FT : GE’s financials targeted in report by Madoff whistleblower

GE’s financials targeted in report by Madoff whistleblower
Company calls allegations ‘false and misleading’ as its shares fall 5%

General Electric shares declined on Thursday by the release of a report by Harry Markopolos, who blew that whistle on Bernard Madoff’s massive Ponzi scheme, that alleged the company is masking its financial problems.

Shares fell 5 per cent in pre-market trade to $8.61 following the report, in which Mr Markopolos alleges that “GE’s $38bn in accounting fraud amounts to over 40 per cent of GE’s market capitalisation, making it far more serious than either the Enron or WorldCom accounting frauds”.

He argued that the conglomerate has understated its liabilities in its insurance business, said its cash situation is worse than disclosed in its filings and that it has not properly accounted for its acquisition of a stake in oilfield services provider Baker Hughes, which was completed in 2017. GE began to sell down that stake in 2018.

“While we can’t comment on the detailed content of a report that we haven’t seen, the allegations we have heard are entirely false and misleading,” GE said in a statement to the FT. “GE stands behind its financials. We operate to the highest level of integrity in our financial reporting and we have clearly laid out our financial obligations in great detail.”

The company added: “It’s widely known and the WSJ has previously reported that he works for and is compensated by unnamed hedge funds. Such funds are usually financially motivated to try to generate short selling in a company’s stock to create unnecessary volatility.”

The allegations were first reported by the WSJ. GE shares were up 24 per cent year-to-date as of Wednesday’s close.

FT : Expect further turmoil as Donald Trump yo-yos on tariffs

Expect further turmoil as Donald Trump yo-yos on tariffs
Latest move in trade battle reflects US president’s switch between confrontation and conciliation

Donald Trump’s move this week to delay tariffs on about $160bn worth of Chinese imports until December marked the latest twist in the trade war between Washington and Beijing, which has lasted almost a year and a half. Just two weeks ago the US president was saying they would take effect on September 1.

The purpose, Mr Trump explained, was to shield American consumers from the pain of higher prices in the holiday shopping season, since many of the affected products are Christmas staples such as toys, video game consoles and smartphones.

But the White House may be grappling with a much bigger problem in the coming weeks and months: that the damage from the trade wars, both to the global and US economies, may have already been done, and there is little the administration can do to mitigate it.

The move by Mr Trump to delay the imposition of some tariffs was consistent with his approach on trade all along — a yo-yo-like alternation between confrontation and conciliation. The former is designed to display toughness and force concessions, while the latter is aimed at soothing the markets and keeping business hopeful that an agreement can be reached.

But Mr Trump’s success at managing markets may not last for ever if economic conditions continue to sour across the globe. This week new data showed that Chinese industry was suffering and the German economy had contracted in the second quarter, while the US Treasury yield curve inverted — historically a reliable indicator of a looming recession. The equity market rally that followed Mr Trump’s announcement of a tariff delay on Tuesday was eclipsed by a big slide, followed by a sharp rally in government bonds which set fresh records on Thursday as investors sought safety.

The US president may have been lulled into a false sense of security about the impact of his trade wars on the American economy, given the fact that employment has remained relatively strong, consumption has been solid and inflation has remained tame. But business investment data — which is more sensitive to the global economy and policy uncertainty — has been raising alarm bells for some time now.

Mr Trump has been counting on the Federal Reserve to step in with monetary stimulus to help protect the US economy and his re-election chances from a possible recession. Yet there are big doubts about whether the central bank’s measures will be sufficient to do the trick, even if it presses ahead with more aggressive interest rate cuts as the White House has long been demanding.

Mr Trump could, of course, bury the hatchet with America’s trading partners and refrain from further escalation in the hope that this could help steady the ship in both the economy and financial markets. This would probably involve striking a deal with Xi Jinping, the Chinese president, to stop the December tariffs from ever kicking in, and not ploughing ahead with EU auto tariffs later this year. 

Yet Mr Trump is unlikely to make any dramatic shifts that would make him look weak, which means further turmoil should be expected.

Pelosi warns over US-UK trade deal hopes
It was always known that a big hurdle to any post-Brexit trade deal between the US and the UK would come from the US Congress. Now Nancy Pelosi, the Democratic Speaker of the House, has issued her clearest warning yet that if Boris Johnson’s government leaves the EU on October 31 with no deal — leading to a hard border in Ireland — it would fail to pass muster on Capitol Hill. 

“If Brexit undermines the Good Friday accord, there will be no chance of a US-UK trade agreement passing the Congress,” she said on Wednesday, a day after John Bolton, the White House national security adviser, trumpeted the chances of a quick deal with the UK on a visit to London.

No doubt, US and UK officials will be exploring ways to craft an agreement or mini-deals on trade, that could elude congressional scrutiny. If not, they might hold out hope that the power of the “special relationship”, even if it has been severely tested in recent months, may still make a deal with the UK hard to resist on Capitol Hill.

But battle lines have been drawn, and they don’t bode well for a rapid deal.

WSJ : U.S. Arranges Secret Talks Between Israel, U.A.E. Over Iran Washington pro

U.S. Arranges Secret Talks Between Israel, U.A.E. Over Iran
Washington prods longtime adversaries on intelligence sharing, military cooperation against a common threat

WASHINGTON—Israel and the United Arab Emirates held secret meetings arranged by the U.S. in recent months to share information and coordinate efforts to counter what they see as the increasing threat posed by Iran, according to U.S. officials familiar with the clandestine diplomacy.

The meetings were convened by Brian Hook, the State Department’s top official for Iran, and are the latest sign of a steady thaw between Israel and Gulf Arab nations, largely brought about by their shared antipathy toward Tehran and its attempts to spread its regional influence.

A first meeting took place this spring and a second was held more recently, a U.S. official said. The exact dates and locations of the unpublicized meetings couldn’t be learned. Their existence was known to only a handful of people within the U.S. government, officials said.

Israel has diplomatic ties among Arab states only with Egypt and Jordan. Historic disagreements remain with those two as well as other Arab nations, particularly over the Israeli-Palestinian dispute.

But covert, and occasionally overt, contacts between Israel and Gulf Arab nations have increased rapidly in recent years as concerns grew about Iran’s nuclear program and its role in conflicts in Iraq, Syria and Yemen.

The discussions among U.S., Israeli and Emirati officials, although still in the preliminary stages, appear to indicate those contacts have gone beyond being symbolic and exploratory to mapping coordination on specific issues. They were intended to increase diplomatic, military and intelligence cooperation in dealing with Iran, the U.S. officials said

The deepening cooperation between Israel and the U.A.E. is an outgrowth of a U.S.-brokered conference on Middle East security held in Warsaw in February. The two-day meeting brought together leaders from Israel, the U.A.E., Saudi Arabia and dozens of other countries in an effort to build a global campaign against Iran.

The Warsaw meeting brought Israeli Prime Minister Benjamin Netanyahu together with Arab leaders for wide-ranging discussions on how to challenge Iran. Those talks led to the creation of coordinated discussions between Israel and the U.A.E.—both close U.S. allies—that are coordinated by Mr. Hook. U.A.E. officials declined to comment; Israeli officials didn’t respond to a request for comment.

As head of the State Department’s Iran Action Group, Mr. Hook has worked to bring the adversaries together for secret meetings, according to people familiar with the discussions.

“The Iran Action Group has been working with several countries to coordinate diplomatic, security and intelligence activities in response to Iran’s escalating aggression,“ a senior Trump administration official said. “These efforts have helped to pre-empt and neutralize multiple Iranian threats including terrorist and cyber operations in third countries, planned attacks against international shipping, and illegal trafficking in arms. The official didn’t identify any specific threats that were thwarted.

A former U.S. official said Mr. Hook wants help from Israel and the Emirates in getting other countries in Europe and the Middle East to take a tough stance regarding Tehran.

But complicating matters, the former official said, is that the Emirates has its own diplomatic back channels to Iran.

The U.A.E. took a more cautious approach than the U.S. as tensions with Iran rose this summer. It declined to join Washington in blaming Iran for attacks on commercial ships in May, and last month sent officials to Tehran to discuss maritime security. Tensions have risen since President Trump last year withdrew from a six-nation nuclear deal with Iran and increased economic sanctions on the country.

Israel has made building ties to the Gulf states a major diplomatic priority. For most of its history since being founded in 1948, Israel has been shunned by the Arab world—although relations with Sunni-led Gulf powers were never as tense as they often were with immediate neighbors, such as Egypt and Syria.

Israel’s foreign minister visited the U.A.E. earlier this year for a U.N. conference. The minister, Israel Katz, was quoted last week as saying he had met with a “high-ranking persona” in the Emirati government. Mr. Katz also met last month in Washington with Bahrain’s foreign minister, Khalid bin Ahmed Al Khalifa. There was nothing covert about that meeting—both sides agreed to release a photo of the two men with a smiling Mr. Hook between them.

Bahrain has been the most forward-leaning of the Gulf Arab countries in pursuing contacts with Israel, two former U.S. officials said. It allowed Israeli journalists and businesspeople to attend a recent conference in Manama on the economic aspects of the Trump administration’s Israeli-Palestinian peace plan, and is expected to allow Israel to participate in a conference on Gulf maritime and aviation security in October.

Aaron David Miller, a veteran Middle East negotiator who worked for both Democratic and Republican presidents, said that a shift in regional dynamics that has elevated common concerns about Iran has been a catalyst for deeper cooperation between Israel and Arab countries that don’t officially recognize Israel as a nation.

“It’s new and it’s different, and it genuinely never existed to the degree that it does now,” he said. “This is happening because of significant and profound regional changes that have altered the calculations of Arab nations.”

While the deepening cooperation could lay the groundwork for more expansive relations, Mr. Miller said it would take more time to develop. “It’s an exaggeration to suggest that somehow these relationships are on a straight-line track to blossom into a significant and sustained feature of this new Middle East,” he said.

>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance
:

  • CGC -13.3%, TPR -11.2%, JE -10.6%, CSCO -8.3%, AEG -7.1%, CACI -5.4%, GFI -2.6%

M&A news:

  • VMW -3.3% (Pivotal Software confirms discussions with VMware (VMW) for possible combination; in talks to acquire for $15.00 per share)
  • DELL -0.8% (Dell Technologies discloses VMware / Pivotal acquisition discussions)

Select cannabis related names showing weakness:

  • TLRY -2.8%, OGI -2.2%, CRON -2%, NBEV -2%, ACB -1.8%

Other news:

  • GE -4.7% (dropping in early trade as Bernie Madoff whistleblower Harry Markopolos issues critical report on GE's accounting)
  • LOW -0.6% (Pershing Square disclosed decreased holding)

Analyst comments:

  • ADSK -2.3% (downgraded to Hold from Buy at Deutsche Bank)
  • PAYX -1.6% (downgraded to Underweight from Equal-Weight at Morgan Stanley)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance
:

  • SPTN +14.7%, CSIQ +13.1%, VIPS +11.8%, A +8.2%, WMT +6.4%, BABA +3.6%, PRSP +2.8%, RPAY +1.9%, JCP +1.8%, NTAP +1.4%, STNE +1.3%

M&A news:

  • PVTL +69.9% (Pivotal Software confirms discussions with VMware (VMW) for possible combination; in talks to acquire for $15.00 per share)

Other news:

  • MNK +5.6% (announces positive top-line results from its pivotal Phase 3 CONFIRM clinical study evaluating the efficacy and safety of terlipressin in 300 adults with hepatorenal syndrome type 1)
  • SGMS +1.2% (Einhorn's Greenlight discloses new position)

Analyst comments:

  • LEVI +2.2% (upgraded to Buy from Neutral at BofA/Merrill)