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Dynastic wealth may be fueling the widening gap between America's rich and poor — here's how the wealthy keep their money in the family

Wed, 03/06/2019 - 5:09pm

  • Dynastic wealth, when families pass money down from one generation to the next, is a problem in America, according to Warren Buffett.
  • Transferring wealth to the next generation usually starts with a trust, a legal relationship created to hold money for someone.
  • Transfer taxes are set up to help prevent dynastic accumulation of inherited wealth, but wealthy families can pass money down without being subject to estate taxes through generation-skipping-transfer trusts and dynasty trusts.

The gap between the rich and the poor in America has widened — and dynastic wealth, which has been bemoaned by Warren Buffett, may be a factor.

Dynastic wealth occurs when families pass money down from one generation to the next. It's a cyclic process: Each generation can grow the previous generation's money and leave it to the next generation, which then continues to grow it.

This pattern of keeping assets within the family helps explain why the combined wealth of America's three richest families — the Waltons, the Kochs, and the Marses —  increased by 5,868% since 1982, totaling $348.7 billion, according to the left-leaning Institute for Policy Studies' "Billionaire Bonanza" report.

But how is this generational wealth continually transferred? It usually starts with a trust.

A trust is created to hold money for a third party

A trust is a legal relationship "designed to hold assets," Alicia Waltenberger, the director of wealth planning strategies at TIAA, told Business Insider. There are different kinds of trusts, but they all essentially consist of three parties:

  1. The grantor/trustor — the person who creates the trust.
  2. The trustee — the person responsible for managing trust assets in accordance with trust terms.
  3. The beneficiary — the person or organization who benefits from the trust assets.

"A trust is established when the grantor transfers legal ownership of an asset to the trustee to be held for the benefit of the beneficiary," Waltenberger said. Trusts can be revocable, in which they can be changed, or irrevocable, in which they can't be changed.

A lifetime trust refers to trusts established to take effect as soon as they're created; a testamentary trust is established to take effect upon the death of the grantor.

"The trust 'fund' refers to the assets held by the trustee in trust for the beneficiary," Michael Rosen-Prinz, a partner in the private-client practice group at McDermott, Will & Emery who works with ultra-high-net-worth clients, told Business Insider. "When people derisively talk about 'trust-fund babies' they are often referring to beneficiaries who receive assets from a trust without having earned that money or even having had to manage it while in trust."

Read more: People assume trust-fund babies are spoiled 20-somethings born with silver spoons — but they're not always who you think

Why set up a trust in the first place?

The purposes of a trust can vary, but many people set up trusts to make sure their children and descendants will be taken care of after death, according to Rosen-Prinz.

"Parents often want to leave their children enough money to be able to do anything, but not so much money so their children can get away with doing nothing," he said. "Trusts can be drafted with provisions that restrict how much money is distributed to beneficiaries, or requirements that beneficiaries be employed or otherwise active and engaged in society to receive any distributions."

"Some common purposes of trust planning include tax planning (delay or reduction of estate taxes), wealth-transfer planning (as a means of transferring assets to beneficiaries), probate avoidance, protection planning (special needs beneficiary, protection from creditors or ex-spouses, etc.), and charitable giving," Waltenberger said.

Estate taxes and other transfer taxes, such as gift taxes and generation-skipping-transfer (GST) taxes, are set up to prevent dynastic accumulation of inherited wealth by charging a tax rate of 40%, Rosen-Prinz said. When that tax rate is implemented on transferable assets, it "in some way redistributes wealth from the very rich."

However, the wealthy can avoid getting taxed by taking advantage of tax exemptions.

Wealthy families can pass down money through a tax-exempt GST trust

One way rich families can transfer assets from one generation to the next is through a GST trust — a generation-skipping-transfer-tax trust — according to Waltenberger.

"With the use of this type of trust, wealth can be transferred from one generation to the next free from federal estate tax," she said.

The beneficiary in this case is known as a "skip person" — "someone who is more than 37.5 years younger than the grantor," Waltenberger said. "This can be anyone, not necessarily a relative, but it is commonly a trust established for the benefit of a grandchild."

The GST tax is separate from the federal estate tax and gift tax — it's imposed on the transfer of the assets to the skip person.

However, a GST trust can be exempt from the GST tax if it's worth $11.4 million or less, according to Waltenberger. If the assets exceed this amount, the 40% GST tax will be implemented.

"Through the use of the GST exemption, assets in the family can be passed through multiple generations without being subject to estate taxes at each successive death," Waltenberger said.

She added: "In my experience, many families establish GST trust planning by establishing lifetime trusts for the benefit of their children, allowing their child and potentially their child’s descendants, to benefit from the trust assets during that child’s lifetime, then at the child’s death, allowing the assets to pass to the grandchildren in a lifetime trust for their benefit. This cycle can continue as long as state law provides and/or assets remain inside the trust."

Read more: US inequality is only getting worse, and the 'dynastic wealth' bemoaned by Warren Buffett may be one of the reasons why

Waltenberger described a hypothetical scenario to illustrate her point:

Jane establishes a life trust for the benefit of her son, Adam. Adam's trust is funded with $2.5 million. The trust is structured so that Adam has use of trust assets to meet his needs during his lifetime, but also to keep the trust assets out of the hands of any potential creditors and to retain the assets in the family. 

At Adam's death, the balance of the trust has grown to $7 million. Because Jane applied her GST exemption to this trust, the $7 million trust will then pass entirely free of federal estate tax to Adam's children.

Wealthy families can set up multigenerational dynasty trusts

According to Rosen-Prinz, instead of leaving assets at death to children or giving them away during life, families can take advantage of relatively straightforward estate planning to set up a multigenerational dynasty trust that's subject only to transfer taxes when initially funded.

A dynasty trust is a long-term, irrevocable trust that can exist for many generations, in which distributions can be made to beneficiaries without incurring further transfer taxes. There is generally no estate or gift tax on a distribution from a trust, according to Rosen-Prinz.

"A dynasty trust typically means a trust that keeps its assets in trust for multiple generations and doesn’t distribute assets outright to beneficiaries at a set point," he said. In order to function efficiently, a dynasty trust generally needs to be GST-exempt, he added.

But, there can be a number of drawbacks.

"For small sums of money, sometimes the hassle of maintaining the trust overshadows the tax advantage," Rosen-Prinz said. "Some people don’t like the idea of keeping money in trust for a long time, or perhaps have had bad experiences with overly restrictive trusts in the past that discourage them from keeping assets in trust."

He added: "Given the relatively high level of estate tax exemption at $11.4 million per person, most Americans don’t have to worry about ever paying estate taxes whether they use trusts or not. But even for those families who have enough assets to have a potential estate tax liability, by using trusts, they really just need to worry about the potential taxes needed to get the assets into the trust in the first place. Efficiently funding these trusts is where many sophisticated estate planning transactions are used."

SEE ALSO: Meet the 15 richest American family 'dynasties,' who have a combined net worth of $618 billion

SEE ALSO: How my husband's trust fund affects my life

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A 5G-themed ETF run by a BlackRock vet is tapping into a hot trend for niche funds, even as many struggle to gain investment interest

Wed, 03/06/2019 - 4:38pm

  • The first exchange traded fund to invest in 5G – the next generation of wireless technology – launched Tuesday. 
  • The new ETF, launched by a company that manages funds for disruptive technologies, invests in equipment, mobile network operators, real estate businesses, and other components of 5G networks. 
  • ETFs centered around specific themes, like 5G, are becoming big business for asset managers, who can charge higher fees than they do for funds that track indexes like the S&P 500. But many of the specialty funds fail to gather enough money to last. 

5G – the next generation of wireless technology – is set to supercharge smartphones and underpin innovations, including self-driving cars. 

While the nascent technology won't be widely used for years, Defiance, a startup exchange traded fund provider, is betting that the businesses related to 5G will take off as the technology evolves. On Tuesday, the New York-based company launched the Defiance Next Gen Connectivity ETF, which trades on the New York Stock Exchange as FIVG, the first ETF to invest specifically in 5G. 

Paul Dellaquila, who left BlackRock last year to join Defiance as head of ETFs, told Business Insider that 5G is "a superhighway" that allows faster speeds, more geographic access, and greater mass application than 4G or its predecessors. 

"It has massive ramifications for what’s going to happen over the next decade," Dellaquila said. 

See more: What is 5G, how fast is it, and when is it coming?

In 2017, a report from research company IHS said that in 2035, the 5G value chain will generate $3.5 trillion and support 22 million jobs globally.

Thematic funds are surging in popularity, but sometimes 'flame out'

Managers are launching more thematic ETFs, like FIVG, partly as a way to make up revenue from cheaper market funds that track broad parts of the market. 

"For some investors, thematic ETFs have taken the place of stocks that offer long-term growth potential," Todd Rosenbluth, the head of ETF and mutual fund research for CFRA, told Business Insider. "Investors benefit from the diversification at the security level but can play the broader theme. For asset managers, these long-term strategies can charge a premium price rather than face the same pressure to charge minimal fees in a race to the bottom for asset allocation products."

Despite their popularity, Ben Johnson, Morningstar's director of fund research, cautioned that thematic funds sometimes "flame out in a catastrophic fashion." Many fund sponsors pick a theme relating to headlines – cybersecurity when major companies get hacked, for example – and launch funds that fail to gather significant money.  

"It’s easier than ever to grab a handful of pasta and throw it at the wall to see what’ll stick with investors," Johnson said. "Most of these strands of spaghetti have failed to stick to the wall ... Either the theme is just a flash in the pan, they get the theme right but the firms wrong, or the valuations aren’t favorable to investing in that particular theme. A lot of these funds wind up dying on the vine." 

The fund could appeal to millennial investors

Defiance manages two other thematic ETFs, one for augmented and virtual reality, and the other for quantum computing. Together, the funds have just under $10 million. Dellaquila said his firm is looking for long-term themes, rather than quick market trends.  

“Our belief is that investors have shown an appetite for more narrowly focused ETFs so that they can better express a specific view in their portfolios,” he said. “All investments have a certain amount of cyclical nature to them, but we are providing exposure to areas of the market that we believe will change our everyday lives for years to come.”

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Defiance's 5G fund goes beyond the major telecommunications companies, such as Verizon and AT&T, to invest in 5G's supply chain. Half of its holdings are in companies that provide core equipment, such as routers and antennas. It also invests in real estate investment trusts, which own cellular towers, and enhanced mobile broadband companies, among other parts of the 5G ecosystem. No company accounts for more than 5% of the ETF's holdings. 

"The way most people go about building tech exposure is with tools that are 20 years old," said Defiance's chief executive officer Matt Bielski, formerly the head of asset allocation and ETF distribution at Direxion. "What we want to do is bring something a little bit different to the table."

Those older tools – funds that track communications indexes – have not hurt for capital. Vanguard's US communications ETF, for example, manages about $1.5 billion.

Dellaquila expects the FIVG to appeal to millennial and Generation X investors. After the fund has a track record, he said institutional investors may also be interested. 

The ETF, which launches with $2.5 million in assets, has a 0.3% expense ratio, meaning that for every $10,000 invested, the investor pays $30. That's just over the average 0.27% average fee for sector-specific passive funds, according to a Morningstar report from last year. 

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Deutsche Bank is slashing its bonus pool and some bankers are getting zero payouts

Wed, 03/06/2019 - 4:18pm

  • Deutsche Bank cut its 2018 bonus pool by as much as 15% to 2 billion euros ($2.3 billion), Bloomberg reported.
  • Many bankers at the firm saw deep cuts to their 2018 bonuses, and a few who based in New York and London received zero bonuses.

Some Deutsche Bank bankers may receive no bonus this year, after the German lender cut its 2018 bonus pool by as much as 15%, according to a Bloomberg report. 

There are a few exceptions though: bankers whose payouts were guaranteed, like new hires, were able to avoid severe bonus cuts, and some top performers even got raises. 

Deutsche Bank shrunk the size of the bonus pool to around 2 billion euros ($2.3 billion), Bloomberg said, which is between 10% to 15% less than it paid out last year. The precise figure will be disclosed on March 22 when the firm releases its annual report. 

The beleaguered banking giant has also reportedly considered closing its equities trading business after losing as much as $750 million last year, according to the Wall Street Journal.

A spokesman for Deutsche Bank declined to comment. 

Deutsche Bank had a tough year last year and is facing a number of issues including a $1.6 billion loss on a municipal bond trade and increased expenses of taking out new bonds. It also has been dogged by a host of legal challenges and has paid more than $18 billion in legal fines over the past decade.

In February, Deutsche Bank reported earnings that fell short of analyst expectations for 2018. The lender has been implementing cost-cutting programs to improve efficiency and has reduced by over 1 billion euros ($1.13 billion) in the final quarter of 2018, according to its annual report. 

It's also seeking a potential merger with rival Commerzbank by mid-2019, in case its restructuring plan goes awry, Bloomberg has reported.  

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Meet the Albrechts, the highly secretive heirs to the Aldi fortune, who are worth $38.8 billion, own Trader Joe's, and have kept a famously low profile for decades

Wed, 03/06/2019 - 3:52pm

  • After World War II, brothers Theo and Karl Albrecht found their mother's corner grocery store in Germany still standing — so they ran with it, transforming Aldi into an international supermarket chain. 
  • Throughout the decades, Aldi became one of the most profitable retail chains, with over 5,000 stores across Europe and the US. In 1979, Theo bought Trader Joe's, the low-cost grocery store.
  • The Albrecht family is historically secretive, and there is a lot left unknown about the family's personal lives. What is known, however, is their net worth: $38.8 billion. 

Theodor and Karl Albrecht took their mother's thrifty corner store, still standing in Essen, Germany after World War II, and turned it into a low-cost supermarket chain that today spans over a dozen countries across Europe and the US.

Aldi, short for Albrecht discount, has become such a stakeholder in Europe that other chains like it, including Walmart, have never been able to get a foothold. In 2017, CNBC estimated Aldi made over $13 billion in the US alone.

Little is known about the Albrechts. They don't speak to the press, or attend openings of their stores. According to a German newspaper, the family does not own vacation homes, private jets, or yachts, but instead have chosen to live in seclusion, keeping just a couple thousand euros in their bank account. 

What is known, however, is their net worth: $38.8 billion, according to Bloomberg. 

Here's how the Albrecht family got started and what we know about them:

SEE ALSO: Meet the Wertheimers, the secretive French brothers worth $42 billion who control Chanel, own vineyards in France and Napa Valley, and breed racehorses

In 1913, the Albrecht family opened a corner grocery store in Essen, Germany. After World War II, brothers Karl and Theo took over the business in 1946, opening dozens of stores and renamed it Aldi — short for Albrecht Discount.

Source: Bloomberg



By 1953, there were over 30 Aldi stores across Germany.

Source: The Chicago Tribune



In 1960, Karl and Theo, after a disagreement about whether to sell cigarettes, split Aldi in half: Aldi Süd and Aldi Nord. Karl would operate stores in southwest Germany, the U.S., U.K., Australia and Eastern Europe, while Theo took the northern part of West Germany, western and southern Europe.

Source: Bloomberg, The New York Times



See the rest of the story at Business Insider

Elon Musk said it was a mistake not letting shareholders join a conference call where he changed his prediction about Tesla's Q1 profitability (TSLA)

Wed, 03/06/2019 - 3:43pm

  • Tesla made a recording of a conference call with reporters available on its website Wednesday after CEO Elon Musk said the automaker's handling of the call "was a mistake."
  • During the February 28 call, Musk changed a prediction about Tesla's profitability in the first quarter of this year. 
  • Tesla shareholder Galileo Russell tweeted at Musk on Tuesday, saying he was frustrated by Tesla's failure to allow shareholders to listen to the call or read a transcript of it.
  • Musk replied that Tesla's handling of the call "was a mistake."

Tesla made a recording of a conference call with reporters available on its website Wednesday after CEO Elon Musk said the automaker's handling of the call "was a mistake."

During the February 28 call, Musk discussed the arrival of the long-awaited $35,000 version of the automaker's Model 3 sedan and changed a prediction about Tesla's profitability in the first quarter of this year. 

Read more: Elon Musk doubled down on his goal to make a Tesla that's less expensive than the Model 3

Musk said in January that he was "optimistic" Tesla would earn a small profit during the first quarter, but changed that prediction on the February 28 call, saying Tesla would likely not be profitable during the first quarter.

The automaker did not disclose Musk's updated prediction to the public until a March 1 regulatory filing.

Tesla shareholder Galileo Russell tweeted at Musk on Tuesday, saying he was frustrated by Tesla's failure to allow shareholders to listen to the call or read a transcript of it.

"yo @Tesla & @elonmusk why was there a press call about the $35K model 3 that was closed to the public (and shareholders!!) w/ no transcript released. super frustrating for long-term supporters. completely goes against democratization of information and financial markets," Russell said.

Musk replied that Tesla's handling of the call "was a mistake."

"Tesla comms is fixing. That was a mistake," Musk said.

Tesla did not immediately respond to Business Insider's request for comment.

Tesla comms is fixing. That was a mistake.

— Elon Musk (@elonmusk) March 5, 2019

 

Have a Tesla news tip? Contact this reporter at mmatousek@businessinsider.com.

SEE ALSO: Mercedes-Benz is taking on an idea Elon Musk mentioned 3 years ago with its new electric van concept

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US regulators are reviving efforts to place limits on Wall Street pay

Wed, 03/06/2019 - 2:40am

  • Formulating new rules to limit Wall Street pay is back on regulators' front burners, according to a new report from The Wall Street Journal published on Tuesday night.
  • The US financial collapse and ensuing Great Recession began more than a decade ago, and that financial turmoil led to financial regulations passing the Dodd-Frank bill of 2010.
  • Part of Dodd-Frank requires a series of executive compensation rules, and in September 2018 MarketWatch reported that 5 of 12 of those rules were not finalized.
  • According to The Journal, regulators are "reviving a proposal that would require big banks to defer some compensation for executives and to take back more of their bonuses if losses pile up at a firm."

Formulating new rules to limit Wall Street pay is back on regulators' front burners, according to a new report from The Wall Street Journal.

The US financial collapse and ensuing "Great Recession" began more than a decade ago, and that financial turmoil led to the 2010 financial regulations bill known as Dodd-Frank.

Part of Dodd-Frank requires a series of executive compensation rules, and in September of 2018 MarketWatch reported that five of 12 of those rules were not finalized.

The Financial Crisis Inquiry Commission, a bipartisan group tasked with examining the cause of the financial crisis, had sharp words for the compensation systems in place before the financial collapse.

"Compensation systems — designed in an environment of cheap money, intense competition, and light regulation — too often rewarded the quick deal, the short-term gain — without proper consideration of long-term consequences," according to the commission's final report.

"Often, those systems encouraged the big bet — where the payoff on the upside could be huge and the downside limited. This was the case up and down the line — from the corporate boardroom to the mortgage broker on the street."

Wall Street pay has crept back up, following lows after the crisis. According to The Journal, regulators may dive back into writing rules that would defer compensation and institute clawbacks — the repayment of bonuses — if a firm suffers repeated losses.

In its report published on Tuesday, The Journal claims officials from the "Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, and Federal Reserve" are in the early stages of rules discussions. The Federal Reserve and the OCC told The Journal that they are "committed" to finalizing a rule, and the FDIC had no comment.

In order for any new rule to be implemented, six different agencies must reach an agreement: The Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Depository Insurance Corp., the National Credit Union Administration, and the Federal Housing Finance Agency.

Such measures were twice proposed during the Obama administration, but they were met with resistance from within the financial industry. The proposals were never finalized.

SEE ALSO: UBS is using laser beams and 5G to trade stocks in the latest escalation of a technological 'arms race'

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A 2010 Trump Tower meeting reportedly went sideways after a guest spilled Diet Coke on his carpet

Wed, 03/06/2019 - 12:26am

  • Several graduates from President Donald Trump's high school reportedly attended an contentious meeting during which one of the alumni spilled a glass of Diet Coke on Trump's carpet, according to a Washington Post report.
  • It happened as a group of graduates from the New York Military Academy, the private boarding school Trump attended as a boy, reportedly sought a $7 million donation from Trump.
  • One of the alumni reportedly spilled a glass of Diet Coke on a cream-colored carpet. Trump was not pleased, according to the report.

Several graduates from Donald Trump's high school reportedly attended an contentious meeting during which one of the alumni spilled a glass of Diet Coke on Trump's carpet, according to a Washington Post report published Tuesday.

In 2010, a group of graduates from the New York Military Academy, the private boarding school Trump attended as a boy in the late 1950s, reportedly sought a $7 million donation from Trump. The school faced a significant debt at the time, and would temporarily close in 2015 after filing for bankruptcy due in part to its $16 million debt.

During the meeting at Trump's office in Manhattan, alumnus Richard Pezzullo spilled a glass of Diet Coke on the cream-colored carpet, two people who attended the meeting told The Post. Trump reportedly responded to the spillage of his go-to beverage with strong language.

"What do I get for my $7 million," Trump reportedly said, after the group made its request.

Academy officials reportedly conveyed an offer to dedicate the school's summer program or its buildings in honor of Trump, but the real estate mogul turned down the offer.

"It's not a good business proposition," Trump said at the time, according to Pezzullo. "The school has had a good run."

The group later met with Michael Cohen, Trump's then-attorney, who would unmistakably reject its offer. The longtime Trump lawyer said Trump "would love to have enough money to buy the school so he could bulldoze it," Pezzullo recalled to The Post.

Trump's academic record received renewed scrutiny after Cohen testified that he previously threatened to take legal action against his schools. During his testimony before the House Oversight Committee last week, Cohen claimed Trump instructed him to send letters to "high school, colleges, and the College Board not to release his grades or SAT scores."

Trump frequently attacks his political opponents' intelligence and achievements, often while exaggerating his own. In 2011, Trump accused President Barack Obama of being a "terrible student" and goaded him to release his academic records from Columbia University and Harvard Law School.

"How does a bad student go to Columbia and then to Harvard," Trump reportedly said to the Associated Press in 2011. "I'm thinking about it, I'm certainly looking into it. Let him show his records."

Obama graduated from Columbia University and Harvard Law School. He was president of the Harvard Law Review, a student-run, highly-competitive writing competition that publishes a legal journal under the banner of the Ivy League university.

Numerous US Supreme Court Justices have contributed to the Harvard Law Review during their time in law school, including Justices Elena Kagan, Ruth Bader Ginsburg, and Antonin Scalia.

SEE ALSO: 'Aw-shucks': Trump takes a victory lap after Hillary Clinton confirms she won't run for president in 2020

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The $6.5 billion acquisition that everyone hated a year ago was the only thing everyone loved about Salesforce's latest quarter (CRM)

Tue, 03/05/2019 - 9:47pm

  • Nearly a year after Salesforce announced it would acquire MuleSoft, Salesforce sees MuleSoft as a major source of subscription growth.
  • Mulesoft contributed $181 million in revenue, including $156 million in subscription and support revenue in the past quarter.
  • Last quarter, Salesforce predicted that MuleSoft would generate $375 million in revenue for the entire fiscal year, but this quarter it reported that MuleSoft ended up generating $431 million.

Salesforce's softer-than-expected sales forecast for the current quarter left some investors disappointed. But there was one part of the company that everyone was gushing about: MuleSoft. 

What a difference a year makes. 

Salesforceacquired MuleSoft about a year ago for a whopping $6.5 billion, the largest deal in the company's history. The big-ticket deal raised plenty of skepticism at the time, especially since MuleSoft didn't fit neatly into Salesforce's customer relationship management business. Salesforce's stock sank about 5% in the immediate aftermath of the deal.

On Tuesday, UBS analyst Jennifer Swanson Lowe called MuleSoft a "standout" in Salesforce's final quarter of the year.

MuleSoft generated $181 million in total revenue, including $156 million in subscription and support revenue, during Salesforce's fiscal fourth quarter. 

"This came in far ahead of our initial guidance as we quickly executed on our plans to integrate MuleSoft and accelerate digital transformation projects for customers around the world," Salesforce CFO Mark Hawkins said on the earnings call.

Hawkins said that this quarter was MuleSoft's "largest quarter of the year," but its products are more seasonal and may see some revenue declines depending on the quarter.  However, Salesforce still sees much potential for MuleSoft. In the past year, Salesforce hired 450 new employees for MuleSoft.

Read more: From an email to a $6.5 billion deal in 46 days: How Salesforce's bid for MuleSoft came together

In total, Salesforce generated $3.6 billion in revenue, 26% higher than this time last year. Total subscription and support revenue was $3.38 billion. The company's revenue guidance for the first quarter however, was slightly below Wall Street's expectations.

Over the past year, MuleSoft generated $431 million in revenue.

"Now, we are coming up on 1 year since our acquisition of MuleSoft and we are absolutely thrilled by their outstanding performance and the value we are creating for customers like SunTrust, State of Colorado and Unilever," Keith Block, co-CEO of Salesforce said on the earnings call.

SEE ALSO: Microsoft is seriously closing the gap with Amazon in the cloud wars, according to a survey of IT professionals

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Regulators just approved the first new depression drug since the 1980s, and some see blockbuster potential (JNJ)

Tue, 03/05/2019 - 8:58pm

  • On Tuesday, a drug inspired by ketamine and made by Johnson & Johnson became the first new depression drug in 35 years.
  • Regulators approved the drug, a nasal spray called Spravato, which is a brand name for esketamine.
  • The approval comes on the heels of a favorable vote from experts last month who evaluated the drug's safety and effectiveness.
  • The list price of Spravato ranges from $590 to $885 per treatment session, depending on the dose a patient needs.
  • Several biotechs have novel antidepressants in the pipeline, including Allergan and Sage Therapeutics. Sage's drug is up for approval later this month.

A drug inspired by the anesthetic ketamine just became the first new kind of depression medication in 35 years.

Called Spravato, a brand name for esketamine, and developed by Johnson & Johnson, the drug is a nasal spray designed to treat severe forms of depression that don't respond to other medications. Johnson & Johnson's new nasal spray contains the chemical mirror image of ketamine, which has previously been called a "party drug" because of its quasi-psychedelic effects. 

On Tuesday, regulators with the US Food and Drug Administration (FDA) approved Johnson & Johnson's new drug, which is believed to have fewer negative side effects than ketamine, but said it would only be available to patients at a certified doctor's office or clinic. Patients will take it along with another antidepressant pill.

The approval is a significant milestone. Depression is the world's leading cause of poor health and disability, and as many as one in three patients don't get relief from existing antidepressants. For several decades, psychiatrists and other mental-health researchers have expressed optimism about positive findings related to ketamine, esketamine's chemical cousin. One group even called the drug "the most important discovery in half a century."

The list price of the new drug ranges from $590 to $885 per treatment session, depending on the dose a patient needs, Johnson & Johnson said. In the first month of treatment, patients undergo two sessions a week at a total price of roughly $5,000 to $7,000. In the second month, patients are treated weekly or once every two weeks, which helps lower the price to about $2,300 to $3,500 a month. The actual amount that patients end up paying will depend on how health insurers decide to cover the treatment.

The approval comes on the heels of a favorable vote last month from a panel of experts convened by the FDA who concluded that the drug was safe and effective. They also said they believed esketamine's benefits outweighed its risks. Still, the experts said esketamine has some important negative side effects and limitations.

"There has been a long-standing need for additional effective treatments for treatment-resistant depression, a serious and life-threatening condition," Tiffany Farchione, the FDA's acting director in the division of psychiatry products, said in a statement.

And upon careful review, they felt Johnson & Johnson's new drug met the criteria to become one of those treatments, Farchione added.

A nasal spray inspired by ketamine

Whether it's Abilify or Zoloft, almost all antidepressants work by plugging up the places where our brain takes up serotonin, a chemical messenger that plays a key role in mood regulation.

Ketamine appears to engage a part of the brain that's different from the area traditional antidepressants affect. This is part of the reason it has been called "the most important discovery in half a century" for mental illness.

The drug's apparent rapid-fire effects may be especially useful for staunching suicidal thinking in people, experts say. Ketamine also has long been used to prevent pain, which suggests to clinicians that it's relatively safe.

The same appears to apply to esketamine.

"I think there's substantial evidence that this could be a game-changer," Steven Meisel, a system director of medication safety with Fairview Health Services and a member of last month's panel, said after reviewing the data from Johnson & Johnson's five clinical trials.

Most experts said last month that based on that data, esketamine appeared safe and well-tolerated, with some caveats. For example, they said the drug had some important negative side effects: More than a third of the trial patients reported feeling the "out of body" sensation known as dissociation, for example. About the same number of patients reported dizziness, sedation, and nausea.

Also in the clinical trials, the drug was given as a second-line treatment to patients with severe depression who failed to respond to at least two other antidepressants — not as a first choice for people with mild-to-moderate depression.

Reviewers also said that out of Johnson & Johnson's five trials, one failed to meet the statistical threshold needed to show that it was better than a placebo.

To address esketamine's side effects, the FDA will require that the drug be given in the presence of a clinician so patients can be monitored for a few hours.

"Because of [safety] concerns, the drug will only be available through a restricted distribution system," Farchione said. "And it must be administered in a certified medical office where the healthcare provider can monitor the patient."

While those steps may make the treatment less convenient for patients, they could also help keep the drug from being illicitly diverted and used for other purposes.

Given that few other drugs are available for severe depression, analysts see promise in esketamine. Some believe it has blockbuster potential, forecasting sales of roughly $2.4 billion in 2024 across the US and five major European markets.

Carter Gould, the executive director of biotech equity research at the financial firm UBS, said in a note circulated last month that he felt the drug was likely to be approved "especially in a disease paradigm where little options are available."

SEE ALSO: J&J and Allergan are racing to shake up the $9 billion market for depression treatments for the first time in decades

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Here are all the wild things, from wave pools to turmeric coffee creamer, that WeWork's surfing founder has invested in

Tue, 03/05/2019 - 8:32pm

  • WeWork's chief exec Adam Neumann is throwing company money at a hodge-podge of far-flung projects which seem to primarily align around his personal interests, the Wall Street Journal detailed on Tuesday. 
  • The avid surfer has led WeWork to invest tens of millions of dollars into a wave pool company and into big-wave legend Laird Hamilton's natural food company. 
  • After Neumann and his wife had trouble finding schooling options for their five children in Manhattan, Neumann decided to start his own private elementary school called WeGrow. 
  • Future investments may include a move into banking or private jets, which the 38-year-old chief exec has been known to ride regularly. 

"Do what you love" may be good career advice for some. But when you're the CEO and hold the majority stake in a multi-billion dollar company, following your passions can get complicated. 

WeWork's chief exec Adam Neumann finds himself in murky waters these days, as the avid surfer's investment thesis seems to be throwing company money behind a hodge-podge set of projects which appear to only align around his personal interests, as detailed in a Wall Street Journal report on Tuesday. 

In 2016, Neumann — who's been known to surf near Long Island before work — led WeWork to invest $13.8 million in cash and stock for a stake in the Spanish wave pool company, Wavegarden. Neumann has said surfing helps spread a spirit of community, which he wants to be core to the WeWork culture, according to the report. 

Also tied to his love for surfing was WeWork's $32 million investment in big-wave legend Laird Hamilton's natural food company, Laird Superfood, which touts turmeric coffee creamer and "performance mushrooms" amongst its product offerings. 

Other investments close to Neumann's interests include an energy-drink company called Kitu Life and the creation of a private elementary school in Manhattan, named WeGrow (Neumann and his wife had reportedly had trouble finding schooling options for their five children, which sparked the WeGrow idea). 

Future investments according to former employees cited in the report may include a move into banking or private jets, which the 38-year-old chief exec has been known to ride regularly. 

Though WeWork recently rebranded to The We Company, in an attempt to move beyond a co-working space provider, the sprawling list of investments may raise concerns about the company's focus and investing discipline, especially if the company decides to go public. 

Read more: WeWork is changing its name to 'The We Company' as SoftBank invests $2 billion

Already investors have raised concerns over another one of Neumann's business practices, in which he has been renting out office space that he partially owns to WeWork. Investors told The Journal in January that the situation could create a conflict of interest because if those buildings were to raise their rents, Neumann could stand to benefit.

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One stock is responsible for a big chunk of the Dow's gains this year (BA)

Tue, 03/05/2019 - 8:00pm

  • Boeing has accounted for nearly 30% of the year-to-date rise in the Dow Jones Industrial Average. 
  • Without Boeing's contribution, the index's YTD return of 11.5% would fall to 8%.
  • Boeing has the largest weight in the DJIA at 11.5%.
  • Watch Boeing trade live.

A single company, Boeing, has accounted for nearly 30% of the Dow Jones Industrial Average's year-to-date gain of 11.5%, according to Bespoke Investment Group.

Boeing shares have soared 34% this year, contributing 812 points of the index's 2,807-point gain so far this year. Without Boeing's contribution, the index would be up about 8% YTD.

The index's outsized gain is driven by Boeing having the heaviest weighting, 11.4%, among the Dow's 30 stocks. The Dow is a price-weighted index, meaning the company with the highest share price, Boeing, has the heaviest weighting. Boeing's stock price is the highest in the index and the only one over $400.

Unlike the Dow, the S&P 500 is weighted by market cap, meaning Microsoft the heaviest weighting. By comparison, Boeing commands the 15th biggest weighting of S&P 500 names. 

Such effects cut both ways and a 10% move in Boeing's stock would move the DJIA index by over 250 points. The second-highest contributor to the Dow is Goldman Sachs, responsible for about 8% of the YTD gain.

Boeing shares were trading near all-time highs thanks to strong fundamentals and solid earnings growth based on the planned launch and development of the 777X, the largest and most-efficient twin-engine plane.  

On January 30, Boeing reporting strong quarterly results, with annual revenues topping $100 billion for the first time. The company forecast full-year 2019 earnings of between $19.90 and $20.10 a share, well ahead of Wall Street expectations.

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The US federal deficit soared to $310 billion to start fiscal year 2019, up 77% from the year before

Tue, 03/05/2019 - 7:59pm

  • The US federal deficit hit $310 billion in the first four months of the 2019 fiscal year, the Treasury Department reported Tuesday.
  • That amount represents a 77% increase compared to the same period in fiscal year 2018.
  • The increase was driven by a 2% drop in tax revenue and a 9% increase in spending.

The US federal deficit just keeps getting bigger.

According to a report from the Treasury Department released Tuesday, the budget deficit — that is the difference between what the federal government takes in and what it spends — hit $310 billion in the first four months of fiscal year 2019.

Fiscal years for the federal government run October through September, so the data reflects the shortfall from October 2018 through January 2019. Based on the data, the deficit increased by 77% compared to the same period the prior year.

The shortfall was due to a 9% increase in federal spending, while tax revenues dropped by 2%.

Read more: The US national debt just pushed past $22 trillion — here's how Trump's $2 trillion in debt compares with Obama, Bush, and Clinton

The statements showed recent legislative changes supported by the Trump administration helped drive a significant portion of the deficit's increase.

The Republican tax-reform law, named the Tax Cuts and Jobs Act, had a dramatic effect on the amount of money coming into the Treasury's coffers. Corporate tax revenues declined drastically, down just over 20% compared to the first four months of fiscal year 2018. The drop in personal income taxes was less drastic, falling around 5% compared to the same period last year.

The spending increase was mainly driven by the bipartisan budget agreement, signed into law by Trump last March.

Interestingly, Trump's tariff also boosted revenues to $25 billion for the first four months of the fiscal year, roughly double the amount collected last fiscal year.

The budget deficit for fiscal year 2018 hit $779 billion, the highest annual deficit since 2012, and the government issued more than $1.3 trillion in new debt during calendar year 2018. In February, the total national debt passed $22 trillion for the first time ever.

According to the Congressional Budget Office, the combination of the increased debt from the GOP tax law and the higher levels of spending will result in a deficit around $900 billion for the full 2019 fiscal year.

SEE ALSO: The US national debt just topped $22 trillion for the first time in history

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The head of a major auto auction house explains why the Porsche 911 is the next hot collectible

Tue, 03/05/2019 - 7:59pm

  • The auction headlines and record prices have been commanded by Ferrari, but Porsche has been coming on strong.
  • Gooding & Company head David Gooding explained the surge in interest in Porsche 911s.
  • Gooding & Company is auctioning three important 911s from the collection of WhatsApp founder Jan Koum.


There's no question that for some time now, the collectible car auction market has been ruled by Ferrari. Examples of the Prancing Horse have broken records — last fall at Monterey's legendary motor week, a 1962 Ferrari 250 GTO saw a hammer price of $48.4 million.

But here's the thing: There aren't that many rare Ferrari's in the world. So what's a collector to do?

According to David Gooding, head of the Gooding & Company auction house in California, consider Porsche.

Read more: 21 cars that won't let you down and are worth splurging on.

There are many more collectible Porsches than Ferraris out there, and one model, in particular, is seeing a rush of interest — the iconic 911, in continuous production since 1963. 

Gooding is auctioning an especially interesting trio of air-cooled 911's from the 1990s at the upcoming Amelia Island Concours in Florida: blossom yellow cars from the collection of WhatsApp co-founder Jan Koum.

Gooding discussed his business and the surging interest in 911s at auction in an interview with Business Insider:

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David Gooding started Good & Company 20 years ago, and in 2017, the house sold over $150 million worth of collectible automobiles.

According to Gooding, "when he started the business he wanted to present cars 'carefully, authentically and with distinction,' and the results are shown not only in record prices but in a level of trust and respect unmatched in the industry."

Gooding commented on the vintage Porsche market, ahead of the Amelia Island auction this weekend.

"Porsche has very much come into its own," he said, adding that Gooding & Company was the first auction house to "go very strong into celebrating Porsche's marquee period" of the 1960s.

"We started getting some big numbers for these cars," he said. "And competitors started taking a page from our playbook. But we understand the cars."

The auction world has been dominated for years by record-setting hammer prices for vintage Ferraris. But the aspiring Ferrari collector has a problem: severely limited supply.

"Unlike the Ferrari market, the Porsche market is much much bigger," Gooding said.



Gooding & Company has partnered with Christie's, and in February Gooding brought a classic Packard and several Porsches to exhibit in New York.

David Gooding started his career at Christie's, but he pointed out that the house no longer has a car department.

That doesn't mean they aren't interested in collectible autos, however.

"They're interested," Gooding said, describing the relationship as friendly and informal. "They said that they respect the way we do business, and they had gallery space available for us."

He added that is was fun to bring a 1930 Packard 734 Speedster Runabout and a yellow 1992 Porsche 964 Carrera RS  to Christie's audience.

 

 



For the biggest fans of Porsches, this red 1967 911 2.0 S is the stuff of dreams.

See the rest of the story at Business Insider

Outdoor yoga decks, private parks, and 'tranquility gardens' are the hottest new thing in luxury buildings, and it signals a change in status symbols among the wealthy

Tue, 03/05/2019 - 6:57pm

  • Luxury condo buyers are forgoing flashy amenities in favor of "well-being" amenities.
  • The trend is part of the rise in discreet wealth as a status symbol: Wealthy people are spending money on investments like health and wellness over materialistic goods.
  • However, some flashy amenities still have an appeal for some buyers, and luxury developers aren't ignoring other enticements.

Fancy gimmicks may be working to sell some luxury apartments — but they're not for everyone.

According to Mansion Global's 2019 Year Ahead report, more high-end condo buyers are forgoing flashy amenities like car-carrying elevators in favor of ones that promote serenity.

"'Well-being' is the mantra in amenities right now," the report states.

Consider boutique Los Angeles condominium 1030 Kings, which has an outdoor yoga deck, and One Manhattan Square, which is set to open in early 2019 and will boast one of Manhattan's biggest private parks. Similarly, 2000 Ocean in Hallandale Beach, Florida, offers a tranquility garden with lemon trees, and Arbor18 in Brooklyn boasts not only a zen garden but also an infrared sauna with built-in chromotherapy.

Meanwhile, Business Insider's Katie Warren recently toured 15 Hudson Yards, an 88-story superluxury tower in NYC that devotes 44,000 square feet on the 50th and 51st floors to amenities, including a fitness center, a 75-foot pool, a yoga studio and a private spa.

Read more: There are 2 major surprises in today's luxury real-estate market, according to a developer who's designed multimillion-dollar New York City penthouses

The trend is part of a movement toward inconspicuous consumption. Discreet wealth has become the new status symbol as elite consumers eschew symbols of materialism like logo handbags in lieu of intangible investments, with a focus on health and wellness in particular.

"People are very much focused on, as they have been, gym-related things — things that are good for the body," David Bistricer, founder of real estate developer Clipper Equity, told Mansion Global. "What we're seeing now is the mind — mental health — and taking time off from all the different things that are capturing our attention and competing."

However, the rise in mindfulness doesn't mean that luxury real-estate developers are ignoring other amenities, like private HD theaters and rooftop drone landing pads, according to the report. Some flashy amenities still remain. Consider the $85 million Hell's Kitchen condo, which comes with tickets to outer space and a couple of Rolls-Royces or the Miami luxury building providing its residents with Tesla-driving chauffeurs.

SEE ALSO: Forget shiny Rolexes and Louis Vuitton handbags — rich people are investing more in education and health, and it shows that discreet wealth is the new status symbol

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Deutsche Bank will start promoting junior bankers earlier as the Wall Street war for talent intensifies

Tue, 03/05/2019 - 6:21pm

  • Deutsche Bank is changing up its junior-banking program, meaning promotions will come a little earlier.
  • The change was outlined in an internal memo from heads of the firm's corporate and investment bank.

Deutsche Bank will start promoting its junior bankers a little bit earlier in a bid to keep talented young staff. 

The bank is changing up its junior-banking program within its corporate finance division, making analysts eligible for promotion to associate after two years instead of 2.5 years, according to an internal memo viewed by Business Insider.

The German lender is also changing its promotion and compensation cycle for analysts to the middle of the year, rather than end of year.

Investment banks have been reshaping their cultures and perks for junior employees in recent years as competition for talent — across Wall Street and Silicon Valley — has intensified

Most big-bank competitors — including Goldman Sachs, JPMorgan, Citi, and Credit Suisse — have announced similar fast-track promotion initiatives in recent years.

"Our success is dependent upon the continuous development of our people. Each Junior Banking initiative has the same underlying goal: to ensure our employees have a dynamic and intellectually challenging experience that drives long-term careers at Deutsche Bank," the announcement reads in part. 

The memo is signed by Mark Fedorcik, co-head of the corporate and investment bank in the US, and James McMurdo, head of the corporate and investment bank in the Asia Pacific.

The change, which is effective immediately, "applies to specific populations in Corporate Finance," so not all analysts and associates will be eligible. 

In 2015, Deutsche Bank announced to staff that it was moving promotions for analysts up to 2.5 years from three years

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FDA Commissioner Scott Gottlieb just resigned as head of the US's top food and drug regulator in a surprise announcement

Tue, 03/05/2019 - 5:34pm

  • Scott Gottlieb, the head of the Food and Drug Administration, is stepping down from his office in about a month, after just under two years in the job.
  • The announcement, made on Tuesday, came as a surprise to many. 
  • Gottlieb has been a vocal critic of e-cigarette startups, such as Juul, which he has repeatedly slammed for its popularity among young people.
  • He also presided over the speedy approval of many new drugs and is well-liked in the pharmaceutical community. 
  • In his resignation letter, Gottlieb said taking actions against "bad actors that put Americans at risk" was among the FDA's accomplishments while under his leadership. 

US Food and Drug Administration (FDA) Commissioner Scott Gottlieb, a well-liked figure who helmed the country's top food and drug regulator for just less than two years, is resigning. 

The surprise announcement was made on Tuesday. Gottlieb, who is reportedly resigning to spend more time with his family, will step down from the office in about a month. The Washington Post first reported the news. 

It has been difficult for Gottlieb, who has three young children, to commute back and forth weekly between Washington, DC, and his home in Connecticut, according to The Post.

Gottlieb had been a vocal critic of popular e-cigarette startups, such as Juul, which he has repeatedly slammed for its popularity among teens

Gottlieb has also won both praise and criticism for the FDA's speedy approval of many new drugs, including low-cost generic medicines. 

In his resignation letter on Tuesday, Gottlieb named taking action against "bad actors that put Americans at risk" among the FDA's accomplishments while under his leadership. 

"We cracked down on bogus stem cell therapies, on sham homeopathy, on unsafe medical device products, on tobacco sales to minors, on unsafe dietary supplements, and on kratom," he said in the letter. 

In the letter, Gottlieb thanked FDA staffers and expressed gratitude to his family "for their support in enabling me to take on the privilege of serving in this role."

Read more: A mysterious supplement has a viral following of people who take it for addiction — and researchers say it's too compelling to ignore

Here's Gottlieb's resignation letter pic.twitter.com/pMfEhCIURM

— Zach Brennan (@ZacharyBrennan) March 5, 2019

 

 

Both President Donald Trump and Alex Azar, the secretary of the Department of Health and Human Services, praised Gottlieb and his work after the announcement.

....Scott has helped us to lower drug prices, get a record number of generic drugs approved and onto the market, and so many other things. He and his talents will be greatly missed!

— Donald J. Trump (@realDonaldTrump) March 5, 2019

 

Azar called him "an exemplary public health leader, aggressive advocate for American patients, and passionate promoter of innovation" on Tuesday.   

"Scott’s leadership inspired historic results from the FDA team, which delivered record approvals of both innovative treatments and affordable generic drugs, while advancing important policies to confront opioid addiction, tobacco and youth e-cigarette use, chronic disease, and more," Azar said in a statement. "The public health of our country is better off for the work Scott and the entire FDA team have done over the last two years."

Read more: Trump has made his FDA pick — here's what that could mean for the agency

Gottlieb's resignation could make some of the FDA's work on e-cigarettes and tobacco "take a back seat as that was a personal priority for him," the Raymond James analyst Chris Meekins said. 

"Other initiatives Gottlieb has undertaken will continue because his staff is still running the agency, but progress will likely slow," he said. "The unexpected nature of this should not lead to overreaction. FDA has operated without a permanent commissioner before and can do so again."

Under Gottlieb's leadership, the FDA asked a pharmaceutical company to take its opioid medication off the market after the regulator found that its benefits did not outweigh the risks. The regulator has also taken a number of other actions targeting the opioid crisis, including cracking down on online websites selling illegal products. 

The FDA did, however, approve a new opioid product despite objections from health advocates, who worried about putting a potent and addictive medication on the market in the midst of the US's opioid crisis.

Gottlieb, 46, had a long career in the healthcare industry before starting at the FDA. A physician, he also was a venture partner at the venture-capital firm New Enterprise Associates. Gottlieb had also previously served at the FDA as deputy commissioner during George W. Bush's presidency.

Lydia Ramsey contributed reporting.

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No matter what happens, there's going to be a fight after this US-China trade deal

Tue, 03/05/2019 - 5:21pm

  • The signing of a trade deal between the US and China will not mean the end of hostilities between the two nations, or in the US.
  • If a deal mandates that China make structural changes to its economy, the US and China will bump heads trying to enforce it.
  • If the deal is weak, expect public outcry from China hawks on both sides of the aisle in the US.

President Donald Trump — long known for his love of ribbon cuttings and giant novelty scissors — would like a "signing summit" with China so we know the end of the trade standoff between the two countries is nigh.

A deal will not mean the end of hostilities, though, because the parameters of such an event are likely to breed conflict not only between the US and China (in the best of scenarios) but also between the Trump administration and US-China hawks on both sides of the aisle (in the worst).

In the best-case scenario, we fight with China

The Trump administration is asking China to change the way it does business. It would like to see an end to forced technology transfers and obligatory joint ventures between US and Chinese companies. It would like to see an end to the theft of US intellectual property, and it wants China to purchase more US goods. It wants China to change its plan to become a technological juggernaut by 2025. All of this has been clear.

What is less clear, especially from reports of the negotiations, is how effective the US will be at getting China to abide by these structural changes on top of whether or not China will agree to them at all. That brings us to the best of scenarios, which is generally articulated by US Trade Representative Robert Lighthizer.

While the rest of the natural universe was watching Michael Cohen, Trump's former personal attorney, testify on Capitol Hill last week, Lighthizer was in session with members of the House Ways and Means Committee, walking them through the stickiest points of negotiation.

He said a deal would be signed "if ... and again I say 'if'" negotiators could "reach a satisfactory solution to the all-important outstanding issue of enforceability."

A few days later, the Wall Street Journal — reporting that the dealmaking would soon come to a close — outlined what "enforceability" might look like. For one thing, it could involve setting up a mechanism through which US companies could lodge complaints against China. And there would be more bilateral meetings, after which the US could impose sanctions if no agreement materialized. China may not be able to retaliate after that (another sicking point in negotiations).

Susan Thornton, former Assistant US Secretary of State for East Asian and Pacific Affairs, framed these interactions as points of friction, rather than one of cooperation.

"It will be a deal with some good things, but not enough for the China skeptics in the administration, and they will devote major efforts to undermining the deal after it is done," she told Business Insider. 

"This won’t be hard, because it will be impossible for China to 'prove' they are living up to whatever structural commitments the administration thinks they got. Watch for whatever the US commitment is on reimposing — or not — tariffs ... I don't hear anyone on the US side talking about cooperation. In short, more rocky times ahead." 

Read more: The Huawei indictment marks the end of US and China's cycle of trust

In the worst-case scenarios, we fight among ourselves

Of course, the best-case scenario is the Lighthizer scenario, and reports indicate that he falls in and out of favor with the president much like everyone else in the White House. That is why the consensus is growing among Washington swamp things and Wall Street China watchers that a deal rushed by Trump will be weaker than the sweeping deal that was promised.

"Believe me, there is no actual structural change planned," Anne Stevenson-Yang, founder of the China-based investment firm J Capital Management, told Business Insider in an email.

All the preparations for the National People's Congress (NPC) meeting are "about the great plans for Made in China 2025, the auto plan, the Xiongan plan, etc," she said, adding that there is "absolutely no hint that anyone wants to drop industrial plans."

Indeed, according to analysts at Societe Generale, while the words "Made in China 2025" have been struck from the National People Council's Government Work Report, "there is no less word count on technology development." The vocabulary has changed, but the plans have not.

In this case, Lighthizer's "enforceability" issue would not be an issue at all because there would be nothing to enforce. In Stevenson-Yang's view, there are two ways this deal plays out:

  1. "Fake deal March 27, with signing at Mar a Lago. US drops tariffs. China drops retaliation. China lowers auto tariffs (which by the way are totally irrelevant to the US industry) and promises to consider allowing US automakers more equity in JVs [joint ventures] — just as they are regretting their investment plans to date. China makes a couple of splashy purchases of soybeans and natural gas. This is the more likely outcome.
  2. "No deal — Trump, paralyzed with anxiety over Felix Sater and Michael Cohen, unilaterally cancels the 'deal.'"

Option 1 would be a weak deal, which Lee Branstetter, a professor of economics and public policy at Carnegie Mellon University, told Business Insider opens Trump "up to attack from the left and the right."

Option 2 would leave Americans wondering why we wasted $3 billion a month last year fighting this trade war — for nothing?

In that scenario, it will be hard to find someone in the continental United States who isn't spoiling for a fight.

SEE ALSO: China has actually been closing for business for the last decade

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Trump said his trade war would pay off. But so far, experts see little evidence of meaningful change.

Tue, 03/05/2019 - 5:18pm

  • Washington and Beijing are said to be approaching a deal on trade.
  • But experts say it's unlikely to address the issues the Trump administration cited before levying tariffs last year.
  • With that in mind, some supporters have begun to wonder what the point was.

In igniting a trade war with China last year, the White House said it would pressure the world's second-largest economy to make sweeping changes to the way it conducts business with other countries.

Eight months and billions of dollars' worth of tariffs later, President Donald Trump appears to be bracing for the possibility of that not happening.

Even after multiple rounds of trade talks involving high-level delegations from each country, there has been little evidence that China has committed to changing structural issues identified in an Office of the US Trade Representative investigation last year.

After the Section 301 investigation, the US accused China of engaging in forced transfer of foreign technology and giving unfair subsidies to Chinese companies. Trump has separately derided China for holding a trade surplus with the US.

And while Trump and Chinese President Xi Jinping are expected to meet at a summit later this month, experts aren't expecting a meaningful breakthrough on the biggest issues.

"At least so far this looks like a slightly sweetened version of the deal China put forward last summer," said Brad Setser, a former Treasury Department official who is now a senior fellow at the Council on Foreign Relations. "It doesn't appear to be something that is likely to be deeply transformative."

Beijing has expressed willingness to work toward reducing its trade surplus with Washington — which Trump views as a sign of economic weakness — most notably by offering to increase purchases of American products like soybeans and semiconductors.

But Chinese officials have denied, for example, faciliating the forced transfer of foreign technology.

While China's legislature is preparing to rework several foreign-investment laws, The New York Times reported Monday, the most recent draft fails to mention national regulators even as it prohibits local officials from forcing technology transfers.

On vows to rein in government support for high-tech and industrial companies, another longtime sticking point in negotiations, details remain elusive. Experts are unconvinced China will give up subsidies in certain sectors anytime soon.

And then there's the issue of making sure China follows through with commitments. The Trump administration has said it may continue to use the prospect of tariffs as leverage, a proposal sure to cast further uncertainty on businesses and that presents limits.

The US already struggles to enforce these rules properly, according to Derek Scissors, a China expert at the conservative-learning American Enterprise Institute, and any deal would only add to a list of commitments to track.

"From what we know so far, the enforcement mechanism is obviously inadequate," Scissors said. "A bunch of meetings where the Chinese stall, followed by a proportional American action which we might never take due to disagreement with the administration."

Without concrete resolutions on Section 301 initiatives, some have begun to wonder: What was the point of the past eight months?

The chairman of the US Chamber of Commerce in China, Tim Stratford, told the Associated Press last week that the trade war would be "a tremendous waste" if structural issues weren't addressed.

Tariffs levied last year cost Americans $1.4 billion a month while foreign companies paid little to nothing, according to a recent paper from economists at the New York Federal Reserve, Columbia University, and Princeton University.

The Trump administration has acknowledged particular pain among farmers, creating an aid program to make up for a retaliatory duty on a swath of American agricultural products and arguing that the trade war would pressure China to overhaul its economy.

But for Dave Walton, an Iowa soybean farmer who voted for Trump in 2016, the effects of tariffs would become harder to swallow if the administration were to back down on addressing structural issues.

"Without an attractive deal on both sides of the equation, this would just be painful," he said, adding that it should include new rules on non-tariff barriers like agricultural subsidies and alleged currency manipulation.

Still, the president has been seen as willing to declare modest concessions as victories in past negotiations.

"Accountability will be hindered by the fact that the American public does not know what the Chinese were asked to deliver and how these 'asks' were supposed to remedy the problems identified by the USTR investigation," said Mary Lovely, a trade scholar at the Peterson Institute for International Economics.

The White House did not respond to an email requesting comment.

SEE ALSO: Trump's trade war cost Americans $1.4 billion a month last year, according to a new report

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Amazon will raise workers' minimum wage to $15 an hour, more than twice the federal minimum — here's how many people in each state make minimum wage or less

Mon, 03/04/2019 - 6:34pm

  • Amazon announced in October 2018, that it plans to raise its minimum wage to $15 per hour for all of its US workers.
  • The federal minimum wage in the US is $7.25 an hour.
  • Minimum wage work has been on the decline in the US for several years, and the number of workers making the minimum wage or less varies widely across the states.
  • Using data from the Bureau of Labor Statistics, we looked at how many hourly workers in each state earn the minimum wage or less.

Amazon announced in October 2018, that it plans to raise its minimum wage to $15 per hour for all of its US workers. That's more than twice the federal minimum wage of $7.25 per hour.

Minimum wage work has been on the decline in the US for several years, and the number of workers making the minimum wage or less varies widely across the states.

The Bureau of Labor Statistics tracks how many people earned the Federal minimum wage or less in each state in a given year, releasing those results in an annual report on minimum wage earners

The BLS bases its estimates on results from the Current Population Survey, a monthly survey run by the BLS and the Census Bureau that serves mainly as the basis for calculations of the unemployment rate, as well as providing a useful monthly snapshot of the US population.

That means that these estimates come from Americans' own self-reported earnings on the survey, rather than from employers or government administrative sources.

Both the number and percentage of the hourly work force earning the minimum wage or lower has declined in recent years as the labor market continues to tighten. In 2015, about 2.6 million hourly workers in the US were paid at or below the minimum wage — about 3.3% of the hourly workforce. By 2017, that dropped to 1.8 million workers, or 2.3% of all hourly paid workers.

Here's the percentage of hourly paid workers in each state who earned the federal minimum wage or less in 2017, according to the BLS' report. It's worth noting that many states have their own minimum wages that are set higher than the Federal minimum, and that this is likely a big driver in the variation among the states.

SEE ALSO: Where Americans can trace their ancestry, in 17 maps

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5 unexpected tax breaks you can claim on your tax return

Mon, 03/04/2019 - 6:34pm

  • There are several legitimate ways to pay less taxes.
  • Tax deductions reduce your taxable income, while tax credits lower your tax bill.
  • A few of the most under-the-radar tax breaks include deductions for jury duty and bringing your pet to work (but only if they're working, too).

There are several legitimate ways to pay less taxes

There are hundreds of tax breaks available to Americans in the form of deductions, which reduce the amount of your income that's taxed, and credits, which lower your overall tax bill.

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When filing a federal tax return, you can either itemize deductions or claim the standard deduction, which is $12,000 for single filers, $18,000 for head of household filers, and $24,000 for married couples filing jointly. 

If your itemized deductions total more than the standard deduction, it may be worth the extra time it often takes to itemize, experts say. Typical deductions filers can claim include medical expenses, charitable donations, state and local taxes (SALT), mortgage interest, and student-loan interest. Some deductions are available even if you don't itemize.

Read more: 10 things you probably didn't know you could deduct on your taxes

Tax credits can be claimed whether you itemize or not; the most popular ones include the child tax credit, earned income tax credit, and the American Opportunity tax credit.

But those are just a few of the many tax breaks available to Americans. Here are a few you may not have heard of:

1. Charity work deduction

If you volunteered for a charitable organization in 2018 and drove there, you can deduct the cost of parking and toll fees and some gas (14 cents per mile), according to NerdWallet.

You can also deduct up to $250 worth of supplies you purchased for charity purposes, like food for a soup kitchen, if you kept all your receipts. If you want to deduct more than $250, it requires documentation from the charitable organization.

2. Gambling losses deduction

If a trip to Las Vegas or Atlantic City left you nearly penniless, you can recoup some of those losses come tax time. You can include gambling losses as tax deductions if you itemize, NerdWallet explained.

Money lost at a casino or racetrack qualifies, as does money spent on bingo, lottery, or raffle tickets, but only if the ticket was a loser — the amount you deduct cannot exceed the winnings you claim as income. 

3. Jury duty pay deduction

If you're summoned for jury duty, your employer may offer regular pay or paid leave to attend, and the court may pay you for your time — typically between $10 and $30 a day, according to TurboTax. In both situations, the money you receive is counted as taxable income.

However, some employers require employees to hand over their jury duty pay. If that's the case, you must still claim the pay as part of your income, but on your tax return you can claim the pay as a deduction, resulting in a zero net gain.

4. Guard dog deduction

Believe it or not, the IRS may actually consider your pet's medical, training, or food costs a business expense. If you bring your dog to work and can show that they're necessary on site (maybe even protecting your business' inventory), you may be able to deduct the cost of caring for the dog, Bankrate explained. Your chances may be better if the dog is a breed that would call for a "beware of dog" sign.

5. Retirement account savings credit

The Saver's Credit enables low- to moderate-income taxpayers saving for retirement to reduce their tax bill by up to $1,000, or $2,000 if married and filing jointly. 

To be eligible for the Saver's Credit, you must meet three requirements: You're at least 18 years old, not a full-time student, and aren't claimed as a dependent on someone else's return. Your adjusted gross income (AGI) also must be less than $31,500 if you're a single filer, and less than $63,000 if you're a joint filer.

Depending on your income, you can claim a credit that's equal to 50%, 20%, or 10% of the first $2,000 in contributions to your retirement account or Achieving a Better Life Experience (ABLE) account (a tax-advantaged savings account for people with disabilities and their families). 

An earlier version of this post listed the college tuition and fees deduction, which has expired for the 2018 tax year.

SEE ALSO: 5 tax breaks you can't get anywhere but the US

DON'T MISS: More than 76 million Americans don't pay federal income taxes, but it's not usually the luxury you might think

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