Crude oil prices plunged Thursday, with West Texas Intermediate falling to $32.12 per barrel. However, oil prices have since turned positive on the day, currently trading above $34 per barrel.
There's "way too much oil," TheStreet's Jim Cramer, co-manager of the Action Alerts PLUS portfolio, said on CNBC's "Squawk on the Street."
Cramer found it interesting that oil prices are finding support near their December 2008 levels, even if that support is only temporary.
What should stop prices from falling to multi-decade lows? Oil prices were in the $20s from 2000-2003, and below $20 per barrel from 1998 to 2000, he pointed out.
"We did have tremendous oversupply then, too, more than we have oversupply now," Cramer said.
Today, however, according to his recent conversation with oil tycoon T. Boone Pickens on CNBC's "Mad Money" show, the current supply-demand imbalance is off by only about one million barrels per day.
That's a far cry from where the supply-demand imbalance was in previous years, although Cramer acknowledged that lower prices are in the realm of possibilities. For his part, Pickens believes oil prices are close to a bottom, and made the case for why oil could return to $70 per barrel by year end.
What may be good news for investors is that bear markets for U.S. stocks tend to end soon after reaching a 20% decline.
MarketWatch rounded up 10 of the most interesting money stories published over the past week that readers might have overlooked.
Bear markets tend to end quickly
The S&P 500 Index SPX, -2.16% was down 6.4% this year through Thursday, and tumbled as much as 2.3% on Friday.
FactSet
The S&P 500 has returned only 4.5%, with dividends reinvested, over the past 24 months.
Mark Hulbert shared some interesting facts based on the history of bear markets for U.S. stocks. A bear market is typically defined as a decline of at least 20%, and as soon as you realize you are in one, it will probably soon be over.
Oil prices
Oil prices keep falling, and there’s no end to predictions of how far they will decline before the inevitable turnaround. Higher-cost producers will be forced to keep cutting production, and as the law of supply and demand tells us, there will come a point when the momentum swings the other way, as it always has.
William Watts pointed out that the cheapest high-grade crude oil in the world right now is in a surprising place: the oil sands of Canada.
The return of inflation?
Rex Nutting interviewed Stephen Stanley, chief economist for Amherst Pierpont Securities, who said he expected the Federal Reserve to raise the benchmark federal funds rate four times during 2016.
Despite all the fearful headlines that rising inflation would cause, it would likely be a good thing for many savers and investors. During a time of higher inflation, if you are earning a decent return on your savings while also holding down expenses as much as possible, you just might be “getting ahead.”
Avoid China, but consider other emerging markets
Bill Mann, chief investment officer of Motley Fool Asset Management, said in an interview that investors should avoid overexposure to stocks in China and consider other emerging markets.
“China is, at its core, not a market,” he said, because of heavy-handed government interference. We also listed the best-performing emerging markets funds, with a clear trend for the strongest performance in one country.
Shares of McDonald’s Corp. MCD, -1.23% are down only 1.3% this year through Thursday. The stock has returned 32% over the past 12 months, with dividends reinvested, compared with a decline of 2.4% for the S&P 500.
Tonya Garcia took a detailed look at the company’s introduction of all-day breakfast in October, and what it means for McDonald’s long-term revenue growth prospects.
Feds take a closer look at cash real estate buyers
Are you sitting on a mountain of cash, wondering what to do with it? It might be a nice problem to have, but if you are thinking of using a shell company to purchase high-end properties in Miami or New York without borrowing, you should expect plenty of scrutiny from the U.S. Treasury’s financial crimes enforcement network, according to Wallace Witkowski.
Temporary reporting requirements that kick in on March 1 will require title companies to report the identity of people using shell companies to make the purchases.
Remember when electric cars were considered cool? That may seem like a far-off time, with gasoline prices falling so much, but the long-term viability of electric cars seems clear. Jennifer Booton looked into the challenges faced by Apple as it makes what some analysts say is a too-late entry into the business.
Then again, coming late to the party may suit Apple. After all, the iPod was introduced after several other MP3 players were available, but Apple took over that space very quickly. One can say the same thing about smartphones. Remember when everybody was carrying around a BlackBerry or Palm Treo?
It’s now much easier to ‘play’ pot
Kathleen Burke discussed the Terra Tech Corp.’s TRTC, -0.71% agreement to acquire Blum Oakland dispensary, and the creation of the first publicly traded “fully integrated company that is directly involved with the production, extraction and sale of cannabis.”
That will make it a lot easier for investors looking to make major bets in the space, but serious challenges remain, because varying local laws make it difficult for marijuana companies to find banks willing to do business with them.
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“Our research shows that, worldwide, income inequality at the very top makes us all less happy with our lives, even if we’re relatively well-off,” said co-author Jan-Emmanuel De Neve, an associate professor in economics and strategy at the University of Oxford, in a statement released Tuesday.
The study used data from the Gallup World Poll and the World Top Incomes Database to plot the share of taxable income by the so-called 1% as compared to reported levels of life satisfaction and positive and negative emotional well-being.
Furthermore, in general, in societies where the 1% holds a larger share of the wealth, citizens report feeling more negative emotions than in those where income is more evenly distributed.
These findings come at a same time that income inequality has been rising in many countries. “In advanced economies, the gap between the rich and poor is at its highest level in decades,” according to research published by the International Monetary Fund last year.
In America, for example, the total share of income earned by the top 1% of families was less than 10% in the late 1970s; by 2012, it had reached levels not seen since the Great Depression, with more than 20% of the income owned by the top 1%, according to research from Emmanuel Saez, an economics professors at the University of California at Berkeley. (In fact, America’s 20 wealthiest people — a group that could fit in one Gulfstream G650 jet — have more wealth than the 152 million people who make up the least wealthy 50% of U.S. households.)
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The reason we become less happy as income inequality rises may be that as rich people get richer, they “extend the range of the income distribution,” which means that even reasonably well-off people can no longer afford certain things like private school or homes in the best neighborhoods, the researchers write in a post published Tuesday on Harvard Business Review.
Furthermore, “an increase in the share of income held by the richest 1% can make you feel as if your chance of moving up the ladder and becoming very rich yourself is growing increasingly beyond your reach,” they conclude.
This study does not prove causation; it simply shows that there is a strong correlation between rising income inequality and lowered life satisfaction and increased negative emotions. Plus, it did not look at this relationship in all countries, as data on that was not available.
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Although investors are doing their best to push a rebound in stock prices, it's been hard for some retail stocks Monday. Shares of VF Corp (VFC - Get Report) are down 2% and Under Armour (UA - Get Report) down 8% following downgrades from Morgan Stanley.
These are "devastating" reports on two stocks that have been decimated over the past few months, TheStreet's Jim Cramer, co-manager of the Action Alerts PLUS portfolio, said on CNBC's "Mad Dash" segment.
Shares of VF Corp. are down 20% over the past three months, while Under Armour stock is down nearly 33% in that span. Analysts downgraded both stocks to underweight, preferring Nike (NKE - Get Report) to Under Armour and favoring Hanesbrands (HBI - Get Report) over VF Corp, Cramer said.
He explained the analysts' reports were very "rigorous" and suggested any investor interested in trying to pick a bottom in one of these two stocks should read them first.
For Under Armour, analysts cited falling average selling prices, a mature U.S. apparel business and a decline in footwear prices.
For Cramer fave VF Corp., the analysts said long-term growth appears ready to slow while VF's Timberland and North Face brands may have peaked, Cramer added.
"These are great companies," he said, but these reports are thorough and so they concern him. In general, the overall stock market's valuation must decline in order for the bulls to become highly convicted buyers of stocks, Cramer concluded.
WASHINGTON — The Obama administration is imposing a moratorium on new coal leases on federal land, arguing that the program has remained largely unchanged for more than 30 years and requires a comprehensive review.
The coal leasing program must be modernized to ensure a fair financial return to American taxpayers and account for climate change, Interior Secretary Sally Jewell said Friday in announcing the halt. The move drew praise from environmental groups and Democrats, but condemnation from Republicans who called it another volley in what they assert is a “war on coal” being waged by President Barack Obama.
“It is abundantly clear that times are different than they were 30 years ago, and the time for review (of the coal leasing program) is now,” Jewell told reporters in a conference call.
She called the moratorium, effective immediately and expected to last through the remainder of Obama’s final year in office, a “prudent step to hit pause.”
The federal program to lease coal-mining rights to a single bidder has remained largely unchanged for more than 30 years, despite complaints that low royalty rates and a near-total lack of competition have cost the government hundreds of millions of dollars a year.
More than 40 percent of U.S. coal production, or about 450 million tons a year, comes from public land in Wyoming, Montana and other Western states, bringing in more than $1 billion in annual revenue.
Montana’s Republican delegation in Washington criticized the decision.
Rep. Ryan Zinke, R-Mont., said the move is “disastrous” for Montana, a state that sits on one-third of the nation’s recoverable reserves. “This administration’s war on coal just got a lot more personal for us in the West,” he declared.
Sen. Steve Daines, R-Mont., called it an “unprecedented assault on one of Montana’s most important sources of good-paying jobs and tax revenue” that will probably result in the end of coal development in Montana and Wyoming’s Powder River Basin.
“Take it or leave it proposals are exactly what’s wrong in Washington these days,” said Sen. Jon Tester, D-Mont. “Unfortunately, the president is contributing to this dysfunction. Yes, we’ve got to look at the coal-leasing program to make sure taxpayers are getting a fair shake. But to stop new leases without proper public input undermines our Montana values of transparency and accountability.”
Montana Gov. Steve Bullock, a Democrat, said Obama was “wrong” in his decision and would make sure Montana is involved as the process moves forward. “Montana’s working families are left bearing the brunt of his unilateral action,” he said.
Nearly 90 percent of coal tracts leased by the Interior Department receive just a single bid, and royalty rates have remain unchanged since 1976. The lack of competition and other problems in the leasing program have cost the government as much as $200 million a year in lost revenue, according to a 2014 report by the Government Accountability Office.
Coal reserves already under lease can continue to be mined, and a limited number of sales will be allowed, Jewell said.
It’s unclear what impact the moratorium will have on U.S. coal production, given declining domestic demand and the closure of numerous coal-fired power plants around the country. Coal companies have already stockpiled billions of tons of coal on existing leases in Wyoming, Montana, Colorado, Utah and New Mexico.
“This announcement comes as no surprise from an administration that seems hell-bent on forcing the coal industry to come to a screeching halt,” said Bud Clinch, executive director of the Montana Coal Council.
Glenn Oppel, government relations director for the Montana Chamber of Commerce, said federal coal royalties total between $40 and $50 million in biennial revenue to the state. “Losing that would leave a gaping hole in our state budget and represents a huge tax shift to Montana homeowners and small businesses,” he said.
Even so, environmental groups cheered the announcement. The groups have long said the government’s 12.5 percent royalty rate for coal mining on federal land encouraged production of a “dirty” fuel that contributes to global warming.
Anne Hedges, deputy director for the Montana Environmental Information Center, said the White House’s announcement is the latest sign that interest in dirty fossil fuels is waning because of its impact on water, economy and people who use public land. Instead, she said, more people are embracing cleaner, renewable energy.
“It’s a great step but there is a long way to go,” Hedges said. “It sends the right message to the markets that it’s time invest in the future, not the past.”
Sen. Maria Cantwell, D-Wash., said taxpayers are being shortchanged on royalties that do not reflect the true costs of mining, both in terms of its economic value to mining companies and its impact on the environment. Getting royalty rates right is especially important “given how much coal comes off federal land,” said Cantwell, the top Democrat on the Senate Energy and Natural Resources Committee.
“I’m glad to see the president take this action. We need to stop the sweet deal (mining companies) have been getting,” Cantwell said.
Government auditors for years have questioned the adequacy of the royalty rate for coal and whether it provided an appropriate return to the government, although they did not make specific recommendations to raise it. Industry groups counter that any increase in royalty rates will hurt consumers and threaten high-paying jobs.
Jewell’s announcement follows Obama’s statement during the State of the Union address that he would push to change the way the federal government manages its oil and coal resources.
Jewell and other officials said Friday that the review will take at least three years — long after Obama leaves office next January — but will include an interim report due by the end of the year.
“I am confident we will get a good way down the track in this administration,” she said, although officials later acknowledged that the next president will not be legally bound to complete the review.
Chris Doering in the Tribune’s Washington bureau contributed to this report.
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Investors navigated cramped hotel hallways and hustled between company presentations on the opening day of the J.P. Morgan Healthcare Conference on Monday while staring incredulously at their smartphones. Biotech stocks large and small were plummeting, and the painful start to 2016 was turning torturous.
The largest and most important healthcare conference held in San Francisco at this time each year is supposed to generate news and excitement to get investors in the mood to buy biotech stocks. But this year, there were very few market-moving announcements.
Shire(SHPG - Get Report) finally clinched its $32 billion acquisition of Baxalta(BXLT) , but the deal had been discussed for months and was therefore widely expected by investors. No other significant biotech M&A deals were announced Monday.
Celgene(CELG - Get Report) offered 2016 revenue and earnings guidance at the conference, but it was largely in line with current consensus expectations, so investors shrugged. None of the other large-cap biotech companies provided guidance Monday.
Vertex Pharmaceuticals(VRTX - Get Report) offered a limited and conservative sales outlook for one of its cystic fibrosis drugs, Kalydeco, while holding off on providing guidance on a second, more important drug, Orkambi.
Nearly every other company deciding to disclose 2016 sales guidance Monday told investors what they already knew. Almost across the board, company guidance was "in line" with consensus expectations.
A dull start to the J.P Morgan Healthcare conference contributed to a bad day for biotech stocks. The SPDR S&P Biotech ETF(XBI) fell 6% Monday to 57.08, a level it had not visited since November 2014. In the early afternoon Monday, the XBI was down more than 8%.
The XBI, the ETF with the broadest portfolio of biotech stocks, has now lost more than 18% to start 2016.
Among large cap biotech stocks, Celgene closed down 5%. Vertex lost 6% and Alexion Pharmaceuticals(ALXN - Get Report) fell 3%. Gilead Sciences(GILD) managed to close flat, which should be considered a major victory.
Bad news announced Monday was punished severely. Genvec(GNVC) fell 61% because enrollment for clinical trial of a gene therapy for hearing loss was stopped for a patient safety check.
Bluebird Bio(BLUE) dropped 18% after the company said it would wait until next December to present updated results on its gene therapy clinical trials in beta-thalassemia and sickle cell disease.
"Biotech stocks were on sale today," a healthcare investor remarked to me while waiting for a company presentation to begin. "The scarier thing is that prices could be marked down even lower in the coming days."
Thermo Fisher Scientific(TMO - Get Report) is buying Affymetrix(AFFX - Get Report) for $1.3 billion, and, despite paying a steep 20 times Ebitda for the business, the medical device maker still appears to be financially nimble to make more acquisitions, according to analysts.
"The nice part about this deal is that it gives them the flexibility with capital allocation to do more deals," said Matthew Mishan of KeyBanc Captial Markets in a phone interview. "In diagnostics, specifically, specialty diagnostics, they haven't done a deal. That's a higher-margin, higher-growth business they could look to expand."
Thermo announced Friday it had agreed to pay $1.3 billion, or $14 per share, for Santa Clara, Calif.-based Affymetrix, which provides genetic analysis of biological systems that help drug developers identify and understand disease mechanisms. The deal is Thermo's largest since it acquired Life Technologies Corp. for about $13.6 billion on Feb. 3, 2014.
Jack Mohr, co-portfolio manager for Jim Cramer's charitable portfolio, Action Alerts PLUS, said the acquisition is a good strategic fit for the company and "is well aligned with our view that TMO is constantly -- yet selectively -- identifying ways to create value for shareholders."
In addition, the size of the transaction "is in line with our views on the company’s M&A strategy, which we see as Thermo Fisher’s best use of capital. From management’s recent commentary, it has been clear that the company expects to maintain a disciplined capital deployment strategy with tuck-in M&A as the preferred use of cash, followed by share repurchase," according to Mohr.
Even after the $1.3 billion acquisition, "we believe TMO -- as a direct result of its robust free- cash-flow generation and high operating margins -- can deploy an incremental $2.5 billion of capital through dividends, buybacks and/or further accretive tuck-in acquisitions this year. This would still allow Thermo to end the year with a net debt to Ebitda (i.e., leverage) ratio within its targeted range of 2.5 times to 3 times."
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Thermo will integrate Affymetrix into its Life Sciences Solutions business, which provides services to the pharma and biotech industry. Affymetrix's technology is used in a variety of clinical and applied markets, including reproductive health and agricultural biotechnology.
"Overall, we are inclined to view the deal as a prelude as TMO possibly re-enters an era of re-accelerated capital deployment, now that debt post the Life transaction has been reduced," wrote Stifel Financial analyst Miroslava Minkova in a note Monday.
Apple(AAPL - Get Report) rose Tuesday after Bank of America Merrill Lynch analysts upgraded the stock, saying they're bullish on the launches of the new Apple Watch, the iPhone 6c and the iPhone 7 along with the company's large cash balance.
In addition, the bank's China survey showed that iPhone is the most popular brand there, and about half of current users plan to buy a new iPhone in the next year. That could give Apple a gain in market share.
The iPhone 6c will likely be priced lower and may "drive increased conversions from feature phones," analyst Wamsi Mohan and his team wrote.
Also, investors have largely discounted worries over a lackluster cycle for the iPhone 6s, which had prompted the bank's August downgrade, the analysts wrote.
Google CEO Sundar Pichai has put a key deputy in charge of forming a dedicated division for VR computing, according to Re/code. Clay Bavor, vice president for product management is focusing on VR products after having overseen Google's apps, including Gmail, Drive and Docs, and the Google Cardboard VR device. Senior Vice President Diane Greene will be taking over the apps division, the news organization reported, saying that Google had confirmed the moves but declined to comment on them.
Many in the industry had been questioning Google's dedication to VR after the company fumbled with Google Glass, Re/code wrote. Bavor's move shows that Google is taking seriously the threat from Facebook and its Oculus product, which currently has 400 people working on it, according to the article.
Google parent Alphabet rose 1.7% to $745.34 on Tuesday, while Facebook gained 1.9% to $99.37 and Microsoft advanced 1% to $52.78.
Twitter(TWTR - Get Report) , whose shares have suffered amid flat user growth and concerns about the CEO's split focus, announced a new feature meant to keep users from leaving the social-media service's timeline by enhancing their real-time experience.
Live video broadcasts from the sister app Periscope will now start playing automatically from users' Twitter feeds, so viewers will no longer have to launch a separate app, the company said. Twitter bought Periscope last year.
Periscope said it is rolling out the feature for Twitter on iOS over the next few days and will launch Android and web versions "as soon as they're ready."
Shares of Intel (INTC - Get Report) are up Tuesday thanks to an upgrade to buy from hold at Mizuho.
The company also received positive coverage from J.P. Morgan, TheStreet's Jim Cramer, co-manager of the Action Alerts PLUS portfolio, said on CNBC's "Mad Dash" segment.
These types of reports are "very bullish" for a stock heading into earnings, Cramer added. Intel reports Thursday.
Cramer praised CEO Brian Krzanich for doing a "wonderful job reinventing the company," especially after its acquisition of Altera. As the company shifts its business away from personal computers, look for the stock to trade with a higher price-to-earnings valuation, he said.
Turning to Darden Restaurants (DRI - Get Report) , Cramer pointed out that activist investor Starboard Value sold 1.3 million shares of the company. But investors shouldn't panic because the fund still holds an 8.1% stake in the stock.
"Don't sell Darden on a trim by a hedge fund that has a big gain. That's not a good reason to sell," Cramer explained. "The last quarter for Darden was extremely well," and the restaurant company is a big beneficiary of lower gas prices, he added.
Aside from Darden, few others have cited low gasoline as a positive catalyst. Some of those include Six Flags (SIX - Get Report) , Cedar Fair (FUN - Get Report) and Carnival (CCL - Get Report) .
Now that most of their hedges have expired, the airlines should also benefit from lower fuel costs, Cramer said. As a result, he likes this industry.
Wall Street and most buy-side analysts expected regional banks to benefit from higher interest rates as soon as the Federal Reserve began to raise interest rates. The Fed raised the federal funds rate on Dec. 16 but regional bank stocks did not rally; instead, they declined into correction territory more than 10% below multiyear or all-time highs set in July 2015.
From a technical standpoint, higher interest rates have not been positive for regional banks, based on data from the Federal Deposit Insurance Corporation and comments from the FDIC Chairman, Martin Gruenberg. That's why I said it was time to take profits on regional banks. This was based on continued FDIC concerns about credit risks as banks extend out the yield curve to pick up net interest margins.
Here's a scorecard for the five key regional banks.
Let's focus is on the daily charts as these stocks cascade below their Fibonacci retracements from their all-time or multiyear highs set in July to their "flash crash" lows of Aug. 24 or lower later in 2015.
The daily chart for BB&T shows the stock ended 2015 below its 50% Fibonacci retracement of $38.07. The horizontal lines are the retracements from the multiyear high of $41.90 set on July 23 to the 2015 low of $34.24 set on Oct. 2.
As 2016 began the stock plunged below its 38.2% retracement of $37.17. Then, on Jan. 7, the stock gapped below its 23.6% retracement of $36.05. The stock closed Tuesday at $34.90 in correction territory 16.7% below the July 23 high. The stock is just 1.9% above the low set on Oct. 2.
Note in a "sell on strength" strategy investors could have reduced holdings at its 61.8% retracement of $38.98 between Nov. 6 and Dec. 7.
Investors looking to buy BB&T should place a good till canceled limit order to buy the stock if it drops to $32.71, which is a key level on technical charts until the end of 2016.
BB&T is scheduled to report quarterly earnings before the opening bell on Jan. 21 and analysts expect the bank to earn 70 cents a share.
Here's the daily chart for M&T Bank Corp.
Courtesy of MetaStock Xenith
The daily chart for M&T shows the stock ended 2015 below its 50% Fibonacci retracement of $122.74. The horizontal lines are the retracements from the multiyear high of $134 set on July 23 to the 2015 low of $111.50 set on Oct. 2.
As 2016 began the stock plunged below its 38.2% retracement of $120.08. Then, on Jan. 6, the stock crashed below its 23.6% retracement of $116.79. The stock closed Tuesday at $110.49 in correction territory 19.2% below the July 23 high. The stock set a lower low of $108.32 on Jan. 11.
In a sell on strength strategy investors could have reduced holdings at its 61.8% retracement of $125.40 between Oct. 28 and Dec. 17.
Investors looking to buy M&T should place a good till canceled limit order to buy the stock if it drops to $95.68, which is the April 2013 low.
M&T is scheduled to report quarterly earnings on Jan. 19 and analysts expect the bank to earn $1.95 a share.
The prospect of four straight quarters of earnings declines is staring investors in the face on top of the worst multiweek selloff for stocks in years, and the worst start of the year ever.
For the year, the Dow Jones Industrial Average DJIA, -2.39% and the S&P 500 index SPX, -2.16% are down at least 8%, and the Nasdaq Composite Index COMP, -2.74% shed more than 10%.
Stocks also rang up a third week of losses for their largest multiweek percentage drop since the four weeks ended Aug. 19, 2011, according to FactSet data. Over the past three weeks, both the S&P 500 and the Dow industrials have declined 8.9%, and the Nasdaq has fallen 11.1%. For the four weeks ended Aug. 19, 2011, the S&P 500 has fallen 16.5%, the Dow is down 14.7%, and the Nasdaq dropped 18.1%.
Those hefty losses come as earnings season ramps up during the holiday-shortened week. Several companies on the S&P 500, along with seven Dow components, report quarterly results. And earnings season isn’t looking promising.
Total earnings for the S&P 500 in the fourth quarter are expected to decline from the previous year, even factoring that Wall Street forecasts’ have been lowered.
Over the past four years, estimates for S&P 500 earnings at the end of a given quarter have been an average three percentage points lower than the actual earnings results, according to John Butters, senior earnings analyst at FactSet.
Earnings were estimated to decline by 4.9% at the end of the fourth quarter, that would translate to a 1.9% decline if the average holds up. Currently, earnings are on pace for 5.7% drop.
Plus, current-quarter earnings estimates have taken a notable downturn in the past week.
First-quarter earnings for the S&P 500 are expected to decline from the year-ago period by 0.6%, compared with estimated growth of 0.9% at the beginning of the quarter, according to FactSet data.
Among Dow components: UnitedHealth Group Inc.UNH, -1.35% and International Business Machines Corp.IBM, -2.17% report Tuesday; Goldman Sachs Group Inc.GS, -3.58% reports Wednesday; Verizon Communications Inc.VZ, -0.98%American Express Co.AXP, -0.60% and Travelers Cos.TRV, -1.76% report Thursday; and General Electric Co.GE, -1.96% reports Friday.
Tenable Network Security, a Columbia-based cybersecurity firm co-founded by Ron Gula (pictured), raised $250 million in venture capital last year. (Tim Teeling/Courtesy of Tenable Network Security)
Washington-area businesses raised more venture capital in the fourth quarter than they had in any quarter since 2001 — largely due to a few large deals.
The surge is not likely to be repeated soon given the recent stock market turmoil. Indeed, venture funding nationally declined during the period.
In all, though, 29 area companies received $556.22 million in venture capital last quarter, a 53 percent increase from a year earlier, according to a report released Friday by PricewaterhouseCoopers and the National Venture Capital Association, with data by Thomson Reuters.
For the full year, the region’s companies secured 169 deals totaling $1.41 billion, up from 197 deals totaling $1.09 billion in 2014. On average, the region’s firms received $8.4 million in venture capital in 2015, up from $5.5 million a year earlier.
“The average deal size was up, and it was up significantly,” said Brad Phillips, a director at PwC.
The flow of deals is likely to slow this year. Nationally, U.S. companies raised $11.34 billion in venture capital during the fourth quarter, a 28 percent decrease from the year before, as a wobbly stock market gave investors pause.
During the fourth quarter, “it appears the volatility in the financial markets affected [venture capital] funding,” Phillips said. “Equity market declines were broad-based.”
In Washington, however, fourth-quarter funding remained robust.
Tenable Network Security, a Columbia, Md.-based cybersecurity firm, led the way with a nearly $250 million investment from Accel Partners and Insight Venture Partners. It was the region’s second-largest deal in the report’s 20-year history. (The largest was for XM Satellite Radio Holdings in 1999 for $250 million, $100 more than the Tenable deal.)
“It’s a record-setting deal,” said Ron Gula, chief executive of Tenable. “Not only is this good for our company, it’s generally a really, really good message for the industry and our approach to doing cybersecurity.”
Tenable has plans to open six international offices this year, including in Ireland and the United Arab Emirates, Gula said. The company hired roughly 200 new employees last year, and plans to add even more workers in 2016.
“An investment of this size allows us to accelerate even faster,” he said.
Throughout the region, software and biotechnology companies continued to receive the largest share of venture capital, or about 84 percent of total dollars awarded during the fourth quarter.
The recipients of the largest deals included Precision for Medicine, a Bethesda, Md.-based biotechnology firm (which received $75 million); IronNet Cybersecurity, a Fulton, Md.-based software company ($25 million); and ZeroFox, a Baltimore software company ($22.04 million).
“It’s a pretty good quarter when the two traditionally strong industries went up and we still saw other industries land funding as well,” Phillips said.
Businesses in Maryland received 81.3 percent of fourth-quarter funding in the Washington area, which the report defines as Maryland, Virginia, West Virginia and the District.
Abha Bhattarai is a business reporter for The Washington Post. She has previously written for The New York Times, The Wall Street Journal, Reuters and the St. Petersburg Times.
This story has been amended to add Elevate Credit’s statement in its prospectus that it seeks to comply with applicable laws and regulations. Also, the story now states that the company appears to do less than traditional lenders to ensure consumers can pay off their loans. Earlier, the story stated the company does little to ensure this.
Elevate
Elevate filed to go public with a price range of $20 to $22. Final pricing is expected Jan. 21.
As the payday loan industry faces a crackdown in the United States, an online service that also offers small loans with high interest rates to people with poor credit is preparing to take Wall Street’s biggest stage, even though it admits that its practices could lead to its own doom.
is set to be the first venture-backed initial public offering of 2016, with plans to sell shares this month in a deal that could bring in almost $80 million. The online lender uses its own proprietary technology to offer “approval in seconds” to consumers for two installment loan products and one line of credit.
But those automated approvals and the high interest rates that follow come with a slew of regulatory issues and questionable tactics. Despite the focus on its technology, Elevate appears to be nothing more than an online version of an industry that preys on the poor with loans they can’t obtain from banks, at interest rates banks could never charge.
“I think they’re the new face of payday lending,” said Lauren Saunders, associate director at the National Consumer Law Center.
Elevate — which declined to comment for this article, citing its pre-IPO “quiet period” — takes pains to separate itself from the controversial, and potentially illegal, payday lenders. The company says those lenders have an average annual percentage return of close to 400% and typically require one large payment due at the end of the loan term, while Elevate mandates customers pay off their loans throughout the loan period.
Saunders said Elevate is just expanding the loan length and definition of payday lenders, and the rates Elevate charges its customers are much higher than other types of loans. The average weighted annual percentage rate for its three products are 176% for Rise, 255% for United Kingdom-focused Sunny, and 88% for Elastic, the line of credit.
And while Elevate calls its customers the “New Middle Class,” it appears to do less than traditional lenders to ensure that consumers can afford to pay off the loans they receive, a similar issue to what the Consumer Financial Protection Bureau is investigating with payday lenders. Elevate automates more than 90% of its loan applications, with humans reviewing the other 10%.
Elevate doesn’t detail the exact metrics it uses to assess consumers, but says it uses data from the National Consumer Reporting Association for “prime-ish” customers and data from Clarity and Teletrak, non-prime credit bureaus for the second tier. For those with no credit history, Elevate uses data including how long the consumer has used the same phone number or email address.
The company says using more documentation to evaluate creditworthiness would just slow them down.
“If Elevate products were required to receive and review additional documentation from consumers such as bank statements, photo identification or pay stubs, this added inconvenience may result in lower consumer applications and loans, which would adversely affect our growth,” the company says in its prospectus.
The company also stated in its filing, “Where applicable, we seek to comply with” laws and regulations.
Beyond establishing creditworthiness, Elevate and its affiliates are subject to several federal and state regulations, including the Truth in Lending Act, a section of the Dodd-Frank Act and the Fair Debt Collection Practices, most of which concern deceptive lending practices and reporting. But Elevate discloses in its prospectus that it may not always follow these laws.
“We may not always have been, and may not always be, in compliance with these laws. Compliance with these laws is also costly, time-consuming and limits our operational flexibility,” the company said in its prospectus.
Elevate has tried to fight those laws through lobbyists. Crossroads Strategies LLC lobbied against CFPB regulations and other laws for the firm, according to disclosure filings, and Polaris Government Relations LLC worked against the implementation of Dodd-Frank on the company’s behalf in 2014 and 2015.
Those lobbyists should expect more paychecks. Regulators have been cracking down on the consumer lending business, particularly those targeting sub-prime consumers and with high interest rates, and Elevate lists several upcoming regulations and laws as risks in the prospectus.
For example, Elevate’s loans use the Automated Clearing House system to take funds owed directly out of the consumer’s bank account, with customer authorization. The U.S. Department of Justice and other regulators, particularly in New York, have taken steps to discourage banks from working with online and short-term loan providers, Elevate says in its prospectus. The Rise product is currently available in 15 states — not New York — and it doesn’t make loans directly in Texas and Ohio.
Its product in the United Kingdom, Sunny, is operating on an interim permission, while the UK increases regulation on the “short-term, high-cost credit industry with the stated expectation that some firms will exit the market.” Due to previous regulation, Elevate had to change Sunny to an installment loan, instead of a line of credit, and it awaits the UK’s decision on the loans by April 1.
“There is no guarantee that we will receive full authorization to continue offering consumer loans in the UK,” the company said in the prospectus.
Because of the possible new regulations, as well as other factors, Lynn Turner, managing director of consulting firm Litinomics and formerly chief accountant at the Securities and Exchange Commission, said investors would be taking a serious gamble.
Beyond regulation, the company’s financial structure scares some analysts. Formed in 2014 as a spin-off of Think Finance Inc., a technology licensing platform as well as a lender to consumers with less-than-stellar credit, Elevate reported $2.6 billion in loan originations from 2002 to 2015, involving 1.3 million customers.
The funding for many of those loans, through the Rise and Sunny offerings, comes from one source, Victory Park Management LLC. Elevate owed Venture Park Capital $247.3 million as of Sept. 30, and had an outstanding balance of $50 million in debt to Elastic SPV. Elevate said it plans to use “all or a portion” of its proceeds from the IPO to pay off the Venture Park debt.
Elastic lines of credit are originated through third-party lender Republic Bank, which uses Elevate’s software for loan approval. Elastic SPV, a special purpose vehicle Cayman Island entity that receives its funding from Victory Park Capital, then can buy a 90% participation interest, but Elevate takes on the loan-loss risk.
And those risks are substantial. The company reported net charge-offs, or debt owed to a company that likely won’t be recovered, as a percentage of revenues at 51% for 2014, 43% for 2013 and 48% so far this year, the company said in its prospectus.
Because of the risks and the spin-off from Think Finance, Max Wolff, chief economist at Manhattan Venture Partners, said he’s suspicious of the offering.
“It looks like a cash-out spin-off, not a traditional IPO,” Wolff wrote in an email. “The deal has the full set of caution flags and this model remains to be tested by a coming rise in interest rates and also a recession.”
Elevate can point to its growing revenues, from $72 million in 2013 to $274 million in 2014, with net losses of $45 million and $55 million. It also has well-known venture backers in Sequoia Capital and Technology Crossover Ventures, and company executives, Venture Park Management and Technology Ventures have all indicated intent to buy shares of common stock in the offering at the initial public offering price.
Kathleen Smith, principal at Renaissance Capital, a manager of IPO-focused ETFs, cited those as positives for the company’s IPO, along with ownership of proprietary technology and a customer base in an “under-served market. But the way it assesses creditworthiness, as evidenced by the net charge-offs, causes concern.
“It’s a financial company where you don’t know the [consumer’s] credit history,” Smith said. “The model is still unproven when it comes to their track record.”
- Francine McKenna contributed to this article.
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The American economy is underperforming where it could and should be, said John Snow, former secretary of the Treasury.
"The participation rate in the workforce is way down, it's the lowest we've seen in decades," said Snow. "So while our labor markets are improving, they are not where they should be, and while we have reasonable growth it's not where it should be."
Snow currently manages JWS Associates, a consulting firm he founded in 2006. From February 2003 until June 2006, Snow served as United States Treasury Secretary under President George W. Bush. Prior to that post, Snow held the positions of chairman and CEO of CSX(CSX - Get Report) , a global transportation company, between 1989 and 2003. Between 1994 and 1996, Snow served as chairman of the Business Roundtable, a business policy group comprised of 250 chief executive officers of the nation's largest companies.
Despite his worries about the economy, Snow said he approved of the Federal Reserve's interest rate hike last month, saying it was about time the central bank moved on from emergency measures instituted during the credit crisis. Still, he said he would be "surprised if we see more than one or two" more rate increases this year.
Regarding China's recent stock market swoon, which is dragging down U.S. stocks in 2016, Snow said the country is in for a hard road after years of debt-fueled spending on construction projects and housing that is now likely vacant or abandoned.
"I think their leadership recognizes that they have to keep their eye on the short term and not allow this to become a cascading problem, but also keep their eye on the long term in getting that economy working in the right way," said Snow.
He said the reduction in oil prices has been a double-edged sword as consumers have benefited at the pump, but investment in the energy sector has plummeted. As for the drop in coal prices, Snow said it has weighed heavily on the railroad industry including his former company CSX.
"We are not building any new coal-fired plants and that's a big hit to the railroads," said Snow. "It's going to be a test of railroad management to cope with that situation and still produce pretty good earnings and they will have to do that through tight cost management."
Walmart abruptly announced Friday that it was abandoning a promise to build stores in Washington’s poorest neighborhoods, an agreement that had been key to the deal allowing the retailer to begin operating in the nation’s capital.
The giant retailer cited increasing costs for the new projects and disappointing performance at the three D.C. stores it opened over the past several years. But news that Walmart would pull out of two supercenters planned for east of the Anacostia River, where its wares and jobs are wanted most, shocked D.C. leaders. In one case, the city had already committed $90 million to make a development surrounding one of the stores viable.
“I’m blood mad,” said D.C. Mayor Muriel E. Bowser (D) at a Friday news conference.
“It’s an outrage,” said former mayor Vincent C. Gray (D), who in 2013 completed the handshake deal for the stores. “This is devastating and disrespectful to the residents of the East End of the District of Columbia.”
The decision to withdraw from the planned D.C. locations came as part of a broader strategic move by the nation’s largest retailer to shutter 269 of its stores around the world — but not the existing D.C. stores, the company confirmed — a plan Walmart hopes will allow it to focus on becoming a more serious player in online shopping and to improve its remaining fleet of supercenters and grocery stores.
People walk past a Walmart Express store in Richfield, N.C. District officials are upset over the company’s cancellation of planned supercenters east of the Anacostia River. (Jason E. Miczek/Bloomberg)
But in the nation’s capital, the two stores were more than statistics. For D.C. leaders, they amounted to Walmart breaking a promise that had allowed it to win a public relations coup at a critical point for the company.
After saturating the nation’s rural landscape with big-box stores at the turn of the decade, Walmart had been blocked by liberal politicians and unions in New York and Boston from its next frontier, remaking retail in the nation’s urban core. But in the District, Walmart won the right to open stores surrounding the U.S. Capitol — and a symbolic victory for its belief that low-price goods help its poor customers more than low-wage jobs hurt its workers.
Under the initial deal, Walmart could build stores almost anywhere in the District, as long as it opened two stores in its poorest wards and areas of the city sometimes referred to as food deserts, with few — if any — options for fresh produce and groceries. One was planned for Skyland Town Center in Southeast Washington and the other at Capitol Gateway Marketplace in Northeast Washington.
The deal came at significant cost, however. Pushed by labor unions, a majority of the D.C. Council at first pushed back against welcoming Walmart to the city. Opponents cited Walmart’s large profits and refusal to let workers unionize, as well as its reputation for low wages.
But as recently as last week, all of that seemed like a distant memory. In her list of first-year accomplishments, Bowser had included a ribbon-cutting ceremony at the city’s latest Walmart, at Fort Totten, in a video montage and listed a technical deal signed in the fall that cleared a final roadblock for construction at Skyland.
Then on Friday, the deal was off. Walmart officials entered the mayor’s office early in the morning and apologized, saying plans and economics had changed. Large urban Walmarts were more expensive to build and less profitable to operate than expected — especially, it turned out, in the District.
Mike Moore, Walmart’s executive vice president of supercenters, said in an interview that the decision to pull out of the projects at Skyland and Capital Gateway was based on fresh assumptions the company was making about the potential profitability of those stores. The officials said that they did not feel confident that the planned stores would generate healthy sales volume. Their latest math suggested that construction and operating expenses were going to be higher than they had originally budgeted for.
So far, Moore added, the three stores Walmart has opened — one blocks from Union Station in the trendy NoMa neighborhood and two in gentrifying areas along Georgia Avenue and at Fort Totten — were underperforming and “just not anywhere close to your expectation.”
Council member Jack Evans (D-Ward 2) head of the council’s finance committee, sat in on the meeting Friday morning with Walmart officials and Brian Kenner, Bowser’s deputy mayor for planning and economic development.
Evans said that, behind closed doors, Walmart officials were more frank about the reasons the company was downsizing. He said the company cited the District’s rising minimum wage, now at $11.50 an hour and possibly going to $15 an hour if a proposed ballot measure is successful in November. He also said a proposal for legislation requiring D.C. employers to pay into a fund for family and medical leave for employees, and another effort to require minimum work weeks for hourly workers were compounding costs and concerns for the retailer.
“They were saying, ‘How are we going to run the three stores we have, let alone build two more?’ ” Evans said.
“The optics of this are horrible; they are not going to build the stores east of the river, in largely African American neighborhoods? That’s horrible; you can’t do that,” Evans said. “A deal’s a deal.”
It was immediately clear that Walmart’s announcement could also reverberate in a city election year. Gray, who is considering an effort to resurrect his political career after prosecutors dropped an investigation into his first mayoral run, said he was outraged.
Gray cast blame on Bowser’s team, saying he had met with the project’s developers two weeks before he left office last year, and “everything was on track.”
“What did the administration do to stay on top of this? There is no bigger project going on than this one, maybe in all of the East End,” he said of Skyland.
Gray could run against Ward 7 Council member Yvette M. Alexander (D), or in an at-large race. But on Friday, he sounded more like a mayoral candidate.
“If I were mayor, I’d get on a plane and go Bentonville,” to Walmart’s global headquarters in Arkansas, Gray said. “They should be held accountable.”
Speaking to reporters, Bowser was more muted. She said she was disappointed but stressed that the District’s three existing Walmarts were not on the closure list.
Michael Czin, her communications director, said that Walmart had signed a lease at Skyland, but attorneys for the administration and the developer were still analyzing if either could be entitled to liquidated damages.
“We’re assessing options and looking at everything,” he said. “We continue to talk to legal counsel. It’s still somewhat early; folks are looking into how everything was written.”
Staff writer Fenit Nirappil contributed to this report.
Aaron Davis covers D.C. government and politics for The Post and wants to hear your story about how D.C. works — or how it doesn’t.
Sarah Halzack is The Washington Post's national retail reporter. She has previously covered the local job market and the business of talent and hiring. She has also served as a Web producer for business and economic news.
WASHINGTON — When 2010 began, the United States economy seemed to be on the mend and leaders of the Federal Reserve discussed how they would unwind their extraordinary rescue efforts from the crisis that erupted in 2008. The term “exit strategy” was mentioned 37 times in their first two policy meetings of the year.
By the time the year ended, the Fed was pumping a further $75 billion a month into the financial system by buying bonds, aiming to keep the young expansion from falling apart. And though they did not know it at the time, Fed officials were on the path toward another half-decade of zero interest rates and creating trillions of dollars from thin air.
Transcripts of the Fed’s 2010 policy meetings, released Friday after the customary five-year lag, show how it got from Point A to Point B. The central bank’s officials forged a halting, unsure path toward greater activism as they realized that the global financial crisis, which had seemed over when the year started, had really just entered a new stage — a sovereign debt crisis in Europe and the threat of economic stagnation in the United States.
How the Bernanke Fed Decided to Pump Billions Into the Economy
Transcripts from Federal Reserve meetings in 2010 show, in real time, how the central bank under chairman Ben S. Bernanke came to the conclusion that the economy was in greater peril than it had initially seemed.
During the eight meetings of the Federal Open Market Committee that year, plus two unscheduled emergency conference calls, Chairman Ben S. Bernanke and his colleagues concluded that the economy was in greater peril than it had seemed at the start of the year. They agreed upon fresh actions intended to guard against a new recession or falling into a deflationary trap.
Janet L. Yellen, the current chairwoman who served in two senior roles in 2010, emerged as a major ally of Mr. Bernanke and an early voice in favor of more activism.
“Given the tenuous state of business and consumer confidence, I consider it critical at this juncture that this committee not be perceived as falling behind the curve, being unwilling to act, or being out of touch with the mounting concerns we see in the markets and on Main Street,” Ms. Yellen, then the president of the San Francisco Fed, said at the Aug. 10 policy meeting. “The data show a considerable slowing of the economy during the summer, and the near-term outlook has been marked down appreciably.”
At that meeting, she also urged her Fed colleagues to consider options to ease monetary policy further, even though “our quiver has fewer arrows than I’d like.” It would take three more months before the committee as a whole agreed with her and undertook a $600 billion effort at “quantitative easing,” or bond buying, frequently referred to as “QE2” because it was the second such move by the Fed.
The start of QE2 — Mr. Bernanke hated that term, he made clear in one meeting, as he unsuccessfully urged his colleagues to refer to the program by what as he viewed as the more technically precise “large-scale asset purchases” — was a controversial move inside and outside the Fed.
After the decision, which coincided with an election that swept a Republican Congress skeptical of government intervention into power, the Fed faced sharp criticism from conservative lawmakers and from Germany and Brazil, among other countries. Objections included the ways bond buying could distort financial markets and foreign exchange prices, and the burden the Fed was taking on itself to right an economy with problems that went deeper than insufficiently easy monetary policy.
What was less well understood at the time, but is made plain by the new transcripts, is how the internal debate at the Fed resembled the external one, with many of the objections outsiders raised to the Fed’s monetary activism also articulated behind closed doors at the central bank’s Washington headquarters.
“My views are increasingly out of step with the views of most people around this table,” Kevin M. Warsh, a Fed governor who was a close adviser to Mr. Bernanke on financial market matters, told his fellow policy makers at the November meeting.
“The path that you’re leading us to, Mr. Chairman, is not my preferred path forward,” he continued. “I think we are removing much of the burden from those that could actually help reach these objectives, particular the growth and employment objectives, and we are putting that onus strangely on ourselves rather than letting it rest where it should lie.”
He added: “The benefits strike me as small and fleeting. The risks strike me as unknown, uncertain, and potentially large.”
Mr. Warsh ultimately voted for the action, saying he would dissent if not for personal loyalty to Mr. Bernanke and because “I wouldn’t want to undermine at this important moment the chance that this program could be successful.”
The transcripts also show how Fed officials grappled with the crisis in the eurozone, especially Greece, that nearly spiraled out of control in the spring and in the fall. But the signature action of the Fed in 2010 was the decision in November to start its second round of quantitative easing.
Several other supporters of the action were also uneasy. “This is a difficult decision for me, and I think it was a difficult decision for most of you,” said Daniel K. Tarullo, another Fed governor. “The only people I worry about are the people who think that the decision was easy, whether to do nothing or to do precisely this, because I do think that, as many people have pointed out, there are nontrivial costs and nontrivial benefits.”
At the same time, the transcripts contain a couple of prescient references to the action setting the stage for “QE3,” as a round of bond buying that would commence in September 2012 was frequently called.
“Quantitative easing is like kudzu for market operators,” said Richard W. Fisher, then president of the Dallas Fed. “You’re familiar with this analogy because you’re a Southerner, Mr. Chairman. It grows, and it grows and it may be impossible to trim off once it takes root in the minds of market operators.”
After all the officials had spoken, Mr. Bernanke, who often displayed a collaborative style that aimed to unite officials, set up the final vote with this reminder: Nonaction is a type of action, too.
“Any action we take or don’t take is going to expose us to the judgment of history if we make the wrong decision,” he said. “Not taking action is a risky step, just as taking action is a risky step.”
The Obama administration declared a halt Friday to any new coal leases on federal land, saying it would conduct a sweeping review of the economic and climate impact of extracting vast amounts of taxpayer-owned coal throughout the West.
The moratorium, which could last up to three years, will probably have a modest immediate effect on the nation’s struggling coal industry. But it provided fresh ammunition for environmental activists now intent on keeping the nation’s remaining fossil fuels in the ground. And it signaled the White House’s determination to press ahead with an ambitious environmental agenda — even as conservatives become more aggressive in pushing back against the federal government’s management of public lands in the West.
The review also highlights how long it can take to shift the way government operates: The leasing program first came under fire as uncompetitive and not sufficiently profitable for taxpayers in 1983, and has come under intensifying legal and political pressure for much of the president’s time in office.
Interior Secretary Sally Jewell said in a conference call with reporters that the last time rules were put in place, “that was a time, 30 years ago, when our nation had very different priorities and needs. The result was a federal coal program designed to get as much coal out of the ground as possible. And in many ways, that’s the program that we’ve been operating ever since.”
Coal production on federal lands accounts for roughly 41 percent of the nation’s total coal production. The vast majority of that mining — 86 percent — takes place in the Powder River Basin, which spans northeastern Wyoming and southeastern Montana.
Unlike offshore oil and gas drilling, in which the federal government identifies areas that should be put up for leasing and others that should be off-limits, companies in the Powder River Basin propose lease sites to the Bureau of Land Management, which is then obligated to consider them. The companies also pay a much lower royalty rate to the government — between 8 and 12.5 percent — than do offshore leasing firms, which pay an 18.75 percent rate.
Over the past decade, according to a 2014 Government Accountability Office report, roughly 90 percent of the competitive lease sales held in the region had just one bidder, and the government accepted 83 percent of the firms’ initial bids. Sen. Edward J. Markey (D-Mass.), who commissioned the report, estimated that taxpayers have lost hundreds of millions of dollars in royalties in recent lease sales.
Now, Markey said, the combination of concerns over coal’s impact on the climate and the fact that taxpayers were “getting shortchanged” tipped the scale in favor of reform.
The administration’s move is part of a broader effort to “modernize” the nation’s energy system, said BLM Director Neil Kornze, a push that has led to rapid growth of solar and wind energy. As the coal industry has shrunk, employment has grown in the renewable sector, which is now cost-competitive with coal and other fossil fuels in some parts of the country.
The Powder River Basin produces 400 million tons of coal annually; analysts had projected that production would increase slightly through 2030. Tom Sanzillo, director of finance for the Institute for Energy Economics and Financial Analysis, said he would now project a decline in coal production of 1 percent a year through 2030, cutting the amount extracted from the region over the next 15 years by almost 1 billion tons.
There are “almost 20 years of supply in industry hands” already, Kornze said, noting that the moratorium includes exemptions for small modifications to existing leases and emergency leases if companies face less than a three-year coal reserve. He estimated that out of roughly 50 pending lease applications, 18 might qualify for an exemption and move forward.
Industry officials said that they did not think the pause during the review process would deliver a serious blow, but called it misguided.
Peabody Energy spokeswoman Kelley Wright said in an email that the firm has “more than 20 years of production through our superior Powder River Basin coal reserve position, representing long-term security of supply and a competitive strength. Nonetheless, the administration’s actions represent poor policy and a flawed way to accomplish carbon goals.”
Several top Republican lawmakers decried the administration’s action. House Speaker Paul D. Ryan (R-Wis.) said in a statement the effect would be “immediate and severe: lost growth, lost jobs and lost revenue that would have gone to schools, bridges and roads.”
Several environmental groups, such as Friends of the Earth, Defenders of Wildlife and WildEarth Guardians, have sued the government in recent years for not factoring into its leasing decisions how extracting coal affects the climate. David Hayes, who served as deputy secretary of Interior from January 2009 until June 2013, said he and others discussed reflecting climate impacts into the royalty rate shortly before he left the administration, “You can’t move a policy battleship in a short time frame. Generally, it takes a lot of thoughtful analysis.”
Many environmentalists — and some politicians, including Democratic 2016 hopefuls Sen. Bernie Sanders (I-Vt.) and former Maryland governor Martin O’Malley — have expressed support for the “keep it in the ground” movement, arguing that the vast amount of remaining fossil fuels will have to remain untapped to avert dangerous levels of warming.
“For years we’ve been arguing we need to combine action on our tailpipes and smokestacks with a supply-side strategy to keep dirty fuels in the ground, and in the last few months, we’ve made tremendous progress,” said Sierra Club Executive Director Michael Brune, whose group also sued over the coal leases.
While states such as Montana and Wyoming have come to rely on revenues from federal coal sales, — they get 50 percent — some people who live near massive strip mines say that the region’s assets are being given without regard to the costs to local communities. Local concerns deepened earlier this week after Arch Coal, one of the largest U.S. coal producers, declared bankruptcy, sparking fears that some of the region’s moonscape-like strip mines will be abandoned without a proper cleanup.
Montana rancher Steve Charter, whose cattle grazes on lands above a large underground mine, said the coal program has long been skewed to benefit a few wealthy companies. “Public lands and public resources should be managed for the public good,” he said, “not for the bottom lines of private corporations.”
At a time when hostility toward the federal government is running high in some rural areas — as shown by the armed occupation of a federal building in southeast Oregon’s Malheur National Wildlife Refuge — administration officials have emphasized their support for communities transitioning away from coal. Obama pledged in his State of the Union address Tuesday to fund transportation projects in these areas.
In the year ahead, Kornze said, the BLM will ensure “were not a remote entity working on this, we’re at the table with people impacted in a whole series of ways.”
Ultimately, the next administration will decide when and where coal leasing takes place, and it appears likely that a Republican president would probably revive the old system.
“But this is an important conversation that needs to happen, and it needs to start now,” Jewell said, even as she noted her successor would make the final decision.
Juliet Eilperin is The Washington Post's White House bureau chief, covering domestic and foreign policy as well as the culture of 1600 Pennsylvania Avenue. She is the author of two books—one on sharks, and another on Congress, not to be confused with each other—and has worked for the Post since 1998.
Joby Warrick joined the Post’s national staff in 1996. He has covered national security, intelligence and the Middle East, and currently writes about the environment.
The futures couldn't hold the rally yesterday as you can see they tanked again this morning. I was thinking that because it was option expiration day that they would hold the market up today and save this move down for Monday. But the bulls just can't seem to hold anything right now.
Chartwise we were overbought on the 60 minute MACD's yesterday and getting there on the 2 hour chart. The 4 hour and 6 hour still had room to go on the upside at that point.
My thoughts were one of two scenario's... one, that we'd see the 60 minute chart rollover today and reset for another move up later in the day if it pullbacked small at the open. Or two, I thought they extend it up into even more overbought territory and start the rollover later in the day.
Neither happened as obviously they have different plans. Rollover afterhours and premarket and wiping out every bulls that went long yesterday seems to be the plan. They squeezed the bears with the rally yesterday and now the bulls.
What's next? Odds are there wasn't many bears taking a short yesterday after the squeeze, so that means we could continue falling all day if they want. Not saying we are going to crash today but it's pretty ugly right now before the open.
At this point I don't have a clear direction. I was expecting the rally yesterday as the charts suggested that, but this morning we are mixed. I certainly can't see another huge rally again like from yesterday, but it's possible they retrace some of this early move down. But let's face it... huge gap downs like this catch the bears off guard and bounces are usually weak because the bears want to short them and the trapped bulls want out.
So I don't expect much of a rally "if" we have any at all? Best to just sit today out I think as I have no edge to see where we are going. Markets closed Monday for Martin Luther King Jr. holiday, so have a good weekend.
Yesterday I thought we would rollover either that day or today (Thursday) for a B wave down. I thought it would be 20-30 points instead of the 5-10 points from prior pullbacks last year as I see us in a bear market now with more downward pressure on the market then in the past.
I thought we might hit the falling trendline of resistance before rolling over but it couldn't make it and rolled over at the open.
This 60 minute chart got massively oversold yesterday and is now pointing up strongly. The 2hr, 4hr, and 6hr are also pointing up, and should support the 60, allowing it to go up past the zero level on this move up today.
My thoughts are that we'll rally today as I do think the move down yesterday wiped out all the bulls looking for the same ABC rally that I was. Resistance will be at yesterday's high around the 1940 area, and that will probably meet that falling trendline at the same time. I doubt if it gets through it today. That would be your exit for anyone going long. But at the open we could "should" see some pullback as trapped bulls from yesterday bail from this small move up. We could see a retest of the premarket lows, but I wouldn't bet on it. Considering that the wiped out all the bulls yesterday the market is fully loaded with bears now and the best moves up from oversold conditions don't do a backtest, and instead just squeeze the bears all day long. On another note, while I think one should exit at that resistance zone around 1940 I wouldn't flip to short again as we could chop sideways at that area and continue the bear squeeze up tomorrow.
Possible point to hit and then rollover is this falling trendline around 1960.
This 4 hour chart shows the MACD's up near the zero level, so we could see another pullback soon.
Maybe not today, but by Thursday I think this will rollover as the 6 hour chart hits the zero area (it's at -7.5 to .15 now). The 2 hour chart is at +3.5 to +5 right now and running out of momentum. The 60 minute MACD is already extended reaching +5 area, rolling over, and trying to go back up now.
My thoughts are that eventhough we are oversold on many timeframes there isn't likely to be another straight up bear squeeze with few pullbacks like in the past. The short term time frames are going to be overbought between the open today and sometime Thursday (that's from the 60 minute up to the 6 hour).
This suggests that we'll see some good pullbacks each time the short term gets overbought as the daily and weekly charts still put a lot of downward pressure on the market. So when a resistance level is hit and the market rolls the moves down should be deeper then the ones in the past where we only saw 5-10 point pullbacks.
I'm not sure if we are really to break the low from Monday on any pullback this week, as I think we'll just put in a "higher low" and then turn back up early next week for another rally attempt. So from a wave count the move up so far is likely some kind of A wave up with another scary B wave down to start either today or Thursday... followed by a C wave up next week.
But again, this market is very likely in a bear market now and even if that C wave up next week looks strong and powerful, like it's going to breakout to a new high, odds are very good that it will only put in lower high and then take an even bigger move down into the end of January. We could see 2000-2020 by the end of the C wave next week I guess.
Kevork Djansezian/Getty Images
FactSet
Elevate
