December 14, 2018

Strategies: Tech Stocks Often Rise and Fall Together. They Shouldn’t.

There is risk in buying these shares, too, but of a different sort. It’s paramount for an older company to generate cash at a reasonable share price, and trying to “reinvent a company like IBM” — and shift it into a high-growth mode with big acquisitions like IBM’s planned $34 billion purchase of Red Hat — could be a dangerous waste of cash, Professor Damodaran said.

“An old company can’t run as fast as a young company can, and usually it shouldn’t try,” he said.

There are exceptions, though. In Professor Damodaran’s typology, Apple and Microsoft are ancient but have experienced rejuvenation, Microsoft most recently with the strategic turn to cloud computing taken by its chief executive, Satya Nadella. Apple had a second life with the return of Steve Jobs in 1997 and the subsequent births of the iPod and iPhone — though Apple is looking its age now, Professor Damodaran said. Both companies generate enormous amounts of cash, he said, and so can be valued with traditional stock analysis.

Sober analysis is critical to market health. Consider the damage done by bouts of magical thinking about the value of tech stocks.

In March 2000, for example, at the height of the dot-com bubble, the market gave Cisco Systems a value topping $500 billion, briefly making it the world’s most valuable company.

In a misjudgment of stupendous proportions, investors gave Cisco a greater value than 24 big companies combined — including Apple, Ford, J. P. Morgan, Anheuser-Busch, McDonald’s, Staples and Texaco.

What were people thinking? Apparently, that Cisco was worth an astronomical price-to-earnings ratio of 196.2 because it would grow at a breathtaking pace forever and become the beating heart of a transformed economy. That vision was revealed to be hallucinatory when the dot-com bubble burst. Today, Cisco trades at a price-to-earnings ratio of about 19.3.

While valuations are generally more subdued today, imprecise thinking about tech stocks abides, with troubling implications.

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Marriott Data Breach Is Traced to Chinese Hackers as U.S. Readies Crackdown on Beijing

James A. Lewis, a cybersecurity expert at the Center for Strategic Studies in Washington, said the Chinese have collected “huge pots of data” to feed a Ministry of State Security database seeking to identify American spies — and the Chinese people talking to them.

“Big data is the new wave for counterintelligence,” Mr. Lewis said.

“It’s big-data hoovering,” said Dmitri Alperovitch, the chief technology officer at CrowdStrike, who first highlighted Chinese hacking as a threat researcher in 2011. “This data is all going back to a data lake that can be used for counterintelligence, recruiting new assets, anticorruption campaigns or future targeting of individuals or organizations.”

In the Marriott case, Chinese spies stole passport numbers for up to 327 million people — many of whom stayed at Sheraton, Westin and W hotels and at other Starwood-branded properties. But Marriott has not said if it would pay to replace those passports, an undertaking that would cost tens of billions of dollars.

Instead, Connie Kim, a Marriott spokeswoman, said the hotel chain would cover the cost of replacement if “fraud has taken place.” That means the company would not cover the cost of having exposed private data to the Chinese intelligence agencies if they did not use it to conduct commercial transactions — even though that is a breach of privacy and, perhaps, security.

And even for those guests who did not have passport information on file with the hotels, their phone numbers, birth dates and itineraries remain vulnerable.

That data, Mr. Lewis and others said, can be used to track which Chinese citizens visited the same city, or hotel, as an American intelligence agent who was identified in data taken from the Office of Personnel Management or from American health insurers that document patients’ medical histories and Social Security numbers.

The effort to amass Americans’ personal information so alarmed government officials that in 2016, the Obama administration threatened to block a $14 billion bid by China’s Anbang Insurance Group Co. to acquire Starwood Hotel Resorts Worldwide, according to one former official familiar with the work of the Committee on Foreign Investments in the United States, a secretive government body that reviews foreign acquisitions.

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Are You Ready for the Financial Crisis of 2019?

You know who has racked up even more debt than hopeful 20-something ceramics-studies grads in the United States? Here’s a hint: It’s a not-exactly-Communist country in Asia that has been on such a wild debt-fueled building spree that it somehow used more cement in just three years earlier this decade than the United States did in the entire 20th century. Think about that. Now think about it some more. Over the past decade, China devoted mountains of cash to build airports, factories and entire would-be cities — now known as “ghost” cities, since the cities are populated by largely empty skyscrapers and apartment towers — all in the name of economic growth. And grow it did.

The result is a country with a supersized population (1.4 billion people) and supersized debt. Where things go from here is anyone’s guess. Optimists might argue that those trillions bought a 21st-century Asian equivalent of the American dream. Pessimists describe that massive debt as a “mountain,” a “horror movie,” a “bomb” and a “treadmill to hell,” all in the same Bloomberg article. One thing seems certain, though: If the so-called “debt bomb” in China explodes, it’s likely to sprinkle the global economy with ash. And with President Trump teasing a trade war that already seems to be threatening China’s massive, export-based economy, we may have our answer soon.

Say you lived in the suburbs, and one day your neighbor suddenly pulled up her driveway in a new $75,000 Cadillac Escalade. A week later, she was tugging a new speedboat. A few weeks after that, it was Jet Skis. You might either think, “Wow, she’s rolling in it,” or “Golly, she hates glaciers.” (Hatred of glaciers may prove, actually, to be the real spark of the financial end times.) But what if it turned out that she bought all of those carbon-dioxide-spewing toys on credit, at crazy-low interest rates? And what if those rates suddenly started to spike? The result would likely be good news for the polar ice caps and bad news for her, when the repo man (not to cave to gender stereotypes about repo-persons) came calling.

O.K., overstretched metaphor alert: The “neighbor” is us. Ever since the Federal Reserve started printing money in the name of “quantitative easing” to pull us out of the last financial crisis, money has been cheap, and seemingly any American with a pulse and a credit line has been able to fake “rich” by bingeing on all sorts of indulgences — real estate (despite tighter lending standards), fancy watches and awesome gaming systems, to say nothing of the debt that corporations were racking up, which some market analysts think might be the biggest threat of all.

The problem is: The whole system is now running in reverse. The Fed has been hiking rates and spooking markets in order to stave off inflation and other potential ills. Is this an overdue fit of fiscal sanity, or the equivalent of taking away the punch bowl just as the party was getting started, then dumping it on our heads?

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As Hiring Slows, Employers Say It’s Getting Harder to Find Workers

Many of them were able to find jobs in health care, manufacturing, and transportation and warehousing, which were among the strongest job-creating sectors.

Employers added 27,000 manufacturing jobs in November, on top of nearly 300,000 positions in the previous 12 months.

Those who are doing the hiring, though, have repeatedly complained that the field of available workers has been picked through, and that people with sufficient skills are particularly scarce.

At Western in the Milwaukee area — where the jobless rate is down to 3 percent — workers bundled against the cold unloaded door frames on Friday. Elsewhere, millwork employees used palm sanders to smooth down doors suspended back to front from a conveyor, like a scaled-down, less colorful version of Disney’s animated “Monsters, Inc.” factory.

This December has been unusually busy, said Mr. Willey, who is finishing up his 42nd year at the factory, where he started as a seasonal worker. The company has 217 people on staff and expects to raise the total to 230 next year.

Entry-level wages are $12.50 an hour, while the typical worker earns nearly $17 an hour plus benefits. Because the business is 100 percent employee owned, workers build up equity in the company after a year, which Mr. Willey said amounted to a 25 percent raise. He and his colleagues have batted around the idea of raising starting wages to $16 an hour, but “we have to have the productivity for it to make sense,” he said.

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Economic View: The Housing Boom Is Already Gigantic. How Long Can It Last?

Booms and busts are rooted in popular narratives with complex social-psychological roots. This boom centered on a war-induced housing shortage, an enormous increase in the number of new babies and families who would need housing after the war, and the 1944 G.I. Bill, which subsidized home-buying by veterans. Home prices did not fall significantly after this boom ended.

Today, signs of weakness in the housing market are being taken by some as a signal that the prices of single-family homes may fall soon, as they did sharply after 2006. The leading indicators, which include building permits and sales of both existing and new homes, have all been declining in recent months.

But with few examples of extreme booms, we cannot be sure what such indicators mean for the current market.

Low interest rates — imposed by the Federal Reserve and other central banks in reaction to the financial crisis — are the most popular culprit in the current boom. There is some apparent merit to this view, since these three biggest nationwide housing booms all included very low interest rates.

But the market reaction to interest rates is hardly immediate or predictable. The housing market does not react as directly as you might expect to interest rate movements. Over the nearly seven years of the current boom, from February 2012 to the present, all major domestic interest rates have increased, not decreased. So, while interest rates have been low, they have moved the wrong way, yet the boom has continued.

Another explanation is simple economic growth. But, as a matter of history, prices of existing homes — as opposed to the supply of newly built homes — have generally not responded to economic growth. There was only a 20 percent increase in real prices of existing homes in the 50 years from 1950 to 2000 despite a sixfold increase in real G.D.P.

The simplest narrative being given for the current boom is just that the 2008-2009 financial crisis and the so-called Great Recession are over and home prices are returning to normal.

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A.I. as Talent Scout: Unorthodox Hires, and Maybe Lower Pay

“We surface people we think would be good draft picks,” rather than people doing the same jobs, Mr. Goodman said. “This person is a little more junior, but based on their career track, people who look like them are cheaper and better for you.”

Mr. Cowgill, the Columbia economist, said this logic was largely correct, but with one key wrinkle: According to his research, the gains to the less obviously qualified candidates unearthed by machines can be so large that they offset smaller losses to conventional candidates.

In a technical field like software engineering, for example, a dropout from a no-name university could end up making a very comfortable living after becoming known to employers. But established coders are sufficiently in demand that wages are likely to remain high even as it becomes easier to find alternatives.

In fields requiring fewer technical skills, on the other hand, wages could fall significantly.

Consider, say, senior marketing jobs, for which large companies often require a master’s degree in business administration. If machines can reliably identify less experienced, less credentialed candidates who are likely to excel, it could depress wages.

“You can think of cases in the product market where people thought they needed something special and you really didn’t — the commodity, low-cost person took over,” said John Horton, a labor economist at N.Y.U. Think of hand-held video cameras after the proliferation of smartphones.

“That could happen in labor markets with the realization that you don’t need anything special here,” Mr. Horton said.

All of this presumes, however, that deep-learning technology is viable for use in recruiting and human resources and could eventually become commonplace. Surveys suggest that only a small minority of companies have adopted these tools, and that even fewer feel prepared to exploit them.

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With the Economy Uncertain, Tech ‘Unicorns’ Rush Toward I.P.O.

Those attitudes have shifted as investors and tech employees have increased pressure on the companies to go public so that they can cash in their shares.

“The forcing factor is, how do you deal with issues of employee retention?” said Rick Heitzmann, a managing director at FirstMark Capital, which is an investor in unicorns such as Pinterest and Airbnb.

But the seesawing stock market, a trade war with China and other countries and uncertainty over the direction of the economy are all now weighing on I.P.O. decision-making. Few executives want to take their companies public when investors’ appetite for shares may be ebbing.

“Companies that were waiting for everything to be perfect before going public might have been better off going when things were good enough,” Mr. Heitzmann said.

Sandy Miller, a venture capitalist at IVP, said several companies were meeting with potential investors far ahead of filing for an I.P.O., in what are known as pre-roadshow events. “That’s the only way to really know what kind of receptivity you’re going to have” from the public markets, he said.

Mr. Miller said that he expected a robust year for I.P.O.s next year, but that companies may not want to wait until too late in the year to file. “There are certainly some storm clouds on the horizon,” he said.

Some unicorns are sidestepping the unpredictability altogether. WeWork, an office rental company valued at $45 billion, has been widely named as an I.P.O. candidate. But in November, the company agreed to sell an additional $3 billion of shares to its main investor, SoftBank’s Vision fund. That deal has allowed WeWork to push plans for a public listing further into the future, said a person familiar with the company.

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Luxembourg to Become the First Country to Offer Free Mass Transit for All

Tallinn, the capital of Estonia, introduced free mass transit for residents in 2013. A year into the project, usage grew 14 percent, but it was mostly pedestrians, not drivers, who made the switch

Traveling by mass transit in Luxembourg is already free for many residents, including students. And the government offers subsidies for others to reduce trave costs.

But the governing coalition said it planned to overhaul tax breaks for commuters, a benefit that has been available based on the distance traveled and not the mode of transport.

This year, Luxembourg budgeted nearly €900 million in public money for its mass transit system, but recovered around €30 million in ticket sales, the prime minister’s Democratic Party said in its manifesto. The savings made on selling and controlling tickets could finance some of the cost of free travel, the document added.

Free mass transit will be available from the beginning of 2020, said Dany Frank, a spokeswoman for the Ministry of Mobility.

People around the world greeted the proposal enthusiastically on social media. Helena Rivera, an architect, said on Twitter, “A day to dream about in London.”

Others pointed out that Luxembourg operated a relatively small network and that the country could be crossed in less than an hour.

While there are advantages to free travel — such as cutting emissions when fewer vehicles take to the road — a 2002 report by the National Center for Transportation Research at the University of South Florida noted that larger transit systems that cannot afford to operate at a loss saw drawbacks, including a rise in vandalism, revenue shortfalls, slower service over all and increased crowds.

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Paul Gregory, Risk-Taking Showman in a Golden Age, Is Dead at 95

He was born James Burton Lenhart on a farm near Waukee, Iowa, on Aug. 27, 1920, to James and Esther (Taylor) Lenhart. When James was 9 the family moved to Des Moines, where he attended public schools.

He absorbed literature, and at 14 read stories and comic strips on a local radio station. He acted in school plays, wrote essays on subjects like prime interest rates and won a scholarship to Drake University in Des Moines.

As a student he promoted campus concerts. But, wanting to be an actor, he quit college after a year and moved to Hollywood. He was handsome, and MGM, glimpsing another Gregory Peck, signed him up and changed his name to Paul Gregory. But after a few minor roles he quit acting.

While working as a soda jerk, Mr. Gregory booked dates for a church choir and met the singer and actor Dennis Morgan, who introduced him to his agents at the Music Corporation of America. In 1947, MCA hired Mr. Gregory for its New York office, to book tours for orchestras and prominent entertainers. In 1949, after seeing Mr. Laughton give a televised Bible reading, Mr. Gregory persuaded him to undertake a national tour reading classics. It was a hit, and the partnership launched Mr. Gregory’s career.

He continued to produce plays in the 1960s, but never repeated his early successes. In the 1970s, he taught at San Diego State University.

In 1964 he married Janet Gaynor, the star of silent and talking pictures who won the first Oscar for best actress in 1929, when the Academy Awards began. She died in 1984. He married Kathryn Obergfel, an art collector and gallery owner, in 1998. She died in 2001. Mr. Gregory, who lived in retirement at Desert Hot Springs, about 10 miles north of Palm Springs, apparently had no immediate survivors.

In reporting on Mr. Gregory’s death in November 2016, nearly a year after it occurred, The Desert Sun noted that the Desert Hot Springs Historical Society had designated Mr. Gregory a “Living Treasure” in 2005.

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Interest Rates Likely to Rise in December, Recap of Fed Meeting Shows

The account emphasized that the central bank’s policy “was not on a preset course,” a phrase Mr. Powell also has used in recent remarks. The minutes said the Fed might remove language that predicts “further gradual increases” from its next policy statement to underscore the point that officials will make decisions based on the latest data. But the central bank also said most officials expect “further gradual increases.”

Mr. Trump has loudly complained that the Fed is throttling growth by raising rates. He renewed his attacks earlier this week, insisting in a pair of interviews that the Fed’s march toward higher rates posed a significant threat to the economy.

Some economists agree with Mr. Trump that the Fed should take a break from raising rates, noting that there is little sign that the economy is in danger of overheating. The Commerce Department reported on Thursday that a key measure of inflation rose by 1.78 percent over the 12 months ending in October, below the 2 percent annual pace that the central bank regards as optimal.

“The Fed’s mandate is price stability, and price growth has actually slowed,” Jason Furman, a Harvard economist who was chairman of President Barack Obama’s Council of Economic Advisers, wrote on Twitter on Wednesday. “I don’t understand why wages and prices are moving in different directions, it is very plausible that price growth will pick up again. But I don’t see much cost to a pause while we figure it out.”

Lawrence Summers, who served as Mr. Obama’s chief economic adviser, also has urged caution. In an interview with Fox Business Network scheduled to air on Friday, Mr. Summers said he disapproved of the way Mr. Trump was expressing his concerns, but he agreed with the substance. “I do think that there are more risks of overtightening than there are of under-tightening right now,” he said.

Mr. Powell has said that the central bank is moving forward with rate increases because the economy is in good health, and that the Fed is trying to strike a balance between allowing the current expansion to continue and ensuring that inflation remains under control.

The economy grew at a 3.5 percent annualized pace in the third quarter, job growth is strong and wages are rising, buttressing the intentions of Fed officials to continue raising rates.

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