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Definite Signs of An Imminent Recession (#GotBitcoin?)

Facing iPhone Troubles, Apple Tries to Change the Story

The company plans to stop reporting unit sales as it pushes its services business.

When Steve Jobs took a swipe at Amazon.com Inc.’s Kindle in 2009, he pointed to the online retailer’s decision not to report unit sales of its reading device as evidence it wasn’t selling many.

Nearly a decade later, Apple is following a similar path. The company said it would stop disclosing data on the number iPhones, iPads and Macs it sells, eliminating a performance metric it has provided since the 1980s.

The change comes as growth in the number of iPhones sold slows, with customers increasingly holding on to smartphones longer. Apple has responded by promoting software and services across its devices and raising prices on new gadgets.

Investors balked at the reporting change, and at revenue projections that fell short of Wall Street estimates. On Friday, the elimination of unit-sales data contributed to shares falling 6.6% as the company shed $71.19 billion in market value in a single day.

Apple’s “privacy commitment now extends to iPhone unit disclosure,” Amit Daryanani of RBC Capital Markets wrote in a note to investors. In an interview, he said the change means many shareholders now believe Apple is hiding something. “It’s a monkey on their back,” he said.

Mike Levin, co-founder of Consumer Intelligence Research Partners LLC, a market-research firm that surveys Apple customers, said the change shows Apple executives are thinking about their business in ways they haven’t wanted to say aloud.

“When Apple was doing great, unit sales told a wonderful story. Now that the story isn’t so good, they’re saying, ‘Let’s change it,’” he said.

Mr. Jobs might agree. “Usually, if they sell a lot of something, you want to tell everybody,” the Apple co-founder told the New York Times nine years ago when criticizing Amazon’s Kindle.

Apple remains an immensely profitable company and rode recent price increases to its best year ever. Chief Executive Tim Cook told analysts Thursday the change better reflects how Apple’s business has evolved in the wake of its new pricing strategy. When a cashier rings up a shopper, the register doesn’t show how many units the shopper buys—only what the shopper spends, he said.

Other companies also have altered the way they report longstanding business metrics.

In April, General Motors Co. abandoned a decades-old practice of reporting monthly vehicle sales and joined Tesla Inc. in reporting such figures quarterly. Walmart Inc. and Target Corp over the past decade have moved to reporting same-store sales quarterly instead of monthly to eliminate volatility.

“This is new territory,” said Peter Bible, chief risk officer at accounting advisory firm EisnerAmper LLP and former accounting chief at GM. “Whether it be monthly unit sales of cars or unit sales of iPhones or iPads, are they afraid it’s not going to be favorable?”

Apple finance chief Luca Maestri, who previously worked at GM, said Apple would continue to provide “qualitative commentary,” such as noting that unit sales of flagship iPhones are strong and attracting customers with new features.

Apple will now report gross margins separately for its hardware and services.

How gross margins perform between hardware and services will become an important metric, said Gene Munster, managing partner at Loup Ventures, an investment and research firm.

Investors will look at the margins in hardware to determine the health of iPhones. “All Apple needs to do is keep hardware gross margins stable,” said Mr. Munster, who thinks the reporting changes are positive for investors because of the recurring revenue the services business offers.

The change also forces Apple’s fast-growing services business to center stage.

Apple has 1.3 billion iPhones and other devices in active use and earns an estimated $30 for each device annually from app sales, music subscriptions and other offerings, according to Morgan Stanley. The firm expects services to account for about 60% of Apple’s revenue gains over the next five years. By contrast, the iPhone accounted for 86% of sales growth in the previous five-year period, it estimates.

Over the past year, services grew by 24% to $37.19 billion. Still, they represented only about 14% of Apple’s total revenue of $265.6 billion in fiscal 2018. Apple hasn’t broken out revenue for its various services.

Pushing the business forward will test Mr. Cook, an operations expert who turned Apple into a profit-spewing machine by controlling hardware costs and inventory. Now, the company’s direction increasingly will depend on the leadership of Eddy Cue, who is in charge of internet software and services, and Phil Schiller, who oversees the app store.

It could take a year or more before Mr. Cook’s team shows services and higher-priced devices can make up for flat or declining unit sales, said David Yoffie, a professor at Harvard Business School, who has written Apple case studies. “Apple obviously wants to change the narrative on the Street, but lower transparency will reduce confidence in the short run,” he said.

Chinese Exiting U.S. Real Estate As Beijing Directs Money Back To Shore Up Economy

Third-straight quarter Chinese investors sold more commercial U.S. property than they bought.

Chinese net purchases of U.S. commercial real estate last year dwindled to their lowest level since 2012, as Beijing kept up the pressure on Chinese investors to bring cash home during a period of worsening economic growth.

Insurers, conglomerates and other investors from mainland China were net sellers of $854 million of U.S. commercial property in the fourth quarter, according to Real Capital Analytics. That marked the third-straight quarter Chinese investors sold more U.S. property than they bought, the first time ever these investors have been sellers for that long a stretch.

The selling during most of 2018 marked a powerful reversal from the previous five years, when Chinese investors went on a massive buying spree, often handily outbidding other investors for U.S. trophy properties. They spent tens of billions dollars on luxury hotels like the landmark Waldorf Astoria in New York, a nearly $1 billion skyscraper development in Chicago, and a glitzy residential project in Beverly Hills, Calif.

Now, many of China’s biggest overseas real-estate investors are unloading some of the same prized assets, or at least reducing their U.S. exposure by selling stakes to new partners.

The turnabout last year reflects an effort by the Chinese government to stabilize its currency, reduce corporate debt, and help arrest the country’s economic slowdown by clamping down on certain overseas investments. Some Chinese developers, now facing tighter credit conditions at home, have tried to raise money instead by selling some of their U.S. properties.

Simmering trade and political tension between Washington and Beijing has also made the U.S. a less hospitable place to invest for Chinese firms, analysts say.

Chinese were net buyers of $2.63 billion of U.S. real estate in 2018, the lowest total in six years, according to Real Capital. China would have been a big net seller for the entire year if not for a $11.6 billion purchase of GLP, formerly Global Logistic Properties Ltd, made by a consortium of Chinese buyers a year ago.

Chinese have also been selling their U.S. homes while fewer new buyers are showing up. Home purchases by Chinese in the U.S. tumbled 4% from April 2017 to March 2018 compared with the same period a year earlier, according to the most recently available data from the National Association of Realtors. That sharp decline reflected higher home prices, a strengthening dollar and tensions between the U.S. and China, economists say.

China’s pullback from the U.S. property market is the latest sign that slowing growth in the world’s second largest economy is reverberating across the globe, roiling financial markets and undercutting corporate earnings. China recently reported a 6.6% growth rate for 2018, the worst annual expansion since 1990 and a sharper slowdown than Beijing expected.

Chinese authorities aren’t likely to loosen capital controls anytime soon, and analysts expect Chinese investors to continue to dump U.S. real estate in 2019.

“They haven’t managed to stabilize anything, so the timeline is going to be extended,” said Arthur Margon, a partner at real-estate consulting firm Rosen Consulting Group, referring to China’s currency control policy.

China began investing heavily in the U.S. real-estate market a few years ago after Beijing loosened restrictions on foreign investment. Some Chinese investors were attracted to the stable returns in the U.S. property market and saw it as a way to diversify their holdings.

Yet some Chinese buyers seemed more interested in scooping up trophy properties that their new owners felt brought prestige, political clout and helped promote their brands for global expansion, analysts said. And while Chinese buyers never represented more than a fraction of the activity in any major U.S. city, the big checks they wrote helped push values higher in certain segments of the market.

“Without that big push from Chinese investors, the market doesn’t have that rocket-propelling fuel to it,” said Mr. Margon.

Anbang Insurance Group Co. paid the highest purchase price ever for a U.S. hotel with its $1.95 billion acquisition of New York’s Waldorf Astoria hotel in 2015. The owner is renovating the property and converting a number of hotel rooms into private residences.

But the insurer, now controlled by the Chinese government after its former chairman was detained and subsequently convicted on fraud and embezzlement charges, has placed another portfolio of luxury hotels in the U.S. for sale.

Other heavily indebted companies such as HNA Group and Dalian Wanda Group have also unloaded their properties in New York City, San Francisco, Minneapolis and Beverly Hills, Calif., after facing pressure from Beijing officials to rein in their aggressive expansion plans.

Brokers and bankers said most of these weren’t distressed sales. Even if the sellers sold for less than they bought, they likely still made a profit after converting proceeds to the weakened Chinese currency. The yuan has declined by around 12% against the dollar since the start of 2014.

Some Chinese investors are still interested in the U.S. real-estate market. But rather than pursuing soaring skyscrapers or luxury hotels, they have focused on more mundane properties, such as warehouses and smaller retail buildings such as convenience stores that offer steadier returns.

China Life Insurance recently acquired an 80% stake in 10 shopping centers in places such as Marietta, Ga., and Charleston, S.C.. through a joint venture with Site Centers Corp. that valued the portfolio at around $607 million

While transactions above $1 billion now look like a thing of the past, there is still Chinese interest in real-estate projects selling for less than $30 million, said Xinyi McKinny, senior managing director of China Direct Investment at property consulting firm Cushman & Wakefield .

“Investors are more returns-driven versus before, when it was ‘I want to own the most expensive building in downtown New York or downtown San Francisco,’” she said.

Lowe’s To Close Nearly 50 Stores

Home Improvement retailer’s growth has lagged behind Home Depot’s.

Lowe’s Companies Inc. said it would close nearly 50 stores as a new CEO seeks to boost sales by shedding less-profitable locations and focus spending elsewhere.

The home-improvement retailer will close 31 locations, including 4 offices and specialty plants, in Canada and 20 stores in the U.S. Some stores will close immediately, others by the end of the company’s fiscal year on Feb. 1, 2019.

“The store closures are a necessary step in our strategic reassessment as we focus on building a stronger business,” said Marvin Ellison, Lowe’s chief executive. Mr. Ellison, who took the job in July, has previously said the company needs to cut spending on some projects to focus on improving core retail areas like better stocking shelves and increasing online sales.

In August Lowe’s said it would close all Orchard Supply Hardware stores, the 99-store chain the company bought in 2013. Lowe’s has over 2,300 stores in North America.

Many retailers have kept store counts steady or closed stores in recent years as the industry faces competition from Amazon.com Inc. and new shopping behaviors that require more home delivery capabilities and less physical space.

Lowe’s sales have risen in recent years in line with a strong housing market and economy, but have been sluggish compared with competitor Home Depot.

Activist investor D.E. Shaw built a stake in Lowe’s earlier this year. Lowe’s previous CEO Robert Niblock said in March he would retire, a week after three new directors joined the board as part of an agreement with D.E. Shaw.

Another activist investor, William Ackman’s Pershing Square Capital Management LP, also announced a stake in the retailer this summer, and planned to support Mr. Ellison, according to people familiar with the matter.

In the most recent quarter Home Depot said sales in existing stores rose 8%. At Lowe’s sales in the most recent quarter grew 5.2%.

Most Lowe’s employees in stores set to close will be offered roles in nearby stores, the company said in a news release.

The closures will reduce Lowe’s expected annual earnings per share by 28 to 34 cents. In August Lowe’s said it expected earnings per share to hit $4.50 to $4.60 for the fiscal year ending Feb. 1, 2019.

Dollar Tree’s $9 Billion Problem: Family Dollar Isn’t Paying Off

Weak sales at the acquired chain are hurting Dollar Tree’s financial results; CEO counts on renovations, store closures, more beer.

Dollar Tree Inc. won a hard-fought battle to buy Family Dollar more than three years ago, beating out Dollar General Corp. for the roughly 8,200-store chain that caters to low-income shoppers by selling things as diverse as $40 wireless speakers and 55-cent cans of Vienna sausage.

Dollar Tree at the time was the smallest of the three discount retailers, and sought more heft to compete with Dollar General and the likes of Walmart Inc. and Target Corp. But now Dollar Tree executives are trying to prove the nearly $9 billion cash-and-stock purchase wasn’t a mistake.

Family Dollar’s sales have been sputtering, hurt by neglected stores, poor product selection and unhappy workers, according to analysts. The problems date to before Dollar Tree bought the business. But executives had hoped to be further along in solving them, say people familiar with the company, and now the stores are dragging on Dollar Tree’s sales and stock price.

In the most recent quarter, sales at Dollar Tree stores rose 3.7%, the same growth figure reported by rival Dollar General amid a strong economy and continued demand for inexpensive items. But Family Dollar’s sales—which account for roughly half of the corporate total—were flat, cutting Dollar Tree’s overall sales growth to 1.8%.

Dollar Tree’s stock was off 21% year to date through October, while Dollar General shares were up 20%.

“At this point, [Family Dollar] has been losing traffic for years. The store managers are tired, employees are tired and the energy and culture are just not there,” said Karen Short, retail analyst at Barclays. “I don’t know if there is any easy fix.”

Dollar Tree Chief Executive Gary Philbin said Family Dollar is fixable and managers are energized, but the chain needs more work than the company originally thought. Mr. Philbin, who became CEO of Dollar Tree last year and ran Family Dollar after the acquisition, said basic changes such as clearing out aisles, stocking shelves better and waxing the floors haven’t increased sales in some stores the way the company expected.

“We have to do renovations,” said the 61-year-old executive, who started at Dollar Tree in 2001 as head of stores. “Maybe that is a little clearer to me than when we started out.”

Dollar Tree stores are mostly in suburban locations and sell all items for $1, often to middle-income shoppers browsing knickknacks for fun. Dollar General is concentrated in rural areas and sells products at different price points to attract shoppers from households earning $40,000 a year or less. Family Dollar aims to attract similar low-income shoppers, but nearly half its stores are in urban locations. Including Family Dollar outlets, Dollar Tree has about 15,000 U.S. stores, roughly equal with Dollar General.

Family Dollar’s drag on Dollar Tree stands out at the same time that competitor Dollar General is growing rapidly and a strong economy is boosting sales at big-box competitors including Walmart and Target.

Dollar General, which is based in Tennessee, has ramped up new store openings since it lost out on buying Family Dollar, adding about 1,000 a year in mostly rural locations. That is in part because Dollar General executives say they see a window of opportunity to head off expansion by Dollar Tree as it tends to Family Dollar’s woes.

This year Virginia-based Dollar Tree plans to renovate 500 Family Dollar stores, on top of the 377 done last year, and intends to accelerate renovations next year to boost sales further, Mr. Philbin said. It intends to put more snacks and drinks near registers, add more frozen and refrigeration units, and sell more items for $1, he said.

It also will change the layout of stores, he said. Store-brand diapers are best sellers but sit across from dog food in some Family Dollar stores because both products need deep shelves. In renovated stores, baby and toddler items will be stocked across from diapers to better catch parents’ eyes, Mr. Philbin said. And the company is selling beer in more locations and revamping Family Dollar’s store-brand products.

Mr. Philbin said the company plans to close an unspecified number of Family Dollar stores and turn some locations into Dollar Tree outlets. He said there is still room for Dollar Tree to add Family Dollar stores in rural America because grocery, drugstore and big-box chains aren’t adding to their totals. “I think in rural America, it’s an opportunity,” he said.

Investors have speculated that an activist investor could take a position in Dollar Tree to advocate for a sale of Family Dollar.

In 2014, activist investors—including Carl Icahn and Nelson Peltz’s Trian Fund Management—pushed Family Dollar to sell itself. Today, there isn’t a clear buyer if it were put on the block, some analysts say.

One reason Dollar General lost the contest for Family Dollar three years ago were antitrust concerns on the part of Family Dollar’s board. Those issues could be magnified now as Dollar General has added thousands of stores, analysts say.

Dollar General will “look at anything that’s an opportunity to continue to grow,” said its CEO, Todd Vasos, at a recent investor meeting when asked about a possible acquisition.

Mr. Philbin declined to comment about activist interest in Dollar Tree but said the company’s current board-approved plan to accelerate full-store renovations will buck up Family Dollar.

“This sector is the right sector to be in,” Mr. Philbin said. “Discount, small-box retail. I’d rather be here than anywhere else.”

Updated 11-12-2018

Dow Falls 600 Points As Tech Rout Hits Stocks (#GotBitcoin?)

Decline erases a rally in energy shares, which had bounced higher with oil prices; Dow industrials fall 600 points.

The Dow Jones Industrial Average tumbled about 600 points Monday as anxiety over the health of technology behemoths sparked a broad retreat from the stock market.

Monday’s selling began in the technology sector, then morphed into a broad rout that dragged lower everything from oil conglomerates to manufacturers to entertainment firms. It was the latest setback for the stock market, which has struggled to break out to new highs since the S&P 500 capped off its worst month in more than seven years.

The Dow industrials fell 602 points, or 2.3%, to 25387. The S&P 500 lost 2% and the Nasdaq Composite dropped 2.8%.

Some pinned the retreat to worries that risky assets as a whole look increasingly vulnerable to a reversal following a yearslong rally.

Others said flaring tensions in Italy and the U.K. were contributing to the general unease in the markets. And still others blamed nervousness around the future of chip makers and consumer device companies that had driven much of the bull market’s gains earlier in the year.

Apple fell 4.7% after one of its suppliers, Lumentum, cut its earnings and revenue outlook—triggering fresh worries about demand for the company’s iPhone line. The fall of companies like Apple, among others, has often preceded broader pullbacks this year as investors have questioned what sectors can ride higher as the global economy shows more signs of slowing.

“People tend to ask what’s Amazon doing today? What’s Apple doing today?” said Robert Pavlik, senior portfolio manager and chief investment strategist at SlateStone Wealth. And when those technology giants, among others, falter, investors tend to become increasingly nervous about how far the broader market can rise, Mr. Pavlik added.

Growth Worries

Apple shares tumbled after one of its suppliers, Lumentum Holdings, cut it’s earnings and revenue outlook, adding to worries about demand for iPhones.

Among the biggest decliners in the Dow industrials: Goldman Sachs. Shares tumbled 7.1%, wiping out more than 100 points from the blue-chip index of 30 stocks, as concerns grew over the bank’s interaction with a financier charged with stealing billions of dollars from the 1Malaysia Development Bhd. investment fund.

General Electric also took a hit, dropping 7% and heading for its fourth consecutive daily decline after comments from the firm’s chief executive on CNBC failed to assuage investors’ worries about the future of the industrial conglomerate.

As stocks slumped, investors flocked to shares of dividend-paying sectors that tend to perform well during periods of heightened volatility. The utilities and real-estate sectors rose 0.8% and 0.4% apiece, the only two groups in the S&P 500 to post gains so far in the day.

The drops across the stock market erased a brief rally in energy shares, which had bounced higher with oil prices earlier after Saudi Arabia said it would slash exports and the Organization of the Petroleum Exporting Countries considered a collective production cut.

U.S. crude oil for December delivery fell 0.4% to $59.93 a barrel, wiping out its gains for the day and notching its 11th consecutive daily decline—its longest such streak on record, according to Dow Jones Market Data analysis going back to 1983. Signs of a coming oil glut and falling crude prices have pushed suppliers nearer to a pact to reduce output.

“The size of any production cuts will likely depend on how much oil demand growth will slow down into 2019, how much Iranian supply falls due to U.S. sanctions and how strongly U.S. supply increases over the coming months,” said Giovanni Staunovo, a commodities analyst at UBS Wealth Management, noting that OPEC only makes decisions at certain meetings, the next of which is scheduled for the beginning of December.

Elsewhere, the Stoxx Europe 600 fell 1%, while the U.K.’s FTSE 100 lost 0.7%.

The euro and pound both fell against the U.S. dollar, dragged by heightened uncertainty in the U.K.’s negotiations over Brexit. Party infighting among U.K. Prime Minister Theresa May’s Conservatives and unsolved questions on Northern Ireland were among the factors weighing down sterling on Monday, analysts said.

In Asia, Japan’s Nikkei Stock Average closed 0.1% higher, while Hong Kong’s Hang Seng gained 0.1%.

Fears about slowing growth in China and trade tensions weighing on consumption were assuaged by Alibaba Group Holding’s Singles Day on Sunday, when Chinese consumers bought $30.8 billion worth of goods in 24 hours, surpassing last year’s $25.3 billion.

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