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European industrial policy chief Thierry Breton is set to dismiss claims that relying on European companies to build a 5G network would delay its rollout, weighing in on an increasingly tense debate in Germany over the risk posed by China's Huawei.

poker money cash

  • David Kostin, chief US equity strategist for Goldman Sachs, says high-dividend stocks are a compelling opportunity because they're historically inexpensive compared to lower-dividend companies.
  • In addition to being cheap relative to their expected earnings, Kostin says the stocks offer double the dividend growth, making their overall returns even stronger.
  • Click here for more BI Prime stories.

If you're looking for an investing edge in 2020, Goldman Sachs says high-dividend stocks are a smart place to start.

David Kostin, the firm's chief US equity strategist, says the market's big dividend payers offer a remarkable combination of advantages today. In addition to paying more money to investors, their stocks are substantially cheaper than those of the S&P 500 overall.

Kostin writes that, collectively, the 50 biggest dividend payers on the benchmark index are trading at 12 times their next-12-month earnings, on average. That compares to 19 times earnings for the S&P 500 itself. That leaves a lot of room for stock gains.

In this chart, Kostin shows that the stocks have been getting steadily cheaper over the last few years compared to low-dividend stocks, and they're now at some of the least-expensive levels of the last 40 years.

Dividend stock valuations

In a year when most experts are forecasting modest returns for US stocks overall — Kostin's year-end S&P 500 target of 3,400 is actually above the current market consensus — that could be a vital edge.

Further, he says that those 50 stocks are raising their dividends at a 10% annual clip compared to 5% for the median S&P 500 stock.

Listed below are the 12 stocks that Kostin says offer the largest returns. They're ranked in increasing order of estimated return on cash return on cash invested in 2021.

SEE ALSO: The No. 2 mutual-fund manager of 2019 is a green-energy and tech investor. He told us how he picks the companies with the brightest futures — and offered a peek into his portfolio.

12. Seagate Technology

Ticker: STX

Sector: Information technology

Market cap: $16.2 billion

P/E ratio: 11x

2021 estimated cash return on cash invested: 4.4%

Source: Goldman Sachs

11. Citizens Financial Group

Ticker: CFG

Sector: Financials

Market cap: $17.8 billion

P/E ratio: 11x

2021 estimated cash return on cash invested: 4.4%

Source: Goldman Sachs

10. Broadcom

Ticker: AVGO

Sector: Information technology

Market cap: $121.7 billion

P/E ratio: 14x

2021 estimated cash return on cash invested: 4.5%

Source: Goldman Sachs

9. Gilead Sciences

Ticker: GILD

Sector: Healthcare

Market cap: $79.4 billion

P/E ratio: 9x

2021 estimated cash return on cash invested: 4.5%

Source: Goldman Sachs

8. Unum Group

Ticker: UNM

Sector: Financials

Market cap: $6.1 billion

P/E ratio: 5x

2021 estimates cash return on cash invested: 4.6%

Source: Goldman Sachs

7. Huntington Bancshares

Ticker: HBAN

Sector: Financials

Market cap: $15.2 billion

P/E ratio: 12x

2021 estimates cash return on cash invested: 4.8%

Source: Goldman Sachs

6. IBM

Ticker: IBM

Sector: Information technology

Market cap: $121.5 billion

P/E ratio: 10x

2021 estimates cash return on cash invested: 5.3%

Source: Goldman Sachs

5. AT&T

Ticker: T

Sector: Communication services

Market cap: $279.3 billion

P/E ratio: 11x

2021 estimates cash return on cash invested: 5.4%

Source: Goldman Sachs

4. AbbVie

Ticker: ABBV

Sector: Healthcare

Market cap: $130.2 billion

P/E ratio: 9x

2021 estimates cash return on cash invested: 5.8%

Source: Goldman Sachs

3. Simon Property Group

Ticker: SPG

Sector: Real estate

Market cap: $45.8 billion

P/E ratio: 12x

2021 estimates cash return on cash invested: 6.1%

Source: Goldman Sachs



2. Kohl's

Ticker: KSS

Sector: Consumer discretionary

Market cap: $7.3 billion

P/E ratio: 11x

2021 estimates cash return on cash invested: 6.2%

Source: Goldman Sachs

1. Macy's

Ticker: M

Sector: Consumer discretionary

Market cap: $5.4 billion

P/E ratio: 7x

2021 estimates cash return on cash invested: 8.9%

Source: Goldman Sachs

Warren Buffett

  • One of Warren Buffett's favorite businesses became his "most difficult problem" less than a decade after he bought it.
  • The Berkshire Hathaway CEO acquired World Book in 1986, trumpeting its market dominance, positive ratings, competitive pricing, and his personal connection to its encyclopedias.
  • However, online learning tools and digital encyclopedias such as Microsoft's Encarta soon decimated the business.
  • "Berkshire's most difficult problem is World Book," Buffett told investors in 1996. "It is not the business it was five years ago."
  • View Business Insider's homepage for more stories.

One of Warren Buffett's favorite businesses became his "most difficult problem" less than a decade after he bought it.

The billionaire investor and Berkshire Hathaway CEO acquired World Book, a print publisher of encyclopedias, as part of Scott Fetzer in 1986. "It sells more sets in the US than its four biggest competitors combined,"Buffett told shareholders in his annual letter, adding that its competitive pricing and positive ratings made it a quality purchase.

Another draw was the personal connection to its flagship product felt by Buffett and his partner, Charlie Munger.

"Charlie and I have a particular interest in the World Book operation because we regard its encyclopedia as something special," Buffett wrote. "I've been a fan (and user) for 25 years, and now have grandchildren consulting the sets just as my children did."

Buffett trumpeted World Book's success over the next few years. Its encyclopedia sales surged 45% between 1982 and 1986, he said in his 1986 letter, adding that its books are "extraordinarily well-edited and priced" and "a bargain for youngster and adult alike."

A year later, Buffett touted the "most dramatically revised edition since 1962" with 10,000 more color photos, 6,000 revised articles, and 840 new contributors. He included World Book in Berkshire's "Sainted Seven" businesses along with See's Candies and Nebraska Furniture Mart in his 1988 letter, and counted it in a "divine assemblage" of companies in his 1989 letter.

However, World Book's success proved shortlived. Its annual pre-tax earnings peaked at about $32 million in 1990, seesawed for a few years, then plunged below $9 million in 1995 — two years after Microsoft launched Encarta, its digital encyclopedia.

"Berkshire's most difficult problem is World Book, which operates in an industry beset by increasingly tough competition from CD-ROM and on-line offerings," Buffett said in his 1995 letter. "Our sales and earnings trends have gone in the wrong direction."

The so-called Oracle of Omaha remained hopeful for a comeback as World Book slashed overheads, revamped its distribution, and invested in electronic offerings. However, unit volumes fell again in 1996 and the publisher "did not find it easy," Buffett told his shareholders.

"It is not the business it was five years ago," Buffett said at Berkshire's annual meeting in 1996. "And I don't think it will be the business that it was five years ago, because the world is changed in some ways on that."

Encyclopedias even fell out of favor at Berkshire's annual shareholder meetings. Sales of World Books and related products at the event slumped from around $75,000 in 1997 to a little over $16,000 in 1999.

World Book might be Buffett's "quickest mistake" ever, Daniel Pecaut told ThinkAdvisor last year. The investment boss of Pecaut & Co, who has attended Berkshire's yearly meeting for more than three decades, said Encarta and other digital rivals "just destroyed the business."

Join the conversation about this story »

NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption

President Donald Trump holds the signed a trade agreement with Chinese Vice Premier Liu He, in the East Room of the White House, Wednesday, Jan. 15, 2020, in Washington

  • Trump's trade deal with China is so weak it looks like it's designed to implode.
  • The language in the deal leaves a lot of room for argument, it's not hard to leave and, the enforcement mechanism turns every dispute into a game of political football.
  • Plus, no one in Washington owns this deal except for the White House and a few Republicans. So when the political winds change, this deal might blow away with them.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit Business Insider's homepage for more stories.

Trump's Phase 1 trade deal with China looks designed to implode. 

It's been two years of antagonistic negotiations during which US-China relations worsened to a point unseen in generations, and the deal that process produced — the deal Trump signed on Wednesday — is extremely a fragile. Its subjective language, enforcement mechanism and adjudication process make it easy to leave.

And, since Democrats aren't on board with the deal, there's little incentive to stay if the political winds change. 

Let's talk about the language in this deal first.

There are all kinds of squishy words to fight about in this document. Parties are supposed to ensure "expeditious enforcement of any fine, penalty, payment of monetary damages, injunction, or other remedy for a violation of an intellectual property right ordered in a final judgment by its own court." But what "expeditious" actually means remains unclear.

Here's another extremely fungible passage:

"China shall require the administrative authorities to transfer a case for criminal enforcement, if, under an objective standard, there is 'reasonable suspicion' based on articulately facts that a criminal violation of an intellectual property right has occurred. "

It's 2020, if there's anything world knows now it's that it's not hard to argue about "articulable facts," and when politics are involved any "objective standard" tends to go out the window. And politics will be involved, because the enforcement mechanism is inherently political. We'll tackle that next.

This deal has an enforcement agreement unlike any other, according to Chad Bown, a trade expert at the Peterson Institute. In a call following the its signing, he told reporters that it was odd that the deal makes no mention of the word "tariff." That is to say, it lacks any specifics for how to punish a party if it transgresses in this deal — there are no guidelines on what is appropriate.

Even stranger, according to Bown, is that this deal does not take disputes to an overarching enforcement body. Enforcement is left to the office of the US Trade Representative, which then undertakes an up to 90-day adjudication and discussion process with its Chinese counterparts to try to resolve the conflict.

After the enforcement process is through, if the company that feels it has been wronged is not satisfied with the remedies presented by the offender its home country agrees, the country can "in good faith" put tariffs on the offending country. The offending country, then, is not supposed to retaliate.

However, and this is a big however: If the country hit by those new tariffs doesn't agree the import taxes were put on "in good faith," it has no recourse but to leave the deal, a senior administration official told reporters in a call following the deal's signing.

That's it. 

The senior official said the US is confident that China's broader interest will keep it in the agreement. They also said that the enforcement mechanism was designed to keep disputes out of the World Trade Organization and to avoid counter retaliation. The problem is, one of the reasons countries accept enforcement action from the WTO is because it's such a bother to leave given the multitude of countries involved. This, not so much.

By putting judgement and enforcement in the hands of the two countries instead of a third party (like the WTO), Trump has ensured that every single dispute is a game of political football between the two nations. Each one of those disputes will become a pressure point that could move one country to leave the deal.

Not my president, not my deal

It's clear the administration took pains to make sure this deal would not have to be signed into law. You can tell, according to Bown, because throughout the document it notes that the US is already in compliance with measure after measure, meaning that the US won't have to change its laws. No laws changing, no need for Congressional involvement.

That's Trump's way of bypassing Speaker Nancy Pelosi in the House and avoiding Democrats in general. You'll note none were at the signing ceremony. They have no ownership over this. Say a Democrat wins the presidency in 2020. Then that lack of ownership will be a big problem.

At that point, if I'm China, well then I'm out — especially considering the fact that Congress didn't enshrine this deal into law and my new friends in Washington don't care about its survival.

Trump's avoidance of Congress is a way of avoiding having a discussion about how trade deals should be done at all too. Wednesday's signing ceremony was attended by White House officials, Republicans, the Chinese delegation, big corporations and Trump's friends and family. That's who had a seat at the table while this deal was being done.

Want to talk about The Swamp? Few people are swampier than billionaire casino mogul Sheldon Adelson, one of the first people Trump thanked for making this deal happen. His company, Las Vegas Sands, has been fined for violating the Foreign Corrupt Practices Act in Macau and China by paying bribes. 

The fact that people like Adelson and Trump's other friends in corporate America were given the royal treatment is likely to send a message to President Xi Jinping, according to Bill Bishop, writer of China-focused newsletter Sinocism. It reeks of corruption and the corrosion of the rule of law in our system.

That same reek of corruption won't be lost on Democrats either, because it's been a key part of the party's discussion about how to do deal trade deals going forward. Senator Elizabeth Warren (D-MA) has been most vocal about allowing a variety of Americans interests at the trade negotiating table — small business people, climate activists, labor unions. That lack of variety, she and others argue, is part of what hollowed out American manufacturing and sent jobs overseas. It's part of why we're in this mess in the first place.

Others agree. At the Democratic debate Tuesday night, Tom Steyer, the billionaire businessman, said the US should never sign a trade deal without considering the climate (a word that does not appear in this deal). And in a statement following the deal's signing, House Speaker Nancy Pelosi pointed out that this deal does nothing for human rights in China.

So if the Chinese don't blow this deal up, it's very likely the Democrats will. It won't be hard. You could knock it over with a feather.

Join the conversation about this story »

NOW WATCH: The surprising reason Americans drop a ball on New Year's Eve

google io 2019  sundar

Alphabet is the latest firm to join the small group of companies with market caps higher than $1 trillion, further cementing the tech sector as the highest valued in public markets.

The Google-parent's Thursday close set the stock high enough to notch a valuation above the four-comma threshold. The record level also helped push Big Tech — the five stock group comprised of Alphabet, Amazon, Apple, Facebook, and Microsoftpast a $5 trillion market valuation for the first time.

The S&P 500's information tech sector is dominating all of the index's other subgroups in the year-to-date, after already posting a 50% return in 2019. The group's massive run-up was primarily driven by Apple stock, as the iPhone maker gained more than 80% last year.

Apple was the first company to reach a $1 trillion valuation in August 2018, and held the crown as the highest-valued public company as recently as December 11. The tech giant lost its top spot when Saudi Aramco debuted on public markets with a record-breaking $1.7 trillion valuation.

Aramco stock proceeded to surge high enough to hit a $2 trillion valuation before paring gains through January.

Here are the 11 highest-valued public companies around the world, ranked in ascending order. Data is as of 3:00 p.m. ET on January 17.

11. Visa

Market cap: $350 billion

Year-to-date performance: up 8.7%

10. JPMorgan Chase

Market cap: $433 billion

Year-to-date performance: down 0.5%

9. Tencent

Market cap: $491 billion

Year-to-date performance: up 12.4%

8. Berkshire Hathaway

Market cap: $561 billion

Year-to-date performance: up 1.7%

7. Alibaba

Market cap: $608 billion

Year-to-date performance: up 6.2%

6. Facebook

Market cap: $639 billion

Year-to-date performance: up 8.1%

5. Amazon

Market cap: $921 billion

Year-to-date performance: up 0.6%

4. Alphabet

Market cap: $1 trillion

Year-to-date performance: up 10.2%

3. Microsoft

Market cap: $1.27 trillion

Year-to-date performance: up 5.5%

2. Apple

Market cap: $1.39 trillion

Year-to-date performance: up 8.7%

1. Saudi Aramco

Market cap: $1.84 trillion

Year-to-date performance: down 1.6%

Move away from European regulations will cost UK ‘billions’ and threaten consumer choice

casper cofounders

  • Online mattress company Casper tried to pitch itself as a tech company in its recently filed initial public offering paperwork.
  • Private investors have given it a tech-like premium, valuing it at $1.1 billion.
  • Public investors may well have a different take on the company, especially since it acknowledged in its IPO document that a "significant" portion of its business still comes from selling mattresses.
  • While it believes that technology products will spur its future growth, thus far, it only offers one tech gadget — a smart lamp.
  • Click here for more BI Prime stories.

Casper's initial public offering paperwork had a familiar ring to it.

Yet again a company that, on its face would seem to have little in common with Google, Apple, or Microsoft, was trying to present itself as a tech company. Following in the footsteps of WeWork and Peloton, the online mattress company, in the paperwork it filed last week, mentioned "technology" or "technologies" dozens of times — more times than even WeWork did.

But business experts who spoke with Business Insider aren't buying it. And they doubt whether Wall Street investors will either.

"This is not really a tech company," said Phillip Braun, a finance professor at Northwestern's Kellogg School of Management. "It should be valued analogous to other mattress providers."

As Braun suggested, the importance is more than just semantic. Investors tend to pay a premium in terms of price-to-earnings or price-to-sales for technology companies, figuring they'll grow faster and eventually be more profitable than comparably sized non-tech peers. They also have often been more tolerant of losses by tech companies, particularly younger ones, than they have of red ink from other firms.

Casper does have some tech under its roof

At least in the private markets, Casper has convinced investors that it's more akin to a tech company than a plain old mattress maker. Its price-to-sales ratio, based on the $1.1 billion valuation it achieved last year, is at 2.7. By contrast, public mattress vendors Tempur-Sealy, Sleep Number, and Purple collectively trade at about 0.8 times their revenue.

Private investors have also accommodated Casper's losses while it has focused on growth. It lost $65 million in the first three quarters of last year, or about 21 cents for every $1 of revenue it took in. Its cash outflow during that period was even worse; its operations and investments in property and equipment burned through about $73 million.

In its public offering document, Casper tried to make the case that it was worth such a premium. And to be sure, Casper's tech story is not a complete mirage. The company has had three patents issued in the US and has another six pending, it said. It's got a "large" team devoted to digital products and engineering that's building out desktop and mobile apps, it said.

It has an in-house group that analyzes data collected from its website and physical stores to inform its pricing strategy and its efforts to improve existing products and develop new ones. It's developing "sleep technologies," including, potentially, a gadget that would track wearers sleep patterns. It's already released a smart lamp; owners can schedule it to wake them up at particular times using a smartphone app.


New technologies will be a key part of its future growth, the company said in its IPO filing. In a chart depicting the various "sleep economy" markets within its reach, Casper list a variety of gadgets from sleep tracking bracelets to medical devices.

"We believe that well-designed sleep technology can significantly improve sleep quality and behaviors," Casper said in the document. "We aspire to develop new sleep technologies ... such as products that address the environmental factors of light, sound, touch, and scent."

But there's little evidence Casper is a real tech company today

While Casper may be particularly savvy in its use of technology and may have a bunch of tech products in the works, there's little evidence right now it actually should be considered a tech company.

In its IPO paperwork, the company didn't break out its sales by product, so it's not clear exactly how much of its revenue comes from selling things other than mattresses. But Casper acknowledged in the document that the mattress business is still a big part of its operations.

"While we have expanded and continue to expand our product and services offerings, a significant portion of our business consists primarily of designing and distributing our mattress products," the company said in the filing.

casper sleep company ipo 3

It would be hard to believe that technology products in particular account for anything more than a small fraction of Casper's sales. The company only started selling its Glow Light smart lamp — its only real tech product to date — last year. The lamps cost around $130 each, a small fraction of what Casper charges for its mattresses. In other words, the company would have to sell multiple lamps to bring in the same amount of revenue as selling just one of its more basic mattresses.

"I can't call this a tech," said Dan Morgan, a senior portfolio manager at Synovus Trust and a longtime tech investor.

As for Casper's aspiration to become a leader in sleep technologies, there's a big question about whether it will be able to meet that goal. Numerous bona fide tech companies are developing or have already released products in that space.

Fitbit's smart watches include sleep tracking technology. Electronics maker Withings has a sleep tracking mat. And Apple has long been rumored to be working on adding a sleep tracking app to the Apple Watch.

Casper seems to want to become the Apple of the sleep industry, said Robert Hendershott, an associate finance professor at Santa Clara University's Leavey School of Business.

"But you know, Apple wants to be the Apple of sleep, and I think they're much better positioned to do that," Hendershott said.

Got a tip about Casper or another startup? Contact this reporter via email at, message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. You can also contact Business Insider securely via SecureDrop.

SEE ALSO: WeWork wants investors to think of it as a tech company. These 5 slides illustrate how its numbers tell a different story.

Join the conversation about this story »

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  • The gap in profitability between the largest and smallest public companies is at its widest in at least 30 years, according to Andrew Lapthorne, Societe Generale's quant chief. 
  • In a recent note, he explained why this gap is part of a bigger "valuation problem" for investors, and shared his recommendation for avoiding its fallout.
  • Click here for more BI Prime stories

The stock market's ongoing rally is still missing a good amount of its most important ingredient: earnings growth.

Investors are willing to pay ever-increasing prices for stocks despite the decline in profits growth over the past year. This so-called multiple expansion has subsequently lifted various gauges of the market's valuation to unnerving levels.

Investors have an "incredible valuation problem," Andrew Lapthorne, the head of quantitative equity research at Societe Generale, said in a recent note.

He quantified the problem as follows: price-to-earnings ratios for stocks with the greatest expectations for earnings growth have reached levels only seen during eight months of a three-decade span.

Additionally, a composite of 34 valuation metrics compiled by RBC Capital Markets broke through its highest level of this bull market late last year.

While valuations on their own do not determine the stock market's direction, the underlying deterioration in profit growth is where the risks of a pullback lie. 

One way Lapthorne unearths what is happening is by stacking the profitability of the largest companies (by sales) in each sector against their smallest counterparts. He found that the gap, which he refers to as corporate inequality, is at its widest since at least 1990. 

Screen Shot 2020 01 17 at 1.24.09 PM

More evidence of a profit crunch

In addition to Lapthorne's observation above, two plain vanilla measures of profitability — EBIT growth and margins — show a deteriorating trend.

First, earnings before interest and taxes grew at a slower pace last year for the nearly 90% of US market capitalization captured by the S&P 1500. 

Screen Shot 2020 01 17 at 1.53.49 PM

"The high percentage of loss-making firms in the US is impacting these numbers, but still seeing so many loss-making firms at the top of the cycle is a risk," Lapthorne said. 

He continued: "And lower down the capitalization band, profits are falling fast even once loss-making firms are excluded." 

And secondly, profit margins are under pressure due to a combination of higher costs and slower sales growth.

Sales growth for non-financial companies has fallen from around 10% at its peak about a year ago to roughly 4% now, Lapthorne pointed out. 

These are trends that the private-equity giant KKR also flagged in a recent outlook note.

"From what we can observe, there are still too many companies with high fixed costs and less marginal revenue dollar per purchase that are being funded," KKR's Henry McVey said in relation to profitless companies.

He further opined that investors will be more wary of these companies in 2020, particularly in the venture capital realm.

But even in the public market, there's the nagging question of how much longer investors will continue bidding up prices in the absence of an earnings growth rebound. 

"Either sales growth must pick up or costs need to be cut to avoid negative profits growth in 2020, and given the rise in equity prices a profits growth recovery is very much priced in," Lapthorne said.

He added: "If Q4 reporting fails to deliver a better profit growth outcome, equities could struggle."

If the trend in profits does not improve, investors are likely to punish small-cap under performers more than their large-cap peers — consistent with the wide corporate inequality gap. 

Lapthorne therefore recommends buying the strongest small-cap companies on offer. He flagged the MSCI USA Select Strong Balance Sheet Index as a hunting ground for these names, and noted that the index has outperformed the Russell 2000 over time.

SEE ALSO: Private-equity giant KKR warns WeWork's fiasco is just the start of many more funding struggles for unicorns — and spells out 4 areas where it's investing instead

Join the conversation about this story »

NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption

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Reports from Netflix, Intel and Texas Instruments next week may hint at what is to come in the December quarterly earnings season, with some investors wary of possible danger signs that could knock Wall Street after its latest surge to record highs.

Elon Musk

  • Tesla's stock price has rallied 100% over the past three months and is now at an all-time high above $500 per share.
  • The company's market cap, at about $92 billion, is almost as much as Ford's and GM's combined.
  • The rally has been driven not by Tesla's familiar up-and-down story, nor by CEO Elon Musk's cult of personality, but by facts and fundamentals.
  • Tesla sold over 100,000 more vehicles in 2019 than in 2018 and has been posting profitable quarters.
  • The fundamentals aren't going to change; there are no looming plot twists, and consequently the naysayers' case now lies in ruins.
  • Click here for more BI Prime articles.

At the risk of invoking a cliché, I'll point out that Tesla isn't a company whose stock trades on fundamentals, but rather on a story.

Think about that. At a simple level, the fundamentals are facts, while the story is an illusion — a suspension of disbelief. When I was in my 20s, I spent a lot of time on story, before I dropped out of a doctorate program in literature at NYU. Stories have plots, subplots, plot twists, complicated characters who do complicated things. Stories can turn on a dime: in the space of a page, comedy becomes tragedy. As an author, you want to take readers on a ride.

For years now, story has dominated the debate around Tesla. And some large-scale characters, ranging from CEO Elon Musk to big-name hedge-funders like Jim Chanos and David Einhorn, have populated the tale. Even the minor characters have been interesting, and the plotlines and plot twists have been endless.

But the truth is that this story — something of an epic, really — filled a vacuum. Established automakers such as Ford and General Motors, have less lively stories because their actual businesses are so ... busy. The fundamentals — the business facts — produce millions of vehicles every year.

Tesla has only recently joined that club: 2019's total sales were about 367,000, a notable move up from 2018's roughly 250,000. But just a couple of years back, the company barely sold 50,000.

Story trumped fundamentals — but that's all changed in a hurry


The sprawling, obsessively detailed, constantly argued over Tesla story happened only because there wasn't enough production or sales to stop it. If Tesla had built a competent franchise dealer network in the US (or joined with an existing mega-dealer) rather than trying to sell vehicles direct to customers, and if Tesla had hired a seasoned contract manufacturer to build some vehicles and meet demands sooner, the story would have petered out in 2017 or 2018.

Didn't go that way, and thus we got an insane episode of Musk tweeting his way into an SEC investigation and eventual settlement, a pitched battle between the #TSLA fanboy and the #TSLAQ bankruptcy crowds, and a preoccupation with Tesla's inner-workings that resembled Cold War Kremlinology.

But look what's happened since Tesla's output of actual cars has picked up: the stock has been on a tear, blasting through $300 per share, $400 per share, and (remarkably) $500 per share in a matter of months. Tesla's market cap, at $90 billion, is nearly equal to GM's and Ford's combined.

This isn't a rally story. Tesla completely dominates the electric vehicle market and can now look forward to potential competitors having to spend, spend, and spend some more if they want to duke it out for market share. This is going to be painful because the traditional automakers won't have to break a sweat to build EVs, but they'll be forced to expend millions if not billions of dollars convincing consumers to buy them. 

Tesla, meanwhile, isn't spending anything, and hasn't. That doesn't constitute a first-move advantage so much as an only-mover leg up. Electric cars were stupid risky in the past, but Tesla gobbled up that risk. Now, the reward.

Busting through three resistance levels on the stock in three months is mind-blowing. And there isn't necessarily anything on the horizon to slow Tesla down. It reports fourth-quarter and full-year 2019 earnings in late January, and they're expected to be positive. If Tesla meets or beats, look out above. The 100% return of the past three months could look like a tame precursor, as Tesla's substantial short interest is decisively flushed out of the action.

Tesla has challenges, but the old story is over

tesla store germany

Tesla has some looming challenges. The biggest is that as it sells more Model 3 vehicles — and soon, Model Y SUVs — at lower price points to less well-heeled buyers, it's going to be highly stressed on the service front. Like any relatively new automaker, Tesla's vehicles lack ironclad reliability, so the company compensates consumers with a great warranty. 

But without dealerships, Tesla doesn't have a solid built-in servicing model. Poor service means often means that owners who aren't living with fleets of vehicles at home fail to buy again from a manufacturer. Up to this juncture, Tesla has been selling to patient early adopters who probably own two or three cars; now that it's moving toward single-vehicle households, it could endure some pain.

That's merely the cost of doing business, however. With shares above $500, Tesla can now effortlessly make good on its convertible debt obligations and, should it want to, raise additional capital to bolster its balance sheet. I think that would be smart, and if Tesla goes for it in 2020, the approximately $5 billion that the company has in cash could swell to $10 billion, and Tesla could start to deleverage.

This leaves Tesla's naysayers, so previously dependent on a story, with not much to use to push the stock around. The facts are the facts, the fundamentals are the fundamentals, and if you think the market for EVs could grow in the US, Europe, and China, then Tesla stock looks cheap in a world were EVs now make up just 2% of global sales.

I'll use the analogy of a predicted snowstorm to depict the naysayers' plight. The weather report is uncertain: we could get a few inches, but we could also get a blizzard. The discussion is speculative: What would we do in the worst case, assuming that it probably won't happen? 

But then, the blizzard comes. And you have no choice but to surrender and dig yourself out.

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NOW WATCH: Why hydrogen cars will be Tesla's biggest threat

restaurant waiter

  • Business Insider spoke with five restaurant industry insiders about the biggest challenge facing the business in 2020. 
  • The CEOs of Noodles & Co., TGI Fridays, and Panera all said issues related to workers and labor are top concerns. 
  • Industry insiders at the ICR Conference in Orlando, Florida, voiced similar concerns on labor issues and highlighted the "necessary evil" of figuring out how to handle delivery. 
  • Visit Business Insider's homepage for more stories.

ORLANDO, Florida — As the restaurant industry enters a new year, many of its oldest problems continue. 

Over the last week, Business Insider has asked restaurant industry executives and experts about the biggest problems facing the business in 2020.

The CEOs of Noodles & Co., TGI Fridays, and Panera all talked about issues related to workers, including rising wages and problems with retaining talent. Industry insiders at the ICR Conference in Orlando voiced similar concerns and highlighted the "necessary evil" of figuring out how to handle delivery. 

Read on for five industry experts' takes on the biggest challenges the restaurant industry will face in 2020. 

SEE ALSO: Shake Shack has rolled out a 4-day workweek at dozens of locations, as the CEO says it's 'never been harder' to attract and retain workers

Rising wages and labor inflation

"I think it's going to be labor inflation still," Noodles & Co. CEO Dave Boennighausen told Business Insider in an interview on Wednesday. "We're coming off a year where we had about 5-6% labor inflation. I don't think that's going to change for years." 

Boennighausen said that the tight market can create opportunity for some companies, noting that retaining talented general managers is increasingly crucial to success. The fast-casual chain is working to keep workers engaged with new benefits, including adoption assistance and breast milk shipment reimbursement.   

Read more: Taco Bell's $100,000-salary test could set off a domino effect, forcing fast-food giants to increase pay

Finding and retaining employees

As labor costs rise, David Cantu, cofounder of restaurant industry tech provider HotSchedules, said that the biggest challenge is finding and retaining workers. 

"The fight for quality labor is incredibly difficult," Cantu said in an interview. "Finding high-quality resources to deliver against the increased expectations you have around brand, and the brand promise, and the concept you're trying to deliver is very, very hard." 

Panera CEO Niren Chaudhary told Business Insider last week that the top challenge was maintaining relevance with customers. No. 2, Chaudhary said, was doing the same with employees. 

"How do we create engagement in employees?" Chaudhary said. "What do we need to do to hire the best, retain the best, and train the best that we can find?" 

Read more: Panera plans to slash meat from half of its menu as customers seek vegetarian options and fear of climate change heats up

'Confusing' legislation and lack of immigration reform

TGI Fridays CEO Ray Blanchette told Business Insider that one of the top challenges in the restaurant industry in 2020 is the "confusing" legislative environment. With rising wages and low unemployment rates, the immigrants that make up a sizeable portion of the restaurant industry are crucial. 

"We need immigration reform," Blanchette said in an interview on Monday. "Think about who we serve, who our team members are, and having access to a healthy flow of talent."

"150 years ago, an immigrant would come here and work in infrastructure," Blanchette continued. "Building the country was roads or railroads or skyscrapers — those were the jobs that were available to immigrants. Today ... we are the place where immigrants break the cycle of poverty for their families forever." 

Read more: TGI Fridays CEO says immigration reform is one of the biggest challenges in the restaurant industry

How to handle delivery

Delivery is a major stressor for many chains, even as it drives sales. As it is still unclear how much customers are willing to pay for convenience, many restaurants and third-party delivery partners are eating part of the cost of delivering food. 

"It's how to handle delivery," Bart Shuldman, CEO of back-of-house automation service BOHA by TransAct, said when asked about the top challenge for 2020. "There's no doubt that delivery has its pain points." 

Still, most restaurants can't ignore delivery as their competitors expand in the space. Eventually, Shuldman expects restaurants to charge more for delivery, passing the costs on to consumers. 

"I think it's a necessary evil," Shuldman said. "The millennials love it, right? You've got to figure it out."

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Donald Trump

  • Trump has repeatedly touted the stock market as a scorecard to show the economy is strong and reaching new highs.
  • But the stock market doesn't entirely reflect the state of the economy.
  • There's a widening gap between wage and stock growth, and its only accelerated in the Trump era.
  • The S&P 500 has climbed more than 40% since Trump took office in 2017, compared to only a 9% bump in wage growth during the same period.
  • Even with larger paychecks, employees now have to deal with the rising price tags of education, housing, and healthcare.
  • Visit Business Insider's homepage for more stories.

Over the last three years, President Donald Trump has touted the stock market as one of his favorite scorecards demonstrating the health of the American economy.

"The best is yet to come!" Trump said in a Jan. 10 tweet, referring to the news that the Dow Jones industrial average nearing the 29,000 point threshold for the first time.

But the stock market doesn't entirely reflect the state of the economy.

The market boom in the Trump era is at odds with the sluggish wage growth in the same stretch of time. Over the past three years, there's been a gap between stock and wage growth in the United States that's only widening, as illustrated in the graph below. 

stocks vs wages under trump v2

The benchmark S&P 500, widely accepted as a strong gauge of market health, has climbed more than 40% since Trump's inauguration in 2017. By contrast, the average hourly wages of workers only climbed 9% during that period.

Even if they took home slightly bigger paychecks, employees have also confronted the rising price tags of housing, education and skyrocketing healthcare costs some economists now compare to another tax on their income.

Read more: The world's most accurate economic forecaster 8 years running told us why Trump's Phase One trade deal is not nearly enough to prevent a looming US slowdown

There's also another huge factor locking out middle and working-class Americans from sharing in the rewards of a bull market: Half of them just don't own any stock. The top 10% of American households own the lion's share of them at 84%.

The market trend upward does, however, hold significant benefits for people who have invested directly or through a retirement plan, as their portfolios accrue more value. 

Economists increasingly say disparities between market and wage growth is the result of policy decisions made over decades by lawmakers and employers. Unions have been throttled, contributing to a rise of inequality and wage stagnation. And tax rates continue to be slashed for the highest-earning Americans as well as corporations.

Wages haven't substantially increased despite the lowest unemployment rate since Lyndon Johnson's presidency 50 years ago. That should theoretically compel employers to raise pay to compete for a scant supply of workers.

Recent wage gains, though, are mostly impacting low-wage workers and they have experienced the fastest pay increases. Experts say it likely has to do with the surging number of states and cities raising the minimum wage. The effective average around the country is now around $12 an hour.

Democratic Rep. Alexandria Ocasio-Cortez said in a tweet earlier this week that "the Dow soars, wages don't. Inequality in a nutshell." The data does suggest she is right.

Join the conversation about this story »

NOW WATCH: A law professor weighs in on how Trump could beat impeachment


  • The US has threatened to levy tariffs of up to 100% on $2.4 billion worth of products from France. 
  • In testimony before US trade officials this month, US businesses warned that the tariffs would raise prices for consumers and lead to job losses. 
  • "The proposed tariffs would force the price of these wines to the point where they would be unsellable," one company told the US trade office.
  • Visit Business Insider's homepage here.

The US has threatened to levy tariffs of up to 100% on $2.4 billion worth of products from France, a move meant to retaliate against a tax on digital services the European nation passed this summer. 

France is just the latest country to crack down on the charge that large technology companies avoid taxes through subsidiaries in other countries. The Trump administration criticized the policy, saying it disproportionately affected American technology companies like Facebook and Google and is inconsistent with international tax policy. 

But the retaliatory tariffs Trump proposed — on wine, cheese, handbags and other products —  have drawn widespread backlash from domestic companies. In testimony before US trade officials this month, they warned the tariffs would raise prices for consumers and lead to job losses. 

Find the full testimony transcript here.

SEE ALSO: A cyberattack on a major US financial institution would affect more than a third of bank assets, New York Fed warns

Besides the nearly 300 employees in South Carolina and the other employees across the U.S., please consider the following potential impacts from a tariff of 100 percent on Le Creuset products. And admit an immediate freeze on hiring for all open positions, severe economic hardship on approximately 115 local business partners, postponing or canceling of the $3.2 million expenditure of local capital improvement projects. -Le Creuset

It would actually disproportionately harm Americans, consumers, workers, retailers and restaurants. American workers will suffer greater harm than French workers. -Staub

I can say without doubt that were this tariff to be enacted and include sparkling wines, my business would suffer greatly. At best, it would be the loss of a significant amount of revenue, and at worst likely leading to drastic losses in sales, profitability, and potentially leading to layoffs. -Cutting Edge Selections

We are a small business that supports other small businesses. And because of this, we have a unique outlook as to how far-reaching the ripple effect of these potentially catastrophic and blatantly protectionist tariffs could be to hundreds of thousands of Americans. -Selection Massale

As a small business owner, a business that I have been involved in building now for 15 years, I can assure the committee that the results of any increased tariff burden -- and, indeed, the 25 percent tariffs that have already been levied on most of our products -- run the risk of putting us out of business. -Vintage '59 Imports

I wish I could compile and cite the specific numbers of jobs, the businesses, and the local tax coffers that will be damaged by the increased tariffs. Unfortunately, I didn't have time because I have a small business to run. Hopefully, I will have the opportunity to continue running it. -CopakeWineWorks

If these tariffs come to past, the only possible end result I can see from my company is to shrink and lay people off. That's the best case scenario. The worst case scenario is that I can't maintain the debt load I have from still paying back my former business partner and mortgage and I have to shut down. -Devenish Wines

With regards to the proposed 100 percent tariffs I will say with all seriousness and without exaggeration that I do not know how we would be able to survive. Without a doubt we would have to lay people off, which would be very hard considering we have a team of about 20 employees, whom we all appreciate and care about. -Chambers Street Wines

Any tariff action taken here would either significantly increase consumer cost or more likely price the product out of the market, leaving the consumer with less choice in the marketplace. -Bel BrandsUSA

The overall health of our company, as we operate our two production plants in the United States, providing U.S. jobs in rural areas, is dependent on these imports. Imposing tariffs cause serious economic harm to us, reduces US jobs and the overall viability of our U.S. operations. -Materne North America

"We are the largest online retailer of wine, and the effects that this tax would have on our company are beyond measure. Our colleagues, who are smaller businesses who you are going to hear from, would feel the effects on a much greater scale. As you have heard and will continue to hear, they will no longer be operational.

Among the three major markets these tariffs would affect it is the U.S., not Europe, that would see the most damage, and China who would see the benefits. It is, without hyperbole, that I tell you that the proposed tariffs would be the greatest threat to the wine industry since Prohibition in 1919. -Tribeca Wine Merchants


The implementation of a 100 percent tariff on French sparkling wines will result in at least a 150 percent increase in the shelf and wine list prices, factoring in the margins of each participant in the government-mandated 3-tier system. These increases would decrease consumption, eliminate demand, and generate no incremental funds. -BNP Distribution Company

The proposed tariffs would force the price of these wines to the point where they would be unsellable. And that's not even to mention the completely untenable cash flow issues that we have of having to pay these tariffs upon arrival at the port. If you could imagine having to pay double for a container when the wine arrives rather than having the typically 90 days to pay a bill. -Bowler Wine

We are pretty sure that if the French cheese tariff increased then the consequence will be just that micromarket will vanish in the air and disappear forever. And there is no way that American production would replace it. -INTERVALExport


Our plan for 2020 was to continue to develop our New York and California distribution by hiring two full -- two more full-time employees. Instead, the proposed tariffs, which range from 25 percent to 100 percent tariffs in French wine, will absolutely bankrupt our business and further hurt our U.S. customers' ability to purchase and sell wine. -Avant Garde

Revenue and jobs would also be negatively affected at the over 40 American companies with whom we spend $5 million per year on products and services to support our business. I've already laid off one position due to the extreme uncertainty around the DST and Airbus disputes. -Laurent-Perrier US


Only 90-some-odd days until next bank-earnings season!

The trifecta of JPMorgan, Wells Fargo, and Citi in one day, followed by the rest of the Wall Street crowd reporting in the days after, meant a week of early mornings for financial journalists. That's OK, though, since we also get to have some fun parsing testy exchanges on analyst calls — this is, after all, a world where "thanks for that" often means quite the opposite, and "let me try that question again" is basically the webinar version of an all-out brawl. 

All of that verbal wrangling is part of a quest for "color" — in non-earnings-world speak, that's anything to help decipher the rush of numbers and vague explanations banks throw at you. Luckily, our reporters are always talking to insiders to do just that. 

If you aren't yet a subscriber to Wall Street Insider, you can sign up here

Alex Morrell explained what's behind a much-welcomed surge in bond-trading revenue across Wall Street. It sure seems like a great time to be an agency mortgage trader — insiders say JPMorgan led the pack there —  but it may be a short-lived party. 

Morgan Stanley is normally among the last to report when it comes to big-bank earnings, but earlier in the week Alex was quick to nab all the names (here's the list) of its 2020 MD promotes. It's a smaller class than recent years — understandable given the 1,500 layoffs the bank announced in December. Oh, and Alex also got the names of the new crop of Bank of America sales and trading MDs, and broke news on a big FICC overhaul there. 

Dakin Campbell has been covering Goldman Sachs' huge transformation under CEO David Solomon. Goldman execs told analysts to hang on until the bank's first-ever investor day for the real juicy stuff on its five-year plan. But as Dakin noted, Solomon did unveil key details this week about transitioning the bank's private-investing platform to be more reliant on outside money. 

To segue out of publicly-traded firms and into the startup space, Bradley Saacks noted that BlackRock CEO Larry Fink is "proud" that analytics platform Aladdin is close to topping $1 billion in revenue, a threshold he says only 3% of tech startups beat. Turns out, the one big secret to startup success that nobody's telling you is being attached to the world's largest asset manager. (BlackRock also just blew past a mind-boggling $7 trillion in assets.) 

That brings us to a call that caught everyone off-guard — this one was for the card folks after Visa announced it would buy buzzy fintech Plaid for $5.3 billion. And as Dan DeFrancesco pointed out, Visa CEO Al Kelly made what might seem like a passing comment that actually has huge implications for the web of financial players that will interact with a Visa-owned Plaid. 

Not everyone's racing to snap up fintechs, though. As Rebecca Ungarino reported, Merrill Lynch has zero plans to buy a robo-adviser. That thinking highlights how standalone wealth-tech firms may be in a tricky spot as legacy players invest in their own tech. Meanwhile, new startups in the space have ground nearly to a halt. 

Long reads below, including a deep dive on how exactly pricing algorithms for iBuyers like SoftBank-backed Opendoor work; Jamie Dimon's argument for why JPMorgan should really be thought of (and valued like) a subscription service; and why KKR is looking in unlikely places to invest in tech companies.

Have a great weekend, 


Insiders explain how iBuyers like SoftBank-backed Opendoor mix algorithms and human decision-making to flip houses

iBuyers, companies that purchase homes with almost instant all-cash offers, renovate and quickly resell them, were born in 2014 in the heat and sun of Phoenix, Arizona. 

SoftBank-backed Opendoor, now valued at $3.8 billion, first started purchasing homes in Phoenix that December.

By 2015, competitor Offerpad was also buying and flipping homes in Phoenix. The iBuyer model has continued to grow, with established real-estate listing players like Redfin and Zillow entering the fray. There are now active iBuyer markets in almost every region of the US, and even some international regions.

While iBuyers have tested new markets, Phoenix's lack of seasonality, an active local economy and housing market, and largely new housing stock has made it the iBuyer capital. 


WeWork convinced a skeptical SEC to let it use a wonky metric that tested accounting rules. Here are 58 pages of letters showing how the coworking company changed the agency's mind.

Business Insider obtained 58 pages of correspondence between the SEC and WeWork about the coworking company's IPO filing and questions or concerns the agency had about the document.

One crucial piece of the back-and-forth centered on the company's use of a non-GAAP financial metric.

The SEC originally asked WeWork to "remove disclosure of this measure throughout your registration statement."

After pushback from WeWork's lawyers, including a former chief of the same SEC division asking the company to scrap the metric, the agency relented and allowed the company to continue using the metric after it made some changes. 


Jamie Dimon makes renewed pitch for JPMorgan to be valued like a subscription service — and it shows how Wall Street is trying to echo Big Tech

Jamie Dimon may have just a tiny bit of tech envy. 

The JPMorgan Chase CEO sounded a familiar note on Tuesday on a call with journalists when he casually compared his bank to competitors in Silicon Valley. Answering a question about whether the bank's stellar performance has driven its stock price as high as it will go, Dimon said one aspect of its revenue — much of it being very stable — is similar to a subscription-based model.


A KKR exec explained how private equity is looking in unlikely places to invest in tech companies

Private equity firm KKR just raised $2.2 billion to invest in fast-growing tech companies and it will now hunt for deals in regions far beyond Silicon Valley. 

Dave Welsh, a KKR exec leading its technology media and telecom growth equity unit, said that it would seek investments in areas such as Florida, the greater Washington, D.C., area and Atlanta, as well as the Rocky Mountain region in Colorado and other regions throughout the Midwest.

The willingness to go far and wide points to how competition for the best investments across the private equity spectrum is getting stiffer, and more PE firms are getting creative with how they deploy their capital — seeking smaller, including minority, investments.


Charles Schwab just pulled the plug on a nearly $100 billion program where rival firms paid to sell ETFs

The broker wars have uncovered some complicated alliances, and it's not always clear who's friend or foe. 

Discount broker Charles Schwab just shuttered a nearly $100 billion program where it sold products from third-party asset management giants like State Street, JPMorgan Asset Management, and BlackRock.

The wealth management and brokerage firm said in its fourth-quarter earnings results on Thursday that it discontinued the program, called Schwab ETF OneSource, "as a result of the elimination of online trading commissions for US and Canadian-listed ETFs."

The move, completed in the fourth quarter, highlights the tough reality the money-management industry has found itself in following the major brokerages' decisions to remove online trading fees for stocks and ETFs late last year.


Credit Karma has been pegged as a 2020 IPO likely, but its CEO is more focused on developing new products as the $4 billion fintech does more than just free credit scores

Credit Karma, long known for its free credit scores, launched as something of a marketing firm, connecting its users with credit cards and loans and getting paid by the banks that offered those products.

But today, it's one of Silicon Valley's hottest fintechs, with a $4 billion valuation and 100 million users. And its audience has grown fast. The 13-year-old company added 75 million users in the last five years alone and says 1 in 2 millennials are on the platform.

Reports from the Wall Street Journal and CNBC have pegged Credit Karma as a 2020 IPO candidate, though its CEO has said he sees listing as a means, not an end, and is more focused on launching new products than going public soon. Credit Karma has indicated it is profitable according to past media reports. 

As Credit Karma looks to do more than free credit scores, it's also eyeing the next cohort of spenders — Gen Z.


Join the conversation about this story »

NOW WATCH: WeWork went from a $47 billion valuation to a failed IPO. Here's how the company makes money.

Finland's Financial Supervisory Authority (FSA) has started an investigation into Nokia's sharp profit warning in October which sent its shares more than 20% lower, Finnish daily Helsingin Sanomat reported on Saturday.

trader upset stock market crash

  • John Hussman — the outspoken investor and former professor who's been predicting a stock collapse — says investors are locking in dismal returns "regardless of their investment horizon."
  • He says that it could take 30 years for GDP and corporate revenues to catch up to the S&P 500's current valuation. And that's in the highly unlikely scenario stock values sit still.
  • Hussman thinks that the S&P 500 is "far more likely" to lose two-thirds of its market value than the scenario above.
  • Click here for more BI Prime stories.

At a time where stocks seemingly carve out fresh all-time highs on a daily basis, one would think that investors would be taking victory laps, high-fiving, and serving up champagne. After all, since bottoming in March 2009 the S&P 500 has enjoyed one of the most epic bull runs in history, increasing nearly fivefold in the process.

But not all think that party on Wall Street is going to continue. In fact, one renowned market bear says the music is about to stop and result in decades of pain.

That market bear is John Hussman, the former economics professor who is now president of the Hussman Investment Trust. And he's not coy in his assessment. 

"Investors should keep in mind that market valuations stand nearly three times the historically run-of-the-mill valuation levels from which stocks have historically generated run-of-the-mill long-term returns," he penned in a recent client note, adding italics for emphasis.

He contineud: "In fact, the highest level of valuation ever observed at the end of any market cycle in history was in October 2002, and even that level is less than half of present valuation extremes."

To demonstrate this perceived valuation exuberance, Hussman provides the chart below. According to his calculations, every valuation ratio is between 2.5 to 3.2 times above their historical norms. 


To Hussman, this indicates that there's a wide disconnect between valuations and underlying fundamentals.

"This doesn't mean that valuations have 'stopped working,'" he said. "It means that speculative psychology plays an important role over shorter segments of the market cycle, and that investors place themselves in grave danger if they assume, at points of extreme confidence, that valuations can be ignored."

Although Hussman has been sounding the alarm on the market's valuation for quite some time now, he still requires market internals to deteriorate in order for him to adopt or increase a bearish outlook. That happens to be the case right now.

"At present, these measures remain negative, as they have for nearly the entire period since the January 2018 market peak," he said.

Below is Hussman's proprietary measure of market internals (red line) juxtaposed against the S&P 500's cumulative total return (blue line).


He added: "It's notable that the entire net gain of the S&P 500 over the past 20 years has occurred in periods featuring uniformity in our broad measures of market internals."

So what does this all mean? Allow Hussman to explain.

"The risks that investors face don't care whether their investment horizon is 10 years, or 12 years, or 20 years," he said. "The problem is that at present valuation extremes, passive investors are locking in dismal future return prospects regardless of their investment horizon."

The chart below shows his proprietary estimated 20-year annual total return for a conventional portfolio (60% stocks, 30% bonds, 10% cash — blue line) compared against the actual subsequent 20-year returns for that portfolio (red line). According to Hussman, passive investors can expect average annual total returns of about 3% over the next two decades.


To that end, Hussman concludes this thesis with a dismal prognostication:

"So how do you get to historically run-of-the-mill valuation norms? The answer is simple: Wait nearly 30 years, allowing both the U.S. economy and U.S. corporate revenues to grow at the same rate as the past two decades, while stock prices remain unchanged, with no intervening periods of recession or investor risk-aversion, or alternatively (and far more likely), watch the S&P 500 lose two-thirds of its value over the completion of this market cycle."

Hussman's track record

For the uninitiated, Hussman has repeatedly made headlines by predicting a stock-market decline exceeding 60%and forecasting a full decade of negative equity returns. And as the stock market has continued to grind mostly higher, he's persisted with his calls, undeterred.

But before you dismiss Hussman as a wonky perma-bear, consider his track record, which he broke down in his latest blog post. Here are the arguments he lays out:

Predicted in March 2000 that tech stocks would plunge 83%, then the tech-heavy Nasdaq 100 index lost an "improbably precise" 83% during a period from 2000 to 2002

  • Predicted in 2000 that the S&P 500 would likely see negative total returns over the following decade, which it did
  • Predicted in April 2007 that the S&P 500 could lose 40%, then it lost 55% in the subsequent collapse from 2007 to 2009

In the end, the more evidence Hussman unearths around the stock market's unsustainable conditions, the more worried investors should get. Sure, there may still be returns to be realized in this market cycle, but at what point does the mounting risk of a crash become too unbearable?

That's a question investors will have to answer themselves — and one that Hussman will clearly keep exploring in the interim.

SEE ALSO: Investor Joel Greenblatt is crushing 96% of peers by adding a unique twist to the famed strategies of Warren Buffett and Ben Graham. He shared with us his winning approach.

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NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption

Warren Buffett

  • Warren Buffett's "most gruesome mistake" was buying Dexter Shoe in 1993, a Maine shoemaker that soon collapsed under pressure from cheap foreign imports.
  • The famed investor paid for Dexter with 25,203 Class A shares in Berkshire Hathaway, worth about $8.7 billion today.
  • "I gave away 1.6% of a wonderful business ... to buy a worthless business," Buffett said in his 2007 letter to shareholders.
  • "As a financial disaster, this one deserves a spot in the Guinness Book of World Records," he wrote in his 2015 letter.
  • View Business Insider's homepage for more stories.

Warren Buffett's "most gruesome mistake" was buying Dexter Shoe in 1993. The Maine shoemaker quickly became worthless; the Berkshire Hathaway shares he swapped for it are worth about $8.7 billion today.

The so-called Oracle of Omaha acquired Dexter for 25,203 Class A shares, worth $433 million at the time. 

"Dexter, I can assure you, needs no fixing: It is one of the best-managed companies Charlie and I have seen in our business lifetimes," Buffett said in his 1993 letter to shareholders. Dexter was a "business jewel," he gushed, adding that it was a "sound decision" to pay for it with Berkshire stock.

While Buffett was wildly wrong about Dexter's prospects, he did recognize the threat that would soon sink the company: cheap, imported shoes from low-wage countries. However, he joked that "someone forgot to tell" Dexter's managers and workers about that challenge, as their factory was "highly competitive against all comers."

The famed investor cheerily predicted that Dexter and H.H. Brown, Berkshire's other shoe business, would rack up more than $85 million in pre-tax earnings in 1994. "I sing 'There's No Business Like Shoe Business' as I drive to work," Buffett told his investors.

The forecast proved to be right on the money. However, Buffett changed his tune after Berkshire's shoe profits gradually shank over the next few years, falling to $17 million by 1999.

"It has become extremely difficult for domestic producers to compete effectively," the Berkshire CEO told his shareholders. "In 1999, approximately 93% of the 1.3 billion pairs of shoes purchased in this country came from abroad, where extremely low-cost labor is the rule."

Buffett responded by sourcing more shoes internationally, but he couldn't stop the bleeding.

"I clearly made a mistake in paying what I did for Dexter," Buffett admitted in his 2000 letter. "I compounded that mistake in a huge way by using Berkshire shares in payment."

In 2001, Berkshire's shoe business finished $46 million in the red as it was "swamped by losses at Dexter," Buffett told investors.

Running short of options, he trusted the bosses of H.H. Brown to revive the troubled shoemaker. When shoe profits rebounded to $24 million in 2002, he proclaimed that "the Dexter operation has been turned around."

The recovery soon ran out of steam though, leading Buffett to bemoan his mistake again in his 2007 letter.

"I gave away 1.6% of a wonderful business – one now valued at $220 billion – to buy a worthless business," he said. "To date, Dexter is the worst deal that I've made."

Reflecting on his greatest errors in his 2014 letter, Buffett pointed to Dexter again.

"The most gruesome was Dexter Shoe," he said. "When we purchased the company in 1993, it had a terrific record and in no way looked to me like a cigar butt."

"As a financial disaster, this one deserves a spot in the Guinness Book of World Records," he added.

Buffett underlined the broader consequences of Dexter's collapse in his 2015 letter.

"Our once-prosperous Dexter operation folded, putting 1,600 employees in a small Maine town out of work," he said. "Many were past the point in life at which they could learn another trade."

"We lost our entire investment, which we could afford, but many workers lost a livelihood they could not replace."

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The fortunes of a handful of rich families highlight yawning equality gap in city 

Morgan Stanley Chief Executive James Gorman is receiving $27 million in total compensation in 2019, nearly 7% less than what he got the year before, the company said in a filing on Friday, following a reduction of bonuses staff-wide.

Extraditing Huawei Chief Financial Officer Meng Wanzhou to the United States based on American sanctions against Iran would set a dangerous precedent and could even undermine Canada's policy towards Iran, Meng's lawyers argued in court documents released on Friday.

U.S. consumer electronics retailer Best Buy Co said on Friday that its board was conducting an independent review on allegations of misconduct against Chief Executive Officer Corie Barry after receiving an anonymous letter.

Bayer could be close to settling more than 75,000 cancer claims related to its Roundup herbicide, with mediator Ken Feinberg on Friday saying he was "cautiously optimistic that a settlement will ultimately be reached."

The National Highway Traffic Safety Administration (NHTSA) said Friday it will review a petition asking the agency to formally investigate and recall 500,000 Tesla Inc vehicles over sudden unintended acceleration reports.

Wall Street climbed to record highs on Friday, with major indexes turning in their strongest weekly gains since August, after strong U.S. housing data and signs of resilience in the Chinese economy raised hopes of a rebound in global growth.

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  • Sonos, Tile, Basecamp and PopSockets appeared in Boulder, Colorado to testify before Congress today.
  • The four tech companies sell a diverse range of products, like speakers, tracking devices, software and phone accessories. But they all alleged that Big Tech firms had 'bullied' them into abiding by their rules. 
  • "Big Tech is bent on expanding until it does absolutely everything, Basecamp CTO David Heinemeier Hansson said, quipping, "Help us Congress, you're our only hope."
  • Visit Business Insider's homepage for more stories

Google, Amazon, Facebook and Apple were the subjects of scathing criticism by smaller tech companies during a Congressional hearing on Friday.  

An assortment of tech firms that sell everything from speakers to phone accessories accused the tech giants of bullying business tactics. 

"There's such a dominant power that exists with these companies that when Google or Apple asks for something ... you have no choice but to provide that to those companies," Patrick Spence, the CEO of wireless speaker company Sonos, told lawmakers.

Sonos, Tile, Basecamp, and PopSockets all appeared Friday at a hearing by the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law. Speaking at so-called "field hearing" that took place at the University of Colorado Law School in Boulder, Colo., the executives called for Congress to implement tougher regulation of Big Tech.  

The executives told similar stories about how the larger tech companies had used their dominance in one market to cripple competition in its emerging products and tilt the field in their favors for its other product lines. 

"At some point, all companies will be competing against Big Tech simply because Big Tech is bent on expanding until it does absolutely everything," Basecamp CTO David Heinemeier Hansson added, and quipped, "Help us Congress, you're our only hope." 

Got a similar story about Apple, Google or Amazon's practices?  Feel free to contact this reporter via Twitter @bani_sapra or contact by email at You can also contact me via encrypted email at or Telegram @bani_sapra. 

Here's how Apple, Google and Amazon use their size to bully smaller tech firms, according to the executives who testified:  

Apple's strict rules on the App Store make it difficult for smaller companies to innovate, and drains their resources, they said. Meanwhile, Apple develops and boosts its own alternative products.

Tile makes stamp-sized Bluetooth trackers that help customers find their keys, wallets or phones. In some ways, the product competes with Apple's built-in Find My iPhone feature. According to Tile General Counsel Kristin Daru, the company has faced a series of stringent and arbitrary regulations from Apple that have drained its resources. 

"Apple is acting as a gatekeeper to applications and technologies in a way that favors its own interests," Daru said. "You might be the best soccer team, but you're playing against a team that owns the stadium, the ball, and the league, and can change the rules when it wants."

Basecamp CTO David Heinemeier Hansson added that the company's App Store tax gives Apple a 30% margin advantage over every competitor. "It is outrageous that that rate has stayed the same," Hansson said. 

Daru went on to list examples of the ways in which Apple had allegedly exploited the App Store in its favor: the Find My iPhone app is embedded into iOS while Tile can be installed - or deleted. Find My iPhone's settings are clear but Tile's are buried, thanks to iOS 13's updates, Daru said.

Apple sent a statement to Business Insider after the trial, to say that it was updating its features to allow Tile (and other apps) to automatically enable its full functionality at the time of an app installation. 

"We continually work with developers and take their feedback on how to help protect user privacy while also providing the tools developers need to make the best app experiences," a spokesperson said. "We're currently working with developers interested in enabling the "Always Allow" functionality to enable that feature at the time of set up in a future software update." 

Google leverages its dominance in search to pressure companies to help boost its other businesses, executives said.

Earlier this month, Sonos sued Google, alleging that the tech giant infringed on five of its patents. 

But Sonos CEO Patrick Spence's testimony against Google went far beyond that. 

The advantages Google has in marketing its own products "are like nothing we've ever seen before," Spence said. For instance, Spence alleged that Google had pressured Sonos to only allow its speakers to sync up with Google Assistant, rather than also offer it on Amazon's competing voice assistant Alexa. 

"Looking at leveraging market dominance to dominate another category has to be thought through. Is that the spirit of the kind of world we want to live in?" he later added. 

Threats of retaliation were also of ongoing concern to the testifying companies. 

"We could lose our listing in DuckDuckGo and we wouldn't even tell. We lose Google and we lose our business," PopSockets CEO David Barnett said.

Basecamp CTO David Heinemeier Hansson also had concerns on his company's presence on the search engine. Google makes up more than 40% of Basecamp's traffic, per Reuters, but it allowed competitors to buy ads on Benchmark's trademark and block consumers from reaching the site, Hansson said. The company could only compete by similarly buying ads on Google search. 

"Sonos has made misleading statements about our history of working together. Our technology and devices were designed independently. We deny their claims vigorously, and will be defending against them," Google told Business Insider in a statement.

"For trademarked terms like the name of a business, our policy balances the interest of both users and advertisers. Like other platforms, we allow competitors to bid on trademarked terms because it offers users more choice when they are searching. However, if a trademark owner files a complaint, we will block competitors from using their business name in the actual ad text," Google said.

Amazon hosts counterfeits and 'bullies' its third party sellers, according to PopSockets CEO Barnett

PopSockets, which makes phone accessories, accused Amazon of failing to remove counterfeit products and pressuring it to lower its prices. If it failed to do so, Amazon said it would source the same accessories from third-party sellers, PopSockets CEO David Barnett alleged. 

Barnett said Amazon had a host of such tactics to "bully" businesses, and described informing Amazon about 1000 fake products every day, with no recourse. At the same time, Barnett said that Amazon was lowering the prices it was charging consumers, and then demanding payment from PopSockets for its lost marginal profits.

PopSockets has had a tense relationship with the online marketplace for years. The company eventually stopped selling on Amazon, as a result of counterfeits and aggressive pricing tactics, Barnett said. 

He ultimately suggested that Congress break up Amazon into two bodies: one that runs the marketplace, and the other that sells on it. 

"We sought to continue working with PopSockets as a vendor to ensure that we could provide competitive prices, availability, broad selection and fast delivery for those products to our customers. Like any brand, however, PopSockets is free to choose which retailers it supplies and chose to stop selling directly through Amazon," an Amazon spokesperson told Business Insider.

"Even so, we've continued to work with PopSockets to address our shared concerns about counterfeit, and continue to have a relationship with PopSockets through Merch by Amazon, which enables other sellers to create customized PopSockets for sale," Amazon said.

Facebook violates privacy to fuel a 'devastatingly effective' ad machine. "No single company should have access to that much data," Basecamp's David Heinemeier Hansson said

Complaints about Facebook were the most sparse out of the small tech company testimonies, and largely addressed data-privacy concerns rather than anticompetitive behavior. 

Facebook has a "devastatingly effective" ad machine, Basecamp's David Heinemeier Hansson said. "But when you think about why everyone is unable to compete, it's because it's all based on a fundamental violation of privacy."

And when asked to respond to any concerns regarding Facebook's attempted launch of Libra, and the potential that it would turn into a huge bank, Hansson said that would be a "catastrophe." 

"No single company should have access to this much data," Hansson said. "We already have problems dealing with the problems they've created." 

Facebook declined to comment.



Key world equity indexes scaled new highs on Friday, boosted by a surge in U.S. housing starts to levels last seen in 2006, while the greenback rose to a one-week high against the euro on expectations of solid economic growth.

U.S. television streaming company Netflix has opened a new Paris office and plans to develop more than 20 original French-language productions in 2020, it said on Friday.

Oil prices steadied on Friday as sluggish economic growth in China, the world's biggest crude importer, raised concerns over fuel demand and countered optimism from the signing of a China-U.S. trade deal.

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  • Goldman Sachs surveyed dozens of its clients and found that 87% expected President Donald Trump to win the 2020 election.
  • The bank's strategists polled attendees at a conference this week and received an average of 160 responses to their questions.
  • Only 5% of respondents expected a US recession this year, 45% expected a bear market in 2021, and 67% expected the Federal Reserve to hold interest rates steady this year.
  • View Business Insider's homepage for more stories.

Goldman Sachs surveyed dozens of its clients and found that the vast majority expected President Donald Trump to win a second term in office.

The banking titan's investment researchers polled attendees of its Global Strategy Conference in London this week, garnering an average of 160 responses to each of their questions. Asked whether Trump — who was recently impeached by the House of Representatives and now faces a Senate trial — would win the 2020 election, 87% of respondents said they expected him to triumph. The bank published its results in a research note Thursday.

Of course, Goldman's clientele is definitely not representative of the American electorate, and the betting site Oddschecker gives slimmer odds of a Trump victory, at 4/5.

Goldman's US strategists haven't predicted who will win the election but have warned that if one party holds the House and the Senate and Trump's 2017 tax cuts are rolled back, corporate earnings per share could drop by 7% next year — a sharp deviation from the strategists' baseline estimate of a 5% rise.

The strategists also surveyed conference attendees on when the next US recession would hit. Only 5% said this year, while 35% were bracing for one in 2021, and 38% expected it in 2022. Similarly, Goldman's economists put the odds of a recession in the next 12 months at under 20%.

Goldman also polled the crowd on the stock market and the Federal Reserve.

About 60% of respondents expected US equities to return 0% to 10% this year, but 45% predicted a bear market in 2021. Goldman's strategists expected positive returns on equities in the coming months.

More than two-thirds of respondents predicted the Federal Reserve would hold interest rates steady this year, after the central bank cut them three times last year. Only 4% expected it to raise rates.

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NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption

Indian Prime Minister Narendra Modi's ruling party on Friday slammed editorial policies of billionaire Jeff Bezos-owned Washington Post, even as his e-commerce firm Amazon announced plans to create a million jobs in the country by 2025.

Boeing Co said on Friday it is addressing a new software issue discovered in Iowa last weekend during a technical review of the proposed update to the grounded Boeing 737 MAX, a development that could further delay the plane's return to service.

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