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CREDIT SUISSE: Here's why investors shouldn't assume China's economy is already recovering

Sat, 02/16/2019 - 12:56am  |  Clusterstock

  • A Credit Suisse analyst is warning investors that a rally in stocks linked to China's economy might be premature.
  • China's government is taking steps to reverse last year's economic slowdown, but Andrew Garthwaite says far more stimulus is needed, and credit growth needs to speed up before the economy heals.
  • Garthwaite says emerging markets stocks, mining companies, and other sectors have surged recently amid investor speculation that China's economy is already on the road to recovery.
  • However, he says the improvement hasn't kicked in yet.

Credit Suisse analyst Andrew Garthwaite says signs of Chinese economic growth could be a fake-out.

While he's seen big rallies in areas like emerging-market indexes and mining companies, he argues that the Chinese government hasn't yet added enough stimulus to the economy to loosen credit conditions. And without lax lending standards, he says industrial production and economic growth won't improve.

"We need to see credit growth increase and much more fiscal stimulus (which is a quarter of 2015 levels and tenth of 2008/09 levels)," Garthwaite wrote in a recent client note.

Garthwaite isn't going so far as to bet against a recovery, but he says stocks that are tightly linked to China's economy have climbed too quickly, which means the rally might be premature. The Hang Seng index in Hong Kong, for example, is up 8.9% this year. 

Upon close examination, Garthwaite says the rally doesn't match the current pace of growth. After all, China's government said the economy cooled off in 2018 and grew at its slowest pace since 1990.

That slowdown is partly the result of the trade dispute with the US. At the same time, China was forced to tighten credit conditions as the government made big changes to the financial system and tried to handle its debts.

Then, as last year's slowdown got more severe, the government in Beijing relaxed lending standards to boost growth again. Yet while there have been some positive economic signs — like data from Chinese property developers showing strong demand for homes — Garthwaite says it's still not enough to sound the all-clear.

Meanwhile, as investors try to wrap their heads around the China situation, they're also having a difficult time reaching a consensus in the US. While a recent survey showed US CEO confidence dropped to its lowest level in six years, a separate one from the Philadelphia Fed showed resilient expectations for capital spending.

In the end, no matter where you look, it's become a tall order to get a solid reading on the economy. And it all circles back to Credit Suisse's main point: don't buy into any risk trades — including China — until a clearer picture has emerged.

SEE ALSO: A $280 billion investment chief says the market's biggest fear is overblown, and explains why that will clear the path for a stock spike

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NOW WATCH: North Korea's leader Kim Jong Un is 35 — here's how he became one of the world's scariest dictators

Inside the twists and turns of Ja Rule's 3-decade career, from platinum rap albums and a cameo in 'The Fast and the Furious' to promoting the disastrous Fyre Festival

Fri, 02/15/2019 - 6:22pm  |  Clusterstock

  • Ja Rule, one of the creators behind Fyre Festival, announced on Thursday he wanted to create another music festival.
  • It would add another unbelievable chapter to Ja Rule's career, which has spanned three decades and featured chart-topping albums, box-office bombs, and a bizarre feud with 50 Cent.
  • Ja Rule has managed to avoid liability for the doomed Fyre Festival.

Rapper Ja Rule, one of the creators of the infamous Fyre Festival, revealed on Thursday that he wants to create another music festival, saying, "in the midst of chaos, there's opportunity."

The rapper has denied liability for the catastrophic festival, which was the subject of two recent documentaries, and he has distanced himself from Fyre CEO and convicted fraudster, Billy McFarland, who orchestrated the event.

Read more: Ja Rule wants to put on another event like Fyre Fest: 'In the midst of chaos, there's opportunity'

Such a venture would add another unbelievable chapter to Ja Rule's career, which has spanned three decades and has featured chart-topping albums, a couple of box office bombs, and a bizarre feud with 50 Cent that took a humorous turn months ago.

Read on to see the remarkable twists and turns of Ja Rule's career:

SEE ALSO: Ja Rule wants to put on another event like Fyre Fest: 'In the midst of chaos, there's opportunity'

DONT' MISS: This leaked Fyre Festival pitch deck shows how Billy McFarland was able to secure millions for the most overhyped festival in history

Ja Rule, born Jeffrey Atkins in 1976, grew up in the neighborhood of Hollis in Queens, New York City.

Source: Biography



Ja Rule started rapping professionally in 1993 ...

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Source: Biography



... and burst into the mainstream in 1998 as a featured performer on the Jay-Z single "Can I Get A..."

Source: Biography



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The CEO of Charles Schwab Investment Management says innovation and new products actually hurt the industry. She explains why 'simplicity is the key to success.'

Fri, 02/15/2019 - 6:21pm  |  Clusterstock

  • Individual investors are suffering from information overload from too many options, Marie Chandoha, chief executive officer of Charles Schwab Investment Management, told Business Insider.
  • Asset managers should focus less on innovation and more on simplifying their line-ups, she said. 
  • Managers also need to consider the best types of products for an investment strategy. Just because ETFs are popular, Chandoha cautioned, doesn't mean they're the best option. 

Investors have more options to put their money to work than ever before – but that's not necessarily a good thing, says one of the asset management industry's leaders.

There are now more than 10,000 mutual funds and exchange-traded-funds, according to Morningstar. Investors have a hard time choosing among all those options, Marie Chandoha, chief executive officer of Charles Schwab Investment Management, told Business Insider in a recent interview. 

"No matter who they are, [investors] say ‘there’s too much product out there. It’s overwhelming; it’s hard to get through,’" Chandoha said. "I don’t think that’s good for the industry ... You don’t need to have complicated products to get good results." 

The business that Chandoha oversees manages $360 billion for a variety of clients, from individual investors to registered investment advisers.

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"I really hope the industry moves toward less innovation," Chandoha said. "I’ve been using this phrase ‘simplicity is the new innovation.’"

Chandoha's successor – she's retiring in March – told Business Insider in December that the business is growing differently than its peers, by focusing on high-quality, low-cost products in categories that scale instead of by expanding its menu. For example, the firm offers 22 exchange-traded funds and 85 mutual funds, while BlackRock lists 344 ETFs and 595 mutual funds.

Chandoha said that increasingly popular ETFs may not be the right fit for some investment strategies, including alternatives. Index funds, for example, work well in an ETF, while a less liquid asset class is better suited for a closed-end fund. 

See more: Investors are fleeing active funds in the worst month for managers in nearly 2 years

"Being thoughtful about what kind of wrappers make sense for what kinds of asset classes is important," she said.

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Elizabeth Warren's proposed wealth tax on the richest Americans won't remove the incentive to work, no matter what billionaires say

Fri, 02/15/2019 - 6:20pm  |  Clusterstock

  • On "Business Insider Today" on Facebook Watch, INSIDER CEO Henry Blodget breaks down why Americans would support a wealth tax.
  • According to a recent poll, more than 60% of registered voters support the wealth tax proposal put forth by Presidential candidate Elizabeth Warren.
  • Only 75,000 American families would qualify for this tax, but they're so rich that it would generate revenue of an estimated $2.8 trillion over a decade.

A couple of decades ago, it would have been unthinkable.

A “wealth tax”?

It would have sounded deeply un-American.

But now, after 4 decades of tax policies designed to reward investors and owners, America has the greatest wealth inequality since the so-called “Gilded Age” of the 1920s. And the idea of a wealth tax is actually popular!

According to a recent poll, more than 60% of registered voters support the wealth tax proposal put forth by Presidential candidate Elizabeth Warren.  Just as startling, this support includes half of Republicans!

Warren’s proposal would tax the wealth of only the richest Americans — those with assets of $50 million or more.

These folks would pay a tax of 2% per year on assets between $50 million and $1 billion, and 3% on assets over $1 billion.

Only about 75,000 American families are rich enough to qualify for that. But they’re so rich that the tax would generate revenue of an estimated $2.8 trillion over a decade. That would help reduce our massive government spending deficit.

Of course, billionaires have already denounced the idea. Starbucks billionaire Howard Schultz called it ridiculous. Bloomberg billionaire Mike Bloomberg said it was unconstitutional.

That’s hardly surprising. No one wants to pay more taxes.

But don’t fall for the arguments you’ll hear about how a tax like this would remove the incentive to work.

A 2% tax on assets over $50 million still leaves you with more than 98% of your wealth. And if you’re upset about losing that 2%, you actually have an incentive to work harder to earn it back.

Compared to the tax policies we’ve had for the past few decades, a wealth tax is a radical idea. But our current policies have led us to the situation we’re in now — in which the US economy only works well for the richest Americans.

We need to make our system work for everyone. If a wealth tax helps us do that, then let’s consider it.

Watch the latest episode of "BI Today," in which INSIDER CEO Henry Blodget discusses what a wealth tax would mean for the economy »

SEE ALSO: A majority of Americans approve of Elizabeth Warren's new tax on the wealthy, according to a new poll

NOW READ: Wealthy investor Nick Hanauer says the US economy mints billionaires while many Americans are struggling, and there's no excuse for it

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A former Google exec who asks job candidates about the chapters of their life story is listening closely for a common red flag

Fri, 02/15/2019 - 6:20pm  |  Clusterstock

  • Former Googler and Gusto COO Lexi Reese asks interview questions about the chapters of your life story in order to figure out what your core values are.
  • If you use lots of "I" statements, that suggests you're more egotistical than interested in serving others.
  • Reese said she hires more for a candidate's values than for role-related fit.

"If your life is a book, tell me about the chapters of that book."

For Lexi Reese, COO of human-resources software company Gusto, that's a go-to prompt in job interviews.

To be sure, Reese, who previously held management positions at Google and American Express, wants to hear what you've accomplished over the course of your life and career. But more importantly, she said, she's interested in why you made the choices you did.

"You can suss out things like ego," she said. "Is your ego focused on, 'I'm proud of doing the right thing in a way that's going to impact lots of people?' Or is your ego placed on, 'I did this and I did that and I am so great?'"

Specifically, she's listening for a ton of "I" statements, which doesn't suggest a desire to serve others.

Reese added that she generally hires a person more for their values than for role-related fit. (Gusto's website indicates that their company values include "go the extra mile" and "do what's right.")

Read more: Starbucks' former HR exec says a job candidate's answer to a simple interview question predicts success better than their entire resume

Reese's interviewing technique sounds similar to online bra company ThirdLove's. As Ra'el Cohen, ThirdLove's chief creative officer, previously told Business Insider, her team likes to ask job candidates, ""What was the last mistake that you and your last team made, and what did you learn from it?"

In ThirdLove's case, they're actively looking for the candidate to use the word "I" instead of "we," because it suggests that the person takes ownership and responsibility for mistakes instead of blaming them on others.

As for Reese, she's seeking job candidates who have spent a lot of time thinking about their own values. "We try to find people who are really deliberate about where they want to build their careers," she said, "and why they're trying to build them here."

SEE ALSO: When the CEO of $5.9 billion Canada Goose interviews job candidates, he gives them a warning — and their response speaks volumes about whether they get the job

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Uber is suing to block New York's cap on new ride-hailing vehicles

Fri, 02/15/2019 - 5:19pm  |  Clusterstock

  • Uber has sued New York City to block a cap on new ride-hailing vehicle licenses. 
  • The company says it supports a living wage for drivers, but that the cap will not have the intended effect of fighting congestion. 
  • Earlier this month, Lyft sued to block the implementation of a new minimum wage for drivers, saying the methodology unfairly favors Uber. 

New York City's cap on new ride-hailing vehicles amounts to a "ban first, study later" approach, Uber argued in a lawsuit filed Friday in New York State Supreme Court.

In August, the city council passed a 12-month cap on new for-hire vehicle licenses, which Uber fought heavily at the time. Friday's lawsuit was a last-ditch effort by the company to continue to provide what it says are good jobs to drivers, many of whom are first-generation immigrants.

"Rather than rely on alternatives supported by transportation experts and economists, the City chose to significantly restrict service, growth and competition by the for-hire vehicle industry, which will have a disproportionate impact on residents outside of Manhattan who have long been underserved by yellow taxis and mass transit," the lawsuit reads.

"By choosing to ban first and study later, the City has blamed FHVs for a problem without making any attempt to determine whether capping FHVs would meaningfully address the problem," it continued. 

In a statement to Business Insider, Uber spokesperson Harry Hartfield said the cap would not help ease the congestion that some studies have shown ride-hailing firms like Uber have helped to exacerbate:

The City Council’s new law guarantees a living wage for drivers, and the administration should not have blocked New Yorkers from taking advantage of it by imposing a cap. We agree that fighting congestion is a priority, which is why we support the state's vision for congestion pricing, the only evidence-based plan to reduce traffic and fund mass transit.

New York also passed a law to guarantee drivers a minimum wage of around $17 per hour after expenses, which was set to go into effect this month. Uber supported that rule, while Lyft and Juno, two smaller competitors, sued to block its implementation, arguing the methodology unfairly favored Uber.

A spokesperson for the New York City Taxi and Limousine Commission did not immediately respond to a request for comment on the Uber suit. 

During an interview with WNYC's Brian Lehrer in January, New York City Mayor Bill de Blasio expressed continued support for the cap, in order to to stop a "race to the bottom" in wages.

"We finally put caps on Uber and the other ridesharing services so that we could create more fairness and stop this race to bottom with the wages of drivers," he told Lehrer

"We're going to put ongoing caps in place on the for-hire vehicles and we're going to work to increase the wages and benefits the drivers," he said.

Do you work at Uber? Have a news tip? Contact this reporter at grapier@businessinsider.com. Secure contact methods available here. 

SEE ALSO: Lyft, Juno sue New York City minimum wage law for ride-hailing drivers

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Apple just reportedly bought a startup that specializes in helping companies build voice apps

Fri, 02/15/2019 - 5:15pm  |  Clusterstock

  • Apple has acquired Pullstring, a startup that helps customers publish voice apps, according to Axios.
  • The acquisition could be part of an effort by Apple to catch up to Amazon, the current leader in the voice assistant space.
  • Pullstring was last valued at $163.57 million, according to PitchBook, but the terms of the deal were not specified in the report. 

Apple has acquired Pullstring, a company that helps companies publish voice apps for platforms like Amazon's Alexa and the Google Assistant, according to a new report from Axios.

The move could help Apple bolster its Siri virtual assistant, which is far more limited in terms of its features and the products it works with when compared to Amazon's digital butler, Alexa. Amazon is considered to be the market leader in the digital assistant space, and that lead only lengthens when you look at smart speaker use specifically. A Strategy Analytics report from October suggests that the retail giant accounts for 63% of smart speaker use in the United States, whereas Google accounts for 17% and Apple only accounts for 4%. Business Insider has reached out to Apple for comment and will update this story accordingly when we hear back.

Pullstring was founded in 2011 and was last valued at $163.57 million, according to Pitchbook. Terms of the deal were not mentioned in the report. In addition to providing publishing assistance to developers interested in creating voice apps, the company has worked with toymaker Mattel on its talking Barbie doll called Hello Barbie, back when the startup was called ToyTalk.

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Atlassian is 'rewriting the playbook' in cloud software, and customers love it so much it could raise prices without anyone complaining, says analyst (TEAM)

Fri, 02/15/2019 - 5:00pm  |  Clusterstock

  • After Atlassian reported blockbuster earnings last quarter, BTIG analyst Joel Fishbein says customers now see Atlassian's products as "must-haves."
  • If Atlassian raised its prices by 7-15%, customers likely wouldn't complain that much because its software products are seen as essential for companies.
  • The demand for products for software developers will only grow, Fishbein says, and Atlassian's acquisition of Opsgenie make a splash in the IT space as well.

If Atlassian, the $25 billion Aussie software giant, raised prices on its products, there would be virtually no pushback from customers, because they both love them and need them, says one analyst. 

In fact, Atlassian is completely "rewriting the SaaS playbook," wrote Joel Fishbein, managing director and software and cloud technology analyst at BTIG, in a note to clients on Friday. He believes Atlassian's products are likely underpriced, and if they raise prices by 7-15%, customers are unlikely to complain much, if at all. 

Atlassian is best-known as the proprietor of Jira, popular for helping developer teams track software bugs, though it also offers the BitBucket code-sharing service, the Confluence document-sharing tool, and other services. Notably, Atlassian deploys no traditional sales team; customers buy Atlassian software straight from its website. 

It's an unusual model, but it's worked: Even if there was an economic slowdown, it wouldn't be a blow to Atlassian, Fishbein says. Atlassian is somewhat "recession-proof," as Atlassian's software is now seen as a "must-have" for enterprises, he says. Because of that, Atlassian has tons of room to grow, in his reckoning. 

"At current levels, Atlassian could make similar price increases for years with a particular focus in the large enterprise, which is likely well under-priced," Fishbein wrote.

Last month, Atlassian beat Wall Street's expectations and reported $1 billion in annual revenue for the first time ever. It actually just raised the prices on its products in January, but the change mostly affected only its largest customers. Fishbein wrote that there was "limited pushback."

Fishbein says that Atlassian's business strategy is especially effective, as it is continuously working to improve its apps by investing in R&D. On the other hand, it spends relatively little on sales and marketing, but users are enthusiastic about its products, allowing them to spread via word-of-mouth.

Atlassian has tons of room to grow also, says Fishbein. He's optimistic about the company's future, as it has the opportunity to capture even more of the market. 

The demand for Atlassian's products will only increase, says Fishbein, because there will be more programmers than ever, and they'll need tools. According to the U.S. Bureau of Labor Statistics, employment for software developers will grow 24% between 2016 and 2026 because of the demand for computer software.

"The rise of the software developer is fundamentally changing how applications are designed, bought, and used," Fishbein wrote. "We see this not as a fad but instead as only the beginning of an ongoing shift in the software industry, with Atlassian at the heart of this movement."

Plus, Atlassian's products serve more than software developers. They're often used by product managers and people in other aspects of the tech scene.  And last September, Atlassian acquired incident management platform Opsgenie, which means that it's rolling into the IT space as well, as it takes on the likes of Splunk and ServiceNow.

Read more: Here's why Atlassian is slashing product prices by 35% for Opsgenie, the IT-management startup it recently acquired for $295 million

"While it remains to be seen exactly how this war will play out, there is substantial upside for Atlassian if it is able to effectively make inroads into the closely guarded IT market," Fishbein wrote.

On a final note, Fishbein may not be the only one who sees a lot of upside in Atlassian — the company frequently comes up in industry rumors as a potential acquisition target for Google Cloud

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One of America's biggest trucking companies says it will lose out on $600 million in revenues this year, and it looks like Amazon is to blame (AMZN)

Fri, 02/15/2019 - 4:43pm  |  Clusterstock

  • XPO Logistics lost $46 million in the fourth quarter of 2018 alone, when its largest customer curtailed its delivery and logistics business. 
  • XPO said in a filing with the Securities and Exchange Commission that it will lose out on an estimated $600 million in 2019 as the customer transitions to in-house deliveries.
  • Four top freight analysts told Business Insider that the customer in question is Amazon. The e-commerce giant, whose fourth-quarter shipping costs jumped by 23% year-over-year, is moving more of its deliveries in-house due to the potential cost savings. 

Amazon's "demanding" contracts helped kill one trucking company earlier this week. And on Thursday, one of trucking's giants indicated that Amazon's move to in-house deliveries is slashing its bottom line. 

Leaders at XPO Logistics, which bested UPS to become the top logistics company by revenue in 2017, told investors on Friday that its "largest customer" is cutting about two-thirds of its business. An XPO spokesperson could not comment on the customer's identity, but four top freight analysts identified the customer to Business Insider as Amazon.  

The logistics company provides last-mile trucking, warehousing, and other services to Amazon. The estimated loss of this business slashed XPO's 2019 revenue expectations by $600 million, it said in a filing with the Securities and Exchange Commission. 

Read more: Amazon Web Services is underpinning the technology at a $1 billion driverless trucking startup — and it shows how Amazon wants to control its supply chain and cut its $28 billion yearly shipping bill

After noting that XPO shrank its 2019 forecast, XPO CEO Bradley Jacobs said on a call with investors: "We can't ignore the fact that our largest customer is curtailing about two-thirds of its business with us. We had substantial capacity dedicated to this customer in brokerage, last mile and logistics. But we believe the great bulk of these resources should be redeployed over the next couple of quarters."

Greenwich, Connecticut-based XPO has more than 50,000 customers. XPO's largest customer represented about 4-5% of its bottom line, Jacobs said. Now that it is cutting about two-thirds of its service with XPO, the logistics company's top five customers will comprise about 8% of its total revenue, which totaled $15.38 billion in 2017.

XPO's leading business with Amazon was taking packages from the company and delivering them via the United States Postal Service, otherwise called "postal injection," Seaport Global analyst Kevin Sterling told Business Insider. It's a last-mile service. 

Amazon declined to comment. 

Amazon is charging ahead with in-house deliveries more quickly than anticipated

The sudden curtailing of services with XPO came in December 2018. Sterling said it surprised the logistics giant.

"It caught XPO off-guard, a little bit, how quick it happened," Sterling said. 

Amazon is quickly building up its in-house delivery network as its shipping bill grows ever larger. It spent $27.67 billion on worldwide shipping costs in 2018, and shipping expenses jumped 23% year-over-year in the fourth quarter of 2018.

Read more: UPS CEO David Abney has finally admitted that he sees Amazon as a competitor 

In 2018, Amazon expanded two-day shipping availability to "almost anywhere" in the US with its additional Amazon Air capacity. It has the capacity for 100 planes in its air hub and tens of thousands of branded tractor-trailers. It's even pushing into ocean freight so it can move its goods from China to the US without any outside interaction. 

That all saves money for the e-commerce giant — with this model, Amazon pays $6 to ship a box, rather than the $8 or $9 it would pay to ship via UPS or FedEx. 

"Amazon is making a shrewd move here in saying, 'Look, I can build this myself and I have the capability to deliver this myself,'" AT Kearney vice president Joshua Brogan told Business Insider.

SEE ALSO: The CEO of UPS reveals the bright spot that many anxious retailers and transportation companies are missing

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The maker of Barbie is plunging after announcing its earnings will be weaker than expected this year (MAT)

Fri, 02/15/2019 - 3:38pm  |  Clusterstock

  • Mattel on Friday said that its first-quarter gross revenue will be lower year-over-year.
  • The toymaker also posted disappointing guidance for its full-year adjusted EBITDA.
  • The company said in October that its business and the whole toy industry suffered from President Donald Trump's tariffs against China.
  • Watch Mattel trade live.

Mattel, the second-largest toymaker behind Hasbro, said Friday that its earnings will be weaker than investors had expected this year. Shares dropped 16.97% to $14.02 apiece, booking their biggest intraday loss since 2017.

The company said in an investor presentation that it expects its full-year adjusted EBITDA in the range of $350 million to $400 million. Although the measure may not be comparable to analysts' estimates for a higher amount, shares plunged following the news and trading was halted at 3:04 pm ET, according to Bloomberg. 

The company also said that its first-quarter gross revenue will be lower year-over-year.

Late last year, the Barbie maker said that its business and the whole toy industry were hurt by President Donald Trump's tariffs against China.

"This is something that will impact the entire toy industry," Ynon Kreiz, CEO of Mattel told investors in October.

"The Toy Industry Association of America reported recently that 85% of all toys sold in the US are imported from China. In our case, it is actually less than two-thirds, so we are somewhat in a better position."

Mattel is up 44% so far this year.

Now read:

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Major airlines are adding non-binary gender options for boarding passes

Fri, 02/15/2019 - 3:22pm  |  Clusterstock

  • Major US airlines plan to offer non-binary gender options for boarding passes later this year. 
  • The move was announced by trade group Airlines for America on Friday, The Daily Beast reported. 
  • Delta also said it was adding the option in an unrelated bid for inclusivity. 

Non-binary gender designations have been slowly making their way to some state IDs — and may finally be coming to airline ticketing.

Airlines for America, the trade group that represents major domestic airlines including American, Alaska, United, Southwest, and JetBlue, announced Friday that its members will add an "X" option for non-binary passengers, effective June 1, 2019.

In a statement to The Daily Beast, which first reported the news, the organization said it had "recently approved a new international standard that will allow for 'unspecified' and 'undisclosed' as options in addition to 'male' or 'female.'"

Delta Air Lines, which is not a part of A4A, confirmed to Business Insider that it also plans to offer the option, but that the rollout is part of its ongoing business strategy to be inclusive of all passengers.

"As part of Delta's ongoing efforts to accommodate the needs of diverse customers throughout our business, we are planning to offer a non-binary gender option during the booking process," a spokesperson said.

Read more:The airline industry's Trump-endorsed case for privatizing air traffic control may be getting a boost, experts say

As of January 31, 11 US states including Washington, DC, offered a third gender option on IDs. The Transportation Security Administration says on its website that passengers' bookings should "use the same name, gender and birthdate" as appears on their government-issued ID.

The International Civil Aviation Organization (ICAO), which develops global passport standards, has allowed an “X” to be used for gender since 1996.

SEE ALSO: The $446 million Airbus A380 superjumbo is the largest and most expensive airliner in the world. Take a look inside.

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Nasdaq and NYSE are suing their regulator over a pilot they say could put some ETFs out of business

Fri, 02/15/2019 - 2:52pm  |  Clusterstock

  • NYSE and Nasdaq both filed lawsuits against the Securities and Exchange Commission over the regulator's plan to run a pilot examining how exchange fees and rebates impact trading.
  • The exchanges say that the pilot, which was approved in December 2018, will hurt companies and push more trading towards off-exchange venues which are less regulated. 
  • Michael Blaugrund, head of transactions at NYSE, said the pilot could go as far as forcing some ETFs out of business.

The two largest US stock exchanges have filed lawsuits against their own regulator. 

NYSE and Nasdaq both filed suits against the Securities and Exchange Commission this week for what they say is an unfair pilot program the regulator plans to launch examining their pricing model for transaction fees and rebates.

The Transaction Fee Pilot, which was approved in December, was designed by the SEC to examine how exchanges' transaction fees and rebates impact where brokers choose to route clients' orders. Some market participants have suggested orders are routed not where brokers can get the best execution but instead where they'll see the highest rebates, fees paid by exchanges to brokers for bringing liquidity to their markets.

The SEC's pilot, which could last up to two years, will create two test groups of securities in which either transaction fees will be limited or rebates will be prohibited. 

In an op-ed published Thursday in the Wall Street Journal titled "We're Suing the SEC to Protect the Stock Market", Stacey Cunningham, NYSE's president, laid out the exchange's reasoning.

"In practice, the new rule amounts to an unnecessary exercise in government price-setting that will add a new layer of complexity to equity markets," Cunningham said in the op-ed, which also appeared on her LinkedIn

Nasdaq filed its own lawsuit on Friday morning and published a report from its chief economist, Phil Mackintosh, detailing analysis of the markets is possible without collecting more data. Chicago-based Cboe Global Markets followed suit on Friday as well. 

While the three exchanges all filed separately, Tal Cohen, the senior vice president of North American equities at Nasdaq, told Business Insider the crux of their arguments are similar.

"We don't think this serves capital formation well. We think this picks winners and losers between issuers. That is corporate and ETFs. We think it's a bad precedent. We think it is price controls. We think it alters the competitive dynamics," Cohen said.

Read more: The Wall Street battle over skyrocketing market data fees could reach a boiling point in 2019

In a media roundtable on Friday, Michael Blaugrund, head of transactions at NYSE, explained the potential ramifications of the pilot, singling out exchange-traded products as one victim.

Two exchange-traded funds could be based on the same index, he said, effectively making them interchangeable. If one is required to no longer offer rebates as part of the pilot, its competitor could benefit significantly as it would attract more market makers and be able to offer a tighter price spread, he added.

"That strikes us as a totally inappropriate role for the SEC to play, picking winners and losers amongst issuers," Blaugrund said. "Proposal will be for two years, which could well be long enough to put an ETF out of business."

Cohen echoed similar sentiments about the risk the pilot poses the ETF market. 

"For these young ETFs, if the market makers pull back, if lit liquidity spreads out, then investor interest will wane," Cohen said. "If investor interest wane, AUM will go down or doesn't grow. You absolutely could see, especially with the new continuous listing rules, some of these ETFs facing a tough decision."

The SEC declined to comment. 

The fight over the merits of the SEC's pilot is just one of the ongoing industry debates Nasdaq and NYSE are at the center of. Deliberation over exchanges' market data fees has heated up recently, with some market structure experts predicting that the continued increase of fees has reached a boiling point where a compromise is imminent. 

A win against the SEC over the Transaction Fee Pilot could also be considered bittersweet, as the exchange will need to continue to interact with the regulator going forward. However, Blaugrund stands by the choice. 

"It's a very difficult decision to decide to take your primary regulatory to court," Blaugrund said. "That being said, we feel really strong that this is overreaching and we need to draw a clear line in the sand because we do work with them on every aspect of the business."

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How business-savvy scientists can find success in the risky start-up world - @Nature cc @EmekaOkoye @bosuntijani @uwagbale_

Fri, 02/15/2019 - 12:12pm  |  Timbuktu Chronicles
From Nature:
In the first of a three-part series on science start-ups, Nature Careers explores how scientists with a sound business idea can thrive as entrepreneurs, and why leaving academia isn’t required...[more]

Why venture capital doesn't work for everyone - On the latest Recode Media podcast, Indie.vc founder Bryce Roberts says it's only for the 1 percent of the 1 percent.

Fri, 02/15/2019 - 11:34am  |  Timbuktu Chronicles
The inadequacy of Venture Capital as a key source of investment for startups is becoming a recurrent topic from Tim O'reilly's takedown of 'Blitzscaling' to arguments made here on the greater relevance revenue based acceleration to plain old bootstrapping. Over at Recode:
When we talk about entrepreneurship in Silicon Valley, the words “venture capital” are never far behind. But the reality, Indie.vc founder Bryce Roberts says, is that VC funding isn’t right for most entrepreneurs...[more]

Inga Gubeka, founder of Inga Atlier - A Luxury Bag Line

Fri, 02/15/2019 - 10:40am  |  Timbuktu Chronicles
Businessinsider reports
View this post on Instagram

A post shared by INGA ATELIER (@ingaatelier) on Aug 21, 2018 at 10:44am PDT


A 31-year old Johannesburg-based entrepreneur Inga Gubeka founder of Inga Atlier has sold out his entire range of luxury leather bags after tweeting about his new line.

He describes his bags to Business Insider SA as a fusion of African luxury and Scandinavian design elements, particularly the latter's "clean lines, attention to detail and simplicity." More here

Tranos #Nigeria - A Manufacturing and Engineering Solutions company

Fri, 02/15/2019 - 6:00am  |  Timbuktu Chronicles
Jude Abalaka the founder of Tranos in conversation:
How much of Tranos' raw materials are sourced locally?

It depends on what we produce. On the mechanical side, for products like enclosures, for example, the main raw material we use is sheet metal. We have a local factory for sheet metal on the outskirts of Lagos that we buy from. Generally, depending on what we produce, up to 90% of our products could be made from local raw materials. But, for example, only a handful of companies produce engines to a high enough standard so we have to import engines. If we take engines and alternators out of the equation as well as accessories such as hinges and locks, we aim to localize everything else...[more]

Apple quietly makes billions from Google Search each year, and it's a bigger business than Apple Music (AAPL, GOOG, GOOGL)

Wed, 02/13/2019 - 1:32am  |  Clusterstock

  • Google paid Apple $9.4 billion in 2018 to be the default search engine on the iPhone, according to a new Goldman Sachs estimate.
  • This makes Google's payment to Apple worth as much as 23% of Apple's services business, which the company has highlighted as its growth engine as iPhone sales slow. 
  • Google could pay Apple as much as $12.2 billion next year, according to Goldman's model.
  • Still, Apple's services business may see slowing growth in the near future if it does not release a new content bundle, the Goldman analysts argue. 

Google pays Apple to be the default search engine on the iPhone, a deal worth billions to Cupertino.

In 2018, Google may have paid Apple as much as $9.46 billion in what's called "traffic acquisition costs," or TAC, according to Goldman Sachs analyst Rod Hall, citing Google financial results. 

The amount Google pays Apple could increase to $12.2 billion next year, and $15.6 billion in 2021, according to the Goldman estimate, although TAC growth is slowing, Hall says. 

Hall's argument is that while Apple has recently drawn investor focus to its "services" revenue stream, the composition of that is weighted towards things like TAC, and the 15% to 30% fee Apple collects from the App Store, instead of recurring monthly subscriptions like Apple Music, which is often what Apple executives focus on in conversations with investors. 

"Combining our TAC work with App Store data from Sensor Tower we conclude that TAC and Apple’s share of app store downloads represented 51% of Services revenues in 2018 and an even larger 70% of Services gross profits," according to the Goldman note distributed on Monday. 

Apple's services business totaled about $37 billion in the company's fiscal 2018, and investors hope its growth will account for the majority of Apple's total revenue growth. 

Goldman analysts suggest that in order to hit those targets, Apple will need to launch a new content bundle, potentially bundling a subscription to online video, magazines, and online storage.

"We expect Apple to launch an 'Apple Prime' type package in late March though the profitability and attractiveness of this are key to better Services growth and profits than we currently model," the Goldman Sachs analysts wrote. 

In 2017, Bernstein analyst Toni Sacconaghi estimated that Google was paying Apple $3 billion per year in TAC costs. The only hard number we know for sure is that Google paid Apple $1 billion in 2014, thanks to court filings.

Here's how Goldman Sachs sees Apple's services line item breaking down: 

SEE ALSO: Apple makes billions from Google's dominance in search — and it's a bigger business than iCloud or Apple Music

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