ECB has purchased €2.0T worth of bonds in public sector purchase program (PSPP, QE) as of w/e May 25th €2.00T v €1.99T prior week
- Total ABS purchases (ABSPP) to date now €27.6B vs. €27.4B prior
- ECB has now purchased total €254.4B vs. €254.6B prior under its covered bond purchase program 3 (CBPP3)
- ECB has now purchased total €159.3B vs. €158.1B prior under its corporate sector purchase program
The Force Behind Europe’s Populist Tide: Frustrated Young Adults
Struggling to find jobs, and often living at home, younger generations are propelling antiestablishment parties to new heights of powerA youth revolt is upending Italian politics, and it could be a harbinger of things to come.
Western Europe’s largest antiestablishment government came to power earlier this month, driven largely by young Italian voters. Struggling with a persistent lack of job prospects over the past decade, they voted in droves for two parties in the country’s March 4 elections, the 5 Star Movement and the League, an anti-immigration party.
The result laid bare a stark generation gap, with older Italians, who often have to support their grown children, continuing to vote for mainstream parties.
The same pattern appears across southern Europe, and the forces behind the divide show few signs of slowing. Almost 30% of Italians age 20 to 34 aren’t working, studying or in a training program, according to Eurostat, more than in any other European Union country. Greece is second at 29%, while Spain’s rate is 21%.
“Italy is collapsing and yet nothing has changed in this country for at least 30 years,” said Carlo Gaetani, a self-employed engineer in Puglia. Ten years ago, when he was in his early 20s, he voted for a center-left party that he hoped would push for economic development in southern Italy. When Italy descended into a crippling recession, he felt betrayed by the traditional Italian left-wing parties. He has seen friends struggle to find jobs, and said his own business opportunities are limited to the stagnant private sector, because commissions for the public sector are usually awarded to people with connections he doesn’t have.
Mr. Gaetani, now 33, voted for 5 Star in the 2013 election, a choice he repeated in March with more conviction. “5 Star is our last hope. If they also fail, I think I’ll stop voting,” he said.
Short-Term ProspectsYounger adults who do find employmentmust often accept short-term contracts.Share of adults age 15-25 with temporarycontracts* in 2017Source: Eurostat*Generally lasting one year or less.
SpainItalyFranceGermanyE.U.GreeceU.K.0%255075
The employment rate of Italians under 40 fell every year from 2007 to 2014 before flatlining over the past three years, according to Eurostat. Meanwhile, it has risen every year for those between 55 and 64 years, in part due to an increase in the retirement age.
The number of Italians under 34 in absolute poverty—defined as being unable to afford basic goods and services—more than doubled between 2010 and 2016 to 10%, according to the Italian National Institute of Statistics, or Istat. For those over 65, it dropped to 3.8% from 5.4%.
One major problem in southern Europe is a dual employment system in which people with open-ended contracts—often older workers—enjoy ironclad job security and benefits. At the same time, during the downturn, employers began to use more short-term contracts, generally lasting from one month to a year. In Italy, 62% of contracts for those under age 25 were short-term in 2017, up from a quarter in 2000.
Italian policy makers introduced the contracts in the 1990s in part to help young people enter the labor force as a step to permanent work. Employers used them to avoid the cost and hassle involved in firing people. Echoing labor overhauls elsewhere in Europe, Italy introduced a major revamp of work rules in 2014 and 2015 that tried to get employers to use more open-ended contracts, including billions of euros in tax breaks. The most generous breaks expired in 2016.
Out of WorkIn Southern Europe, younger adults are still struggling a decade after the financial crisis hit.People age 20-34 not employed, in school or in a training programSource: Eurostat
%U.K.GreeceSpainItalyGermanyEU2006’07’08’09’10’11’12’13’14’15’16’170510152025303540
The efforts didn’t have the desired effect of creating structural change to the labor market that would wean employers off using short-term contracts. In 2016, when the tax breaks were in place, only 13% of new hires were on short-term contracts. Last year, more than four out of five new hires were on short-term contracts, according to Istat.
The 5 Star Movement has lured millions of young voters with promises to roll back new labor rules, give the unemployed and poor a so-called universal basic income of €780 ($905) a month, and abolish unpaid apprenticeship contracts. Its leader, Luigi Di Maio, was a 26-year-old university dropout who lived with his parents when he was elected to parliament in 2013. Today, he is a deputy prime minister.
The League also made canceling the recent labor revamp a central part of its electoral platform.
Italy’s economic problems played into young voters’ sentiments about immigration during the campaign as well, one of the animating drivers of support for the League. “We can’t host all of Africa,” said Gianluca Taburchi, a 23-year old supermarket employee from Perugia who voted for the League. “We already have our own problems. We have lots of unemployment and unsecure jobs.”
Matteo Salvini, the leader of the League who became a deputy prime minister and interior minister in the new government, promised to return hundreds of thousands of migrants to their countries of origin. 5 Star, which straddles the line on many issues, spoke of stemming illegal immigration, but stopped short of calling for mass deportations.
Italian Prime Minister Giuseppe Conte, center, with Deputy Prime Ministers Luigi Di Maio and Matteo Salvini, at the Italian Parliament on June 6. PHOTO: ETTORE FERRARI/EPA/SHUTTERSTOCK
About 53% of Italians under 35 voted for the two parties combined, according to an Ipsos poll. About 43% of Italians over 65 voted for legacy center-right and center-left parties, while only 28% of young Italians did.
Elsewhere, almost 40% of Spaniards under 35 said in an April poll they would vote for far-left Podemos and its political allies in a coming election. In Greece, more than 41% of those age 18 to 24 voted for Syriza in the 2015 election, six points more than the antiestablishment party got across all age groups.
Argyro Maltasoglou, 30, said she voted for Syriza in the 2015 election because she thought the upstart party would make radical changes, especially in terms of policies to help young people. Since graduating from college in 2013, she has been bouncing between short-term contracts lasting less than a year. She has been looking for a job since her short-term contract as a secretary in an Athens hospital expired in March.
The job paid €500 a month, the most Ms. Maltasoglou has earned so far. She has had to accept money from her parents to get by. “This isn’t what I dreamed of when I was studying,” she said. “I would like to have a family, but I wouldn’t dare to think about it now under these conditions.”
One exception to the generational phenomenon is the U.K.’s 2016 vote to leave the EU: 71% of voters age 18 to 24 voted for the country to remain in the bloc, according to a poll by YouGov. Only 26% of those 65 and over voted to remain.
Supporters of the League marched in a rally on Feb. 24. PHOTO: MIGUEL MEDINA/AGENCE FRANCE-PRESSE/GETTY IMAGES
Studies following the Brexit vote showed that, in this case, young Britons valued the increased ease of working, studying and traveling abroad that EU membership brings. At the same time, many older voters viewed leaving the EU as an opportunity for the U.K. to better control immigration.
The pain in southern Europe reflects a feeling across much of the Western world that the younger generation will struggle to surpass their parents in wealth and security. Half of Italians who responded last year to an online survey on jobs site Monster.com said they thought they will earn less over their careers than their parents.
Young Italians, who bore the brunt of the country’s protracted, triple-dip recession, still bear the scars that will affect their career prospects, homeownership and birthrates for decades to come.
Banks are reluctant to lend to people on short-term contracts, which has helped push up the average age of home buyers to 41.6 years in 2017 from 39.4 years in 2012, according to Fabiana Megliola, head of research for real estate group Tecnocasa. In 2017, 56% of home buyers in Italy were under 45, down 10 percentage points from five years.
The number of Italians getting married has fallen by a fifth over the past decade, according to Istat. In 2016, the last year for which data are available, Italian men got married on average at age 35 and women at 32, in both cases two years later than in 2008. Births hit an all-time low last year.
Failure to LaunchIn Italy, economic woes have led many youngpeople to live with their parents and hold offon marriage.Share of adults age 25-34 living with theirparents in 2016Source: Eurostat
GreeceItalySpainE.U.GermanyU.K.France0%255075
Number of new marriages in ItalySource: Italian National Institute of Statistics
2008’10’12’14’16050,000100,000150,000200,000250,000300,000
In a country with strong family ties, parents are stepping in to help adult children. They can often afford to help because they enjoy pensions that are the fruit of decades of generous retirement benefits. Italy spends more than 15% of its economic output on pensions, the most in Europe except Greece.
About half of Italians age 25 to 34 live with their parents, according to Eurostat, almost double the European average and more than in any other Western European country. The number has risen 3 percentage points in the past decade. And more than a third of Italians in their 30s get economic help from their parents or grandparents, according to a survey by agricultural industry association Coldiretti and polling firm Ixè.
Parties such as 5 Star could continue to win over more young voters if they are able to enact some of the pro-youth policies its leaders campaigned on. “I’m not interested in politics because nobody on either side [of the political spectrum] is doing much to help young people,” said Giada Gramanzini, a 29-year-old Italian university graduate. She hasn’t found a steady job since deciding not to renew a three-month contract as a full-time receptionist that paid her about $2.70 an hour. Last year, she moved back in with her retired parents and sent out more than 70 resumes before moving to New York last month to try her luck in another country.
In the March election she voted for a small pro-European party, in what she called a protest against the Democratic Party—the center-left party that ruled the past five years. She didn’t feel 5 Star was ready to govern.
Her father, Emilio, collects a good pension after working most of his career for the Naples municipal administration. Her mother, Daniela, began working full time at 20 and was employed by the city for several decades. She retired last year.
Giada Gramanzini with her father, Emilio. PHOTO: GIOVANNI CIPRIANO FOR THE WALL STREET JOURNAL
Daniela worries about the late start Giada is getting on adult life. “How can you not be worried about your daughter if at 29 she still hasn’t found her way?” she asks.
Afternoon tea with Sir James Dyson
Recode talks design and technology with the legendary inventor.
It is rare but refreshing when a top technology executive can explain how their product actually works.
Steve Jobs, the late Apple founder, was great at this — the pitchman who could explain deeply why a new device was special; the specific engineering or design trick that made it work like magic.
Watching Dyson founder James Dyson unveil another sort of gadget — his company’s latest vacuum cleaner, the Cyclone V10 — earlier this spring in New York conjured a similar feeling. In another Jobsian move, the legendary inventor Dyson says he’s managed to create a handheld, battery-powered vacuum so powerful that he’s no longer investing in developing new vacuums with cords.
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The Cyclone V10
Dyson
In this case, it’s because the tiny, precise, digital, electric motor, which weighs 125 grams, uses “secret” magnet technology and spins 125,000 times per minute, its turbine blades developed in the same lab as those for Rolls Royce.
And it’s good enough to usher in, as Dyson says, a new “genre” of vacuum — reminiscent to this technology writer of the transition from desktop to laptop, or PC to smartphone.
“We believe this is the future, and this is the way you should clean your home in the future,” he tells an audience gathered in a studio space in Manhattan’s Greenwich Village. “It’s quite a brave step for us, but we think we’re doing the right thing.”
Later, over smoky lapsang souchong tea in a Midtown hotel lobby, Dyson spoke with Recode about our changing relationship with our devices, how he balances a gadget’s capabilities with its cost, which part of an electric car he doesn’t want to make, and about those Dyson “blade” hand dryers. What follows is a transcript of our conversation, condensed and lightly edited.
Dan Frommer, Recode: What did you learn making these latest products?
Sir James Dyson: Technology is now moving so fast and is becoming ever more complex. Even we, who started off as hardware engineers, now employ more software engineers than hardware engineers. And vision systems people, artificial intelligence people, robotics people. We now have five times the number of engineers to do a product than we were doing 10 years ago. It’s a massive change.
Dyson strikes me as a company that uses hardware industrial design as its main competitive advantage. Do you also need to be doing your own machine-learning software?
Yes. Things like voice recognition — we wouldn’t attempt to do that. But interpretation of vision — what you see with the camera — we are doing. We think that’s key for us.
We think batteries are key for us. And robotics. And with the car, there are certain technologies that we’re doing ourselves and it’s certain that we’re buying in. The thing is to be selective and to choose the ones which are really, really important to you and which you can make a real difference. And then buy or direct others in.
What’s your job now? How involved are you in developing new products?
That’s what I do. In the beginning, I did everything — I was on my own, building those 5,127 prototypes, every day. That’s what I was doing, totally hands on, making them myself, testing them myself, and coming in at the end of the day covered in dust.
As we’ve gradually become successful and now have 5,000 engineers. I’m obviously not the person making the prototypes, and most of the time I’m not the person coming up with the ideas. My role is that of a sort of old tutor, a slightly grumpy old tutor, going around, saying what he likes and what he doesn’t like, and listening to their ideas and encouraging them.
The people are very young, by the way, I’ve really exclusively recruited graduates, and now undergraduates — because we now have a university — and I find working with people who haven’t got experience much more exciting than working with people who have got experience.
Experienced people always say why it can’t be done or how it should be done. And I want people to be pioneering and do all sorts of wrong things and make mistakes and understand from their mistakes what could be possible.
I have very little to do with sales. I have a little bit to do with marketing.
I think it’s important — if you’re making those sort of decisions in front of the engineers — to explain why people will like that thing or why people won’t like that thing. And also to make sure the marketing people say the right things about it. And don’t get carried away with thinking that the brand’s going to carry it through. The performance of the product is what carries it through, not the brand. I hate the word brand. It’s banned from our building.
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Emptying the Dyson Cyclone V10
Dyson
In your demo, you called extra attention to the specific, clever task of emptying your new vacuum. Why?
We feel quite vulnerable on that point. If the dirt goes into a bag, in theory, it’s sealed in the bag. It isn’t, but that’s what they claim.
So emptying a bagless vacuum cleaner is, in theory, a slightly messy task. We’ve wanted to overcome that issue for quite a long time. And I think we’ve gone quite a long way to overcoming it. So I wanted to explain that in some detail.
Dyson products are not cheap. How do you balance design and functionality versus cost?
Cost? We don’t worry about the cost! No, I’m joking. I’m really joking.
I’ll tell you what I don’t do. I don’t design down to a price. You can say that’s my undoing.
Inevitably what we’re doing costs more and is usually more expensive than what other people are doing. But. A lot of the time you have to make a decision about, “Do I include that?” “Do I not include that?” “Can I afford that?” “Can other people afford that?” And we know that if we add a dollar to the production cost, you’re adding many more dollars to the price in the shop.
I’m sure we get it wrong half the time or three quarters of the time — our products are too expensive. But that’s what they are. That’s what we wanted to make and that’s what it is. And, of course, you can buy one that’s cheaper if you want to. And a lot of people do.
How is our relationship with devices changing?
It’s going to have to change, and it will change a lot. They’re going to get incredibly complex — sensors, cameras, artificial intelligence, machine learning. All of this is going to make products very powerful and do extraordinary things. It’s happening. We have the technology now, we can see it happening.
But what we don’t want to do is make them complex and difficult for people to operate. I don’t want for people to have to reach for an app to make it work, or to reach for a remote control, which would be wholly inadequate anyway. So I’m for automating things so these things just happen for you.
What parts of the home do you think will become automated? And how is our relationship to our home going to change?
Lights are going to get very interesting because of your circadian rhythm and that kind of thing. That whole thing is going to change. The idea that you come in and switch on the light is in the past. You don’t need that, so you can save the light switch. That’s an obvious, crude example.
But I think people are becoming acutely aware that humidity, dryness, it’s important to control that. It’s obviously important to control all the things that make smell and pollution in the home. Floorboards create formaldehyde.
Dealing with hidden things and making the home a really safe place that reacts to you and monitors your health and keeps you in the best possible health. Home isn’t just going to be a place that keeps you dry and warm. It’s going to be a lot more.
How do you sell design in an era of great uncertainty?
I’m old enough not quite to remember the second World War, but certainly the Cuban Missile Crisis and the whole Cold War, so I think now is actually quite a calm time, in spite of what everyone is saying.
How do you think about which new product markets to enter?
Not very intelligently! We think more about the product.
We had the idea for a hand dryer at a time when we were making products entirely for the home. We didn’t do any market research, we just did it because we thought it was a better hand dryer. And it was difficult because you don’t sell it how we normally sell things. You have to go and sell it to architects or B2B.
We were actually developing air knives — a very thin blade of air coming out at a very fast speed is called an air knife. They’re used for various drying applications in industry, or as a gate — you can make an artificial door with an air knife. There’s nothing new about air knives.
But we were playing around with one for a particular job and we ran it across our hands and discovered it scraped the water off our hands. And so we thought: That’s very interesting. Because a hot-air hand dryer uses a vast amount of heat — I mean, they’re 3 kilowatts — and they’re trying to evaporate the water off your hands. In the process, they’re using a lot of energy. It takes a long time, and also it’s not good for your skin.
So we realized with this blade of cold air that we would use very little energy and we would’t harm your skin and we’d do it very much quicker. So we said: Right, we’ve got to do a hand dryer. We just produced it and started selling it. And of course we made terrible mistakes.
There’s a sort-of cult of people who really feel ... weird ... about Dyson hand dryers. Some guys I know even tweet photos of them at each other as an in-joke.
I mean, the problem is that it’s not obvious how to use it. That’s the trouble. They’re used to this tube that’s blowing air at your hands and you’re supposed to rub your hands. Ours you have to use in a particular way to get the blade to work effectively.
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Dyson’s “Wash+Dry” tap
Dyson / Screenshot
But the one I really like is the tap. Because you go into the washroom and you’ve got the tap and the dryer that’s part of the same device, and you can stand there and do it all there and then get the hell out. Whereas the other ones, you have to go and wash your hands and then drip across to the dryer, or queue for the dryer.
And also the water that comes off your hands goes onto the wall or onto the floor with a normal hand dryer. But with the tap, it’s all going into the basin. And when the water turns on, it’s actually flushing out the basin. So it’s a very good thing. But it’s difficult to get facilities providers to fit it. It’s been very slow to take off.
The hair dryer is quite interesting because that’s a weird market for us to go into — beauty and personal care. What on earth is a vacuum cleaner company doing going into beauty and personal care? It’s a mad idea.
But we had the motor. We had the technology. So we went into personal care, which is a very different thing. You have to go into beauty salons and hair salons and talk to people. We’ve got a hair salon in our own shop just around the corner. So it’s a very odd thing for us to do. But we did it because we had the right technology.
Funny enough, the car is the same thing. We’ve got what we think are the right technologies.
We suddenly realized we’re developers of electric motors. Air flow is really a key thing of ours, because we develop turbines, and of course the fans — they’re all about air flow. And not sort of crude air flow, very subtle air flow around all those shapes — creating something out of nothing, that’s what that is doing.
We’ve been developing batteries for five years. Not specifically for cars, but last year we sold 100 million cells. We’re a big, big consumer of batteries. So electric motors, batteries, air purification and air temperature, and circulation is a key thing of ours. And robotics and vision systems and interpretation of images and what’s going on. And apart from the chassis, that’s a car. We won’t make tires, but we will make a chassis.
What companies do you look up to?
I used to enormously look up to Sony in the early and mid ’80s. The Walkman came out and I really admired that, because making a tape recorder that doesn’t record takes guts. But he had the vision about that and people suddenly tweaked and off it went. I admired that enormously. Almost everything they did then was magic and great.
And when Akio Morita died, they lost their way a bit, I think. They’re still a great company — they’re one of our battery suppliers and we work with them on that.
I mean, anyone, really, who introduces new technology and bravely pioneers things, I admire that.
Bottega Veneta Hire Heralds Rise of New-Gen Designers
Daniel Lee becomes the latest behind-the-scenes talent to take the reins at a top luxury house.
PARIS — Goodbye seasoned superstar, and hello hidden talent!
Friday’s appointment of little-known British designer Daniel Lee as creative director of Bottega Veneta seemed to underscore a generational shift at the helm of top luxury brands. In recent years, houses including Hermès, Chloé, Courrèges, Mulberry, Oscar de la Renta and Mugler have taken a chance on studio members used to working in the shadow of a star designer.
And with creative searches still under way at brands including Lanvin, Nina Ricci and Emilio Pucci, the future is looking bright for the next generation of design talents, even as established figures like Alber Elbaz, Phoebe Philo, Stefano Pilati and Peter Copping remain on the market.
To be sure, marquee names still have plenty of currency: Witness the recent appointments of Riccardo Tisci at Burberry, Hedi Slimane at Céline, Kim Jones at Dior Homme and Off-White’s Virgil Abloh at Louis Vuitton men’s. Before them came Clare Waight Keller at Givenchy, Maria Grazia Chiuri at Dior and Raf Simons at Calvin Klein.
Yet headhunters describe a changing of the guard in the industry’s top echelons.
“A new generation of highly competent designers is arriving on the scene,” said Agnès Barret, founder and chief executive officer of Paris-based fashion recruitment agency Agent Secret. “I think it reflects a moment in fashion. People are looking for deputies who know how to do the job, who have learned a lot, who have a degree of expertise and who are not necessarily well-known.”
“There is a whole generation coming up that have a real point of view,” said another headhunter, who asked not to be named. “They are future stars.”
Several of these rising designers studied at the altar of Martin Margiela, dispensing with seasonal themes and inspirations to focus on individual garments with a rigorous approach to design.
Among the Margiela alumni who have stepped into the limelight are Nadège Vanhee-Cybulski at Hermès, Demna Gvasalia at Balenciaga and Nina-Maria Nitsche at Brioni. The latter two brands are owned by French conglomerate Kering, which is also the parent company of Bottega Veneta.
Lee, who interned at Margiela while studying at Central Saint Martins, has a similarly meticulous approach to design that should make him a good fit for Bottega Veneta, best known for its discreet Intrecciato weave handbags, according to Mary Gallagher, European associate for New York-based search firm Martens & Heads.
“He’s very interested in the process: the design, the creation,” said Gallagher, who is familiar with Lee’s work but was not involved in the Bottega Veneta search. “He’s very 3-D on the model — he doesn’t work with computers, no Photoshop.”
The 32-year-old British designer also completed stints at Balenciaga and the now-defunct Meadham Kirchhoff while studying for his B.A. and M.A. at the London fashion school. After graduating in 2011, he briefly worked at Donna Karan, joining Phoebe Philo’s team at Céline the following year.
Starting out as lead designer of leather and fur, contributing to knitwear, jersey and shoes, Lee graduated to director of ready-to-wear in 2017. Lauding Lee’s maturity, Gallagher said: “He’s so poised. He has presence.” Barret said that like his masters, Lee has a conceptual approach to designing.
“He has taken the best of Margiela, without spending years there, and Phoebe happens to work in the same way as Martin. They develop a concept before creating a product,” she said. “I think he’s going to bring a wind of modernity to Bottega. The brand was running out of steam.”
Lee is set to join the house on July 1, though Bottega Veneta did not specify when he will show his first collection. He succeeds Tomas Maier, who helped shape and elevate Bottega Veneta for 17 years with a subtle approach summed up by the slogan: “When your own initials are enough.”
“Maintaining the ingrained codes of the house, craftsmanship, quality and sophistication, I look forward to evolving what has gone before, while contributing a new perspective and modernity,” Lee said in a statement on Friday.
François-Henri Pinault, chairman and ceo of Kering, has a track record of appointing little-known designers at its top brands. The most successful recent example is Alessandro Michele, who has powered a spectacular turnaround at the group’s cash-cow brand Gucci. When Slimane wound up his four-year tenure at Saint Laurent, the group chose the more low-key Anthony Vaccarello.
“I think they can afford to. Some brands can’t afford to because either they want to have stars, or they need to have stars to get people to sit up and take notice and take them seriously,” said Gallagher, noting that Lanvin was a case in point, having cycled through two designers in less than two years.
“But Kering can shake it up a bit, especially after 17 years of having the same creative director. They almost need someone who can usher in the new generation of customer,” she said.
Thomas Chauvet, head of European luxury goods research at Citigroup in London, noted the stakes were lower at Bottega Veneta, which is the group’s third-largest brand after Gucci and Yves Saint Laurent.
“Bottega is not a fashion brand. It’s a classic, understated, no-logo brand with a high degree of craftsmanship, so hopefully this guy will bring some newness and buzz and desirability to the brand,” he said.
“It’s not Saint Laurent, it’s not Balenciaga — it doesn’t have a strong fashion content simply because 85 percent is leather goods, and a large chunk of those leather goods is the classic Intrecciato bag,” Chauvet added.
Under Maier’s tenure, revenues vaulted from 48 million euros to almost 1.2 billion in 2017, representing a compound annual growth rate of 24 percent, according to Luca Solca, managing director and head of luxury goods at Exane BNP Paribas.
In recent years, the brand has struggled to keep up with rapid changes in the consumer landscape, as demand waned in its key market, Asia, and it failed to tap into a Millennial audience. In 2016, Kering brought in former Hugo Boss chief Claus Dietrich Lahrs as ceo, succeeding Carlo Alberto Beretta.
In a bid to increase its visibility in mature markets, Bottega Veneta recently opened a flagship on Madison Avenue in New York, in tandem with a big fashion show, and will unveil another in Tokyo’s Ginza district at the end of the year.
The company is also set to renovate 30 stores out of its network of 270 and enrich its offer of small leather goods to entice younger consumers. Despite its ongoing turnaround efforts, revenues at Bottega Veneta were down 6.8 percent in the first quarter, even as Kering reported a 27.1 percent jump in sales.
“Daniel Lee has a deep understanding of the house’s current challenges both in terms of creation and development,” Lahrs said in Friday’s statement. “He will bring to Bottega Veneta a new and distinctive creative language that will continue building the house’s success based on the ambitious foundations already developed over recent years.”
Pinault added: “His work is characterized by great rigor, a mastery of studio expertise, a true passion for materials and an energy that I cannot wait to see take shape at Bottega Veneta.”
Chauvet said Bottega Veneta’s turnaround strategy was taking longer than expected to bear fruit, and markets will now have to wait for Lee’s design strategy to emerge.
“They want to grow the non-leather goods product, for sure — ready-to-wear, shoes, small accessories, more affordable price points generally — and they want to move away from the Intrecciato pattern, and it’s difficult,” he said.
“Maybe that rejuvenation, that new eye and angle on ready-to-wear and new categories, will help create a halo effect on the core leather goods business, which has been underperforming other Kering brands for the past couple of years,” Chauvet added.
Barret said Céline offered a great blueprint for revitalizing a brand starting with rtw. “I think they need a total revamp. A runway show raises the profile of leather goods, but if the leather goods don’t evolve, it won’t be much help,” she said. “You have to start with fashion, and the bags will follow.”
‘Environmental disaster’: BIS warns on cryptocurrencies
Bank of central banks highlights huge electricity and processing requirements
The Bank for International Settlements, known as the bank for central banks, issued new research this weekend on the cryptocurrencies boom. It has a few concerns with the idea of digital money becoming actual money:
•‘Environmental disaster’.
•Scalability woes.
•‘Unstable value’.
•Oh and it may “bring the internet to a halt”.
The BIS has been sceptical for some time on cryptocurrencies, echoing many major players in the financial industry which have serious qualms with advocates’ aim of bringing digital currencies into the mainstream as a key medium for exchange.
In its new report this weekend, the BIS has pointed to some of its over-arching concerns that lead it to conclude that “decentralised cryptocurrencies suffer from a range of shortcomings.”
fastFT rounds up some of the key points below.
Electricity
A key element of many cryptocurrencies, including bitcoin, is that so-called miners compete to complete complex mathematical calculations to get the right to add a ‘block’ to the blockchain. The addition of the block stores information about a transaction, and the winning miner is rewarded for its work.
Miners need to run superfast computers in order to perform these calculations. This requires electricity. A lot of it.
. . . a key potential limitation in terms of efficiency is the enormous cost of generating decentralised trust. One would expect miners to compete to add new blocks to the ledger through the proof-of-work until their anticipated profits fall to zero.
Individual facilities operated by miners can host computing power equivalent to that of millions of personal computers. At the time of writing, the total electricity use of bitcoin mining equalled that of mid-sized economies such as Switzerland, and other cryptocurrencies also use ample electricity. Put in the simplest terms, the quest for decentralised trust has quickly become an environmental disaster.
Scaling
It would take vast computer storage for major cryptocurrencies to keep up with the speed of transaction-processing systems that are currently in place, according to the BIS. That presents a major problem in scaling-up cryptos.
At the most basic level, to live up to their promise of decentralised trust cryptocurrencies require each and every user to download and verify the history of all transactions ever made, including amount paid, payer, payee and other details. With every transaction adding a few hundred bytes, the ledger grows substantially over time.
For example, at the time of writing, the bitcoin blockchain was growing at around 50 GB per year and stood at roughly 170 GB. Thus, to keep the ledger’s size and the time needed to verify all transactions (which increases with block size) manageable, cryptocurrencies have hard limits on the throughput of transactions.
A thought experiment illustrates the inadequacy of cryptocurrencies as an everyday means of payment. To process the number of digital retail transactions currently handled by selected national retail payment systems, even under optimistic assumptions, the size of the ledger would swell well beyond the storage capacity of a typical smartphone in a matter of days, beyond that of a typical personal computer in a matter of weeks and beyond that of servers in a matter of months.
That thing about the internet . . .
But the issue goes well beyond storage capacity, and extends to processing capacity: only supercomputers could keep up with verification of the incoming transactions.
The associated communication volumes could bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte.
Stability
The second key issue with cryptocurrencies is their unstable value. This arises from the absence of a central issuer with a mandate to guarantee the currency’s stability.
Well run central banks succeed in stabilising the domestic value of their sovereign currency by adjusting the supply of the means of payment in line with transaction demand. They do so at high frequency, in particular during times of market stress but also during normal times.
This contrasts with a cryptocurrency, where generating some confidence in its value requires that supply be pre-determined by a protocol. This prevents it from being supplied elastically. Therefore, any fluctuation in demand translates into changes in valuation. This means that cryptocurrencies’ valuations are extremely volatile.
And the inherent instability is unlikely to be fully overcome by better protocols or financial engineering, as exemplified by the experience of the Dai cryptocurrency.
Mining M&A: dread zone
Investors may feel queasy about S32’s move for Arizona but its small scale gives it an advantage
Mergers and acquisitions are returning to the mining sector. Investors, burnt by recent experience, are reacting with dread. On Monday, Australian metals and mining group South32 announced that it wants to buy out Arizona Mining for $1.3bn. Its shares dropped 4 per cent before rallying.
A wave of acquisitions is inevitable. Mines have finite lives. Maintaining or growing output ultimately means miners have to top up their assets. Analysts at Royal Bank of Canada point out that sector capital spending is near a low for the decade. Balance sheets, after years of repairs, are as strong as they have ever been. Managers have vowed to economise after past follies. Growth assets suited to conservative strategies are rare — and will be increasingly expensive.
Maybe that explains why S32 is willing to pay a 50 per cent premium to Arizona Mining’s undisturbed share price. S32 already owned 17 per cent of the zinc specialist. Analysts had previously complained about a lack of growth options.
It will take years before Arizona’s Hermosa project can be fully developed, maybe in time to replace S32’s Cannington mine, which it resembles. The deal, along with two earlier ones, should alleviates pipeline worries. The all-cash acquisition price is less than net cash as of December. S32 says its spending plans will not be hurt by the deal.
If measured solely against high spot prices for metals, shares of South32 look attractive. Mining assets also look relatively affordable, considering the hefty cash reserves big mining groups could yet deploy.
Shareholders may feel queasy at S32 departing from its expected script. BHP Billiton demerged the group as a vehicle for its unloved assets. As such, it was tipped for takeover itself.
An enterprise value of under six times forward ebitda does not suggest bid interest. S32’s smaller scale gives it an advantage in turning the tables. Larger, more focused groups may find it harder to buy assets that make a difference. With industry war chests at record levels, S32 is right to get in first.
There’s a great irony to the merger craze that has swept the media world. The deals are all being driven by a desperate attempt to catch up with Netflix, even though a few years ago any rich and savvy media company could have acquired the upstart for what would now seem a relatively small sum.
In 2013, just as Netflix (ticker: NFLX) was launching House of Cards, its first original show, the streaming pioneer had a market value of just $10 billion. Even a confident Netflix board would have struggled to turn down an offer of $20 billion to $30 billion.
Barron’s speculated about a Comcast (CMCSA) and Netflix merger 18 months ago, when Netflix was still valued at a relatively cheap $52 billion. It never happened, of course.
Instead, media and telecom companies continued to spend big money on each other. Comcast bought the remainder of NBCUniversal for $17 billion in 2013, bringing its total outlay for the entertainment network to $47 billion. In 2014, Verizon Communications (VZ) laid out $130 billion to acquire the rest of Verizon Wireless that it didn’t already own from Vodafone Group (VOD.UK), and AT&T (T) agreed to pay $49 billion for DirecTV. Then, in 2016, Charter Communications (CHTR) paid $66 billion to buy pay-TV operators Time Warner Cable and Bright House Networks, only after Comcast failed in its own effort to acquire Time Warner Cable.
Fast forward a few years, and media companies are still in the same spot—chasing Netflix. Except now, Netflix is worth more than all of them, with a market capitalization of $170 billion.
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The speed of Netflix’s ascent has been staggering. Since December, when Walt Disney (DIS) agreed to buy 21st Century Fox (FOXA) assets, Netflix has added $88 billion in market value. That gain alone easily outstrips the current value of CBS (CBS), Viacom (VIAB), Discovery (DISCA), and Dish Network (DISH) combined.
The panicked response is more mergers. On Thursday night, AT&T closed its $85 billion deal for Time Warner. Comcast and Walt Disney are locked in a bidding war for the Fox assets. A long dance between CBS and Viacom ended in litigation, leaving both parties searching for other partners.
There’s little reason to think these deals will change media’s destiny any more than the prior ones. To some degree, investors already share the skepticism. After a federal judge on Tuesday approved AT&T’s deal for Time Warner—essentially giving a green light to more consolidation—shares of Walt Disney, Comcast, and AT&T all initially slipped. Wall Street is worried the companies are going to overspend, without ample payoff.
There are alternatives to M&A. Tech firms, after all, invaded media’s world by taking organic risks and thinking outside the box, not through consolidation.
To some degree, media companies have gotten the message. Disney is finally playing hardball with Netflix, removing its content from the streaming company while building out its own direct-to-consumer platform. For the first time, ESPN content is now available without a cable subscription. Disney’s Netflix clone—an entertainment package with proprietary franchises like Star Wars and Pixar films—is due out next year.
But these experiments reveal the conflicts that legacy media faces in trying to build new businesses while protecting a still-profitable business model. ESPN+, the new sports streaming package, doesn’t include live coverage that’s on ESPN’s cable channels, a concession to the pay-TV providers that still pay large sums to Disney for the right to exclusive content.
Disney could face similar dilemmas in the future in deciding whether to launch a Pixar film on its streaming platform or at the box office. As they merge, media companies will have to navigate an even more complex maze of legacy interests.
The next time TBS’ Samantha Bee makes a controversial statement on her show, for instance, how will her new parent company, AT&T, react? The combined company now has more than just advertising revenue at stake. What happens when unhappy consumers also threaten to cancel their AT&T wireless service?
Pure-play Netflix doesn’t face those issues. The company essentially jettisoned its one legacy business—DVDs by mail—even when streaming still seemed like a niche business.
One company that’s been noticeably absent from the merger buzz is Verizon. The nation’s No. 1 wireless provider had an earlier dalliance with digital content—it acquired AOL and Yahoo’s core internet business in 2015 and 2017. But the company spent less than $10 billion combined on those deals.
Now, Verizon is doubling down on what it knows best. Earlier this month, the company said Hans Vestberg would succeed Lowell McAdam as CEO in August. Vestberg is Verizon’s president of global networks and its chief technology officer. The appointment is a clear message about Verizon’s future.
“We are experiencing unprecedented changes in the way users interact in the digital world, and we are racing ahead to remain at the forefront of technology, connectivity, and mobility,” Vestberg said in a news release about the leadership changes.
One word left out of the lengthy announcement? Content.
“I think what Verizon is doing, and it might not be a bad approach, is sticking to its knitting,” says Jennifer Fritzsche, a Wells Fargo analyst who rates Verizon at Outperform. “Their whole marketing messaging is about their map and quality of the network. And they’re putting their capital behind that message.” So, as AT&T and Time Warner are focused on integrating their very different cultures, Verizon will be building out its 5G network.
That’s an opportunity for investors. Verizon is now the least risky way to play trends in media. As media companies move to digital streams, Verizon’s pipes—wireless and wired—grow in importance. Cisco estimates over three-fourths of global mobile traffic will be video by 2021, up from 60% in 2016.
Verizon’s 5G plans, meanwhile, are about much more than faster speeds. The company hopes to rival existing wireline services by offering 5G service, as a broadband replacement, to 30 million homes in the coming years. The product is scheduled to roll out in three to five cities later this year.
Despite its 5G lead, investors don’t give Verizon anything close to a tech-like multiple. The stock trades at just 10.5 times earnings estimates for the next 12 months, versus 118 times for Netflix and 15 for Apple(AAPL). It’s the cheapest Verizon has been since the financial crisis, according to FactSet, and below a 10-year average of 13.3 times. The stock yields 4.9%, putting it in the top 20 among companies in the S&P 500 index.
The yield offers a comfortable seat from which to watch one of the year’s best shows: media’s desperate journey to catch up with tech.
Gapping down
In reaction to strong earnings/guidance:
- NA.
Other news:
- CBIO -42.6% (provides update on the ongoing Phase 1/2 trial investigating its next generation Factor IX candidate CB 2679d/ISU304 for the treatment of severe hemophilia B)
- ZIOP -11.6% (FDA placed on clinical hold a Phase 1 trial to evaluate CD19-specific CAR-T therapies manufactured under point-of-care and requested additional information in support of the IND application for the trial)
- TRVN -2.9% (entered into $50 mln at the market issuance Common Stock Sales Agreement with Cowen; also files for $175 mln mixed securities shelf offering)
- ALV -2.4% (priced a 5-year bond offering of EUR 500 mln in the Eurobond market)
- GLMD -2.3% (to offer and sell ordinary shares in an underwritten public offering to raise aggregate proceeds of approximately $75 mln), .
Analyst comments:
- RDFN -4.7% (downgraded to Sell from Neutral at Goldman)
- ZG -2.8% (downgraded to Neutral from Buy at Goldman)
- LDOS -1.7% (downgraded to Neutral from Buy at Goldman)
- INTC -1.7% (downgraded to Under Perform from Market Perform at Northland Capital)
- DISCA -1.5% (downgraded to Hold at Pivotal Research Group)
- DIS -0.9% (downgraded to Sell at Pivotal Research Group)
- CB -0.9% (downgraded to Neutral from Buy at Goldman)
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