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THE MONETIZATION OF OPEN BANKING: How legacy institutions can use open banking to develop new revenue streams, reach more customers, and avoid losing out to neobanks and fintechs

Sun, 06/16/2019 - 1:02am  |  Clusterstock

Open banking has arrived, and it's transforming the UK's banking landscape — next up could be the world. Regulatory efforts in the UK are transforming retail banking, reshaping incumbents' relationships with customers, and easing entry for fintechs.

Regulators across every continent are responding with actions of their own. Underpinning open banking initiatives is the idea that ownership of transactional data belongs to consumers instead of incumbent financial institutions.

The implications of this change for established lenders in the UK are significant. For those that act, open banking presents substantial revenue-generating opportunities.

But the consequences of inaction are even more severe: Business Insider Intelligence estimates that by 2024, £6.5 billion ($8.4 billion) of UK incumbents' revenues will be under threat of being scooped up by forward-thinking companies like fintechs and neobanks. Yet even through the financial incentives to act are clear, many incumbents are struggling to determine the best path to monetization. In fact, some aren't even sure what their options are.

In The Monetization of Open Banking report, Business Insider Intelligence identifies monetization strategies incumbents have at their disposal, describes how they can determine the best approach for their specific needs, and outlines actionable steps they need to make their chosen open banking initiative successful.  

The companies mentioned in this report are: Allied Irish Bank (AIB), Bank of Ireland, Barclays, Danske Bank, HSBC, Lloyds Banking Group, Nationwide, RBS Group, and Santander, Monzo, Starling, ING, Yolt, Fidor, BBVA

Here are some of the key takeaways from the report:

  • Driven by regulatory action, open banking is transforming the UK's banking landscape, but it's also gaining momentum globally.
  • For incumbents, open banking entails a significant threat to their entrenched position.
  • But for forward-looking banks, there are substantial opportunities for revenue generation, both directly and indirectly.
  • To seize these opportunities — and avoid losing revenue to fintechs and neobanks — it's critical that legacy players focus their efforts in the right direction, including identifying their strategic priorities.

 In full, the report:

  • Details the UK's Open Banking regulation in depth.
  • Forecasts the size of the UK's Open Banking-enabled banking industry over the next five years.
  • Discusses the types of monetization opportunities available for incumbents, as well as non-direct revenue-generation opportunities.  
  • Provides actionable steps on how banks can best determine the best strategic approach from the options available.

Interested in getting the full report? Here are two 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

The choice is yours. But however you decide to acquire this report, you've given yourself a powerful advantage in your understanding of the fast-moving world of fintech.

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REPORT: Ant Financial and Tencent are rapidly growing their financial services ecosystems — here's exactly what they offer and where we think they'll go next (TCEHY)

Sat, 06/15/2019 - 5:28pm  |  Clusterstock

Over the past 15 years, spending in China has become increasingly powered by mobile payments. In Q4 2018, China's third-party mobile payments industry was estimated to be worth 47.2 trillion yuan ($6.8 trillion) per Analysys, as cited by TechNode. This eclipsed the country's total retail sales for all of 2018, which came in at 38.1 trillion yuan ($5.5 trillion).

The mobile payments market is controlled by Ant Financial's Alipay, which held a leading 53.8% market share in Q4 2018, and Tencent's WeChat Pay, which, along with fellow Tencent-owned payment service QQ Wallet, commanded a 38.9% share.

Ant and Tencent's combined mobile payments dominance means that other companies need to actively work with or against the powerhouses, especially as they've also stretched into other financial services, including peer-to-peer (P2P) payments, cross-border capabilities, wealth management features, consumer lending, and insurance. 

Payments companies worldwide must take notice of Ant Financial and Tencent's success, strategies, and potential expansion, as they won't succeed in the extremely valuable Chinese market without understanding how the two companies are expanding their reach. And those payments companies settled in other countries should also familiarize themselves with the two companies and their successes, as both have been expanding internationally.

In Fintech Disruptors From The East, Business Insider Intelligence looks at a variety of financial services offered by Ant Financial and Tencent, the different categories they fall under, and the benefits each one offers the firms. We also examine their current strategies for expansion and consider the steps they may take in the future to grow their businesses, both in China and abroad.

The companies mentioned in this report are: Alibaba, Alipay, Ant Financial, Chase, Citcon, First Data, GCash, Go-Jek, Grab,, Line, Moneygram International, Paytm, QQ, Telenor Microfinance Bank, Tencent, Uber, WeBank, WeChat, WeChat Pay, WeChat Payments Score, Weixin, WeSure, and Wirecard.

Here are some of the key takeaways from the report:

  • Ant Financial and Tencent dominate China's huge mobile payments industry through Alipay and WeChat Pay, and both firms have built cohesive financial ecosystems to further attract consumers and their funds.
  • Generally, Ant Financial's payments and financial services are further developed, but Tencent's huge user base thanks to WeChat has helped it gain ground.
  • Ant and Tencent have expanded their services in Southeast Asia, but Ant appears more interested in further growing its reach.

In full, the report:

  • Examines the financial ecosystems of Ant Financial and Tencent.
  • Analyzes the offerings of Alipay and WeChat Pay as well as how they grew to their current positions atop the Chinese mobile payment market.
  • Details Ant Financial and Tencent's financial features beyond Alipay and WeChat Pay and how they create a more comprehensive slate of offerings.
  • Looks at the expansion of both companies and considers what each may do next, both in China and abroad.

Interested in getting the full report? Here are two 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

The choice is yours. But however you decide to acquire this report, you've given yourself a powerful advantage in your understanding of Ant Financial and Tencent's rapidly expanding array of financial services.

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SMB LENDING REPORT: How alt lenders are providing SMBs with new funding options, and the ways incumbents can respond to stay ahead

Sat, 06/15/2019 - 12:24pm  |  Clusterstock

This is a preview of a research report from Business Insider Intelligence, Business Insider's premium research service. To learn more about Business Insider Intelligence, click here. Current subscribers can read the report here.

Small- and medium-sized businesses (SMBs) are vital creators of wealth, income, and jobs in the global economy. For example, they make up 99.9% of all private sector businesses in both the US and the UK, and they employ 60% and 48% of all workers in those countries, respectively.

The income and assets of these businesses make them an irreplaceable customer base for financial institutions. However, incumbent financial institutions are falling short of SMBs' lending wants and needs.

Fintechs — including alt lenders, payment providers, and lending platforms — are changing the SMB lending space by filling that gap and capturing an increasingly large sliver of the SMB lending market. For example, alternative financial providers only accounted for 2%, or £11.5 billion ($14.7 billion), of the UK SMB lending market in 2018. However, their share is projected to surge to 9.1%, worth £52.6 billion ($67.4 billion), by 2021.

In the SMB Lending Report, Business Insider Intelligence will examine the key players in the SMB lending space, determine the advantages of each player, and discuss how incumbents can improve their offerings to better serve SMBs and stave off the growing competition from alt lenders in the space. Additionally, we will look at what the future of SMB lending will hold.

The companies mentioned in this report are: NatWest, BNP Paribas, Esme Loans, OnDeck, ING, Kabbage, Funding Circle, Lending Club, PayPal, Square, Lendio, ING, Funding Options, INTRUST Bank, Behalf, Lending Express, and Fundbox, among others.

Here are some of the key takeaways from the report:

  • SMBs are underserved by conventional lenders, so fintechs are increasingly offering digital services tailored to meet SMBs' wants and needs.
  • Some incumbents have already woken up to the opportunity of better serving SMBs and leveraging this revenue stream, but the majority are still unaware.
  • This has given fintechs the opportunity to grow their market share among SMBs. If incumbents don't fight back with their own digital services, they will like lose further share to fintechs. 
  • There are three main ways incumbents can revamp their SMB lending products, each of which requires a different level of effort: partnering with fintechs, developing tech-enabled solutions in-house, or launching their own challenger products. 

 In full, the report:

  • Outlines the current state of the SMB lending space.
  • Details the different players that are involved in SMB lending.
  • Explains three ways in which incumbents can up their SMB lending game and fight off competition.
  • Highlights the benefits and hurdles that come with each of those strategies.
  • Discusses what the future of the SMB lending space will hold.

Interested in getting the full report? Here are two 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

The choice is yours. But however you decide to acquire this report, you've given yourself a powerful advantage in your understanding of SMB lending.

Join the conversation about this story »

Trump warns of a 'market crash the likes of which has not been seen before' if he loses 2020 election — but economists are worried he's causing a recession on his own

Sat, 06/15/2019 - 11:52am  |  Clusterstock

United States President Donald Trump on Saturday warned without evidence of a massive market crash if he's not re-elected in 2020.

"The Trump Economy is setting records, and has a long way up to go," he said. "However, if anyone but me takes over in 2020 (I know the competition very well), there will be a Market Crash the likes of which has not been seen before! KEEP AMERICA GREAT)."

The stock market, a close but far from perfect measure for some aspects of the economy's health, are indeed up about 27% since the President's inauguration on January 20, 2017, but those gains have been mired by massive sell offs sparked by trade war fears amid tariff fights with China, Mexico, and other countries.

Read more: Keep track of how the stock market, the US economy and other key financial indicators are performing since the inauguration of President Donald J. Trump.

Leading economists, meanwhile, are warning more trade disputes could unfurl economic gains from even before Trump's election. But even professionals struggle to forecast when — and why — economic recessions occur. 

"The trade war has so far offset all benefits of fiscal stimulus and, if continued, may lead to global recession," Marko Kolanovic, JPMorgan's global head of quantitative and derivatives strategy, said on Thursday.

"If this recession materializes, historians might call it the 'Trump recession' given that it would be largely caused by the trade war initiative."

Read more: Beware a 'Trump recession': JPMorgan unloads on the president's role in erasing a full year of market progress — and lays out a scenario that could save the day

Beyond Wall Street, businesses are worried too. On Thursday, 600 companies sent a joint letter to Trump saying that broader tariffs on China would hurt workers and consumers. 

Consumers share their fears too.

A closely-watched gauge of consumer sentiment fell to 97.9 at the beginning of the month from 100 in May, the University of Michigan's consumer survey indicated Friday, compared with expectations for a reading of 99.

"Consumers responded by lowering growth prospects for the national economy, and as a consequence, reduced the expected gains in employment," Richard Curtin, the survey's chief economist, said of tariffs.

Saturday's warning is far from the first time Trump has attempted to forecast an economic downturn in the event he loses the presidency.

In August 2018, he told Bloomberg News:  "If I ever got impeached, I think the market would crash. I think everybody would be very poor. Because without this thinking you would see numbers that you wouldn't believe, in reverse."

SEE ALSO: Americans are increasingly worried that Trump's trade wars will damage the economy and eliminate jobs

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NOW WATCH: Fox News pundits are using white supremacist language tied to 'The Great Replacement' conspiracy theory

Share your opinion — become a BI Insider!

Sat, 06/15/2019 - 11:39am  |  Clusterstock

As a dedicated Business Insider reader, we’d like to invite you to join our BI Insiders Panel, an exclusive online community of Business Insider readers!

Here are some of the TOP benefits of being a BI Insider!

  • Earn points towards cutting-edge research reports from the Business Insider Intelligence report store.
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As a BI Insider, you'll be invited to take online surveys via email a few times a month to provide opinions and insights on a variety of topics and emerging trends, based on your personal and professional experiences. 

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Property values in my neighborhood are skyrocketing and friends tell me to 'just buy already,' but here's why I won't

Sat, 06/15/2019 - 11:30am  |  Clusterstock

  • Megan DeMatteo lives in an up-and-coming Baltimore neighborhood where rising property values make buying a home seem like a no-brainer.
  • However, she writes, renting in the neighborhood is accessible and exactly what she needs in this phase of life.
  • Also, her future plans are up in the air — between her own grad school and her partner's grad school, it's unclear where they'll be a few years from now
  • Visit Business Insider's homepage for more stories.

Many of my millennial peers say "just buy already!" — especially in a place like Baltimore, Maryland, where first-time homeowner grants are plentiful and city-sponsored vacant to values programs make it easy to purchase a starter home.

In fact, I live in a trendy, burgeoning arts district in Baltimore that is so cool the Baltimore Sun wrote an article about it and people are abuzz about how they can buy here, and soon.

Here's my situation: I live by myself (plus one cat) in a one-bedroom, one-bathroom apartment that occupies the third floor of a fully rehabbed row home built around 1900. Less than ten years ago, my house was vacant. In 2013, homes on my block sold for around $120,000. Now, they are worth between $350,000 and $450,000 depending on whether they've been renovated, and many of them around me have. I am lucky to live in a beautifully renovated home with modern industrial touches.

I could not afford a mortgage in this neighborhood right now, but renting here is accessible and exactly what I need in this phase of life.

How much would a home cost you? Find out with these offers from our partners:

I'm also lucky to be surrounded by friendly neighbors, a mix of young DC commuters, lawyers, city officials, and long-time Baltimore residents. The local community association has worked with developers to ensure that, as the neighborhood transitions and experiences revival, senior citizens will not be priced out of their homes. This will be important, as the nearby Penn Station, which serves tourists and daily commuters, will soon undergo a $90 million renovation and draw larger hordes of people to this artsy block.

I live down the road from where I grew up, and being back home is important to me ... for now. Baltimore works because of its relative affordability and proximity to other mid-Atlantic cities like DC and New York. It is a good place to rest and enjoy life while I settle into my career and plan my next move.

So far I have been renting in Baltimore for two years, and I plan to stay until I buy a home here or move to a new city for graduate school. Even though buying in Baltimore is accessible, renting just makes sense for now. The main reason I rent is that I want to utilize the city's incentives, but they come with long-term stipulations that force me to consider whether I'm ready for the commitment.

A first-time homeowner loan requires that the house is to be the owner's primary residence. I can't apply for a loan like this in good conscience knowing there is the possibility I'd need to rent it out if I were to move. When and if I do decide to stay in Baltimore, I don't want to miss out on the savings for a first-time homeowner loan. So, I'm waiting it out for now.

Another variable is that my partner will be eligible to receive a Live Near Your Work benefit from his employer once he is vested with his company, but moving in together is a big step that we're not ready to talk about yet. He is also thinking of applying to graduate school, which would change everything.

Despite how lovely it would be to own one of the beautiful, artistic, and historical homes on my block — I view buying as a lifestyle choice, NOT an investment. For now, I feel lucky to have the chance to live in an artsy neighborhood, but when I'm ready to buy I will take other factors into consideration. Features like a backyard, basement, and square footage will become much more important when I sign a 30-year mortgage.

Until then, while I prepare to buy a house, I rent to try out different styles of housing in various neighborhoods. I have rented in rural areas, urban areas; in row homes (like my current home in Baltimore), in apartments, in ranchers, split levels, bungalows, and more. I love the versatility of renting has allowed me. I am able to "try on" and imagine what I want my future to be while working hard to earn opportunities and save for a home.

Bottom line: There are too many variables up in the air to justify buying right now, but I want to live somewhere beautiful that I can afford in the meantime.  

Could you afford your dream home? Find out with this calculator from our partners:

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How to invest in index funds to build long-term wealth

Sat, 06/15/2019 - 10:30am  |  Clusterstock

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, but our reporting and recommendations are always independent and objective.

Financial planners — and legendary investor Warren Buffet — agree: Index funds are one of the best investments for building long-term wealth.

"I always am going to side with a portfolio of low-cost index funds, whether you're investing your first dollar or you have 40 years of investment management experience," said Andrew Westlin, a certified financial planner at Betterment.

Buffett has sung its praises on multiple occasions, once calling the index fund "the most sensible equity investment."

Index funds may sound intimidating, but they're really just a type of mutual fund, an all-in-one investment that diversifies your money across a broad selection of stocks or bonds. Rather than choosing and buying individual stocks, an investor owns a small piece of every company or asset in the index fund, which minimizes overall risk. Best of all, index funds are low-cost and regularly outperform actively managed funds.

Here's how to get started:

How to invest in index funds 1. Check your 401(k)

Your office retirement plan is often the best place to start investing. Though many people regard their 401(k) as a savings vehicle, it's really a pretax investment account. Funneling part of your salary into the account is just as important as choosing where to invest the money.

When you set up your 401(k) at work, you'll decide on a contribution, or deferral, rate, which is the percentage of money taken out of each paycheck before income taxes and dropped into an investment account at a brokerage firm like Vanguard, Fidelity, or Charles Schwab. Your company will likely offer a limited selection of safe-bet mutual funds to choose from.

2. If you don't have a 401(k), open an IRA

If you don't have access to a 401(k) through your company, open a traditional or Roth IRA through a brokerage firm, bank, or other financial institution. The only difference between the two IRAs is tax treatment, but both will give you access to index funds.

You may also choose to open an IRA even if you have a 401(k) — most people benefit from having both. 

3. Consider a brokerage account

You can also invest in index funds through non-retirement accounts, otherwise known as taxable investment accounts or brokerage accounts.

Some of the most popular low-cost brokerage firms include Charles Schwab, Fidelity, E*Trade, and Vanguard. You may also consider opening a brokerage account through a robo-advisor like Wealthfront, Betterment, or Ellevest. Robo-advisors let you get started investing within minutes and rely on computer algorithms to rebalance your portfolio and save money on taxes.

You may want to shop around and see what index funds are available through each brokerage before opening an account. Most firms will make it easy to compare index funds side by side.

4. Decide what market(s) you want to invest in

Index funds can track a particular asset (ex. foreign bonds), industry (ex. tech), or type of company (ex. large or mid-sized). 

There are S&P 500 index funds, which track the 500 largest companies that make up the US stock market; total stock market index funds, which track a much larger selection of stocks from large, mid-sized, and small companies; international index funds, which expose investors to companies abroad; bond index funds, which track the performance of a basket of US bonds; and many more.

Which funds you choose should depend on your overall risk level and what other (if any) investments you have. Generally, stocks are seen as riskier than bonds because they fluctuate more often — but with higher risk comes the potential for a greater returns.

Need help with your investment strategy? SmartAsset's free tool can help you find a licensed professional near you »

5. Check the minimum investment amount

Most index funds require a minimum investment to buy into, typically anywhere from $1 to $3,000. If you have less cash on hand to invest than is required for a particular index fund, you can eliminate it from your list of options for now.

6. Look for index funds with expense ratios around 0.5%

Whether you're investing through a 401(k), IRA, or taxable investment account, you'll want to opt for index funds with an expense ratio below 1% — ideally around 0.5% or lower.

The expense ratio is the fee you pay the brokerage to manage your investments, expressed as a percentage of your total account balance. It's taken out automatically, so it can be easy to miss. For example, if you invest in an index fund with a 0.5% expense ratio, the brokerage will take $5 for every $1,000 of your total account balance annually.

Index funds keep costs low because they're designed to be passive, so they don't require much attention from fund managers (and even less if you're using a robo-advisor).

6. Fund your account

If you're investing in index funds through your 401(k), you'll make your investment selections directly through the 401(k) provider, whether it be Vanguard, Fidelity, or another brokerage. You don't have to invest your entire balance and future contributions in the same place — you'll have the ability to choose how you want to allocate it.

If you're investing through an IRA or brokerage account, you can fund the account by connecting a checking or savings account and making a transfer. Once the money is transferred, it will remain in a holding account of sorts until you buy into the index fund. 

Investing in the index fund is a lot like online shopping. You choose the fund, enter the amount of money you would like to invest, and click "buy."

7. Set up automatic contributions

You'll already have an automatic contribution set up if you're investing through a 401(k), since it's a salary deferral, but you'll have to set it up yourself in an IRA or brokerage account. You can decide how frequently the transfers will happen, how much, and where you want to direct them (either into your holding account or directly into the index fund). You can do this online, through your brokerage's website, or by phone.

Need help with your investment strategy? SmartAsset's free tool can help you find a licensed professional near you » Related coverage from How to Do Everything: Money:

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Opinion: There's a real economic divide in the US, and it's not the gap between the South and the rest of the country

Sat, 06/15/2019 - 10:30am  |  Clusterstock

  • The Wall Street Journal published a story highlighting the supposed underperformance of the Southern economy compared to the rest of the US.
  • But based on a number of measures, the South's economy is still strong, especially in its fast-growing cities.
  • By focusing on sectional differences, the piece ignores the real divide in the economy between rural and urban areas.
  • Visit Business Insider's homepage for more stories.

As a transplant to North Carolina, the recent review of regional economic underperformance in The Wall Street Journal caught my eye. The basic thesis: Regional economic-development strategies based on undercutting other states with lower taxes and low wages has stopped working, and employers are focused on labor markets with educated workforces and humming cities.

It's hard to square that assessment with what I see every day in Charlotte, North Carolina, one of the unmitigated success stories of the Sun Belt metro chain, which runs from Virginia Beach, through the Carolinas, across north Georgia's booming Atlanta metro, and into Texas, with Arizona and California traditionally included as well.

Thousands of new apartments concentrated along a modest light rail system are springing up, freeways are being expanded, and subdivisions are growing on the perimeter to add single-family homes to the booming higher density infill market. If anything, my adopted home's biggest challenge isn't growth but gentrification.

When the BB&T and SunTrust merger is completed, two of the nation's largest banks will be headquartered in Charlotte, along with sundry other industries. Lowe's, Nucor, and six other Fortune 500 companies call the city home.

The Journal's argument that the South's economic divergence is a result of the region's own problems doesn't fit the data. And arguing the problems are the South's alone distracts from a difficult national challenge that deserves attention: the divergence between large metro areas and the rural hinterland both within and across sectional lines.

The American story through roughly the late 20th century was best explained by competing sections of the country, with competing values, interests, and self-conceptions.

The Civil War is the best example, and the blood spilled in defense and condemnation of slavery created an "us versus them" perspective in the two best-defined sections of the country. The struggle over civil rights further reinforced the notion that the best way to view the country was the old Confederacy versus the rest. Nixon's Southern strategy added an electoral element.

Today, though, the picture has become clouded. Rural election results in New York and California look more like something you would expect from the Deep South, while Houston, Dallas, Atlanta, Raleigh, and the Washington, DC, suburbs in Virginia are increasingly supplying votes that make progressives optimistic about flipping traditionally Republican-held states.

This rural-urban divide is best exemplified by the economic and demographic status of metropolitan cities in the South. While the South as a whole has seen struggles in keeping up with personal income, other measures of prosperity paint a picture of division between booming cities and crumbling rural areas.

(Note that I'm using The Journal's definition of the South: Alabama, Arkansas, Mississippi, Louisiana, Georgia, South Carolina, North Carolina, Virginia, West Virginia, Tennessee, Kentucky, and Oklahoma. I've also combined Greensboro/High Point and Winston-Salem; some jobs in Indiana suburbs of Louisville are also included but aren't material.)

Using metros with more than 400,000 employed, the metro South has delivered faster employment growth in all but two years since 2011, and outpaced national employment growth by over 1%. On the other hand, the rest of the region (that is, small metropolitan areas and rural) has lagged every year, adding jobs at a bit better than half the rate of the large metros.

As shown in the chart above, the rural South is in deep trouble when it comes to adding jobs. At the end of 2010, 52.4% of the region's employment was found in large metros. In April, that number was 54.2% and climbing.

It's not just job creation where the urban South is overachieving. Population growth has been much faster for this group of cities than for the nation as a whole in every decade since the 1960s. Of course other metropolitan areas could be growing faster too. But similar metros in the rest of the country that have over 400,000 employed persons have persistently grown slower than those in the South.

South metros have grown faster in every decade since the 1960s, and if anything the population growth advantage is picking up. Southern metros grew roughly 0.65 percentage points faster than other large metros nationally in the 1980s, 1990s, and 2000s, but increased their outperformance to 0.73 percentage points annualized since 2009.

In the 1970s, the rural and small-metro South was also growing faster than the overall US, but since then it has barely budged in terms of total population. Out-migration and little in-migration have been a massive challenge that has left rural parts of the former Confederacy and Appalachia in rough demographic shape.

What's most frustrating about treating regional South as having massive problems is that it understates the severity of the challenges facing rural areas across the country.

In 2017, real median income for those living outside metropolitan statistical areas was 74% of what those living inside metropolitan statistical areas, or MSAs, took home. The poverty rate for rural areas was nearly 15%, versus less than 12% for those living inside MSAs. These are headwinds that affect the whole country, and while the South is unusually exposed thanks to its higher percentage of rural population, confronting the challenges of high growth in cities versus low growth outside of them by trying to pin a geographic tail on the donkey doesn't make sense.

There are still deep sectional divides in the US, and the South has a legacy of inequity and extractive institutions that is gradually being unwound. It would be a mistake to try to attribute regional economic performance to that legacy through sectional analysis instead of focusing on the true drivers broadly shared in nearly every state.

George Pearkes is the Global Macro Strategist for Bespoke Investment Group. He covers markets and economies around the world and across assets, relying on economic data and models, policy analysis, and behavioral factors to guide asset allocation, idea generation, and analytical background for individual investors and large institutions.

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JPMorgan has cut nearly two-dozen people in a group responsible for preventing traders from making risky bets

Sat, 06/15/2019 - 10:03am  |  Clusterstock

  • JPMorgan Chase has cut more than 20 people in a group responsible for preventing traders from making risky bets. 
  • Nearly two-dozen executive directors in the bank's Model Risk Governance & Review Group were culled this month, according to people familiar with the matter.
  • The group, which is in charge of overseeing and independently reviewing the firm's risk and trading models, grew significantly following the bank's 2012 "London Whale" trading debacle and ensuing sanctions from the Federal Reserve.
  • The Fed last week lifted its enforcement action against the bank.
  • Click here for more BI Prime stories

JPMorgan Chase has let go of nearly two-dozen people in a group responsible for preventing the firm's traders from taking too much risk — a team that grew significantly in the aftermath of the bank's 2012 "London Whale" debacle.

More than 20 executive directors in the bank's Model Risk Governance & Review Group were culled this month, according to people familiar with the matter. It wasn't immediately clear whether the cuts extended to other levels of seniority, or whether more personnel changes in the division would follow. 

The cuts had been in the works for a couple months and represent less than 5% of the group, the people said. Business Insider was unable to determine their cause.

A JPMorgan spokeswoman declined to comment. 

The model-risk team, among other responsibilities, oversees and independently reviews the firm's risk and trading models. It also develops internal models to measure counterparty risk and make sure the bank's holding enough capital to meet regulatory risk requirements.

Read more: JPMorgan is investing billions in the tech arms' race. Here's everything you need to know.

The group had grown significantly over the past decade amid heightened regulatory scrutiny, according to people familiar with the firm's thinking, which stemmed from industry-wide risk lapses during the financial crisis as well as JPMorgan's "London Whale" trading fiasco in 2012. 

Regulators cracked down on the bank after a UK-based credit derivatives trader incurred more than $6 billion in losses, earning the moniker "the London Whale." In investigations that followed, the firm's modeling and risk controls came under fire for deficiencies, and the Federal Reserve issued an enforcement action against the bank requiring it to bolster its model-risk department and beef up internal audits.

The number of staffers hired to validate and approve trader's models skyrocketed in the aftermath. The role became such a hot hiring front that some traders were even switching over into the middle-office model validation roles a couple years back. 

"One of the key instigators of that group growing was the London Whale scenario," a source familiar with the bank said. "One of the key reasons it was allowed to happen was modeling deficiencies and poor modeling controls." 

The sanctions imposed by the Fed were lifted last week

Wall Street has largely faced a softer regulatory environment since President Donald Trump was elected in 2016, though rules governing the country's largest banks have largely remained unchanged.

Executive directors, the level cuts were focused on, are considered middle management and in model-risk roles can earn in the neighborhood of $300,000 in total comp, industry experts said. 

Do you know more? Reach out to the author at

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An entrepreneur who interviewed 21 billionaires says the key difference between them and millionaires is how they answer a simple question about money

Sat, 06/15/2019 - 9:30am  |  Clusterstock

Millionaires and billionaires may both be richer than the average person, but they're each in a group of their own.

The distinction between the two comes down to how they answer one question, according to Rafael Badziag in his book "The Billion Dollar Secret: 20 Principles of Billionaire Wealth and Success": "What do you enjoy more, making money or spending it?"

Badziag, an entrepreneur and expert on the psychology of entrepreneurship, spent five years conducting face-to-face interviews with 21 self-made billionaire entrepreneurs around the world (defined as those with a net worth of at least $1 billion) and researching their lives and companies.

"The difference between financially successful people (millionaires) and financially super successful people (billionaires) boils down to the fact that the latter get pleasure making money, but don't enjoy spending it," he wrote. 

Billionaire businessmen Michal Solowow — the wealthiest person in Poland — and Lirio Parisotto — the wealthiest person in South America — both credited their savings habits to their financial success.

"You want to get rich? There's one way to do it: Spend less than you make. If you spend less and you accumulate, you get rich," billionaire Frank Hasenfratz told Badziag.

Read more: An entrepreneur who interviewed 21 billionaires says the same 6 habits helped make all of them successful

Frugality begets wealth

Spending less than you earn is a classic staple of building wealth. Saving and investing more money than you spend helps spark the power of compound interest, where the interest you earn on your money earns more interest over time.

Frugality — a commitment to saving, spending less, and sticking to a budget — is one of the characteristics most predictive of net worth, according to Sarah Stanley Fallaw, the director of research for the Affluent Market Institute and an author of  "The Next Millionaire Next Door: Enduring Strategies for Building Wealth."

"Spending above your means, spending instead of saving for retirement, spending in anticipation of becoming wealthy makes you a slave to the paycheck, even with a stellar level of income," she wrote.

Look at the famously frugal Warren Buffett, who still lives in the modest home in Omaha, Nebraska, that he bought for $276,700 in 1958 (in today's dollars). He's never upgraded to a smartphone, pays $18 for a haircut, and spends no more than $3.17 on his daily McDonald's breakfast — even though his estimated net worth is $84.6 billion.

SEE ALSO: The author of 'The Millionaire Next Door' explains 3 ways anyone can build more wealth

DON'T MISS: A researcher who studied over 600 millionaires found they do 3 things to forge a clear path to financial independence

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The coming antitrust fights are an existential battle over how to protect capitalism (GOOGL, FB, AMZN)

Sat, 06/15/2019 - 9:17am  |  Clusterstock

  • For the first time in a generation, Washington is questioning what it means to protect American Capitalism.
  • Big tech companies like Google and Facebook, with their seemingly free products, are forcing lawmakers to consider whether monopoly power manifests itself in more than just higher prices for consumers. 
  • This is creating a bipartisan consensus that anti-trust regulation isn't just about protecting consumers, it's about protecting competition in general.

There was a rare glimpse of productivity in Washington last week during an anti-trust hearing held by the House Judiciary Committee. The hearing was about the impact tech giants like Google and Facebook have had on the American press and it went, most encouragingly, something like this:

  • Members of Congress identified a problem: A struggling free press at the mercy of tech giants squeezing them for cash, which has contributed to the spread of disinformation on the internet.
  • They then held a hearing to listen to witnesses involved in the space.
  • And finally, after listening to the witnesses, those members of Congress then seemed to reach a bipartisan consensus on how to move forward. 

Recognizing the importance of a thriving free press to American democracy, both Both House Judiciary antitrust subcommittee Chairman David Cicilline (D-R.I.) and House Judiciary ranking member Doug Collins (R-Ga.) agreed to support a bill called the Journalism Competition and Preservation Act, which would allow publishers to circumvent anti-trust restrictions for 4 years and collectively negotiate with internet companies.

Much of the news industry — including the News Media Alliance, a consortium of about 2,000 other print and online news outlets including The New York Times — likes the idea too.

Consider this part of an evolution in Washington's thinking on how to protect American capitalism and democracy. For years, politicians, legal scholars and technocrats have believed that there was really only one reason to rein in big, concentrated businesses — if they were forcing prices too high for consumers.

Now, in a digital era where it seems so many products we use on the internet are free, companies like Google and Facebook are challenging that notion. These companies are forcing politicians to ask a central question: "If these products are free, why do so many Americans still feel like they're getting ripped off?"

Read more: Breaking up Facebook is just a step on the road to rehab for America's relationship with big companies

Penny precision

American anti-trust legislation had been written around the turn of the century, to stop the encroachment of railroad robber barrons and to rip the tentacles off Standard Oil. It was written with the understanding that big companies naturally evolved into powerful actors who could bend the government to their will. So the legislation was crafted with the intention of preserving competition and making sure that no company became so large that it could prevent another company from competing with it.

Back in 1890, Sen. John Sherman, an author of the Sherman Anti-Trust Act, famously declared: "If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life."

But starting around the late 1970s Americans stopped thinking that big alone was bad. Economists and legal scholars started pushing a new way to look at regulating companies with "consumer welfare" as the central tenant. In practice that meant that the government's powers to do things like stop mergers were only used when it was clear that the merger would ultimately push prices up for consumers.

Enter the tech giants as we know them today. Because their services are free, they were, in many cases, allowed to grow without restraint. Activity that may have been seen as anti-competitive a generation ago was allowed to slide.

For example, back in 2012, Federal Trade Commission (FTC) researchers showed that Google used its power to make competitors harder to find on its search engine. The FTC, however, decided to do nothing about it, saying simply that their job was not to protect competitors. 

Regulators didn't do anything when Facebook crippled video app Vine by blocking Vine from its friend-finding feature. And they stood by and did nothing when Google acquired YouTube and changed its search algorithm,  substituting its own subjective, "relevance" ranking in place of objective search criteria.

Watchdogs like the Electronic Privacy Information Center (EPIC) have been complaining about stuff like this on Capitol Hill for a while now. When it comes to mergers, EPIC argues that agencies like the FTC should be thinking about whether or not the merger may erode consumer privacy. This, it said, is what should have been under consideration when Facebook acquired Whatsapp back in 2014. 

"The FTC ultimately approved the merger after Facebook and WhatsApp promised not to make any changes to WhatsApp users' privacy settings," EPIC pointed out in Congressional testimony in December of 2018.

"However Facebook announced in 2016 that it would begin acquiring the personal information of WhatsApp users, including phone numbers, directly contradicting their previous promises to honor user privacy. Following this, EPIC and CDD filed another complaint with the FTC in 2016, but the Commission has taken no further action. Meanwhile, antitrust authorities in the EU fined Facebook $122 million for making deliberately false representations about the company's ability to integrate the personal data of WhatsApp users."

Indeed Germany has basically outlawed Facebook's ad business reasoning that the way that it tracks users — not just on its own app but also across Instagram and WhatsApp — is too intrusive and gathers too much data.

An idea infection

And so tech companies, unwittingly, have forced all of Washington to consider whether or not price is really paramount when it comes to protecting American capitalism — or if there's more to it than that.

"I think it's been substantial, the shift on the GOP side," said Matt Stoller, a fellow at the Open Markets Institute. It's an organization dedicated to exposing the corruption of monopolization in all kinds of sectors, from healthcare to food and agriculture.

Stoller pointed to Republican Senator Lindsey Graham's interest in regulating the advertising technology space, to Collins's work on the House Judiciary Committee, and to Attorneys General across the country banding together in an anti-trust lawsuit against generic drug manufacturers.

"There's an increasingly powerful bipartisan view of anti-trust," he said.

And then there are presidential candidates like Senator Elizabeth Warren (D-MA), whose stance on antitrust ensures that the topic will take center stage during the 2020 elections. Warren has been calling for anti-trust legislation to be updated and/or applied to big players in a variety of industries not just because they squeeze out other competitors, but also because of what they can squeeze out of Washington.

"The larger and more economically powerful these companies get, the more resources they can bring to bear on lobbying government to change the rules to benefit exactly the companies that are doing the lobbying," she said in a speech back in 2016. "Over time, this means a closed, self-perpetuating, rigged system - a playing field that lavishes favors on the big guys, hammers the small guys, and fuels even more concentration."

The push for Congress to take legislative action from Warren and others like her has, in turn, put pressure on government agencies tasked with anti-trust enforcement, according to Stoller.  

"One of the things I've noticed talking to anti-trust people is there's a conversation that's starting to happen now about whether they're still relevant," he said. "They're concerned they're going to have their authority stripped from them by politicians because they haven't brought cases... They don't want politicians coming in the with a meat cleaver."

But the cleaver, it seems, is coming — and it's coming in a way America has not seen yet this century.

SEE ALSO: Breaking up Facebook is just a step on the road to rehab for America's relationship with big companies

SEE ALSO: Breaking up Facebook is just a step on the road to rehab for America's relationship with big companies

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A growing chorus of Wall Street heavyweights is sounding the alarm on regulatory pressures surrounding America's biggest tech juggernauts

Sat, 06/15/2019 - 9:03am  |  Clusterstock

  • Big tech stocks like Alphabet, Apple, and Facebook have come under pressure amid reports of federal probes around antritrust issues and data privacy concerns.
  • It's unclear whether the companies' stock prices will suffer in the long run as uncertainty surrounds the scope of the probes.
  • But market strategists and legal experts are warning big-tech investors face major risks.
  • Visit Market Insider's homepage for more stories.

Federal regulators are knocking at Big Tech's door.

The US Federal Trade Commission will oversee any antitrust probe into whether Facebook's practices hurt competition into the digital market, the Wall Street Journal reported earlier this month. The news sent the social network's shares plunging and dragged the entire technology sector lower.

Alphabet and Apple saw their stocks fall on similar press reports the same day that the US Department of Justice was preparing antitrust probes into each company. Meanwhile, Sen. Elizabeth Warren — the Massachusetts Democrat and US presidential candidate — proposed earlier this year a plan to break up big tech companies including Amazon, Google, and Facebook.

While it remains to be seen whether reported probes and proposals into antitrust matters and privacy concerns will mark a death knell for the likes of Facebook and Google parent Alphabet — as the exact scopes of the probes remain unclear — experts are warning against investors shrugging off possible risks.

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"From a strategic perspective, we believe that uncertainty is still too high to recommend investors avoid stocks in the regulatory spotlight," Goldman Sachs strategists led by Ryan Hammond said in a Tuesday note.

They added: "But while the impact of regulation on today's stocks will be case-dependent, similarities among historical outcomes suggest that investors should reduce exposure to any stock that becomes subject to an antitrust lawsuit."

The strategists pointed to past regulatory events, with shades of today's concerns, that ushered in material business losses.

For example, Microsoft's 1998 antritrust lawsuit ultimately led to a reversed court-ordered breakup and a settlement with the Department of Justice. The corporation then saw "substantially" lower sales growth following its 2001 consent decree that expired a decade later, according to Goldman. Meanwhile, they found IBM's antitrust lawsuit in 1969 kicked off a "steady decline" in revenue growth and margins. 

Other investment firms are highlighting similar risks of which investors should be cognizant, even as the extent of various regulatory bodies' probes is a wildcard.

As issues like data security and the overall health of technology platforms becomes increasingly prevalent, companies face a "higher cost of doing business," Morgan Stanley strategists wrote in a late-May report.

"Outside of China, the risk of regulation limiting foreign investment in local companies may present a headwind to international growth and profitability for some of our companies," they wrote. 

Read more: Facebook shares drop sharply after unearthed emails reportedly show Mark Zuckerberg is aware of 'problematic privacy practices'

On the company level, the firm said the cost of compliance and regulatory overhang will remain a risk for Facebook and Alphabet, while Amazon may face "growing protectionist regulations" eating into potential international growth.

"Each government has its own nuanced approach to these issues and our universe may have to adapt to an environment in which protectionist/nationalist behaviors drive decision making as national regulatory and tax regime differences become more stark," the strategists wrote, adding that political rhetoric leading up to the 2020 US presidential election may inject volatility into the space.

Some experts are skeptical big-tech companies will face breakups, but say risks still abound.

Court mandated break-ups have been infrequently implemented in US history and are unlikely to be seen here, according to Glenn Manishin, a managing partner at ParadigmShift Law and a former trial attorney for the DoJ's antitrust divison. He worked on the US vs. AT&T and Microsoft cases.

Facebook runs the highest risk of a split relative to other big-tech companies given its Instagram acquisition, followed by Google, Apple, then Amazon, Manishin said on a conference call this week with Instinet analysts.

Read more: The news industry is joining the attack against big tech companies like Google and Facebook

Specifically, the fact that Google's case started in the FTC and is now in the DoJ could have negative implications given the latter unit's focus on monopolization claims and the former's focus on unfair methods of competition. 

The risks hanging over big tech were underscored this week when Makan Delrahim, the assistant attorney general in the Department of Justice's antitrust division, addressed the matter at a conference in Tel Aviv, Israel.

"The Antitrust Division does not take a myopic view of competition," Delrahim said. "Many recent calls for antitrust reform, or more radical change, are premised on the incorrect notion that antitrust policy is only concerned with keeping prices low. It is well-settled, however, that competition has price and non-price dimensions."

Read more: A top DOJ official just outlined why the agency has everything it needs to go after Big Tech — and Facebook, Google, and Amazon should be nervous

The DoJ has "the tools we need to enforce the antitrust laws in cases involving digital technologies," he added, and said US antitrust law is flexible enough to apply to "markets old and new." 

This sent alarm bells off for Nicholas Colas, a veteran analyst and co-founder of DataTrek Research. Investors should get ready to hear Delrahim's name "a lot more," he told clients in a note this week.

"It's hard to read this speech and not think the Justice Department is lining up its arguments for a showdown with Big Tech," Colas wrote. "What comes from that is anyone's guess."

Now read more markets coverage from Markets Insider and Business Insider: 

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NOW WATCH: WATCH: The legendary economist who predicted the housing crisis says the US will win the trade war

The Payment Industry Ecosystem: The trend towards digital payments and key players moving markets

Sat, 06/15/2019 - 9:03am  |  Clusterstock

This is a preview of a research report from Business Insider Intelligence. Current subscribers can read the report here.

The digitization of daily life is making phones and connected devices the preferred payment tools for consumers — preferences that are causing digital payment volume to blossom worldwide.

As noncash payment volume accelerates, the power dynamics of the payments industry are shifting further in favor of digital and omnichannel providers, attracting a wide swath of providers to the space and forcing firms to diversify, collaborate, or consolidate in order to capitalize on a growing revenue opportunity.

More and more, consumers want fast and simple payments — that's opening up opportunities for providers. Rising e- and m-commerce, surges in mobile P2P, and increasing willingness among customers in developed countries to try new transaction channels, like mobile in-store payments, voice and chatbot payments, or connected device payments are all increasing transaction touchpoints for providers.

This growing access is helping payments become seamless, in turn allowing firms to boost adoption, build and strengthen relationships, offer more services, and increase usage.

But payment ubiquity and invisibility also comes with challenges. Gains in volume come with increases in per-transaction fee payouts, which is pushing consumer and merchant clients alike to seek out inexpensive solutions — a shift that limits revenue that providers use to fund critical programs and squeezes margins.

Regulatory changes and geopolitical tensions are forcing players to reevaluate their approach to scale. And fraudsters are more aggressively exploiting vulnerabilities, making data breaches feel almost inevitable and pushing providers to improve their defenses and crisis response capabilities alike.

In the latest annual edition of The Payments Ecosystem Report, Business Insider Intelligence unpacks the current digital payments ecosystem, and explores how changes will impact the industry in both the short- and long-term. The report begins by tracing the path of an in-store card payment from processing to settlement to clarify the role of key stakeholders and assess how the landscape has shifted.

It also uses forecasts, case studies, and product developments from the past year to explain how digital transformation is impacting major industry segments and evaluate the pace of change. Finally, it highlights five trends that should shape payments in the year ahead, looking at how regulatory shifts, emerging technologies, and competition could impact the payments ecosystem.

Here are some key takeaways from the report:

  • Behind the scenes, payment processes and stakeholders remain similar. But providers are forced to make payments as frictionless as possible as online shopping surges: E-commerce is poised to exceed $1 trillion — nearly a fifth of total US retail — by 2023.
  • The channels and front-end methods that consumers use to make payments are evolving. Mobile in-store payments are huge in developing markets, but approaching an inflection point in developed regions where adoption has been laggy. And the ubiquity of mobile P2P services like Venmo and Square Cash will propel digital P2P to $574 billion by 2023.
  • The competitive landscape will shift as companies pursue joint ventures to grow abroad in response to geopolitical tensions, or consolidate to achieve rapid scale amid digitization.
  • Fees, bans, steering, or regulation could impact the way consumers pay, pushing them toward emerging methods that bypass card rails, and limit key revenue sources that providers use to fund rewards and marketing initiatives.
  • Tokenization will continue to mainstream as a key way providers are preventing and responding to the omnipresent data breach threat.

The companies mentioned in the report are: CCEL, Adyen, Affirm, Afterpay, Amazon, American Express, Ant Financial, Apple, AribaPay, Authorize.Net, Bank of America, Barclays, Beem It, Billtrust, Braintree, Capital One, Cardtronics, Chase Paymentech, Citi, Discover, First Data, Flywire, Fraedom, Gemalto, GM, Google, Green Dot, Huifu, Hyundai, Ingenico, Jaguar, JPMorgan Chase, Klarna, Kroger, LianLian, Lydia, Macy’s, Mastercard, MICROS, MoneyGram, Monzo, NCR, Netflix, P97, PayPal, Paytm, Poynt, QuickBooks, Sainsbury’s, Samsung, Santander, Shell, Square, Starbucks, Stripe, Synchrony Financial, Target, TransferWise, TSYS, UnionPay, Venmo, Verifone, Visa, Vocalink, Walmart, WeChat/Tencent, Weebly, Wells Fargo, Western Union, Worldpay, WorldRemit, Xevo, Zelle, Zesty, and ZipRecruiter, among others

In full, the report:

  • Explains the factors contributing to a swell in global noncash payments
  • Examines shifts in the roles of major industry stakeholders, including issuers, card networks, acquirer-processors, POS terminal vendors, and gateways
  • Presents forecasts and highlights major trends and industry events driving digital payments growth
  • Identifies five trends that will shape the payments ecosystem in the year ahead

SEE ALSO: These are the four transformations payments providers must undergo to survive digitization

Join the conversation about this story »

2 private islands 30 minutes from Manhattan just hit the market for $13 million, and one has a self-sustaining home on it — here's an inside look at the properties

Sat, 06/15/2019 - 8:45am  |  Clusterstock

  • Two private islands just 30 minutes from Manhattan are on the market for $13 million. Pea and Columbia Islands are .2 nautical miles apart from each other.
  • The islands are about 10 minutes from New Rochelle by boat, according to listing agent Patti Anderson
  • The current owner fully renovated the 5,625-square-foot home on Columbia Island, Anderson told Business Insider.
  • The home is self-sustaining and includes four bedrooms, two baths, a lower-level media room, a navy boat, and a barge.
  • Visit Business Insider's homepage for more stories.

For $13 million you can own two private islands that are just 30 minutes from Manhattan by boat.

Pea and Columbia Islands sit .2 nautical miles apart on the Long Island Sound in New Rochelle.  

The current owner fully renovated the 5,625-square-foot home on Columbia Island, which includes four bedrooms, two baths, an open kitchen, a lower-level media room, a boat, and a barge, listing agent Patti Anderson told Business Insider. 

Anderson also confirmed to Business Insider that the home is completely self-sustaining. On the roof are two independent solar panels that generate enough energy to operate the house, while a Reverse Osmosis Desalination system turns the seawater around the island into fresh, drinkable water.

Read more: A 13-bedroom mansion in Scotland that used to be a prison is on the market for $3.3 million

Pea Island has been left in its natural state and spans nearly five acres. It includes an open beach and an abundance of indigenous plants.

Take a look at the two islands below.

SEE ALSO: The NYC penthouse that Barbra Streisand lived in for nearly 40 years is on the market for $11.25 million — here's a look inside

SEE ALSO: There are only 3 Frank Lloyd Wright houses in Texas, and one just hit the market for $2.85 million. Take a look at the home — and its original furnishings.

Pea Island and Columbia Island are about 30 minutes from Lower Manhattan by boat.

Source: Google Maps

The two islands sit .2 nautical miles from each other and are for sale for a collective $13 million.

Source: William Pitt and Julia B. Fee Sotheby's International Realty

Columbia Island was built in the 1940s by CBS to house a radio transmitter. Before the current owner purchased the Island, it was owned by the College of New Rochelle and used for marine biology studies.

Source: William Pitt and Julia B. Fee Sotheby's International Realty

The current owner spent nearly a decade renovating it and installed windows, wiring, and walls with corrosive-resistant materials to protect the home from water and storms.

Source: Bloomberg

Columbia Island, the smaller island of the two, has a fully renovated four-bedroom, two-bathroom, 5,625-square-foot home.

Source: William Pitt and Julia B. Fee Sotheby's International Realty

The island is completely self-sustaining. The two solar panels on the roof generate enough power to operate the house.

Source: William Pitt and Julia B. Fee Sotheby's International Realty

A reverse osmosis desalination system turns the seawater around the island into fresh, usable water for the home.

Source: William Pitt and Julia B. Fee Sotheby's International Realty

A lower-level media room with exposed brick wall sits parallel to the large living space.

Source: William Pitt and Julia B. Fee Sotheby's International Realty

An open floor plan connects the living space to the kitchen, which can be seen in the background of the photo below.

Source: William Pitt and Julia B. Fee Sotheby's International Realty

The open kitchen is newly renovated with stainless-steel countertops.

Source: William Pitt and Julia B. Fee Sotheby's International Realty

A rendered image of the dining room shows what the open-kitchen area could look like furnished ...

Source: William Pitt and Julia B. Fee Sotheby's International Realty

... as well as what one of the bedrooms would look like when furnished.

Source: William Pitt and Julia B. Fee Sotheby's International Realty

The home includes two 50kW backup generators and a blast and fire-resistant door to protect the machinery.

Source: William Pitt and Julia B. Fee Sotheby's International Realty

The home comes with a boat and a barge.

Source: William Pitt and Julia B. Fee Sotheby's International Realty

Pea Island can be seen from the rooftop on Columbia Island. Pea Island spans nearly five acres and includes an open beach and an abundance of indigenous plants.

Source: William Pitt and Julia B. Fee Sotheby's International Realty

The house, according to Bloomberg, is nearly hurricane-proof, with a five-foot thick, 14-foot-tall seawall.

Source: William Pitt and Julia B. Fee Sotheby's International Realty, Bloomberg

Hedge funds and private-equity firms face tug-of-war over talent; 'Alexa, what ETF should I buy?'

Sat, 06/15/2019 - 8:23am  |  Clusterstock


Dear readers,

Welcome to this week's edition of Wall Street Insider. It was great to meet so many of our readers on Monday at our IGNITION: Transforming Finance event at the New York Stock Exchange. We had top tech leaders from firms such as Goldman Sachs, JPMorgan, Morgan Stanley, Citi, BNY Mellon, and Barclays chat about a wide variety of topics, including the threat posed by Silicon Valley to big banks, how to deal with evolving customer expectations around digital, and the cultural challenge of driving innovation in huge organizations. 

You can check out all of our coverage here, including exclusive stories and video. We'll have more finance events in the future for Prime readers, so stay tuned. If you have any ideas for live events you'd like to see (or feedback from our Transforming Finance event), please don't hesitate to email me at

We also had a big series that rolled out this week, which many of you hopefully have seen, focused on the future of big data on Wall Street.

Basically, there are massive amounts of "digital exhaust" being produced every day by everything from Instagram to Amazon. This information, if harnessed correctly using technology, can be incredibly valuable.

It's creating a data gold rush, with companies expected to spend nearly $190 billion globally this year on software and services to analyze any sort of information that could give them an edge over their competitors.

The finance industry — from hedge funds and asset managers to large banks — is at the forefront of this trend. You can read all of our stories here.

Please say hello to our new fellow Alex Nicoll who will be focusing his reporting on the wild world of real estate! 

And good luck to all of our readers taking the CFA! 


The booming private market has some hedge funds spreading into private equity's domain. Now a tug-of-war has broken out over talent.

Hedge funds and private-equity firms are no longer staying in their lanes and increasingly jumping between public and private markets.

The convergence of hedge funds and private equity has led to a fight for talent as both sides try to pitch to prospective employees and investors that they are all-encompassing alternative-asset managers.

It comes as the starting pool for talent in finance continues to dwindle and Silicon Valley siphons Wall Street professionals away.


JPMorgan has cut nearly two-dozen people in a group responsible for preventing traders from making risky bets

JPMorgan Chase has let go of nearly two-dozen people in a group responsible for preventing the firm's traders from taking too much risk — a team that grew significantly in the aftermath of the bank's 2012 "London Whale" debacle.

More than 20 executive directors in the bank's Model Risk Governance & Review Group were culled this month, according to people familiar with the matter. It wasn't immediately clear whether the cuts extended to other levels of seniority, or whether more personnel changes in the division would follow.


'Alexa, what ETF should I buy?' Asset managers like BlackRock and Invesco are testing out voice assistants — but some are sounding the alarm on privacy concerns

With just a few spoken words, you can schedule doctors' appointments on Alexaorder groceries on Google Home, and ask Siri for flight updates. Soon people will be able to interact just as easily with the companies that manage their investment and retirement accounts.

Big asset managers such as BlackRock, Invesco, State Street, T. Rowe Price, and JPMorgan are preparing to roll out tools on platforms like Alexa and Siri as soon as next year, top digital and marketing executives told Business Insider. They're planning to start with simple search-related tasks for voice assistants, like asking Siri about account balances or answering specific market questions, such as how US futures are trading.

It's unclear how much investors will use these programs, and some advisers are worried about privacy and encouraging short-term behavior.


Merrill Lynch's 'thundering herd' of advisers are winning over troves of new millionaires, and the growth is coming from a surprising place

Bank of America Merrill Lynch's wealth-management group has seen explosive client growth in the past year and a half.

Such growth had been tough to come by in recent years as the industry reckoned with a generational shift to passive investing.

Surprisingly, Merrill veterans with more than 30 years of experience were responsible for a significant share of the growth, matching the output of younger advisers who are far less established.


Meet the JPMorgan banker with no technical expertise who's now in charge of one of the biggest data projects on Wall Street

As JPMorgan's chief data officer, Rob Casper is involved in one of the largest data projects on Wall Street today.

His role, and the fact that it even exists, shows how important data is to Wall Street's plans to hold on to customers and markets despite the generational upheaval being brought about by technology.



In markets:

In tech news:

Other good stories from around the newsroom:

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Oracle revoked job offers for some people in the UK, blaming a hiring freeze. Yet it says it's both hiring and still restructuring. (ORCL)

Sat, 06/15/2019 - 8:00am  |  Clusterstock

  • Oracle's massive reorganization is still in progress, according to three employees Business Insider has talked to.
  • The company revoked at least some job offers in the UK at the last minute, blaming a hiring freeze, two of them told us.
  • This reorg began in the spring, and has involved thousands of layoffs between March and this month. The company acknowledged the layoffs but hasn't given a total tally.
  • We expect an update on how much money Oracle has spent so far on its 2019 restructuring plan on Wednesday, when the company reports fiscal year-end earnings.
  • From the half-a-dozen employees we have talked to about this reorg since it began, it seems like it could be endless. 
  • Click here for more BI Prime stories.

Oracle's internal reorganization is showing no signs of wrapping up four months after it started, causing lingering unease and uncertainty throughout the tech giant's global operations. According to people Business Insider has talked to, some job offers in the UK were revoked at the last minute amid a hiring freeze that may or may not be in effect.

The internal reorg began in the spring and has involved thousands of layoffs between March and this month. The company acknowledged the layoffs but hasn't given a total tally. Executives have not discussed the situation publicly.

From the half a dozen people Business Insider has talked to over the past few months about the reorg, one word comes to mind: endless.

For instance, we've heard from two people in the UK who had excitedly accepted job offers from Oracle, filled out the final paperwork, and waited a month to get their start date, only to be told instead that the offers were revoked. Both people told us that the reason given for the revoked offer was a hiring freeze in the UK. 

One of the job offers was revoked in March, right before the company launched its first big layoff, that person told us. The other job offer was revoked earlier this month and that person was told the freeze would last for another three months.

All of the people we've talked to about the reorg since we first began reporting on it in March have worked for some of Oracle's fastest growing or most critical areas.

This includes its cloud infrastructure units, the Oracle Marketing Cloud (its competitor to Salesforce) and even its Adaptive Intelligence Apps, which are Oracle's artificial intelligence/machine-learning apps.

When we asked Oracle about a hiring freeze in the UK, the company told us it is hiring people globally, including in its cloud unit, known as Oracle Cloud Infrastructure Generation 2 (OCI Gen2). 

"Every year Oracle hires tens of thousands of employees and we are currently hiring globally and in every line of business, including OCI Gen2," an Oracle spokesperson said. "Enabling our customers' success has always been a top priority for Oracle. We are laser-focused on delivering the best cloud products that drive efficiencies, fuel innovation and impact the bottom line for our customers around the world."

Another person we talked to, this one in the US, told us that there was also a US hiring freeze for some units that began in February, affecting organizations like sales. While those units may be hiring again, this person said that the freeze also sidelined promotions.

A harsh situation

Oracle needs to get its workforce in shape so that it can survive in this new age of cloud computing, in which it's late to the game and playing catch up to cloud giant Amazon Web Serivces. Cloud has radically changed how Oracle's customers buy their tech. And cloud giant Amazon Web Services is on a warpath, trying to steal Oracle's customers. 

Still, we can't help but feel empathy for the people who thought they had landed a role with the database giant only to be left jobless.

"I feel used and shamefully treated," one of the would-be employees told us. "I am not an aggrieved former employee but an individual contributor hired in an apparent growth area of business. And I never managed to start my position."

$432 million for restructuring costs

Oracle execs may say something more about the restructuring on Wednesday, June 19, when the company reports its fiscal fourth quarter earnings.

Q4 is always the most important earnings report for Oracle. The fourth quarter is when sales reps push to close deals to make their annual quotas. Analysts are expecting Oracle to report a modest year-over-year decline in sales for the quarter (-2%) and the year (-1%), according to Yahoo Finance.

Even if execs don't give more details on who, what, and why they are restructuring, Oracle will likely include an updated disclosure on how much it has spent on its formal Fiscal 2019 Oracle Restructuring Plan.

When it reported third-quarter results in March, the company said it expected to spend $432 million total on this restructuring, primarily on employee severance, and at that point, it still had about 1/3 of that money left to spend. It said it planned to spend the rest through the end of fiscal 2020, which ends in May, 2020.  

It's impossible to extrapolate how many jobs will be slashed based on $432 million in expenses, but the company did show that its cloud and software license is getting the brunt of it, accounting for $230 million.

Just for the heck of it, if each laid-off employee were to receive a generous $50,000 in severance (26 weeks of a $100,000 annual salary), $432 million would cover 8,640 jobs (assuming no other factors like benefits, bonuses and vacation pay). Oracle says it employs 138,620, so, at our $50,000 payout, that's enough to cover 6% of the workforce.

Some employees are happy, others are wary

Given how many months this restructuring has been going on, employees remain wary, according to chatter on anonymous chat app Blind, which an Oracle employee shared with Business Insider.

The gossip internally is that the new cloud group based in Seattle won't generally pay as well as it had in previous years, when it was a skunkworks team trying to lure talent from Amazon and Microsoft

The Seattle team has now become the main Oracle cloud engineering unit and their product is replacing the company's original cloud. 

But as important as the Seattle team is to the success of the company, they weren't spared from layoffs. According to employees we talked to at that office, as many of as 300 of them were laid off in March.

Some people believe more cuts will come to the unit, too, according to posts on Blind by Oracle employees.

There are also employees on Blind who say they are happy with their jobs, their pay and the cloud products that their teams are building.

And there are others who say they joined recently, two months ago, indicating that whatever hiring freeze that may have hit the US earlier this year is now over.

More about Oracle's cloud and restructuring

Are you an Oracle insider with insight to share? We want to hear it., DM @Julie188 on Twitter, or send me a text via Signal.

SEE ALSO: Jeff Bezos explains why he prefers people who 'are right a lot' and how anyone can learn to be right a lot, too

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NOW WATCH: Dragons and white walkers aside, you can find some real science in 'Game of Thrones'

Firms that shunned ETFs are embracing a new kind of fund, which could help them stem the hundreds of billions they're losing each year

Sat, 06/15/2019 - 8:00am  |  Clusterstock

  • In May, the SEC gave the green light to a new kind of exchange-traded fund. Unlike traditional ETFs, the so-called "non-transparent active ETF" is managed much like a mutual fund instead of being tied to an index like the S&P 500, and the portfolio manager doesn't have to disclose what's in the fund daily. 
  • Now, asset managers are rushing to the space, with more than 30 firms getting ready for their own ETFs. 
  • Click here for more BI Prime stories.

Some of the asset managers that have long scorned exchange-traded funds are finally looking at entering the space after the SEC approved a new structure that gives them more control — and more revenue. 

Active managers have been hemorrhaging money for years. In 2018, US investors pulled a near-record $301 billion from active funds, per Morningstar, while lower-fee and more tax-efficient passive funds collected $458 billion. 

Despite the outflows, many managers have stayed away from passive funds. They view the "race to the bottom" – a push to lower fees that culminated with an ETF that will pay investors  – as detrimental to their core business of higher-revenue mutual funds. Many have also been averse to creating funds that reveal their trade secrets, since ETFs publish their holdings daily, whereas mutual funds report theirs quarterly. 

In April, the SEC approved a new structure – the "non-transparent active ETF" — from Precidian Investments, which tries to do away with those issues. Precidian's version of the new wrapper is called ActiveShares, which can now be licensed by asset managers. The structure allows managers to create ETFs run by portfolio managers, rather than funds tied to indices. Those ETFs then report holdings quarterly, instead of daily.

Managers are hoping these new ETFs can serve as a middle ground between passive ETFs and active mutual funds. It's a last-ditch effort to woo investors back to firms that have lost billions from the move toward passive investing, and that are now struggling with falling margins.

The non-transparent active ETFs could, in theory, generate higher returns than their index-tied passive peers, because of their ability to trade more independently. The decline of idiosyncratic, company-specific moves has been a long-standing criticism of passive stock indexing.

ETFs also offer better tax benefits than mutual funds. While more than 30 managers are now creating – or at least thinking about – ActiveShares ETFs, it's not yet clear what the consumer demand will be. 

Investors haven't flocked to similar active ETF products as they have to passive strategies, though they're gaining ground. Active ETFs had $77.5 billion as of May 31, per Morningstar, compared with $3.6 trillion for passive ETFs. Despite huge outflows, actively-managed mutual funds still command the lion's share of capital: $11 trillion. 

See more: Investment giant PIMCO is quietly poaching executives from Blackstone and State Street as it plays catch up in a $5 trillion market

'You'd probably guess the money would flow there'

When ActiveShares was approved, Precidian already had 10 managers lined up to license the product, including BlackRock, JPMorgan, Capital Group, and Nuveen. Since then, the firm inked another 24 contracts "with many of the largest asset managers out there." Precidian is minority-owned by Legg Mason.

Precidian CEO Daniel McCabe told Business Insider that some of those managers are creating near-replicas of their existing mutual funds, translating the strategy to ETF form, while others are mulling a total conversion from mutual fund to ETF. 

"If that's available, I think you could see them get scaled very rapidly," McCabe said. "I find it somewhat comical that people would think there's no demand for this when you look at the demand for active management in a mutual fund wrapper."

He continued: "If I can offer you similar exposure in a more cost-effective vehicle, you'd probably guess the money would flow there. There are multiple trillions in these products."

Giang Bui, CBOE's director of listings, said there's plenty of room for the nontransparent active ETFs alongside current products. 

"We think these will be the next-generation mutual funds and this is the way for ETFs to close the gap with mutual funds," she said at a New York ETF conference earlier this month. 

Cerulli Associates, a Boston-based consultancy, surveyed product heads at the largest asset managers before the SEC approved ActiveShares and found that about half were interested in launching a non-transparent active ETF strategy, preferably within a year. More than half would launch an equity fund, while 30% would think about fixed income.

"One of the mega-trends in the industry is to provide products in a wrapper-agnostic manner," said Daniil Shapiro, an assistant director in the firm's product development practice. "One of the challenges we think issuers of these products may face is they may be unwilling to significantly discount their products, which in turn would make them unattractive."

Because only two managers – American Century Investments and Gabelli – have filed to launch these new ETFs, it's too early to know what the typical fees will be. McCabe declined to comment on how his clients are structuring their ETFs.

"I don't think they feel they need to compete with the passive products that are running to zero," he said. "If you're spending a lot of time and energy creating intellectual property ... people are willing to pay for that."

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'The demand is truly unknown'

Another open question is investor demand. Ed Rosenberg, the head of ETFs at American Century Investments, said some advisors have said they'll likely switch from mutual funds to the active non-transparent ETF. Others said they'll add it to their existing product line-up, while a third group said they're still unsure if they'll use it or not.

"I think the demand is truly unknown because it doesn't exist today," Rosenberg said. "Once it's live, then you get to make a decision."

Eric Pollackov, Invesco's head of ETF capital markets, said that while his firm hasn't filed for an active non-transparent ETF, they're monitoring Precidian's model and similar efforts from other firms. 

"The advisors have not been on the sidelines asking for these products, which tempers our view of demand for them," Cerulli's Shapiro said. "On the other side, if these products trade like an ETF, the question isn't for the advisor … it's almost a question for the gatekeepers and the platforms that will have to evaluate these products. It's up to them to decide if they want these products on their platforms."

In a late May research note, UBS analysts likewise noted wirehouses' ambivalent stance on the products. The analysts also said BlackRock is monitoring other products' performance and customer uptake as the $6.5 trillion firm decides which of its active products could be launched in the new format. 

Armando Senra, BlackRock's Americas head of iShares, told Business Insider that investors should be cautious of managers pursuing new forms of old products.  

"An underperforming manager that's wrapping an ETF doesn't create well-performing products," Senra said. "These new technologies for ETFs aren't going to solve the problem of performance. It's a powerful wrapper and we're looking at ways in which active management will use it."

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NOW WATCH: WATCH: The legendary economist who predicted the housing crisis says the US will win the trade war

I drove a Toyota Tundra and a Chevy Silverado to see which full-size pickup is better — and the winner was clear (GM)

Sat, 06/15/2019 - 7:59am  |  Clusterstock

In the highly competitive world of full-size pickups, there are three main players: the Ford F-150, the Chevy Silverado, and the RAM 1500. That's 1-2-3 in the usual sales ranking.

Behind that formidable trio, one finds the Toyota Tundra. When the Tundra first arrived in the US, it was a daring move. Toyota intended to build on its legacy for reliability and quality by attacking the most American of vehicle segments. The Tundra was the first full-size pickup from a Japanese brand, and it was built in the USA.

That was 20 years ago. The Tundra has been moderately successful, but it hasn't cracked the top-three party. The situation has only worsened for Toyota over the years, as Ford, Chevy, and RAM has effectively captured all the share to be had in the upper reaches of the market.

The Silverado is usually number two, behind the F-150, and to maintain that position, Chevy has an all-new truck on dealer lots.

The Tundra, meanwhile, is completely not all-new. The 2007 second-generation design was upgraded in 2014, but the pickup is long in the tooth. That's not necessarily a bad thing for Toyota, as the company can continue to sell a lot of trucks without having to spend big money to steal customers from the Detroit Big Three.

So how does the Toyota Tundra match up against the Chevy Silverado? Glad you asked. I've driven both trucks. Here's how they compare:

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Let's start with the underdog — the Toyota Tundra 1794 Crewmax, tipping the cost scales at about $53,000, landed at our test center in suburban New Jersey last year.

Read the review »

The Tundra has been around since 2000 and has amassed a loyal following, even as it fails to seriously compete with the big three.

The current generation arrived in 2007 and was updated in 2014, making it a pretty old platform. That certainly doesn't mean Toyota doesn't take the Tundra seriously. In a week of driving it around — with a nice long run to the Catskills in upstate New York thrown in — I found out why.

You're not going to confuse the Tundra for anything other than a full-size pickup. Ours had a 5-foot-5 double-walled bed and a power-sliding rear window, as well as a "Super White" exterior and LOTS of chrome.

The 1794 backstory is intricate: The oldest cattle ranch in Texas, near San Antonio, dates to 1794. The property is where Toyota built its US pickup-truck factory.

Tundra badging on the liftgate was subdued.

A 5.7-liter V8, making 381 horsepower, lives beneath the hood. This motor supplies 401 pound-feet of bone-crunching torque. The Tundra can tow 10,000 pounds.

The six-speed automatic gets the job done, but I found it to be antiquated relative to the competition. Fuel economy is a thoroughly unimpressive 13 mpg city/17 highway/14 combined.

The 1794 Tundra is a close second to the plush Ram 1500 for sheer interior bliss. And although the rear seats aren't as comfy, they're plenty roomy.

The great thing about pickups is — Duh! — hauling capacity. And with the 1794 edition, you get the best of both worlds: cargo room to burn in the back, abundant premium-ness up front.

Infotainment works fine, with GPS navigation, Bluetooth connectivity, device integration, and satellite radio. The touchscreen interface, however, is small and rather outdated — it's more or less the same as what I have in my 2011 Prius.

There's also a JBL audio system, an 11-speaker rig that sounds pretty good, though it doesn't quite cross into premium territory.

The Tundra is a solid truck. But it's also an old truck.

In my review of the Tundra, I wrote:

"You may have anticipated the punchline, set up by that clunky six-speed automatic transmission, that gas-chugging big V8 motor, and the circa-2010 infotainment system. That's right: Toyota doesn't need to expend resources on the Tundra."

BUT, I added: "In my testing of the truck, I was almost ready to call it my new favorite, second only to the exquisite Ram 1500. There's something to be said for a platform that simply performs, is notably comfortable, and carries Toyota's ironclad reputation for reliability."

Let's move on to a pickup that is in no way an underdog: a "Summit White" 2019 Chevy Silverado. It's the fourth-generation of the nameplate, but it's a full-size pickup that can trace its lineage back to the early 1960s.

Read the review »

This is going to be a battle of the white full-size pickups!

The new Silverado tips the scales at 5,000 pounds — several hundred less than the outgoing generation, thanks to lightweight steel and aluminum.

My $57,000 Silverado LTZ Crew Cab ...

... came with a short bed, but a larger box is available. (The base work truck is just under $30,000.)

The Silverado could be outfitted with a 2.7-liter turbocharged four-cylinder, a 4.3-liter V6, a 5.3-liter V8, a 3.0-liter inline-six-cylinder diesel — or, in the case of my tester, a 6.2-liter V8. This configuration can tow 12,000 pounds.

The V8 motors have a cylinder-deactivation feature that can drop the engine down to a fuel-sipping two, if all you're doing is humming along at highway speeds. (Chevy calls it "Dynamic Fuel Management.")

At full bore, the 6.2-liter V8 makes 420 horsepower with a whopping 460 pound-feet of torque. That's 65 more ponies than the 5.3-liter V8 mill. It can propel the truck to 60 mph in about six seconds, sending the power through a 10-speed automatic transmission. The MPGs are 16 city, 20 highway, and 17 combined.

The 10-speed automatic is operated by a very old-school column shifter.

The "Gideon/Very Dark Atmosphere" interior is oddly named, but still quite pleasant, if a bit on the utilitarian side. The rear seats, as in the Tundra, were a roomy bench design. My Silverado tester, while nice, wasn't as fancy as the Tundra.

My tester came with a tonneau cover for the box. It can be folded back to reveal the bed in all its glory. The spray-on bedliner is a $500 extra.

The 8-inch center touchscreen isn't huge, but it is responsive, with a few buttons and knobs to fall back on.

There's SiriusXM radio, plus a full array of USB and AUX ports, and even a 120-volt outlet. The system offers a full suite of apps and both Apple CarPlay and Android Auto. The venerable OnStar system provides 4G LTE wireless connectivity, along with navigation and emergency communications.

And the winner is the Chevy Silverado!

It shouldn't be a shock to anybody that the Chevy Silverado, all-new and ready to rock, wins the battle of the white full-size pickups.

But let's take a moment to acknowledge how competitive the Toyota Tundra is. The design has been around since 2014, and Toyota would be justified in sort of phoning it in, given the pickup's position behind the heavy hitters in the segment.

But the Tundra has a thing, and that thing is comfort and — let's be honest — Toyota's well-earned reputation for building the world's most reliable pickups. You might not like the Tundra as much as a Detroit product, and it might be awkward in some regions to roll into a job site behind the wheel of the Japanese trucks, despite it's being built in Texas. But if you want a truck that will probably last and last and last some more, giving little trouble along the way, consider the Tundra.

OK, on to the winner. The Silverado is what I'd call a purposeful or iterative update of Chevy's full-size hauler. The old truck wasn't broken, so Chevy didn't entirely fix it. The improvements were all worthwhile, however.

"Chevy took a conservative path with the new Silverado, and on balance, that was a wise call," I wrote in my full review of this truck last year.

"I couldn't find anything substantial to dislike about the Silverado. And I found plenty to enjoy. The truth is, American pickup-truck buyers now have ... excellent choices, proof that Detroit knows better than ever what it's doing in this segment."

The Tundra, in this context, isn't a bad truck. Far from it. But it just isn't quite in the Silverado's league.

The US economy is resisting a slowdown plaguing the rest of the world. Here's why one Wall Street expert worries its fortunes are about to change.

Sat, 06/15/2019 - 6:05am  |  Clusterstock

  • The US economy has been resilient amid struggles in other developed countries. 
  • However, there are looming threats to this unique position, according to Alain Bokobza, the head of global asset allocation and equity strategy at Societe Generale. 
  • He advised using commodities as a hedge against the global slowdown he expects to have taken hold by 2020. 
  • Click here for more BI Prime stories

The US economy is about one month away from recording its longest expansion ever, even as other developed nations fight off recessions.

Its unique standing has not escaped Alain Bokobza, the head of global asset allocation and equity strategy at Societe Generale.

"The US economic cycle is, without doubt, showing resilience at present," he said in a recent note to clients. "In Europe and Asia, however, cyclical conditions are deteriorating, and confidence indicators are waning amid the trade war backdrop."

So why is the US holding up despite the decay elsewhere? Thank the Federal Reserve, which has hit the brakes on raising interest rates this year because it doesn't see inflation as a threat. 

The Fed hasn't indicated that it's in a hurry to cut interest rates either, even though the global economic outlook has dimmed. Its statement and press conference next Wednesday will be parsed inside and out for clues on this front. After all, traders have priced in a 97% chance of one rate cut in September, according to Bloomberg's world interest rate probability data.

But this cautious approach is what will expose the US economy to the slowdowns elsewhere, according to Bokobza. He expects that the Fed won't ease monetary policy until it sees clear signs that growth is deteriorating. The Fed might be even more patient to defy the unprecedented pressure to cut rates coming from the White House.  

Bokobza's concern is that by the time the Fed decides to act, the outcome would be to reverse a downturn, not to prevent one.

The most likely cause of a slowdown, in the eyes of many experts, is the trade war

Read more: 'We're going to get rolled': Billionaire investor Stanley Druckenmiller breaks down why the US is headed for devastating losses to China in the trade and tech wars

A big stress test on this issue will unfold at the G20 meeting from June 28-29. US-China trade relations are poised to be front and center of discussions and coverage at the gathering, and President Donald Trump has already set the ball rolling: He threatened to slap more tariffs on Chinese goods if President Xi Jinping does not attend the summit.

Both leaders are still expected to meet to try and work out a deal. According to Bokobza, China's strategy at such negotiating tables has always to been to candidly show off the ways it can retaliate against any punitive action by the US. But as the last few months have shown, the Trump administration won't take this sitting down. 

"This increases the likelihood of the trade war spiraling into a no-win situation for the countries involved," Bokobza said. 

There's a glimmer of hope that both sides come to an agreement and avert an economic disaster. But Bokobza isn't so optimistic. 

"Overall, however, better news-flow on the trade war may only serve as a temporary reprieve unfortunately from the looming, global cyclical slowdown in 2020," he said. 

He advises investors to hedge against a trade-induced slowdown using commodities and oil stocks.

"The oil price has been badly hit recently by worries about growth prospects," he said. "This might be an opportunity to re-gear to this asset class which should prove to be robust when the USD starts falling at a later stage."

SEE ALSO: Investing legend Stanley Druckenmiller reveals why the 'best economic predictor' has him worried about the next crisis — and breaks down where you should be putting your money

Join the conversation about this story »

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'Agriculture Growth Network' #Rwanda

Sat, 06/15/2019 - 6:00am  |  Timbuktu Chronicles
New Times reports:
Agriculture Growth Network’. It helps small and medium scale farmers increase their productivity and quality, and connects them to profitable and potential markets...[more]

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