Barrons : A Plumbing Giant Is Breaking Up. Here’s What That Means for U.S. Inves

A Plumbing Giant Is Breaking Up. Here’s What That Means for U.S. Investors.

Plumbing and heating firm Ferguson has been undervalued due to poor performance at its British business, but a new activist shareholder and a plan to separate operations could boost the stock.

The United Kingdom–listed firm (ticker: FERG.UK) generates 90% of its sales in the U.S. In June, activist Nelson Peltz’s Trian Partners built a 6% stake, and Ferguson announced earlier this month that it will split its businesses and focus on its more profitable U.S. firm.

The U.K. business will be called Wolseley, while the U.S. firm will keep the Ferguson name. Both will be listed on the London exchange, but a review is under way on whether to switch the listing to the U.S. The company also trades in the U.S. under its American depositary receipt (FERGY.US).

“We are at the beginning of what will be a comprehensive assessment of our listing structure,” CEO John Martin told Barron’s in a statement. “All options remain open, and no decisions have been made.” Kevin Murphy, CEO of Ferguson’s U.S. operations, will replace Martin in November.

The combined Ferguson trades at 14.7 times future earnings, in line with its peers. Poor performance dragged the stock down 2% over the past year, but it rose 89% over the past five years and currently trades at about 6,050 pence. Ferguson posted operating profit of $1.4 billion on sales of $20 billion for the year to July 2018, its latest full-year figures.

Keith Hughes, an analyst at Chicago-based SunTrust Robinson Humphrey, says a U.S. relisting would generate more analyst coverage. “We think Ferguson is a name primed for a revaluation, as its financial merits become more recognized by investors,” he wrote in a July note on Ferguson’s ADR. Hughes has a target ADR price of $10 a share—a more-than 30% premium to its recent $7.53 close. FactSet calculates this as an 82.90 pounds sterling target price for the FTSE 100 business. In a Sept. 12 note, Jefferies rated it a Buy with a £72.81 target price—about a 20% premium to its recent close of £60.05.

Ferguson is one of the biggest distributors of plumbing and heating products in the U.S., with 35,000 workers and more than one million customers in 2,280 locations across North America and the U.K. It has a market value of £14 billion ($17.5 billion).

The firm dates to 1887, when Frederick York Wolseley, an Irish immigrant living in Australia, founded the Wolseley Sheep Shearing Machine Co. in Sydney and relocated to England two years later. By 1896, the company started to design cars, and decades later manufactured munitions and boilers.

It bought Ferguson Enterprises in the U.S. in 1982 and listed on the London Stock Exchange. The company renamed itself Ferguson in 2017 and is headquartered in the U.K. with a U.S. base in Newport News, Va.

The U.K. business has struggled due to a slowdown in the housing market on the back of overcapacity and Brexit uncertainty. Separating the two businesses makes sense and could trigger a revaluation. Hughes says the U.S. business would be valued at 10 times enterprise value/2020 estimated earnings before interest, tax, depreciation, and amortization.

While Ferguson’s U.S. business has seen a recent slowdown in sales growth, it’s still stronger than the U.K. Low interest rates may help boost the U.S. housing market and help sales. Peltz could push Ferguson to use more financial leverage to make acquisitions, which would increase the company’s value.

Barrons : Never Mind Its WeWork Problem—SoftBank’s Stock Is Still Attractive

Never Mind Its WeWork Problem—SoftBank’s Stock Is Still Attractive

Investors seem convinced that the train has gone off the tracks at SoftBank Group, the idiosyncratic holding company of Masayoshi Son, the world’s most closely watched investor. SoftBank shares have fallen 20% since late July, pressured by troubling issues in the SoftBank Vision Fund, the company’s $103 billion venture portfolio. There are real problems here, but the selloff has mostly served to make a cheap stock cheaper.

As I detailed in a recent Barron’s cover story, SoftBank (ticker: SFTBY) is basically a holding company with three kinds of assets: There are companies in which it holds large equity positions, there are assets it owns outright, and there’s the Vision Fund and its still-gestating sibling, Vision Fund II.

At the time of our story, SoftBank stock was trading at a discount of about 49% to its sum-of-the-parts value. Pressured by multiple factors, but primarily the delayed initial public offering of WeWork parent We Co.—a Vision Fund holding—the discount has increased by about 10 percentage points. At Friday’s close, SoftBank was worth about $90 billion, down from roughly $100 billion in July.

Let’s rerun the numbers. The SoftBank stock story starts with Alibaba Group Holding (BABA). SoftBank owns a 25.8% stake in the China e-commerce giant that’s worth $121 billion. There is no reason to think that SoftBank wants to sell, but if it did, it would probably pay Japanese capital-gains taxes, so discount that total by 30%, which brings us to $84 billion.

SoftBank also owns the chip design licensing firm ARM; 75% of the company is held by SoftBank Group—a stake worth $24 billion based on the original acquisition price—with the rest in the Vision Fund. And it owns two thirds of SoftBank Corp. (9434.Japan), a Tokyo-listed wireless carrier worth about $45 billion. Then there’s a $23.3 billion stake in Sprint (S). SoftBank’s own stake in the Vision Fund is now $32.4 billion. The company also lists 900 billion yen—$8.3 billion—in other equity holdings. Adjust for $46.3 billion in net debt and you get a total value of $171 billion.

That puts SoftBank’s value 46% below its sum-of-the-parts total. (The discount is even larger if you don’t adjust the portfolio for Alibaba taxes—in that case, SoftBank’s assets come to $208 billion.) If there is another publicly traded asset discounted this deeply, I can’t find it.

SoftBank’s primary problems are in the Vision Fund. Slack Technologies (WORK), which closed at $38 on its first day of trading in June, is since down 20%. Uber Technologies (UBER), under pressure from a range of issues including California’s push to reclassify contract workers as employees, is likewise off 20%. And then there’s We Co., which has nearly $11 billion in capital from SoftBank, about $4 billion of that from the Vision Fund. The company has delayed its IPO in the face of reports that it might be worth $20 billion or less, well under its peak private market value of $47 billion. All of that has stirred up trouble.

There are reports that some investors in Vision Fund I might scale back participation in Vision Fund II. And SoftBank is taking hits for not reining in the self-dealing, self-aggrandizing WeWork founder Adam Neumann.

The overarching fear is that Masayoshi Son, universally known as Masa, has lost his touch—that the first fund will struggle to succeed, and that the new fund won’t get off the ground. As I reported, Oracle Chairman Larry Ellison said this past week at a small event in San Francisco that he sees Uber and WeWork as “almost worthless.”

Still, the math works powerfully against the SoftBank bear case. Bernstein analyst Chris Lane notes that SoftBank’s average cost in We Co. shares is at a $24 billion valuation. Were the company to go public with a $10 billion valuation, SoftBank would take a paper loss of about 60% on its stake; the hit to the Vision Fund would be about $2.5 billion, or just about 2% of its net asset value. Lane does say there are lessons for SoftBank here. “The We Co. seemed to break new ground in how founders can profit at everyone else’s expense—SoftBank needs to get tough on governance as a condition of their investment,” he wrote in a recent research note.

In an interview, Lane says that some investors expect the Vision Fund to report weak returns for the September quarter. But, he adds, most Vision Fund investors didn’t invest in a giant venture fund in search of quarterly returns; the fund’s success will be measured over the course of five years or more. While Lane says there could be more pressure on SoftBank in the short term, the stock remains a long-term buy. “I fundamentally believe in what Masa is trying to do.”

One institutional investor that owns SoftBank stock points out that the market is assigning a negative value to the Vision Fund. And we’re not talking slightly negative. Based on the sum-of-the-parts math, the Vision Fund is being valued at negative $52 billion.

On Thursday, SoftBank executives quietly held a meeting in Pasadena, Calif., with Vision Fund portfolio companies and institutional investors in SoftBank Group.

One attendee told me that he was impressed by the collaboration among companies in the fund—he also was wowed by the growth reported by some Vision Fund companies. SoftBank confirmed to me that the event happened, but it was closed to the media, and the company declined to discuss it in detail. (As a Japanese company, Regulation Fair Disclosure, or Reg FD, does not apply.)

And yet, this would seem like an opportune moment for Masa to address some of the issues that the Vision Fund faces. Even if he doesn’t, my conclusion is the same: If you buy SoftBank shares, you pay less than nothing to own the world’s largest venture fund. Over the long run, that’s a bet that’s hard to beat.

BArrons : Are Streaming Rights for ‘The Big Bang Theory’ Really Worth $600 Milli

Are Streaming Rights for ‘The Big Bang Theory’ Really Worth $600 Million?

Sell everything, quickly, and use the proceeds to buy distribution rights for Gilligan’s Island and ALF. The hottest trend in show business is to pay extravagant sums for temporary permission to stream old shows. The biggest shows are already spoken for, so it’s only a matter of time before bidding heats up for the B-list stuff. You’ll thank me after rampant ALF-flation sets in.

Just this past week, AT&T (ticker: T) outbid itself for The Big Bang Theory, a proven ratings winner and alleged comedy. The show was produced by Warner Bros. TV, which AT&T owns. It could be a good fit for a forthcoming streaming service called HBO Max, which AT&T also owns. The only potential spoiler was cable network TBS, which has rerun rights to the show, and is owned by...wait for it...AT&T.

What could go wrong? Profit participants, for one thing. Big Bang co-creator Chuck Lorre reportedly gets a 30% to 40% cut on streaming and rerun money. If AT&T had given itself a sweet deal on the show, Lorre’s lawyers could have claimed self-dealing. So it gave itself the hard sell: $600 million for five years of domestic rights on HBO Max, plus a rerun extension for TBS.

At least it will cash in on all those HBO Max subscriptions. It just has to get the pricing right. If my math is correct, the perfect figure will be far enough under $13 a month to be competitive with Netflix (NFLX) and Walt Disney (DIS), and sufficiently above $15 a month to not violate deals with cable companies that must charge that much for plain HBO. And to think activist Elliott Management says AT&T doesn’t have a clear plan for TV.

Other shows are making big bangs of their own.

HBO Max had already paid $425 million to poach Friends from Netflix. That’s a show about 20-somethings whose stars are now old enough to join AARP, yet it was recently one of Netflix’s most-binged series, which bodes well for sitcom shelf life. Good thing: This past week, Netflix secured Seinfeld worldwide for five years. Terms weren’t disclosed, but the price was reportedly well above the $500 million that NBCUniversal paid to take The Office from Netflix for its planned streaming service, Peacock.

The Seinfeld revenues pay off for half of Hollywood. AT&T’s WarnerMedia and CBS get a taste as part owners. And Disney benefits from the publicity, because it owns Hulu, whose U.S. streaming rights for the show run through 2020, a year that will decide who beyond Netflix gets early momentum in subscribers. Other clear winners include office workers still saying things like “That’s gold, Jerry!” and “Hello, Newman!” to blank looks from millennial colleagues.

There might be a playbook here for loss-making companies that are struggling to keep investors excited. WeWork this past week delayed its initial public offering amid a falling valuation. Bears claim it’s just a commercial real estate company, not a digital-cloud-hyperscale Big Data disrupter, just because it’s in the business of renting physical space to workers. What’s needed is more evidence of youthful rule-breaking. Co-founder and CEO Adam Neumann has long hair and wears leather jackets, which is a good start, but the company can do more. How about work sites with collaborative downtime rooms that stream back episodes of Scooby-Doo? But only license the seasons before Scoob’s nephew Scrappy-Doo showed up. That’s where the show lost its gravitas.

Uber Technologies (UBER) was once valued as a private company at $120 billion, but as a public one since May, its value has sagged to less than half that. Maybe the right content can help, and I’m sure we’re all thinking the same thing here. Stream Taxi to passengers. It’s basically Friends, but with wider collars and less friendliness. I’m not sure what a five-year license would cost, but Uber isn’t expected to turn a profit for at least five years, and it was recently able to sell $1.2 billion in bonds paying 7.5% to fund an earlier purchase of a Dubai-based company that does ride-sharing in less-developed markets—which is to say, I’m not sure numbers matter anymore.

The good news, I’m told, is that streaming will bring consumers more choice: Disney+, HBO Max, Peacock, the new Viacom /CBS service, Apple TV, and much more. I’m pretty sure that canceling my $100 cable bundle won’t cost me more than $650 a month. The most expensive part will be dropping out of the workforce to make time for all those shows. I’ll have to set aside Sundays for thinking up new passwords.

The problem, of course, is that in surveys, consumers say they’re only interested in paying about $40 a month for streaming services. Maybe that will change once the services are all available, if collectively, they alter the rate at which customers are leaving cable bundles. Or maybe the bundlers will prove resilient. Mine is overcompensating with package choices: basic, core, value, select, preferred, silver, premier, and gold, although this past week it said it was discontinuing gold and raising premier to the former gold price. I can’t remember which I have, but it includes internet phone service, which I suspect no one has used since Seinfeld was in production.

There will be more to say on streaming in the months ahead, as details emerge about pricing and early subscriber wins. For now, investors should be skeptical about reports that describe services as “winning” rights to key shows. The winners might turn out to be the sellers, and today’s prices, a peak.

FT : Europe’s private banks hit by worst year since crisis

Europe’s private banks hit by worst year since crisis
Earnings in 2018 tumble 8% due to higher costs and weak investor inflows

Profits for European private banks dropped by the most since the global financial crisis last year as muted investor inflows, weakness in financial markets and rising costs combined to reduce earnings.

Selling banking services and investment products to the growing number of millionaires has long provided the banking industry’s most lucrative profit stream.

However, profits across western Europe’s €6tn private banking sector fell 8 per cent to €13.5bn in 2018 from the record €15.4bn registered the previous year, according to a survey by McKinsey, the consultancy.

Private banks in western Europe underperformed their US and Asian peers where preliminary data suggest profits increased about 5 per cent last year.

Sid Azad, a partner at McKinsey, said the fall in profits in Europe, the second annual decline in the past three years, emphasised the need for a “fundamental transformation” of processes and systems.

“Private banks will need to reconfigure their business model to operate in a market with weaker asset growth and decreasing profit margins,” he said.

Just under a third of the 113 banks surveyed by McKinsey registered net client withdrawals, compared with a quarter in 2017. Switzerland and Monaco, two important markets, have seen no growth in client inflows overall during the five years to 2018.

A failure to control rising costs has proved an intractable problem for private banks in Europe. Cost inflation in the front office — investment management, sales and marketing expenses — has been rising by about 4 per cent annually over the past five years. Back-office costs have also swollen in spite of investments in technology and efforts to automate processes.

Mr Azad said cost control problems could become “substantially worse” unless banks took quick action.

McKinsey suggested that small and midsized players could cut costs by working together to create a platform for back-office functions, such as know-your-client due diligence.

Mergers and acquisitions among smaller banks could also create more effective competitors to larger rivals.

Private banking in western Europe is highly fragmented and small and midsized players face the biggest challenges as larger rivals have proved more successful in attracting business.

Mr Azad said developments in the quality of services offered to private banking clients had lagged behind improvements made by other industries. Greater use of advanced analytics could help relationship managers to deliver higher quality “bespoke experiences” to clients.

Private banks should also either find partners in private equity and other alternative investments or build these capabilities internally given rising client demand for these strategies.

Exploring alternative partnerships and adapting to issues, such as environmental, governance and social considerations, could help private banks become “better entrenched” in their clients’ lives, said Mr Azad. 

FT : Vitol emerges as big winner from volatile energy markets

Vitol emerges as big winner from volatile energy markets
World’s biggest independent oil trader made $1bn in profit in first half of year

Vitol, the world’s biggest independent oil trader, has emerged as one of the biggest winners from volatile energy markets after making profits of about $1bn in the first half of the year.

The company, which is owned by roughly 350 partners, saw its net income surge by 80 per cent to about $1bn in the first six months to June, up from $550m in the same period in 2018, according to people familiar with the matter.

The results highlight the ability of Vitol, which is led by chief executive Russell Hardy, to use insights from its vast trading operations to react to market conditions and capture discrepancies in oil and gas prices around the world.

The company handles more than 7m barrels a day of crude and refined products such as gasoline and diesel — the equivalent of the daily oil demand of France, Germany and Spain combined.

Its record of strong profitability has allowed the London-headquartered company to consistently pay out large dividends to top traders and executives. It returned $1bn to senior staff via share buybacks last year.

Vitol declined to comment on the figures.

The company’s performance was broad based, and not focused in one particular segment of the company, according to one person with knowledge of the results.

As the crude oil price rose by about $10 a barrel during the first half of the year, it increased the value of barrels held in storage by Vitol, they said. At the same time persistently low interest rates made it cheap to carry stocks, which are generally financed with debt. Price volatility also created trading opportunities and Vitol’s growing liquefied natural gas business performed well.

Vitol delivered more than 7.8m tonnes of LNG in 2018 and expects to increase its volume to at least 10m this year.

Vitol, whose partners are spread across trading hubs in London, Geneva and Houston, is not the only trading house to have prospered in the first six months of the year. Geneva-based Gunvor had a “good” half year, according to one person with direct knowledge of its performance, helped by favourable conditions in the European gas market. Meanwhile Glencore flagged a “particularly strong result” from its oil trading in the six months to June on the back of “supportive physical commodity” markets.

However, senior traders say market conditions have been more difficult in July and August, when Brent sank to a year low of $56 a barrel as US-China trade tensions added to fears about flagging demand. Prices have been particularly volatile in the past week, after attacks on Saudi Arabia’s key oil facilities cut production by more than half in the kingdom.

Mr Hardy replaced Ian Taylor, the British businessman who transformed Vitol from a small Dutch fuel trader into a group estimated to be worth as much as $20bn, as chief executive in 2018.

In an interview with the Financial Times earlier this week, Mr Hardy described the attack on Saudi oil facilities as a “shock”.

“The nature of the incident is very, very worrying indeed, as to where it came from and how it occurred, and the fact that it came as such a big shock,” he said.

He was speaking after Vitol announced a trading joint venture with ENH, Mozambique’s national oil company, to market LNG and natural gas.

WSJ : NYSE Owner to Launch Long-Awaited Bitcoin Futures

NYSE Owner to Launch Long-Awaited Bitcoin Futures
Intercontinental Exchange bets consumers, businesses and Wall Street will embrace cryptocurrencies

The owner of the New York Stock Exchange is set to launch its long-delayed market for bitcoin futures Sunday, a high-profile bet that consumers, businesses and Wall Street will embrace cryptocurrencies.

The exchange’s parent company, Intercontinental Exchange Inc., ICE -1.28% plans to open trading of its new bitcoin futures at 8 p.m. EDT. Futures let traders bet on whether an underlying market such as oil, gold, stocks or currencies will rise or fall.

The new futures are part of a venture called Bakkt (pronounced “backed”), whose ultimate goal is to make cryptocurrencies sufficiently transparent and regulated for individuals to use in retail purchases. Bitcoin has failed to gain traction as a tool for payment, in part because of its extreme volatility. If successful, ICE’s futures could make it easier for merchants to protect themselves from swings in bitcoin prices.

Investors in Bakkt include ICE, Microsoft Corp. ’s venture-capital arm and Boston Consulting Group. In addition, Starbucks Corp. has teamed up with Bakkt to develop ways to let customers convert digital assets into dollars for use at its coffee shops.

With the launch, Atlanta-based ICE is challenging its longtime rival, CME Group Inc., which introduced its own bitcoin futures in December 2017. More than $200 million worth of CME’s bitcoin futures change hands on an average day. Chicago-based CME said Friday that it would expand into bitcoin options early next year.

Historically, exchanges have struggled to attract trading in new futures contracts after similar contracts have taken off elsewhere. But ICE is betting that a novel contract design will draw businesses to its futures.

Traders who hold the ICE futures until they expire will either be paid in bitcoin or deliver bitcoin to Bakkt to settle their bets. Such a process, called physical delivery, is used in such markets as cattle, metals and cocoa futures, but it is new to bitcoin. Many traders argue that physical delivery ensures a tight link between futures prices and the price of the underlying market.

CME’s bitcoin futures are settled with payments in U.S. dollars, and traders who deal with them don’t have to handle actual digital coins.

Bitcoin has more than doubled in value since the beginning of the year and was trading at $10,145 on Friday afternoon. Its rebound is a surprise to many after the collapse of a speculative bubble in bitcoin that peaked in late 2017.

“The launch of physically settled futures from Bakkt has been one of the main narratives behind the monster bitcoin rally during the first half of the year,” said Mati Greenspan, senior market analyst at brokerage firm eToro.

Sunday’s debut comes after months of delays. Bakkt initially planned to go live last November, but the rollout was repeatedly pushed back as ICE struggled to get regulatory approval from the U.S. Commodity Futures Trading Commission.

One potential problem for Bakkt is that only a handful of clearing firms, which allow traders to access the futures markets, were expected to support the new contract initially. Goldman Sachs Group Inc., for instance, doesn’t plan to clear ICE’s bitcoin futures, according to a person familiar with the bank’s thinking. Goldman is one of the biggest clearing firms in the futures markets, and it clears CME’s contract for some clients.

That means traders must use smaller clearing firms willing to provide access to ICE’s bitcoin futures. “It’s provided a good opportunity for us because many of the big banks have shied away from the products,” said Bob Fitzsimmons, an executive vice president at Wedbush Securities, a smaller firm that plans to support the new contract.

Mr. Fitzsimmons said he had brought on more than a dozen clients to trade ICE’s bitcoin futures, including hedge funds and bitcoin miners. Bitcoin miners create new units of the digital currency, and they could use ICE’s contract to protect themselves against the risk of bitcoin’s losing value, much as oil producers use futures to hedge crude prices.

Bakkt Chief Executive Kelly Loeffler said in an interview that there was substantial interest in ICE’s bitcoin futures among clearing firms, and she expected the number of firms clearing the contract to grow over time.

Expectations for the launch are high largely because of the reputation of ICE and its CEO, Jeffrey Sprecher. Since founding ICE in 2000, Mr. Sprecher has built it into an exchange empire worth around $52 billion by making investments in new technologies. A hallmark has been acquiring futures markets with old-fashioned trading floors and turning them electronic.

“Anyone who’s followed Jeff Sprecher’s career and the trajectory of ICE has to acknowledge that anything he does needs to be taken seriously,” said John D’Agostino, a former executive with the New York Mercantile Exchange.

Earlier this year, Mr. Sprecher described Bakkt as “a bit of a moonshot bet.” Ms. Loeffler, the head of Bakkt, is a former ICE executive as well as Mr. Sprecher’s wife.

WSJ : August’s Hot Recession Trade Is Cooling

August’s Hot Recession Trade Is Cooling
Stocks rise, while bond yields head toward biggest one-month rise in years

Stocks are a hair’s breadth away from records and Treasury yields are soaring at a pace last observed years ago, a shift that investors say points to an unraveling of fear-driven bets that sent markets tumbling in August.

The yield on the 10-year Treasury note, which investors closely track because it helps set rates on everything from student debt to mortgages, is on course for its steepest one-month rise since January 2018. On Friday, the yield was 1.754%, compared with 1.469% at the start of the month.

There are other moves rippling through markets that typically point to confidence among investors. The S&P 500 is up 19% for the year and stands away 1.1% from its all-time high. Gains in bank stocks like JPMorgan Chase & Co. and Bank of America Corp. are more than triple the S&P 500’s gain so far in September And the most persistent indicators of a potential recession have eased in recent weeks. The extra yield that three-month Treasurys offer over 10-year Treasurys, for instance, has shrunk to the smallest level since early August.

Historically, when bond yields and risky assets like stocks rose together, money managers bet that growth and inflation would pick up. Perhaps the most stark example of such a market shift was in the months after the U.S. presidential election in 2016—when optimism about a hefty fiscal-stimulus package promised by newly elected President Trump drove what investors called the “reflation trade.”

Yet many investors doubt the moves this time around reflect an upbeat outlook. They instead believe the reversals coursing through markets now represent the walking back of pessimistic bets that roiled markets in August. After some reconciliatory gestures between the U.S. and China on trade and fresh setbacks for U.K. Prime Minister Boris Johnson ’s Brexit plan, some of the worst-case scenarios investors had feared on the geopolitical front appear to have been avoided. That has made some of the one-sided bets that took hold of the markets in August look overdone, they say.

“We’re not believers that we’re marching towards a big cliff in the markets,” said Michael Stritch, chief investment officer and national head of investments at BMO Wealth Management. But he said he doesn’t believe stocks are on the cusp of a huge rally, either.

Mr. Stritch added that, since dialing back on some of its riskier positions over the summer, the firm has generally held a neutral position on stocks. He remains skeptical that the economy is on the cusp of a fresh breakout.

Investors will get a look in the coming days at the Commerce Department’s final estimate for second-quarter gross domestic product. The report is expected to show the pace of growth slowed from the start of the year, but remained solid thanks to consumer spending.

That would largely align with what many money managers and analysts said they already believe: that growth looks like it is neither slowing at a pace that suggests an imminent recession, nor poised to accelerate to the 3%-plus pace of prior quarters.

A report at the start of the month showed the manufacturing sector contracted in August for the first time in three years. Yet the unemployment rate has continued to hover near a multidecade low, and consumer spending has remained strong. Commerce Department data released Sept. 13 showed retail sales rose 0.4% in August from the prior month, more than the 0.2% that economists surveyed by The Wall Street Journal had expected.

Following the retail-sales report, Morgan Stanley economists raised their forecast for third-quarter gross-domestic-product growth to 2.1% from earlier estimates of 1.8%.

“The whole discussion of recession has gotten way ahead of itself,” said Shawn Cruz, manager of trader strategy at TD Ameritrade.

To Mr. Cruz and others, the market’s turn over the past month has been less about investors fundamentally rethinking the economic outlook and more about repositioning after the market’s tumult in August. The S&P 500 logged its steepest one-month decline since May that month, while the yield on the 10-year Treasury note posted its biggest one-month decline since August 2011.

Now, markets appear to be in the midst of a similarly dramatic shift. Equity funds posted one of their largest inflows of the year in the first half of September, according to Deutsche Bank, while government-bond funds posted their biggest outflows in more than five years.

Meanwhile, many of the hardest-hit sectors in the stock market in August are among the best performers in September. Banks, manufacturers and energy producers—cyclical shares that tend to rise when investors are more confident about economic growth—have outperformed the broader market this month. That has been at the expense of technology shares, which had led the way throughout much of the bull market but are trailing the S&P 500 in September.

“It’s not necessarily an all-rational move,” said Jon Hill, interest-rate strategist at BMO Capital Markets, adding that there had been some extreme positioning around bets on lower long-term rates over the summer.

But there is no guarantee the trend continues at its current pace either, Mr. Hill said.

Stocks briefly lost some ground—though they ultimately erased their declines—after Federal Reserve officials signaled Wednesday that there was division on whether they believed they would lower interest rates again this year.

“There are a lot of concerning things over the next couple of quarters that markets are still going to have to deal with,” Mr. Hill said.

Bof : Off-White, Balenciaga and the End of a Fashion Cycle

Off-White, Balenciaga and the End of a Fashion Cycle
This week, everyone will be talking about Off-White and Balenciaga at Paris Fashion Week, France's proposed law to ban destruction of unsold consumer goods and Nike's latest results. Read our BoF Professional Cheat Sheet.

THE CHEAT SHEET
A Sense Check for Streetwear at Paris Fashion Week

Virgil Abloh at the Off-White Spring/Summer 2019 show | Source: Getty Images
Is streetwear's influence on high fashion waning? The trend has certainly been in decline and, as far as omens go, Abloh taking a few months off and Gvasalia stepping down from Vetements certainly have an "end of an era" vibe. Then again, the hundreds of models who wore sneakers down the runway in New York, London and Milan point to a deeper current that's likely to endure. Off-White and Balenciaga are the biggest mysteries heading into Paris; Abloh has promised "crowd participation" in his absence, an unusual proposition for a major brand at fashion week. And as the consensus hardens that Vetements may have been a flash in the pan, Gvasalia must show his vision for Balenciaga has lasting power. The stakes are high — Balenciaga has been an important driver of growth for parent company Kering, and the conglomerate no doubt hopes the label remains hot as it crosses the €1 billion revenue mark and momentum slows at cash cow Gucci.
The Bottom Line: Streetwear is unlikely to depart the high fashion scene as dramatically as it came. Certain elements, including drops and sneakers, will surely live on as part of the luxury business model.
France Tackles Fashion's Waste Problem
  • France's senate will this week debate a bill outlawing the destruction of unsold consumer goods
  • Fashion brands, including H&M and Burberry, have faced criticism for burning excess inventory.
  • Extinction Rebellion, which captured attention at London Fashion Week with a "die-in," has a French chapter, though no protests have been announced.
While designers trot their latest creations down the Paris runways, a debate about fashion's environmental impact will be taking place in the French senate. Legislators will consider a law that would ban the destruction of unsold goods, affecting some $900 million worth of consumer products annually. The legislation presents a quandary for the luxury industry in particular, which cannot offload extra inventory onto discount and charity shops without damaging the perception of exclusivity and scarcity that allows brands to charge high prices and maintain their allure with customers. Meanwhile, LVMH will provide an update on its environmental initiatives on Sept. 25, several months after the conglomerate snapped up a minority stake in Stella McCartney's ethical luxury brand but declined to sign onto a sustainability agreement led by rival Kering.
The Bottom Line: The practice of burning unsold goods may be on its way out even without new regulations. Excess inventory is a major cost for any consumer goods business, and brands from H&M to Burberry are tweaking their supply chains to better align supply to demand.
Nike Strategy Expected to Pay Off

Insider Nike's new Manhattan flagship | Photo: Courtesy
  • Nike reports first-quarter results on Sept. 24; analysts gave an average forecast for sales of $10.4 billion, up 4.9 percent from a year earlier, according to Yahoo Finance
  • The brand's controversial "Dream Crazy" ad featuring Colin Kaepernick recently won an Emmy.
  • The sportswear giant launched a subscription service for children's sneakers in August
Nike's strategic choices continue to pay off. The shift from wholesale to direct selling has boosted margins without hurting sales, and Nike and sub-brand Jordan dominate the white-hot resale market, with only the far smaller Yeezy brand able to generate even a fraction of their hype. Though Nike is still the unparalleled favourite among hypebeasts, the halo from its controversial Kaepernick campaign may be fading in the wider consumer market, as the brand has released few products bearing his name, and the athlete hasn't appeared in any more ads. Nike was also forced to drop another athlete, Antonio Brown, after the NFL star was accused of rape. That said, Nike has plenty of global superstars in its stable of brand ambassadors, from Lebron James to Serena Williams to a growing (and long overdue) relationship with women's soccer.

The Bottom Line: Nike's shift to DTC also allows the company to maintain ironclad control over how consumers interact with its products and perceive the brand. The expansion of the NikePlus loyalty programme, which now has 170 million members, is an example of how that message discipline can be converted into sales.

FT : SoftBank moves to oust Neumann as WeWork chief executive

SoftBank moves to oust Neumann as WeWork chief executive
Board meeting to demote founder of property group could be called as early as next week

SoftBank has lost faith in Adam Neumann’s ability to lead WeWork and is expected to call for a board meeting to demote him as early as this week, after the lossmaking property group shelved its initial public offering and the chief executive’s volatile behaviour and drug use came to light.

Mr Neumann’s outsized influence over the company has become one of the biggest hurdles in the path of a multibillion-dollar IPO, according to investors and people briefed on the matter. 

SoftBank’s vice-chairman Ron Fischer sits on the WeWork board, as does Mark Schwartz, a former board member at the Japanese telecoms-to-technology group. It was unclear, however, whether a majority of the board members believed Mr Neumann should step down as chief executive.

The board could decide against changing the CEO role in the end, these people cautioned, and either rally around Mr Neumann or hire a new executive chairman to oversee the company’s management.

WeWork declined to comment.

Any attempt to oust Mr Neumann could backfire. Mr Neumann’s shares carry 10 times the voting rights of other investors and he has the ability to replace a number of the members on the board. Three of the seven board members were appointed by WeWork investors, including the SoftBank Vision Fund, Benchmark Capital and Hony Capital. 

Opposition from SoftBank, in particular, could complicate Mr Neumann’s position and would represent a striking rift in a relationship the CEO has credited with having driven the company’s ambitions. Masayoshi Son’s Japanese group has been the largest single investor in WeWork to date, pumping nearly $11bn into the group, and remains a potential future source of private capital amid public market scepticism. 

Any change to Mr Neumann’s role would mark another volte-face on WeWork’s corporate governance. When the company first published documentation for its planned initial public offering, it said Mr Neumann’s shares would carry 20 times the votes of ordinary shares, his wife would have a say in picking his successor should he die, and WeWork’s board would include no women. 

Investor hostility forced the company to reverse each of those plans, cutting Mr Neumann’s voting rights to 10 times, removing his wife from succession decisions and adding Frances Frei, a former Uber director, to the board. 

The Wall Street Journal reported earlier on Sunday that some WeWork board members were pushing Mr Neumann to step down.

The group has faced a tumultuous few weeks after it revealed its plans to go public. The valuation of the group was expected to be dramatically slashed in the IPO, after bankers at JPMorgan Chase and Goldman Sachs received a lacklustre response from investors. Advisers were expecting the IPO to give WeWork a valuation as low as $15bn, less than a third of the $47bn valuation the company set in a SoftBank funding round this year.

News of Mr Neumann’s use of marijuana on the company’s Gulfstream G650 jet, record of tequila-fuelled company parties, and erratic behaviour have raised new issues for the investing public as well as the WeWork board. 

Mr Neumman told employees last week that he had been “humbled” by the IPO process and that while he believed he knew how to run a private company, he had since received feedback on the role he needed to play as a leader of a soon-to-be public group.