerges from bankruptcy. 

PG&E accused Elliott and the bondholders of "attempting to manipulate and profit from the chapter 11 process," when the plan was laid out at the end of September. 

"The Elliott proposal would enrich bondholders by paying them interest well in excess of what is required by law, resulting in billions in unnecessary costs being borne by PG&E customers," PG&E's statement reads. 

The bondholders, though, have the most sympathetic group in the bankruptcy on their side: the wildfire victims. After supporting the equity-holders at first, a group representing the victims now supports the bondholders' plan, which pays victims billions more than the equityholders' plan. 



The Trumponomics experiment is failing before our eyes

Sun, 10/06/2019 - 7:59am

  • Economic data is pointing toward a recession, and no one should be surprised.
  • Yes, it's late in our economic cycle, and that matters. But President Donald Trump's policies are also very much to blame here.
  • Trump promised to buck economic thought and go full protectionist. Economists warned him this would damage the global economy, but he didn't listen.
  • Feel free to walk by the White House and scream "I told you so!"
  • Visit Business Insider's homepage for more stories.

When Donald Trump became the 45th president of the United States, he promised to launch an economic experiment.

Ignoring the past few decades of economic liberalization, multilateralism, and openness, Trump promised to close the economy, renegotiate our trade deals nation by nation, and refocus the US economy on a relatively small sector, manufacturing, which makes up less than 20% of the economy.

To some, that experiment was a refreshing turn from the steady plod toward globalization that Americans have experienced for the past 50 years. To others — especially to economists — this was folly.

Protectionism, as experts well know, is bad news. They reminded Trump that steel tariffs have only brought the US pain — but Trump slapped them on our allies anyway. He was warned about his tax policies; about disrupting the North American Free Trade Agreement, our trade deal with Canada and Mexico; about ripping up the Trans-Pacific Partnership, a major trade deal forged by the Obama administration and supported by members of both parties; and about confronting China alone. But Trump did it all anyway.

And so the world found out what happens when the most powerful country in the world takes 100 years of economic knowledge and flushes it down the toilet. Experiment, on.

Voila, America

Here we are, three years into the Trump administration's experiment, with a recession rapping at the door of the US economy. How do we know?

  • The pesky yield curve keeps inverting, showing us that investors are worried about what's around the corner for the US economy.
  • For the first time in a long time, Wall Street waited with bated breath for one number, from the ISM services survey, which told us that 80% of the US economy had slowed to levels unseen since 2016.
  • The services contraction came amid manufacturing's slump, which has been with us since last year and just reached its lowest point since 2009.
  • People have lost interest in buying big-ticket items like washing machines.
  • Chief financial officers across the country are feeling gloomier than they have in three years.

Employment numbers remain strong — though hiring is slowing — and consumer confidence remains somewhat steady. But allow me to remind you that those are lagging indicators. When a recession comes, the consumer is the last to know.

Running with scissors

Recessions are cyclical; that's a fact. But there are things you can do to hasten them, and the Trump administration has done all it can to do that. His policies have basically been the economic equivalent of running at breakneck speed with a pair of very sharp scissors.

Trump ran on a platform of ignoring the rules of economics and turning personal grievances into policy. Now we know what that can do to the mightiest economy on the planet.

Trade wars have disrupted agriculture and manufacturing, ripping up supply chains and costing the government billions in aid. Erratic policies have spooked Wall Street and exhausted and frustrated our allies. The world is now a place where the United States cannot be trusted, and that is a world where growth is slower. Just about every respectable economist in the game told Trump this would happen, but he and his allies didn't want to hear it.

So now we're here, in a moment that the World Trade Organization says could produce "a destructive cycle of recrimination." When there is no trust between counterparties in markets and everyone gets desperate, there can be unintended consequences. Monetary and fiscal policies will shift as countries try to get used to a world growing more slowly, and this could, the WTO said, "destabilize volatile financial markets" and "produce an even bigger downturn in trade."

Sometimes rules are rules for a reason.

Join the conversation about this story »

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The world's most accurate economic forecaster sees a 'prolonged global slowdown' on the horizon — and warns it can only be narrowly avoided

Sun, 10/06/2019 - 6:05am

  • As investors await the outcome of trade negotiations this month, the world's most accurate economic forecaster says the risks are tilted towards "a prolonged global slowdown." 
  • Christophe Barraud, a strategist and chief economist at Market Securities, compiled the evidence that global trade is already in its own recession, explained why a swift recovery is unlikely. 
  • Click here for more BI Prime stories

The US-China trade war that has raged for nearly two years has impacted the set of opportunities and risks in virtually every asset class. 

Investors might need to stay seated and buckled up for a while longer if Christophe Barraud's forecast is correct. Barraud is a strategist and chief economist at the broker dealer Market Securities

Before dismissing him as just another financial pundit, you should know that he was the most accurate forecaster of US economic data for seven straight years through 2018, according to Bloomberg's annual rankings. His expectations for the Euro economy have been the closest to reality from 2015 through 2018, and he was the most accurate on China in 2017 and 2018.

Barraud's forecasting prowess came to bear again in January, when he opined that the consensus was too bullish on the prospects for a trade resolution in particular and global growth in general.

Since then, trade between the US and China countries has been in freefall — to the extent that the quarterly contractions since Q4 2018 have put trade in its own mini-recession, according to Barraud. 

This damage has not been confined to the arena of cross-border relations.

Last week, investors got two fresh pieces of bad news confirming this spillover that Barraud has been warning about. First came the Institute of Supply Management's manufacturing index, which dropped to 47.8, the metric's lowest since June 2009. ISM then released its report on the larger and more important services sector, which expanded at its slowest pace in three years. 

Companies in both sectors pinned the slowdown in activity on the trade conflict. 

A cursory look at overall trade activity between the US and China — illustrated in the charts below — shows why companies are under strain. Since both countries are trading fewer goods with each other, executives are faced with higher costs, and have to find alternative ways to maintain profit margins. 

As investors anticipate a fresh round of US-China negotiations this month, the risks are skewed towards "a prolonged global slowdown," Barraud said in a recent note.  

Read more: An investor overseeing $64 billion discusses 3 trades that are protecting her portfolio from unexpected shocks, and helping her crush most of her peers

He's of this view because of the potential damage that the next round of tariffs would inflict. 

On October 15, the Trump administration plans to raise the tariff rate on $250 billion worth of Chinese products from 25% from 30%. Then on Dec. 15, the US will impose a 15% tariff on nearly all imports — and they will hit a broad swath of consumer-facing products like cellphones, smartwatches, and Christmas ornaments.

On top of all this, Barraud notes that businesses may put their capital spending plans on hold next year while they await the outcome of the US elections and what it means for them. They would also be grappling with a fading tax-cut boost in the new year. 

Even if the Trump administration reached a partial deal, it won't resolve the long-term structural conflict between the US and China — especially if it scores another election victory, Barraud said.   

All these risks have solidified investors' expectations that the Federal Reserve will cut interest rates this month and afterwards if necessary, providing a key lifeline for the record-long bull market. 

However, the Fed can only do so much if the economic fundamentals continue to deteriorate. And this is why you shouldn't let the specter of a prolonged slowdown catch you off guard. 

SEE ALSO: GOLDMAN SACHS: Buy these 11 stocks poised to surge by at least 50% within the next year

Join the conversation about this story »

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Everything we know about Hunter Biden's business connections in China

Sat, 10/05/2019 - 1:00pm

  • President Donald Trump this week suggested that Hunter Biden had used his position as then-Vice President Joe Biden's son to secure a $1.5 billion deal with the Chinese state bank for a Chinese private equity company where he is a board member.
  • There is no evidence to this claim.
  • The $1.5 billion appears to refer to a sum that BHR, the private equity firm, was trying to raise in 2014 to invest outside China, according to The Wall Street Journal.
  • But Biden's lawyer said Biden has never profited from his work at BHR.
  • Here's what we know about Hunter Biden's business dealings in China.
  • Visit Business Insider's homepage for more stories.

The global business dealings of Hunter Biden, the son of former Vice President Joe Biden, have been thrust into the spotlight after President Donald Trump suggested without evidence that the father and son had engaged in corruption in Ukraine and China.

Trump on Thursday openly called on China to investigate the Bidens, suggesting — without evidence — that China had given $1.5 billion to a Chinese private equity firm where Hunter Biden was a board member to secure favorable deals with the US while Joe Biden was Vice President.

President Trump: "China should start an investigation into the Bidens because what happened in China is just about as bad as what happened with Ukraine. So, I would say that President Zelensky, if it were me, I would recommend that they start an investigation into the Bidens." pic.twitter.com/Xia8vLUVT2

— CSPAN (@cspan) October 3, 2019

 

Here's what we know about the background of this allegation.

  • Biden has been a board member at BHR Equity Investment Fund Management Company, a Chinese state-backed private equity firm, since late 2013, according to The New York Times and the South China Morning Post.
  • In 2017, Biden bought 10% of the company for about $420,000, The Times reported.
  • The $1.5 billion Trump cited on Thursday appears to refer to a sum that BHR was trying to raise in 2014 to invest outside China, as The Wall Street Journal reported at the time.
  • That sum appeared in "Secret Empires," a book published last year that criticized Biden's business activities, The Journal reported.
  • Peter Schweizer, the author, said BHR "would seal a highly unusual $1.5 billion deal with funding from the Chinese government" after Biden flew to Beijing aboard Air Force Two at the time.
  • Trump has praised the book in the past, The Journal reported.
  • Trump on Thursday suggested that Biden used his position as the vice president's son to secure the money from China's state-owned bank, and made millions in the process, the South China Morning Post reported.
  • But Biden's lawyer George Mesires said earlier this week that Biden had never been paid for sitting on BHR's board, and has not received any payouts from his investment, according to The Times and The Washington Post.
  • BHR has removed all photos of Hunter Biden from its website, the South China Morning Post reported on Saturday. BBHR has not yet responded to Business Insider's request for confirmation and comment on the date of the photo's removal.

Mesires has not yet responded to Business Insider's request for comment on Biden's current role and responsibility at BHR Partners.

BHR has not yet responded to Business Insider's request for comment on Biden's role and responsibility at the firm.

Doing business with the family of powerful politicians is not uncommon in China, as Beijing sees it as a way to gain favorable treatment. Members of Trump's family have also profited in China in recent months.

The Chinese government has awarded Ivanka Trump's now-shuttered fashion brand multiple trademarks in the past year, prompting questions of conflicts of interest.

In 2017, Jared Kushner's sister also cited her connections to the US presidency to sell luxury real estate in New Jersey to wealthy Chinese investors in Beijing.

Hunter Biden's connections to Ukrainian gas company named Burisma is also facing scrutiny amid Trump's allegations against the Bidens.

All of this came to the surface after an anonymous whistleblower raised concerns over a July 25 call between Trump and Ukrainian President Volodymyr Zelensky, in which Trump urged Zelensky to investigate the Bidens.

That call has triggered an impeachment inquiry into Trump. Ukrainian prosecutors said on Friday that they are reviewing an investigation into Burisma.

Read more: House Democrats subpoena the White House and Mike Pence as part of impeachment inquiry

Join the conversation about this story »

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A man who retired at 43 says he made 2 important money decisions before leaving work

Sat, 10/05/2019 - 11:15am

Early retirement usually isn't an impulse decision.

Most experts recommend having at least 25 times your annual expenses saved if you plan to leave work completely. That could take years to accomplish, depending on how much you spend and save.

About a decade into practicing medicine, Leif Dahleen had reached that milestone. Frugal by nature, he and his wife had been socking away half their income for years. Financial independence felt good, he says, but they weren't ready to take the plunge into early retirement just yet.

"Financially, I could have afforded to give 90 days' notice right then and there, but mentally, I was not at all prepared to do so. I had not even worked a decade since finishing residency, and I had a family and a lot to think about," Dahleen wrote in an article for Business Insider.

Dahleen, an anesthesiologist in Northern Minnesota, ultimately decided to continue working and saving money to retire in about four years. He calculated that by that point, he'd have at least 36 times his family's estimated annual spending socked away. In August 2019, at age 43, Dahleen left his day job.

But in the year leading up to retirement, he had a financial to-do list to tackle.

Health insurance and college savings were among the top priorities

"I would say a few of the top priorities were making a plan for health insurance, funding our kid's 529 plans and donor-advised fund, and ensuring we had significantly more than 25 times a generous retirement budget set aside for ourselves," Dahleen told Business Insider.

Making a plan for health insurance is crucial for any would-be early retiree, he says. Individual healthcare plans are expensive and going without coverage isn't wise, especially for a family of four.

Dahleen considered healthcare-sharing ministries and short-term health plans, he writes, but ultimately chose a catastrophic plan through the Health Insurance Marketplace. His plan comes with a health savings account — a type of saving-investment hybrid account that Dahleen says he's been utilizing for years — and costs just over $900 a month.

With two kids to put through college one day, Dahleen also prioritized funding their 529 plans, a type of tax-advantaged, state-sponsored investment account with high annual contribution limits.

"I had a goal of $100,000 in each of our two sons' 529 plans, and I made sure we had that prior to leaving my job," Dahleen says. As long as their investments keep up with the rate of inflation, he says, it should be enough to cover four years of public in-state tuition, at least. They also expect their kids to take advantage of scholarships.

"Student-loan debt is a monumental hurdle to overcome for recent college and medical school graduates. I would not have been comfortable walking away from a high-income profession without first making strides to lessen the potential debt load on our boys," says Dahleen, who paid off $75,000 of student debt in 2012.

As he writes in a blog post, "Having two boys increased my financial independence number, but I was also given two excellent reasons to reach it more quickly and to take decisive action once we were comfortably FI."

Join the conversation about this story »

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4 billionaire sisters with stakes in the world's largest food company all tumbled from the list of the richest Americans in the last year

Sat, 10/05/2019 - 10:25am

Forbes recently released its 2019 ranking of the wealthiest Americans. The annual list tracks the 400 richest people in the country by net worth. While their collective wealth hit a record-breaking $2.96 trillion (a 2.2% increase from 2018), 27 billionaires dropped off the list this year.

Five of those drop-offs were due to deaths (including David Koch, the former vice president of Koch Industries, and Microsoft cofounder Paul Allen), but the remaining 22 fell off the list because they saw their net worths drop below $2.1 billion, the minimum net worth to qualify for inclusion. And four of the billionaires who saw their fortunes fall came from one company: Cargill.

Forbes' Will Yakowicz and Jennifer Wang reported that Alexandra Daitch, Sarah MacMillan, Lucy Stitzer, and Katherine Tanner are among the billionaires who fell off the list of wealthiest Americans in 2019. Each currently has a net worth of $1.7 billion — down from the $2.1 billion each in 2018.

The four women are sisters, the daughters of W. Duncan MacMillan, who was a Cargill board member for three decades and who died in 2006 as the 216th-richest man in America, Forbes previously reported.

MacMillan was the great-grandson of W.W. Cargill, who founded Cargill in 1865 at the tail-end of the Civil War and grew a single grain warehouse in Iowa to what it is today: the largest privately-owned company in America.

A family of highly secretive billionaires

In 2014, Forbes reported that MacMillan's four daughters had emerged as new billionaires, joining six other Cargill descendants who were already billionaires.

But they weren't at all interested in being in the public eye. "They want to draw the curtain down," Cargill CEO David MacLennan told Forbes in 2014. "A lot of rich people want to be on TV, want you to know who they are and that they own this and that. Not these people."

And in 2015, Business Insider's Drake Baer reported that the "secretive" Cargill family had a total of 14 billionaires, which at the time was more than any other family in the world.

Extreme weather and the trade war are taking a toll on the company — and the billionaires it's minted

Cargill has seen tougher times in recent years.

In July, Cargill reported a 41% slump in its adjusted quarterly profit for Q4 — $476 million in the quarter ending May 31, compared with the $809 million it saw in the same time period a year earlier. Neil Hume of the Financial Times reported that this sharp drop was thanks to a combination of "extreme weather events, the spread of a deadly pig virus, and the fallout from the US-China trade spat."

In September, soon after Cargill said its earnings had increased 3% (to $908 million) in the first fiscal quarter, The Wall Street Journal's Jacob Bunge reported that Cargill was dealing with "continued problems arising from springtime flooding," including rising water levels slowing the company's barge business and preventing ship loading at its port in New Orleans. The same report noted the impact of the ongoing US-China trade dispute, specifically causing soybean exports to slow and challenging farmers in the US; Bunge wrote that "trade tensions also held down crop prices, limiting farmers' willingness to make advance sales through Cargill."

The outbreak of a fatal and incurable hog disease called African swine flu also negatively impacted Cargill, causing them to shutter animal-feed mills in China earlier in 2019 due to reduced demand, Reuters reported.

Despite the company's ongoing issues, two of the 14 billionaire Cargill heirs remained among the top 400 wealthiest Americans this year: Austen Cargill, II. and James Cargill, II., each with a net worth of $3.6 billion, who tied at No. 225.

The company didn't immediately respond to a request for comment from Business Insider regarding the sisters' net worths or the company's slump in Q4 adjusted quarterly profit.

SEE ALSO: The 5 richest men in the US have a staggering combined wealth of $435.4 billion. That's more than 2% of America's GDP.

DON'T MISS: The secretive Cargill family has 14 billionaires — more than any other clan on earth

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FREE SLIDE DECK: The Future of Fintech

Sat, 10/05/2019 - 10:00am

Digital disruption is affecting every aspect of the fintech industry. Over the past five years, fintech has established itself as a fundamental part of the global financial services ecosystem.

Fintech startups have raised, and continue to raise, billions of dollars annually. At the same time, incumbent financial institutions are getting in on the act, and using fintech to remain competitive in a rapidly evolving financial services landscape. So what's next?

Business Insider Intelligence, Business Insider's premium research service, has the answer in our brand new exclusive slide deck The Future of Fintech. In this deck, we explore what's next for fintech, how it will reach new heights, and the developments that will help it get there.

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Bernie Sanders and Elizabeth Warren both rolled out tax proposals in hopes of closing the wealth gap. Here's a side-by-side comparison that shows exactly how they stack up.

Sat, 10/05/2019 - 9:11am

A majority of the American public, a handful of presidential candidates, and a group of ultra-wealthy Americans agree that the United States needs a wealth tax to help close the growing wealth gap. In June, a group of 18 ultra-wealthy Americans referred to Warren's plan in an open letter begging to be taxed more.

But few people agree on how just how much that tax should be.

Progressive presidential candidates Sen. Elizabeth Warren and Sen. Bernie Sanders have both released their own wealth tax proposals.

Before Sanders' unveiled his plan in September, Warren's plan was the most commonly cited example of a moderate wealth tax. Now, though, Sanders' "Tax on Extreme Wealth" makes Warren's "Ultra-Millionaire Tax" "look moderate," NPR's Greg Rosalsky wrote.

Here's a breakdown of how Sanders' and Warren's wealth taxes compare. The endpoints of Sanders' tax brackets overlap, so for the purposes of this chart, Business Insider rounded to the nearest decimal based on standard tax policy. 

Read more: Wealth tax explainer: Why Bernie Sanders, Elizabeth Warren and billionaires like George Soros alike are calling for a specialized tax on the ultra-wealthy

Key differences between Bernie Sanders' and Elizabeth Warren's wealth tax proposals

As shown in the chart above, Sanders' plan proposes taxing Americans who have lower net worths than Warren's plan does. A married couple with a collective net worth above $32 million will have to pay a wealth tax under Sanders' plan, while couples worth less than $50 million would be exempt from Warren's tax.

The richest Americans — those with a net worth above $10 billion — would also pay 8% in taxes more Sanders' plan, substantially more than the 3% proposed by Warren.

The difference between the two plans is perhaps best illustrated by how much their respective authors say they would raise. Warren's campaign estimates that her wealth tax would raise $2.75 trillion in 10 years, while Sanders' campaign estimates that his tax would raise $4.35 trillion during the same time period.

Wealth accumulation in the US would look a lot different under a wealth tax 

A study by The University of California at Berkeley's Emmanuel Saez and Gabriel Zucman and published in the Brookings Papers on Economic Activity found that if a moderate wealth tax had been introduced in 1982, Jeff Bezos' fortune would be half what it was in 2018. Bill Gates, meanwhile, would be $61 billion less rich.

While no such study has been done on Sanders' proposal, NPR's Greg Rosalsky reported that it "wouldn't just slow the growth of wealth at the top. It would essentially stop it."

Any wealth tax proposal will face substantial headwinds before becoming law, Business Insider previously reported. The constitutionality of such a tax would likely end up debated in front of the Supreme Court, according to former Department of Justice tax attorney James Mann, who is now a tax partner at law firm Greenspoon Marder. Additionally, the revenue raised by the proposed wealth tax would likely be much lower than its advocates expect because of tax evasion, Mann told Business Insider.

SEE ALSO: Here's how much money America's 10 wealthiest people would have if the US had a moderate wealth tax

DON'T MISS: Want to grow the economy? Tax rich people like me.

Join the conversation about this story »

NOW WATCH: The most expensive racing pigeon sold for $1.4 million in China. Here's why people drop millions on these prized birds.

How Tesla could rescue the US motorcycle market (TSLA)

Sat, 10/05/2019 - 8:44am

  • Tesla CEO Elon Musk has said that the company isn't interested in making a motorcycle.
  • But the incipient electric motorcycle industry in the US could use some help — and Tesla would be a welcome addition to the team.
  • Motorcycle sales in the US have been stagnant, and newer, younger riders aren't taking up the passion, so the market needs something to spur it.
  • Visit Business Insider's homepage for more stories.

Tesla CEO Elon Musk has said that the all-electric car maker is totally, completely uninterested in building a motorcycle. 

He points to his own youthful experiences as a rider, including at least one incident when he claimed he was nearly killed at the tender age of 17 in a close-miss accident. The lucky break clearly affected him; he's declared that Tesla, the world's best-known and most successful electric-vehicle company, would never do an electric two-wheeler.

Missed opportunity, if you ask me (I won't argue with Musk's background because motorcycles are a lot more dangerous than cars, but most riders are aware of that and have accepted the risks). Motorcycle sales declined substantially before and after the Great Recession and haven't shown signs of recovering any sort of upward trajectory. For roughly the past 10 years, half a million bikes had been sold annually in the US.

That plateau, combined with an aging demographic for brands such as Harley-Davidson, has led to widespread speculation that the motorcycle industry could be entering a period of slow, structural decline. The only long-term solution to that problem is to get younger riders interested in throwing a leg. 

I think there are five ways to speed up that solution — and critically, I think Tesla is what the market needs to rebound. Here's why:

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1. Tesla should be the Honda of electric transportation — on two wheels and on four.

I've already argued that Tesla should aspire not to be a Silicon Valley tech-car-maker-manqué, but a real car maker, like Honda. The Japanese company makes everything from portable generators to private jets. So you can see how Tesla might aspire to a similar industrial culture: the company also makes energy-storage systems and, of course, its sibling SpaceX is an increasingly important aerospace player.

Honda also makes a lot of cars — and motorcycles. In fact, motorcycles were how it got started in the US. Its bikes are splendid, always a great option for anyone who wants to get on two wheels. 

Musk's apprehensions aside, this seems like a natural product line for Tesla to develop.



2. Harley-Davidson is trying to be the Big Guy in electric bikes, but it's going to be a tough challenge.

The are several electric motorcycle brands in the US that aren't Harley-Davidson — California's Zero Motorcycles, for example — but the overall market for electric bikes remains very small. It could grow in the coming years, but a best-case scenario would be electric cycles taking up 5%.

It's possible that Harley's LiveWire, when it goes on sale in 2019, would capture a huge percentage of that market and that growth. But the LiveWire is going to be a $30,000 motorcycle — extremely expensive. That's a good initial strategy, as it almost ensure LiveWire's profitability. But if Harley, along with Zero and others, can build a serious market, it could could use Tesla's help.

If Tesla jumps in, Harley's efforts would be validated, and the US electric motorcycle market could achieve staying power.



3. The Tesla brand would get people who've never thought about motorcycles to give one a try.

Motorcycles are intimidating. Plenty of folks might have considered riding, but they can't overcome their anxieties, and the main brands in the US have been around for a long time and cater to committed customers who aren't afraid to ride.

Tesla could change that, and not incidentally encourage a host of Silicon Valley millennials to give motorcycling a shot.

On top of all that, I'd expect a Teslacycle to be ferociously cool, ferociously fast, and ferociously fun.



4. Electric motorcycles are better.

No gas, no noise, no gears to shift. Everybody I know who used to ride but gave it up has told me that electric motorcycles could get them back in the saddle.



5. Governments could raise their level of support for electric motorcycles.

I think the process of getting certified to ride a motorcycle in many states is too onerous. Yes, it's necessary. But electric bikes, being easier to ride, could streamline the process. Governments could also expand tax incentives and other enticements to encourage motorcycle buyers to go electric.

Tesla would be well-positioned to grab some of that action.



Having an emergency fund of credit card points has saved me thousands of dollars on last-minute, emergency travel. Here's how I do it.

Sat, 10/05/2019 - 8:29am

  • I keep at least 30,000 credit card points at all times for emergency flights and hotel rooms.
  • Chase Ultimate Rewards earned with my Chase Sapphire Reserve are my favorite points to have on hand because of their high value and flexibility, but I've also used Hyatt points and Delta miles to save hundreds of dollars on last-minute travel.
  • Credit card points are a back-up emergency fund. I always have at least six months of living expenses in high-yield savings accounts to make sure I can cover the unexpected.
  • Read more personal finance coverage.

I love collecting credit card rewards — specifically airline and hotel points. Thanks to my credit card points, I can travel more frequently and stay in luxury hotels I wouldn't normally be able to afford.

However, I don't spend all of my credit card points. I like to keep a balance of points in at least one of my rewards accounts, and here's why.

Keep in mind that we're focusing on the rewards and perks that make these credit cards great options, not things like interest rates and late fees, which can far outweigh the value of any rewards.

When you're working to earn credit card rewards, it's important to practice financial discipline, like paying your balances off in full each month, making payments on time, and not spending more than you can afford to pay back. Basically, treat your credit card like a debit card.

How I use credit card points as a second emergency fund

If you think about it, most emergencies involve some form of travel. When your car breaks down, you'll probably need a rental car. You might have to fly back to your hometown at a moment's notice to visit a sick family member. If something happens to your home, such as a natural disaster, a fire, or an insect infestation, you might need to get a hotel for a few nights.

While it's not an emergency, I know I'm not the only traveler who's found myself trying to book a last-minute trip during high season only to realize that prices have skyrocketed — FYI, you can't "just wing it" when it comes to accommodations in Europe's most beloved cities in mid-July unless you're prepared to spend a small fortune.

Credit card points can come in handy in all of these situations. Miles from airline credit cards can help you purchase last-minute emergency flights without spending a fortune, while points from hotel credit cards can get you a few free nights if you're unexpectedly stranded. Generic travel credit cards that offer flexible points can help you cover flights, hotels, rental cars, and more.

My favorite credit card points to save for emergencies

I mostly save my generic travel points for emergencies because they can be applied to a wide range of expenses, and flexibility helps when you're in a pinch. Chase's Ultimate Rewards points are my favorite because they offer the highest value and the most flexibility. I earn Ultimate Rewards points with both my Chase Sapphire Reserve and my Ink Business Preferred Credit Card. I try not to let my balance of Ultimate Rewards points fall below 30,000 points, which is usually more than enough to get a few nights at a hotel or a round-trip domestic flight.

Hotel points can be good to keep on hand as well, particularly if you're saving points that are good for longer stays at budget hotels. My favorite programs for this are World of Hyatt and IHG Rewards Club, because both have budget hotels and deals that start at just 5,000 points per night. I use the World of Hyatt Credit Card to earn Hyatt points, and I used to have the old IHG Rewards Club credit card as well. You can also transfer Chase Ultimate Rewards from your Chase cards to both Hyatt and IHG.

Read more: The best Chase credit cards

I collect these points by aiming for lucrative sign-up bonuses and promotions and putting all of my regular spending on rewards credit cards that align with my spending habits.

For example, if I'm eating out, I use my Chase Sapphire Reserve, because it gets me 3 points per dollar on restaurants. However, if I'm making business purchases, I used my Ink Business Preferred because it gets me 3 points per dollar on select business spending categories.

Read more: Chase Sapphire Reserve card review

How credit card points have saved me hundreds in last-minute situations

A couple of years ago, I got a call from my dad saying that my grandpa passed away. I knew that his death was really hard on my dad, and I wanted to be there to support him during my grandpa's funeral.

Unfortunately, I live abroad and last-minute flights can be very expensive. When I looked them up, they were around $800 round-trip. Luckily, I was able to use Delta miles I'd accumulated with the Gold Delta SkyMiles® Credit Card from American Express to purchase the flight using 40,000 miles.

Another time, I was traveling through Europe during the summer. I'd purchased tickets to a Radiohead concert in Florence months in advance because I knew I'd be staying in a nearby town in Tuscany during that time. I figured I could take the train to Florence and spend the night at a budget hotel for the concert.

That would've worked out if I'd also reserved my hotel room months in advance. However, I forgot to do book a hotel until two days before the concert. Because I was there during the height of summer, almost everything was completely booked up by the time I went to make a reservation. The few hotels left were $500-plus per night, which wasn't in my budget at the time.

Luckily, I was able to find a few available hotels through the Ultimate Rewards travel portal. The cheapest one was $400 per night, still outside of my budget. However, I could also get it for around 26,000 points. I booked it with points and got to enjoy a night in Florence at a very nice hotel for free.

Points aren't a substitute for a real emergency fund

Credit card points can come in handy for last-minute travel situations, but they're no substitute for a real emergency fund. If you end up with unexpected hospital bills or have to pay for your pet to get surgery, they're not going to accept points as payment. It's important to have at least six months of living expenses saved up in an emergency fund.

I keep my emergency fund in a high-yield savings account with Ally and Betterment so that I can earn some extra money on interest. I love knowing that I have both the cash I need to cover an unexpected expense and credit card points to cover last-minute flights and hotels.

Click here to learn more about the Chase Sapphire Reserve.

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WeWork drama continues, Hedge fund fees, AI on Wall Street

Sat, 10/05/2019 - 8:28am

 

Hi everyone,

I'll take a break from WeWork this week (although we do have a lot of good stories out this week including this bombshell) to focus on a new and growing area for us — the future of wealth management. 

Today, we published a big scoop that Bank of America's massive wealth arm, Merrill Lynch, has hiked trainee financial advisers' starting salaries by $10,000. In an interview with Merrill president Andy Sieg, he told BI wealth reporter Rebecca Ungarino that the firm plans to hire more than 1,500 financial adviser trainees this year, while scaling back on experienced hires. 

Why is this such a big deal? 

The firm is aiming to stay competitive as the war for financial adviser talent ratchets up in a tight US labor market — and around a third of advisers across the industry are expected to retire in the next decade. 

Wells Fargo's adviser arm also told us it's launched a new pitch to draw new talent. 

It's been tough for the wealth industry to convince new college grads to join their ranks. Young people working in wealth tell Business Insider that the allure of lucrative fields like tech, the daunting challenge of drumming up business as a newbie, and lingering unease with the industry for those who came of age during the financial crisis help explain why the jobs may have seemed less appealing. 

Yet the future of the industry to find the next generation of top advisors is crucial. The average adviser's age is around 52, according to Cerulli Associates data, and many are seen retiring over the next decade. Only around 9% are under 35.

Separately, we've also been writing a lot about the race to zero-fee commissions among the online brokers in the last few days. Interactive BrokersCharles SchwabTD Ameritrade, and E-Trade all moved to eliminate fees for US-listed trades in late September and early October, in turn wiping out huge chunks of the companies' market caps.

There are a number of important factors influencing the choice to dump fees, Rebecca reports. Legacy brokers and big banks alike are rushing to compete with digital entrants for younger users. Meanwhile, US interest rates are falling at a faster clip than analysts had earlier expected. 

But while the e-brokers' stock prices are feeling pain, Brett Redfearn, the SEC's trading and markets head, praised their decision to slash fees during an investor conference in Washington this week.

"It is always good to see competition bringing down prices for investors," Redfearn said. 

Stay tuned for more from BI as we continue to follow this trend and let us know what else we should be watching in the wealth space. 

Thanks for reading, 

Olivia

Wall Street gave Adam Neumann up to $500 million he was going to pay back after WeWork's IPO. Now that the offering is pulled, banks are scrambling to hammer out a solution.

WeWork co-founder Adam Neumann is working with banks to consider new terms for a loan that he took out before the company filed to go public, according to people with knowledge of the matter. 

Neumann has already drawn down $380 million from the loan. He can no longer pay the loan with proceeds from selling WeWork shares publicly, since the co-working company has abandoned its IPO for now. 

Neumann may be required in the talks to put up some of his properties or other assets as collateral for the loan, one of the people said. 

READ MORE HERE »

Citi has quietly undergone a massive restructuring over the past year. Here are the businesses it overhauled and the executives who departed.

Citigroup declared in 2017 its post-financial crisis restructuring was complete, but over the past 18 months the bank has quietly, slowly undergone another significant overhaul.

A little over two years after its investor day, the firm and leadership surrounding CEO Mike Corbat looks vastly different. Just five of the 14 executive officers on Corbat's team remain.

In a recent meeting with bank analysts, Citi executives signaled that the slow-burn restructuring may be nearing completion.

Here's a recap of businesses Citi overhauled and the executives who've departed over the past 18 months.

READ MORE HERE »

Hedge-fund investors want a deal on fees. Managers don't start negotiating until the check hits $120 million.

The hedge-fund industry's notoriously high fees have been pushed down as managers have been more willing to negotiate.

But talks start only with the guarantee of a big check, according to data from eVestment. To lower management fees, a $119 million check was required on average. To cut performance fees, the cost was even higher — $133 million. 

READ MORE HERE »

Wall Streeters say AI is going to disrupt their business more than any other tech. Many big investors are getting left behind.

A recent survey conducted by the research firm Greenwich Associates found that only 23% of hedge funds and asset managers are using artificial intelligence on their trading desks.

That's compared to 63% of banks and 60% of trading venues using the cutting-edge tech.

As hedge funds and asset managers face shrinking fees, the cost required to internally build AI tools is viewed as too high. 

READ MORE HERE »

Saba Capital is targeting a unit of Legg Mason in an activist campaign. Another Legg Mason business stands to profit if it's successful.

Boaz Weinstein's Saba Capital, a $1.7 billion hedge fund, has taken activist positions in closed-end funds run by large asset managers like BlackRock and Neuberger Berman with the hopes that new board members will increase the price the funds trade at. 

Saba is targeting two closed-end funds run by Western Asset Management, which is owned by the $750 billion manager Legg Mason. 

Legg Mason, however, is also backing Saba in its fight against its own asset manager, thanks to its ownership of EnTrust Global, a $20 billion fund of hedge funds and one of Saba's biggest investors. 

READ MORE HERE »

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Merrill Lynch hiked starting salaries for trainee advisers by $10,000 and is taking on 1,700 newbies so far this year. We have the details. (BAC)

Sat, 10/05/2019 - 8:24am

  • Bank of America's massive wealth arm has hiked trainee financial advisers' starting salaries by $10,000. 
  • "We're trying to do a better job communicating what a career as an adviser looks like, and what it's like getting started," Merrill Lynch Wealth Management head Andy Sieg told Business Insider.
  • Merrill has hired 1,700 financial adviser trainees so far this year. It's retreated from making experienced hires.
  • It's also deployed 75 performance managers around the country to coach new advisers, tracking things like how many meetings they have with potential clients.
  • The war for young adviser talent has ratcheted up in a tight US labor market — and around a third of advisers industry-wide are seen retiring in the next decade. 
  • Visit BI Prime for more stories.

Bank of America's Merrill Lynch Wealth Management has sweetened starting salaries for trainee financial advisers, hired 1,700 newbies so far this year, and deployed performance managers around the country to coach them.

It's all part of the firm's push to draw new talent for overseeing its some $2.4 trillion in client balances as an adviser retirement cliff looms.

We spoke with Merrill Lynch Wealth Management President Andy Sieg about how the firm has had to change up its playbook for hiring and training future advisers to add to its nearly 15,000-strong "thundering herd." 

Adviser demographics are "one of the realities of the wealth management industry that has not received a lot of attention," Sieg said, and firms need tackle how to position the next generation.

Merrill hiked starting salaries for trainee advisers by some $10,000 six months ago — the average is now $65,000, plus performance hurdles to bring total pay above that base. The firm's broader market and competitive pay practices are reviewed on a continuing basis. 

When asked how that salary stacks up with other wirehouses, Sieg said: "I think it's in the zone."

Honing the pitch is critical, especially for big banks looking to wealth to balance more volatile activities like trading.

Young people working in wealth tell Business Insider that the allure of lucrative fields like tech, the daunting challenge of drumming up business as a newbie, and lingering unease with the industry for those who came of age during the financial crisis help explain why the jobs may have seemed less appealing. 

To be sure, Merill is not the only wirehouse — the term for big, full-service broker-dealers — looking at that pool. For one, we spoke with Wells Fargo Advisors last month about coaching, outreach, and client handovers. 

Read more: Wells Fargo has seen 1,000 financial advisers depart since its sales scandal broke in 2016. Here's how it's fighting back to retain talent and attract young hires.

While Merrill has a training program that dates to the 1950s, today it has moved beyond simply instructing people to sell stocks and bonds. It focuses on financial planning and also selling broader offerings like mortgages from Bank of America, which bought the brokerage during the depths of the financial crisis. 

Still, Sieg said graduation rates from Merrill's trainee program were "not as high as we would like."

Over the past nine months it deployed 75 performance managers across the US to be more hands-on. That includes tracking things like  meetings and presentations with potential clients. The firm does not release trainee graduation rates.

When it comes to experienced advisers, Sieg said it's doing limited recruiting, but "it's pretty narrow, and the economics are very different than they used to be." 

In that respect, Merrill is focused on advisers from regional firms and independents who have been in the business for roughly two to eight years. They get a three-year guaranteed salary, and then are put on a performance-based payout grid.

Merrill had 14,690 financial advisers at the end of June, according to filings, down from 14,820 a year earlier. That excludes consumer banking advisers. The firm's total wealth advisers, including FAs, were 19,512 — up from 19,350 in 2018. Productivity per person has edged up meanwhile.

Trainee hiring at 'real scale'

While the firm has retreated from experienced hires to focus on making existing advisers more productive, Sieg said hiring is happening at "real scale" for its financial adviser development program. Merrill has brought on 1,700 new advisers this year through the third quarter for its training program.

It has some 3,500 trainees in its multi-year program overall. Through the third quarter, it hired 100 more advisers than the same time last year. 

Merrill sees a team environment with experienced advisers as part of setting them up for success. 

"We've moved well beyond the day of a sole practitioner in our business. Eighty percent of the advisers at Merrill Lynch today are on teams," he said. That gives people access to a relatively wide customer base, but means they also need to specialize skills quickly — in investment management, planning, or business development, for example. 

That usually happens by trainees' third or fourth year. "It becomes more important at that point in your career because now you don't just have 10 clients. You may have 50 clients," Sieg said. 

Read more: UBS Americas private-wealth head says he thinks losing a 'few hundred' advisers would not be a bad thing, and is looking at how robos can help keep the bank's richest clients

'Support and discipline'

To be sure, the business is a "a very challenging career path," Sieg said, and a successful adviser needs a range of skills to stand out in a crowded field.  

Merrill is trying to tackle attrition at multiple points. Sieg said there's a percentage of dropouts from people who realize one year in that they didn't "understand what this career was all about."

"We're trying to do a better job communicating what an adviser's career looks like, and what it's like getting started," he said.

A second dropout wave comes from failing required licensing exams to buy and sell securities, and the firm is looking to tools like self-diagnostics to help people pass.

Then comes learning the client service aspect, which was where the firm thought it could take it to the next level. It has been using technology and week-long group sessions around the country to bring trainees together.

But it also realized that senior field managers, who also oversee things like compliance and supervision for existing advisers, needed more help with young talent. 

It has been deploying 75 managers focused solely on the trainee program, which Sieg said added "a sense of both support and discipline." That hiring was rolling and only recently wrapped up. 

Read more: Morgan Stanley's wealth management arm is now the most profitable it's ever been. Wall Street is already questioning how long that can last.

Retirement cliff

Wealth management overall drew roughly 20,000 new trainees in 2018, according to research firm Cerulli Associates, an 11% drop from 2017. Around three-quarters of trainees failed out of the industry — encompassing wirehouses, independent registered investment advisers (RIAs), and others not including pure robo-advisers — in-line with recent years.

"Clients worry about — what if something happens to the financial adviser that I've gotten to know over the years, and I've grown to trust; if he or she retires?" Sieg said. 

The majority of advisers industry-wide at end-2017 were between 55 and 64, according to Cerulli. Only around 9% are under 35.

"New advisers joining our firm 30 years ago couldn't have imagined the breadth of capabilities that we have today," Sieg said. 

Join the conversation about this story »

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The flopping of the IPOs: Tech's biggest investors came to San Francisco for a major startup conference, and one topic stole the show

Sat, 10/05/2019 - 7:30am

The Disrupt conference in San Francisco, organized by Tech Crunch, is a longstanding showcase for cutting-edge startups and products. But the star of this year's show was not a buzzy new app for swapping selfies or a new cloud platform; it was an arcane process for companies to sell their stock to the public. 

The so-called direct listing was inescapable during the three-day conference, debated on stage by venture capital investors and founders, and discussed in the halls by the software developers, journalists and other guests.

With the conference taking place just days after WeWork shelved its highly-anticipated initial public offering, the focus on going public — a celebrated milestone in the startup world — was not entirely surprising. And in the wake of a string of disappointing IPOs this year, from Uber and Lyft to Peloton, there was a palpable need among the guests to commiserate about the state of affairs, prognosticate about the future and find someone, or something, to blame.

Some VCs at the event were quick to point the finger at financial institutions like JPMorgan and Goldman Sachs — these banks overhyped companies like Uber and Lyft, they argued, running up private valuations so much ahead of the IPOs that there was nowhere for them to go on the public markets but down. 

For many of the VC investors on hand, the remedy was simple: a direct listing, that sidesteps the traditional, banker-controlled IPO process.

"As someone who invests in companies that are upending the status quo, there is something innately appealing about a financial vehicle, an instrument, that is upending how things have been done for a long time," said Spark Capital's Megan Quinn, during a panel.

"Rather than having underwriters, lineup investors set the price themselves, you just let the market have at it and come what may," Quinn said.

In all, direct listings were discussed in at least three major panels throughout the first two days of the Disrupt conference. 

What is a direct listing, anyway?

In a direct listing, a company simply lists its shares on a public exchange and the stock begins trading. Unlike in an IPO, there is no bank underwriting the offering, setting a price and selling it to institutional shareholders. The startup does not actually raise any money in a direct listing, but its employees and early investors can sell their shares right away. 

While not an option for every startup, GV's David Krane explained that a direct listing is an appealing option for startups and investors hoping to bypass the traditional IPO process with those big banks

It doesn't hurt to be able to exercise your options on the first day, either, he added.

Several investors told Business Insider that Slack's direct listing in June helped prove the strategy a reliable option for a wider range of private companies than previously thought.

Still, in a panel with Slack cofounder Cal Henderson and Spark Capital's Quinn, the pair reiterated that a direct listing is best for a startup that doesn't need an influx of cash that normally comes with a traditional IPO, and so would not work for a company like WeWork, which is facing a cash crunch.

The discussions at the Disrupt conference are the latest signs of a shifting landscape in Silicon Valley, after years of skyrocketing private market valuations that produced hundreds of "unicorns" — the glittering startups valued at $1 billion or more in the private markets. 

On Tuesday, a dozen VC firms organized a private summit with guest speakers such as the author Michael Lewis to discuss direct listings and other IPO alternatives.

For the entrepreneurs and techies who convened at the Disrupt conference, the fixation on the direct listing underscored the eternal optimism that runs through Silicon Valley. The biggest IPOs are flopping, but there's an explanation and a solution. 

And as long as VCs are still writing checks, for many startups at the event, there was no reason to panic.

SEE ALSO: Brex, the $2.6 billion credit card company for startups, explains why it's getting closer to traditional finance with its new Brex Cash bank account product

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These are the 5 largest mega-mergers so far in 2019

Sat, 10/05/2019 - 7:05am

  • Merger and acquisition volume slowed significantly in the third quarter of 2019, while the average deal size has swelled this year, according to new data from Mergermarket. 
  • Despite the slowdown last quarter, there still have been several massive deals inked this year set to reshape industries including defense and pharmaceuticals. 
  • Here are the five largest mega-mergers so far in 2019, according to data from Mergermarket. 
  • Visit the Business Insider homepage for more stories.

Dealmakers across the world have secured $2.49 trillion worth of mergers and acquisitions during the first three quarters of 2019, according to new data from Mergermarket. 

But the seemingly massive figure is still down 11.4% from the level of deal volume seen at this time last year. M&A activity also slowed considerably more during the third quarter, falling 21.2% to $622 billion. 

The average deal size rose to $424.6 million, up from $380.1 million last year and the highest on record, based on Mergermarket data suggesting dealmakers are seeking fewer, larger transactions. 

"Whether they are motivated by the desire to get more growth, or a way to secure future survival, deals are getting larger," global editorial analytics director Beranger Guille said in the report. 

Read more: The man who wrote the book on how to make 100 times your money with a single stock outlines the core principles of his investing approach — and shares his 2 top under-the-radar picks

Guille continued: "On the back of the longest equity bull market in history, and amid persistently low interest rates, corporates have ample cash reserves and appealing debt financing options at their disposal to pursue M&A." 

Here are the 5 largest mega-deals of 2019, listed in increasing order of size, according to Mergermarket: 

5. Occidental Petroleum + Anadarko Petroleum

Tickers: OXY, APC

Sector: Energy 

Deal value: $54.4 billion

Source: Mergermarket



4. Saudi Aramco + Saudi Basic Industries Corporation

Sector: Industrials and chemicals

Deal value: $70.4 billion 

Source: Mergermarket



3. AbbVie + Allergan

Tickers: AGN, ABBV

Sector: Pharmaceuticals

Deal value: $86.3 billion

Source: Mergermarket



2. United Technologies + Raytheon

Tickers: UTX, RTN

Sector: Defense

Deal value: $88.9 billion

Source: Mergermarket



1. Bristol-Myers Squibb + Celgene

Tickers: BMY, CELG

Sector: Pharmaceuticals

Deal value: $89.5 billion

Source: Mergermarket



The week that rocked online trading: everything we know about brokers' rapid-fire moves to slash commissions

Sat, 10/05/2019 - 7:00am

  • The business of investing and trading online is undergoing an industry-wide shift, with many big brokerages sending their commissions to zero as competition mounts.
  • Interactive Brokers, Charles Schwab, TD Ameritrade, and E-Trade all moved to eliminate fees for US-listed trades in late September and early October, in turn wiping out huge chunks of the companies' market caps. 
  • That's renewing speculation about consolidation across the industry.
  • Business Insider regularly takes our readers inside the major online brokerages. You can read our latest by subscribing to BI Prime.

Interactive Brokers. Charles Schwab. TD Ameritrade. E-Trade.

In late September and early October, many big brokerages said they would eliminate online trading commissions for US stocks and ETFs in what felt like one fell swoop. The announcements rocked the companies' shares and renewed speculation about consolidation in the industry. And many investors and analysts are trying to guess who will cut next, while at least one startup is actually looking to pay for trades. 

Several drivers are morphing these firms and influencing the choice to dump fees. Legacy brokers and big banks alike are rushing to compete with digital entrants for younger users. Meanwhile, US interest rates are falling at a faster clip than analysts had earlier expected for the rate-sensitive bunch.

Business Insider is reporting and analyzing these developments at a crucial moment for the industry. We broke down the drama unfolding in the online trading, wealth management, and discount brokerage arena.

Broker wars escalate 

October 3 —The SEC's markets guru just praised brokers for slashing commissions — but warned they still need to do what's best for investors

October 3 — Charles Schwab, E-Trade, and TD Ameritrade have seen a combined $18 billion in market value erased as the brokerage-fee war has ramped up

October 2 — E-Trade and 3 other big brokers have axed online trading commissions completely in the past week. Here's how Fidelity responded when we asked about the fees.

October 2 — Charles Schwab on Charles Schwab: The founder explains why the firm just axed commissions as broker wars reach a fever pitch

October 2 — TD Ameritrade becomes the latest broker to eliminate fees — and its free stock trades will be available before Charles Schwab's

October 1 — Charles Schwab says it will cut online stock and ETF fees to zero — and all the major brokers are getting clobbered

September 30 — The former CEO of a high-speed-trading firm is taking aim at Robinhood with a fintech startup that wants to pay you to trade

September 26 — Interactive Brokers announces commission-free trades on online US stock, ETF trades

September 24 — JPMorgan is taking aim at apps like Robinhood by quietly rolling out options trading to select You Invest customers

More brokerage and robo news

September 18 — Charles Schwab is losing a prominent markets analyst as the discount broker gears up to cut 600 jobs

September 18 — 2 senior executives are now out at Charles Schwab as the discount broker prepares to cut 600 jobs

September 13 — Wealthfront's CFO says the roboadviser is already acting like a public company. That comes as it grabs assets in a crowded, competitive market.

September 13 —Jack Dorsey's Square is reportedly testing a free stock-trading service that would rival Robinhood

August 16 — Rivals E-Trade and TD Ameritrade had CEO shakeups within weeks of each other. The departures come as competition ratchets up among e-brokers.

July 23 — Charles Schwab's retail head and marketing chief are out — and the firm's still figuring out what's next

July 22 — Robinhood, the no-fee stock trading app, just announced a giant-size $323 million round of funding, making it worth over $7 billion

July 17 — Charles Schwab is experimenting with Netflix-style pricing. It's the clearest example yet of finance trying to imitate Silicon Valley.

July 2 — The inside story of how Robinhood, a $6 billion investing app for millennials, blew a huge launch so badly that Congress got involved

April 26 — $1.2 trillion brokerage TD Ameritrade is developing a Netflix-like recommendation engine in a bid to win investor attention

March 27 — A fintech entering the crowded wealth management space just nabbed nearly $9 million in funding from the VCs that backed Venmo, Monzo and Acorns

March 18 — For the CEO of the firm backing robos like Betterment and Stash, the future of managing money could be more like ordering dinner from a restaurant

February 8 — SoFi held talks to acquire a fintech company backing some of the hottest robo advisors as it eyes expansion beyond its lending roots

Join the conversation about this story »

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