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Tesla, Musk Settle Fraud Suit for $40M

Tesla and its CEO Elon Musk have agreed to pay a total of $40 million and make a series of concessions to settle a government lawsuit alleging Musk duped investors with misleading statements about a proposed buyout of the company.

The settlement with the Securities and Exchange Commission allows Musk to remain CEO of the electric car company but requires him to relinquish his role as chairman for at least three years.

Tesla must hire an independent chairman to oversee the company, something that should please a number of shareholders who have criticized Tesla’s board for being too beholden to Musk. 

The deal was announced Saturday, just two days after SEC filed its case seeking to oust Musk as CEO.

‘Reckless tweet’

Musk, who has an estimated $20 billion fortune, and Tesla, a company that ended June with $2.2 billion in cash, each are paying $20 million to resolve the case, which stemmed from a tweet Musk sent Aug. 7 indicating he had the financing in place to take Tesla private at a price of $420 per share.

“A reckless tweet cost a lot of money — the $20-million tweet,” said Michelle Krebs, executive analyst at Autotrader.

The deal could remove one cloud that hangs over Tesla. Investors fretted about the company’s ability to cope without Musk, a charismatic entrepreneur whose penchant for coming up with revolutionary ideas has drawn comparisons to one of Silicon Valley’s most revered visionaries, Apple co-founder Steve Jobs.

Tesla’s stock plummeted 14 percent Friday after the SEC filed its lawsuit, erasing more than $7 billion in shareholder wealth. Many analysts predicted the shares were bound to fall even further if Musk had been forced to step down. Tesla’s stock has dropped 30 percent since Aug. 7, closing Friday at $264.77.

The steep downturn in Tesla’s market value may have influenced Musk to have an apparent change of heart and negotiate a settlement. Musk had rejected a similar settlement offer before the SEC sued Thursday, maintaining he had done nothing wrong when he posted a tweet declaring that he had secured the financing to lead a buyout of Tesla.

New board members

The SEC alleged Musk wasn’t close to locking up the estimated $25 billion to $50 billion needed to pull off the buyout.

Musk and Tesla reached their settlement without admitting to or denying the SEC’s allegations.

Besides paying a fine and stripping Musk of his chairman’s title, Tesla also must appoint two more directors who have no ties to the company or its management. Musk will be allowed to remain on the board.

The company also must clamp down on Musk’s communications with investors, a requirement that might make its colorful CEO’s Twitter posts slightly less interesting.

Erratic behavior

Besides tweeting about a deal that the SEC alleged he didn’t have money to pay for, Musk had been engaging in other erratic behavior that had been raising questions about whether he should remain CEO.

Musk had raised hackles by ridiculing stock market analysts for posing fairly standard questions about Tesla’s shaky finances, and calling a diver who helped rescue 12 boys on a Thai soccer team from a flooded cave a pedophile, triggering a defamation lawsuit. He was also recently caught on a widely circulated video apparently smoking marijuana , a legal drug in Tesla’s home state of California.

The erratic behavior has convinced more analysts that Tesla needs to find a replacement for Musk, but the SEC settlement will allow the company to do so on its own timetable, if it decides to hire a new leader.

Tesla is also under mounting pressure to overcome its past manufacturing problems and produce enough vehicles to become consistently profitable after years of huge losses. 

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Canada FM Postpones UN Speech as Trade Talks Intensify

Canadian Foreign Affairs Minister Chrystia Freeland postponed her U.N. speech Saturday as free-trade talks between the U.S. and Canada intensified.

Freeland had been scheduled to deliver Canada’s address to the General Assembly in New York, but Canada exchanged the slot with another country. Freeland may or may not give the speech on Monday.

A senior Canadian government official said they were making progress in the talks but that it wasn’t certain that they would reach a deal soon. The official, who spoke on condition of anonymity, said Canada would sign only a good deal.

Canada, the United States’ No. 2 trading partner, was left out when the U.S. and Mexico reached an agreement last month to revamp the North American Free Trade Agreement. The U.S. and Canada are under pressure to reach a deal by the end of the day Sunday, when the U.S. must make public the full text of the agreement with Mexico.

U.S. President Donald Trump has said he wants to go ahead with a revamped NAFTA, with or without Canada. It is unclear, however, whether Trump has authority from Congress to pursue a revamped NAFTA with only Mexico, and some lawmakers say they won’t go along with a deal that leaves out Canada. 

Dairy tariffs

Among other things, the negotiators are battling over Canada’s high dairy tariffs. Canada also wants to keep a NAFTA dispute-resolution process that the U.S. wants to jettison.

U.S.-Canada talks bogged down earlier this month, and most trade analysts expected the Sept. 30 deadline to come and go without Canada’s reinstatement. They suspected that Canada, which had said it wasn’t bound by U.S. deadlines, was delaying the talks until after provincial elections Monday in Quebec, where support for Canadian dairy tariffs runs high.

But trade attorney Daniel Ujczo of the Dickinson Wright law firm, who follows the NAFTA talks closely, said the United States put pressure on Canada, contending there would “consequences” if it didn’t reach an agreement by the end of the day Sunday. Trump has repeatedly threatened to start taxing Canadian auto imports. Ujczo put the odds of a deal this weekend at 75 percent. 

Relations between the two neighbors have been strained since Trump assailed Canadian Prime Minister Justin Trudeau at the Group of Seven meeting in June, calling him “weak” and “dishonest.” Canadian leaders have objected to Trump’s decision to impose tariffs on Canadian steel, citing national security.

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US Consumers Spend More; Inflation Flattens

U.S. consumer spending increased steadily in August, supporting expectations of solid economic growth in the third quarter, while a measure of underlying inflation remained at the Federal Reserve’s 2 percent target for a fourth straight month.

Economists said Friday’s report from the Commerce Department should allay fears of the economy overheating and likely keeps the U.S. central bank on a gradual path of interest rate increases. The Fed raised rates Wednesday for the third time this year and removed the reference to monetary policy remaining “accommodative.”

“Growth is solid and inflation pressures modest,” said Chris Rupkey, chief economist at MUFG in New York. “This is exactly the environment the Fed needs to move interest rates up at a gradual pace as further rate hikes start to look like tightening.”

Consumer spending

The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.3 percent last month after an unrevised 0.4 percent gain in July. Spending last month was driven by outlays on health care, which offset a drop in motor vehicle purchases.

August’s increase in consumer spending was in line with economists’ expectations. When adjusted for inflation, consumer spending rose 0.2 percent after climbing 0.3 percent in July.

The report came on the heels of data Thursday showing a decline in orders for key capital goods in August and a further widening of the goods trade deficit, which prompted economists to downgrade their gross domestic product growth estimates for the third quarter to as low as a 2.8 percent annualized rate.

Third-quarter GDP growth forecasts were previously as high as a 4.4 percent pace.

Economic growth

The economy grew at a 4.2 percent rate in the second quarter, powered by robust consumer spending. Economists said data in hand suggested that consumer spending was on track to grow around 3.6 percent in the third quarter, close to the 3.8 percent pace set in the April-June period.

Consumer spending is being driven by a tightening labor market, which is starting to boost wage growth, as well as higher savings. It is also being supported by robust consumer confidence.

A separate report Friday showed the University of Michigan’s consumer sentiment index at a six-month high in September. A survey earlier this week from the Conference Board showed consumer confidence hitting an 18-year high in September.

The Conference Board places more weight on the labor market.

The dollar was trading higher against a basket of currencies, while U.S. Treasury yields fell. Stocks on Wall Street were little changed in late afternoon trade.

Eyes on tariffs

In August, spending on goods increased 0.3 percent, likely lifted by higher gasoline prices. Spending on goods rose 0.5 percent in July. Outlays on services advanced 0.4 percent, with spending on health care accounting for much of the increase.

There was a moderation in monthly price gains in August. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components was unchanged. That was the weakest reading since March 2017 and followed a 0.2 percent gain in July.

August’s flat reading left the year-on-year increase in the so-called core PCE price index at 2.0 percent. The core PCE index is the Fed’s preferred inflation measure. It hit the U.S. central bank’s 2 percent inflation target in March for the first time since April 2012.

Economists say inflation could slightly overshoot its target amid concerns an escalating trade war between the United States and China could lead to price increase for a range of consumer goods.

Washington on Monday slapped tariffs on $200 billion worth of Chinese goods, with Beijing retaliating with duties on $60 billion worth of U.S. products. The United States and China had already imposed tariffs on $50 billion worth of each other’s goods.

Walmart Inc, the largest U.S. retailer, said last week it might hike prices because of the duties on Chinese imports.

“With this $200 billion increase, you are effectively tripling the amount of goods subject to a tariff and that has potential to influence prices,” said Tim Quinlan, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

JPMorgan estimates that the tariffs could add 0.2 to 0.3 percentage point to core inflation.

In August, personal income rose 0.3 percent after increasing by the same margin in July. Wages jumped 0.5 percent, the biggest gain in seven months, after rising 0.3 percent in July.

The saving rate was unchanged at 6.6 percent last month.

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Ousting Musk at Tesla Viewed as Difficult, Possibly Damaging

Tesla without Elon Musk at the wheel? To many of the electric car maker’s customers and investors, that would be unthinkable. But that’s what government securities regulators now want to see.

The Securities and Exchange Commission has asked a federal court to oust Musk as Tesla’s chairman and chief executive officer, alleging he committed securities fraud with false statements about plans to take the company private.

The agency says in a complaint filed Thursday that Musk falsely claimed in an Aug. 7 statement on Twitter that funding had been secured for Tesla Inc. to go private at $420 per share, a substantial premium over the stock price at the time.

The SEC is asking the U.S. District Court in Manhattan to bar Musk from serving as an officer or director of a public company. It also is asking for an order enjoining Musk from making false and misleading statements along with repayment of any gains as well as civil penalties.

Ousting Musk, who has a huge celebrity status with more than 22 million Twitter followers, would be difficult and could damage the company. He’s viewed by many shareholders as the leader and brains behind Tesla’s electric car and solar panel operations.

The stock market shuddered at the prospect. Shares slid more than 12 percent to $269.52 in Friday morning trading after a number of analysts either downgraded the stock or issued negative notes.

Citi analyst Itay Michaeli downgraded Tesla Inc. shares to Sell/High Risk from Neutral/High Risk, telling investors in a note that the SEC case raises the risk of Musk’s ouster.

“There’s little question that Mr. Musk’s departure would likely cause harm to Tesla’s brand, stakeholder confidence and fundraising — thereby increasing the risk of triggering a downward confidence spiral given the state of Tesla’s balance sheet,” Michaeli wrote.

​’Reputational harm’

He also told investors that Musk could stay on, but “the reputational harm from this might still prevent the stock from immediately returning to ‘normal.’ ” Michaeli set a $225 one-year price target for the stock.

Tesla shares have a $130 “Musk premium” due to future business driven by Musk as a disrupter of multiple industries, but that could go away if Musk is ousted, Barclays analyst Brian Johnson wrote in a note.

“Should the SEC be successful in barring Mr. Musk from serving as an officer or director, investors would focus back on the value of Tesla as a niche automaker,” wrote Johnson, who reiterated an “Underweight” rating and set a price target of $210.

CFRA analyst Garrett Nelson downgraded the stock from “hold” to “sell” and reduced his price target to $225. “Despite Musk’s recent erratic behavior, we think most investors want him to remain with the company and they value shares at what we view as extremely lofty multiples given the potential for Musk’s vision to drive future growth,” he wrote. “Given uncertainty about Musk’s role going forward, we think a lower valuation is justified.”

Musk, in a statement issued by Tesla, disputed the SEC’s claims. “I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way,” the statement said.

According to a person knowledgeable about talks between Tesla and federal securities regulators, Musk rejected a settlement that would have allowed him to pay a small fine and stay on as CEO of the electric car company if he agreed to certain conditions, including restrictions on when he could release information publicly.

The person, who asked not to be identified because the negotiations were private, said Friday that Musk rejected the offer because he didn’t want a blemish on his record.

The SEC complaint alleges that Musk’s tweet harmed investors who bought Tesla stock after the tweet but before accurate information about the funding was made public.

No license in ‘celebrity status’

“Corporate officers hold positions of trust in our markets and have important responsibilities to shareholders,” Steven Peikin, co-director of the SEC’s Enforcement Division, said in a statement. “An officer’s celebrity status or reputation as a technological innovator does not give license to take those responsibilities lightly.”

Peter Henning, a law professor at Wayne State University and a former SEC lawyer, said it’s the first fraud case involving use of social media by the CEO of a public company. Musk and Tesla didn’t fully disclose details of the plan in the Aug. 7 tweet or in later communications that day as required, he noted.

“You can’t make full disclosure in 280 characters,” he said, referring to the length limit of a tweet.

Joseph Grundfest, a professor at Stanford Law School and former SEC commissioner, said Musk will likely want to settle before trial so that he could conceivably stay on as CEO, with some constraints such as prohibiting him from making public statements without supervision. But Musk also could agree to step down as CEO and instead take another title, such as chief production officer.

Grundfest also said that the challenge for the SEC is to “appropriately discipline Musk while not harming Tesla’s shareholders.”

According to the complaint, Musk met with representatives of a sovereign investment fund for 30 to 45 minutes on July 31 at Tesla’s Fremont, Calif., factory. Tesla has identified the fund as Saudi Arabia’s Public Investment Fund, which owns almost 5 percent of the company.

Fund representatives expressed interest in taking Tesla private and asked about building a factory in the Middle East, Musk told the SEC. But at the meeting, there was no discussion of a dollar amount or ownership stake for the fund, nor was there discussion of a premium to be paid to Tesla shareholders, the complaint said. Musk told the SEC that the lead representative of the fund told him he would be fine with reasonable terms for a go-private deal.

No specific terms

“Musk acknowledged that no specific deal terms had been established at the meeting and there was no discussion of what would or would not be considered reasonable. Nothing was exchanged in writing,” the complaint stated.

The SEC alleged in the 23-page complaint that Musk made the statements using his mobile phone in the middle of a trading day. That day, Tesla shares closed up 11 percent from the previous day.

The statements, the complaint said, “were premised on a long series of baseless assumptions and were contrary to facts that Musk knew.” Later in the month, Tesla announced that the go-private plan had been scrapped.

In its complaint, the SEC said that Musk’s statements hurt short sellers, who are investors who borrow a company’s stock betting that it will fall. Then they buy the shares back at a lower price and return them to the lenders, pocketing the profit.

In August, more than $13 billion worth of Tesla shares were being “shorted” by investors, the complaint said, as the stock was under pressure due to questions about Tesla’s finances and Musk’s erratic behavior.

Mark Spiegel, a short-seller and constant Musk critic, applauded the SEC for pursuing what he predicted would be easy for the government to prove.

Tesla’s board said in a statement Thursday night that it is “fully confident in Elon, his integrity, and his leadership of the company.” 

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Italian Stocks Fall on Populist Government’s Spending Plans

Italy’s stock market fell sharply Friday after the new populist, euroskeptic government announced a sharp public spending increase that will push the budget deficit to 2.4 percent of gross domestic product next year, risking a collision with the European Union.

The benchmark FTSE MIB dropped 2.2 percent early Friday, hours after the government announced its first financial targets since taking office three months ago. 

Italy’s government partners, the 5-Star movement and the League, pressed for money to fulfill campaign pledges, namely a basic citizen’s income for job seekers and a flat tax. Finance Minister Giovanni Tria, who is politically unaligned, had wanted to keep the budget deficit capped at no more than 2 percent.

The leader of the 5-Star Movement, Luigi Di Maio, called the document approved early Friday by the Cabinet “a maneuver of the people.”

“The historic measures are a victory,” Di Maio said. “It is not the government that wins, but citizens. It is a maneuver that allows us to relaunch investments and growth.”

The 2019 deficit target is a significant jump from the 2018 target of 1.6 percent, set by the former center-left government, but still remains within the 3-percent ceiling set by the EU. The European Union has been pressing Italy to address its deficit in a bid to reduce the country’s debt, the second largest in the EU after Greece. 

The spending targets contained in the document calls for spending of 27 billion euros, including blocking an increase in value-added tax, launching the 5-Star Movement’s basic income scheme, undoing pension reforms and introducing a flat tax.

 

To pay for the new spending, the government has pledged a tax amnesty, a spending review and possible changes to tax breaks.

 

The government must submit a draft budget to the EU by Oct. 15.

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Puerto Rico Struggling, Still Open for Tourists, Governor Says

Puerto Rico Gov. Ricardo Rossello flew to New York this week on a mission: convince potential tourists that the hurricane-ravaged island was ready for their return.

But Puerto Rico’s recovery from last year’s Hurricane Maria has been a “mixed bag,” Rossello told Reuters on Thursday, acknowledging that the bankrupt U.S. territory, while improving, was far from out of the woods.

Puerto Rico has received only a small fraction of the federal funding it needs to get back on its feet, Rossello said in a 75-minute interview, and getting access to the rest could take more than a decade.

$4 billion or less

His administration estimates that fixing Puerto Rico fully will require $139 billion, but the federal government has earmarked only about $60 billion to $65 billion for the recovery, he said. Of that, only about $3 billion to $4 billion has actually flowed into the island’s coffers. 

Obtaining the remainder could take 10 to 11 years, he said, adding that his team was lobbying Congress for more money.

Compounding the problem is Puerto Rico’s bankruptcy in U.S. federal court, where it is trying to restructure $120 billion of debt and pension obligations. There are also ongoing spending disputes between the government and a federally appointed fiscal oversight board.

In the year since Hurricane Maria, Rossello has at times been diplomatic regarding the federal government’s response, while at other times — especially lately — he’s been more critical. He has also been criticized for sticking with an estimated death toll of 64 early on, when  strong evidence suggested it could be higher. A government-commissioned study by researchers at George Washington University eventually pegged the toll at around 3,000.

When asked whether his administration’s messaging strategies have been tied to an effort to maintain good relations with President Donald Trump, Rossello said a “critical part” of the island’s recovery “is making sure the federal  government responds to our petitions.”

“So ,yes, I have opted for a path that involves dialog, that involves collaboration,” Rossello said, adding that he has not been afraid to be critical.

If Trump does not sign the island’s request to extend the federal  government’s 100 percent coverage of repair costs, “I’ll be the first one to fight it,” Rossello said, “and I’ll be the first to point out that action, or lack of action, is one of the main obstacles to our recovery.”

Rossello said Puerto Rico still has as many as 60,000 homes with temporary tarp roofs. It also has hundreds of thousands of informally constructed homes with many owners lacking title to their property.

Rebuilding will require that the current ranks of about 45,000 construction workers to grow to 130,000, according to Rossello, who recently signed an executive order increasing the minimum hourly construction wage to $15 despite opposition from the oversight board and the private sector.

Power shift

The island’s government is still considering initiatives that could make the its troubled electricity grid more resilient, Rossello said. Ultimately, the island hopes to generate 40 percent of its electricity from renewables and steer away from fossil fuels. The shift would require a new regulatory policy, approval by the bondholders, and, potentially, investment from outside companies or organizations.

“We have received 10 to 12 unsolicited proposals for generation,” he said, while acknowledging the government has yet to find a private operator for the power utility’s transmission and distribution operations.

But changes at the electric agency known as PREPA, which Rossello called one of the most troubled organizations in modern history, will be gradual. The governor said he was working with a search firm to identify outside board members for the utility, after nearly the entire board quit in an uproar over appointment of a new chief executive.

Limited electricity was a major problem for the island’s small-business sector, according to a Federal Reserve Bank of New York report on Thursday. A survey of more than 400 businesses with fewer than 500 employees found 77 percent suffered losses as a result of Hurricanes Irma and Maria.

Broader effort

Meanwhile, Rossello is trying not only to restore tourism, but to expand it in such a way that it incorporates hundreds of square miles of seaside and mountain communities that are largely unvisited. Puerto Rico’s tourism is small compared with that of other Caribbean locales and tends to be centered in San Juan.

The island’s visitor lodgings hit a 2017 high of 204,025 in July, but fell to just under 30,000 in October following the hurricanes, according to Puerto Rico Tourism Company data.

Persuading tourists to leave the capital, though, will require easier travel. “Puerto Rico should be a multiport destination,” he said, discussing plans to beef up airport capacity in the south and west of the island.

He emphasized the possibility of capitalizing on Puerto Rico’s near-constant spate of community festivals. “We have flower festivals, orange festivals, plantain festivals, coffee festivals, music festivals,” he said.

Rossello pointed to so-called chinchorreos as a possible draw, events in which Puerto Rican foodies move from one inexpensive eatery to the next.

“A bar crawl for food — that’s the best way to put it,” the governor said, “and the island is small, so you start in one place and you’re on a beachfront, and 15 minutes later you’re in the mountains.”

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US Regulators Sue Tesla’s Musk for Fraud, Seek to Bar Him as Officer

U.S. securities regulators on Thursday accused Tesla Inc. Chief Executive Elon Musk of fraud and sought to ban him as an officer of a public company, saying he made a series of “false and misleading” tweets about potentially taking the electric car company private last month.

Musk, 47, is one of the highest-profile tech executives to be accused of fraud by the Securities and Exchange Commission.

Losing its public face and guiding force would be a big blow for money-losing Tesla, which has a market value of more than $50 billion, chiefly because of investors’ belief in Musk’s leadership.

Tesla shares tumbled 12 percent in after-hours trading. Company officials were not immediately available for comment.

The SEC’s lawsuit, filed in Manhattan federal court, came less than two months after Musk told his more than 22 million Twitter followers on Aug. 7 that he might take Tesla private at $420 per share, and that there was “funding secured.”

“Neither celebrity status nor reputation as a technological innovator provides an exemption from federal securities laws,” Stephanie Avakian, co-director of enforcement at the SEC, told a news conference announcing its charges against Musk.

Musk has long used Twitter to criticize short-sellers betting against his company, and already faced several investor lawsuits over the Aug. 7 tweets, which caused Tesla’s share price to gyrate.

According to the SEC, Musk “knew or was reckless in not knowing” that his tweets about taking Tesla private at $420 a share were false and misleading, given that he had never discussed such a transaction with any funding source.

The SEC said he also knew he had not satisfied other contingencies when he declared unequivocally that only a shareholder vote would be needed.

Thursday’s complaint also seeks to impose a civil fine and other remedies. The SEC does not have criminal enforcement power.

On Aug. 24, after news of the SEC probe had become known, Musk blogged that Tesla would remain public, citing investor resistance.

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US, Japan Working Toward Free-trade Agreement

The United States and Japan have agreed to begin negotiations on a bilateral free-trade agreement, reducing the prospect that Washington might impose tariffs against another trading partner.

“We’ve agreed today to start trade negotiations between the United States and Japan,” U.S. President Donald Trump said at a summit with Japanese Prime Minister Shinzo Abe in New York on the sidelines of the U.N. General Assembly.

“This was something that for various reasons over the years Japan was unwilling to do and now they are willing to do. So we’re very happy about that, and I’m sure that we will come to a satisfactory conclusion, and if we don’t, ohhhhhh,” Trump added.

Fast-track authority

The White House released a statement after the meeting, stating the two countries would enter into talks after completing necessary domestic procedures for a bilateral trade agreement on goods and other key areas, including services.

U.S. Trade Representative Robert Lighthizer called it a “very important step” in expanding U.S.-Japan relations. He told reporters that the U.S. and Japan were aiming to approve a full free-trade agreement soon. Lighthizer said he would talk to Congress on Thursday about seeking authority for the president to negotiate the agreement, under the “fast track” trade authority law.

Lighthizer said he expected the negotiations to include the goal of reaching an “early harvest” on reducing tariffs and other trade barriers.

Tokyo’s reticence

Tokyo had been reluctant to commit to a bilateral free-trade pact and had hoped that Washington would consider returning to the Trans-Pacific Partnership, a broader regional trade agreement championed by the Obama administration that Trump pulled out of in January 2017.

Trump has complained about Japan’s $69 billion trade surplus with the U.S. and has been pressuring Abe to agree to a two-way agreement to address it, including during Abe’s visit to Trump’s Florida resort, Mar-a-Lago, in April.

Japanese officials have expressed concern Trump might pressure Tokyo to open up its politically sensitive farm market. They also are wary Trump might demand a reduction in Japanese auto imports or impose high tariffs on autos and auto parts, which would be detrimental to Japan’s export-reliant economy.

Trump is expressing confidence the two sides will reach an agreement.

“We’re going to have a really great relationship, better than ever before on trade,” he said. “It can only be better for the United States because it couldn’t get any worse because of what’s happened over the years.”

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Report: Ford CEO Warns Tariffs Cut $1 Billion in Profit

Ford chief Jim Hackett on Wednesday ramped up his warnings about the tariffs imposed by President Donald Trump, saying his company was seeing profits slashed by $1 billion.

Hackett said the global automaker could face more damage if the trade confrontations were not resolved quickly.

“The metals tariffs took about $1 billion in profit from us,” Hackett said in an interview on Bloomberg Television. “If it goes on longer, there will be more damage.”

Trump in June imposed steep tariffs on steel and aluminum and has hit $250 billion in Chinese products with tariffs, prompting retaliation from US trading partners and raising costs for many industries.

The company earlier this year estimated materials costs would be $1.5 billion over 2017, which had already seen a jump. 

And in the July earnings report Ford said it lost $500 million in China in the latest quarter due in part to the tariffs.

General Motors likewise warned the current trade wars should cost it $1 billion this year, mainly due to rising input costs.

Ford recently announced it was scrapping plans to import the compact Focus model from Chinese plants into the US market due to the tariffs.

Joseph Hinrichs, Ford’s executive vice president for global operations, said this week the company was speeding up plans to build some models in China since it was becoming less attractive to export amid the trade tensions.

He also said he did not see any easy resolution to the trade dispute between the United States and China. 

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Somalia to Get First Direct World Bank Grants in Decades

Somalia’s finance minister says World Bank grants to the government are a sign the country has “trustable leadership” again after decades of chaos and corruption.

The World Bank said Tuesday it will provide $80 million in grants to Somalia’s federal government, the bank’s first direct grants to a Somali central authority in 27 years.

In an interview with VOA’s Somali service, Finance Minister Abdirahman Duale Beileh said the grants are “proof of Somalia’s merit.”

Beileh said $60 million will be used to increase the capacity of Somalia’s financial institutions, and $20 million will go toward education and energy projects to build the country’s resilience.

He said the grants show that international financial agencies have faith the government is capable of fighting against corruption.

“The work we have done and the trustworthiness we have earned brought us here,” he said. 

The World Bank cut ties with Somalia in 1991, following the collapse of the Mohamed Siad Barre government and the start of a long civil war.

Beileh said that in recent years, Somalia’s government has made tangible improvement in management of the economy and its institutions.

However, the latest global index of Transparency International put Somalia as the world’s most corrupt country.

Somali President Mohamed Abdullahi Mohammed, also known as Farmajo, took power last year in an election by parliament that observers said was characterized by bribes and vote-buying.

Beileh acknowledged the government’s fight against corruption is “far from over.”

“There is a perception that Somalia cannot be trusted because of its corruption history. Most of that is not perception,” he said.

He added: “We are proud that we made progress to at least a transparent level that both the World Bank and the IMF can notice.”

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World Economy Remains on Shaky Ground

The U.N. Conference on Trade and Development warns the world economy remains fragile, one decade after the collapse of the U.S. financial titan Lehman Brothers triggered a global economic crisis.

In its report Trade and Development Report 2018: Power, Platforms and the Free Trade Delusion, UNCTAD says the world economy once again is under stress. It views trade wars and escalating tariffs as symptoms of a growing economic malaise. It warns the world economy is walking a tightrope between debt-fueled growth and financial instability.

Lead author of the report Richard Kozul-Wright says many of the underlying problems that caused the 2008 financial crisis have not been addressed. He says footloose capital, precarious jobs, persistent inequality and rising debt remain problematic.

“We see growing asset bubbles and emerging crises everywhere,” he said. “Profits have been on an all-time high and real investment in the economy has not picked up. What we know from history is that debt-fueled booms always end badly. We do not know how. We do not know when, but if history is any guide the excessive reliance on debt in the current global economy will not end well for many economies.”

Kozul-Wright says trade wars, in many ways, are a reflection of lack of trust across the political system. He blames much of the tensions and problems seen in the global trading system on hyper globalization, which has not resulted in a win-win world.

The report finds global trade continues to be dominated by big firms. It says more than 50 percent of world trade is run through the top one percent of each country’s exporting firms.

 

 

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Asian Lender Says Trade Wars, Debt Adding to Financial Risks

Trade conflicts, rising debt and the potential impact from rising interest rates in the U.S. will likely dampen growth in the coming year, the Asian Development Bank said Wednesday in an update of its regional economic outlook report. 

The Manila, Philippines-based regional lender said Wednesday that it expects economic growth to remain at a robust 6.0 percent in 2018 but to slip to 5.8 percent next year. 

It cited looming financial and trade shocks as the biggest sources of potential trouble. If the U.S. economy shows signs of overheating, interest rate hikes by the Federal Reserve could disrupt currency markets and other capital flows, leading to problems with bad loans. 

Overly high housing prices also are risks for China, Hong Kong, Malaysia and South Korea, it said. 

But it said the bigger threat comes from potential damage to supply chains caused by trade conflicts, especially between the U.S. and China. 

President Donald Trump pushed ahead Monday with higher tariffs on $200 billion of Chinese imports.

In a conflict stemming from U.S. complaints Beijing steals or pressures foreign companies to hand over technology, Trump went ahead Monday with a tax hike on $200 billion of Chinese imports. Beijing retaliated by imposing penalties on $60 billion of U.S. goods.

That move will likely shave 0.5 percentage points off of China’s growth and 0.1 percentage points off of growth in the U.S., the report said. 

It said further expansion would cause still more pain across the region, though while the U.S. trade deficit with China might shrink, the deficit with Asia overall would not decline so much because other countries would likely exporting more to make up the difference. 

China and the United States had earlier imposed 25 percent tariffs on $50 billion of each other’s goods. Combined, the tariffs now cover nearly half the goods and services China sells America and nearly 60 percent of what the United States sells China. 

“Prolonged trade conflict can damage confidence and deter investment,” the ADB report said. It said the impact would be large both regional and globally, especially if it expands to include autos and auto trade. 

“Estimates of impacts do not fully capture possible disruption to production units as overseas business networks are severed and investment plans are cancelled amid a reallocation of global production,” it said.

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Brazil’s Jobs Crisis Lingers, Posing Challenge for Next President

After losing his job with a foreign food company in March, Alexander Costa surveyed Brazil’s anemic labor market and decided to start selling cheap lunches by the beach in Rio de Janeiro to try and provide for his young family.

“I could have stayed home, looking for work, sending out resumes, with few jobs and things very hard,” Costa said. “But I didn’t stand still. I decided to create something different … to reinvent myself.”

Many other Brazilians have also had to reinvent themselves in recent years, as Latin America’s largest economy struggles to overcome a jobs crisis more than a year after officially exiting recession.

Nearly 13 million people – or more than the entire population of Greece – are out of a job, with the unemployment rate hovering between 12 percent to 14 percent since 2016. As a result, unemployment is among voters’ top concerns ahead of next month’s election.

The desperate search for work amid a string of political graft scandals and rising violence has soured the mood, polarizing debate and distracting from the country’s underlying fiscal challenges.

But only by lowering the unemployment rate will Brazil achieve the rise in household spending it needs to maintain sustained growth, said Marcos Casarin, the head of Latin America macro research at Oxford Economics.

“The only way to have a prolonged recovery in economic activity is if unemployment starts to fall in a substantial way,” he said.

However, it could take several years to get the rate below 10 percent, he said, adding: “I’m not very optimistic.”

Divisive Figures

With no presidential candidate likely to win a majority in the first-round vote on Oct. 7, it looks increasingly likely voters will face a choice between two candidates in the Oct. 28 run-off: far-right Jair Bolsonaro and leftist Fernando Haddad of the Workers Party.

Both are divisive figures — rejected by nearly half the electorate — making it likely that either one will face an uphill battle to pass ambitious economic reforms that foreign investors have long called for.

Bolsonaro has vowed to erase Brazil’s primary budget deficit by 2020 through controversial privatizations and spending cuts.

Haddad has proposed broadening the central bank’s mandate to include unemployment, while boosting government-led investments, revoking a spending ceiling and scuttling privatizations.

Both Bolsonaro and Haddad are pitching their proposals as ways to tackle the unemployment crisis, which has pushed many into the informal sector, sapping tax income and leaving workers without paid holidays, salary raises and other benefits.

Outgoing President Michel Temer last year passed an overhaul of the country’s labor laws, which was intended to make the job market more flexible and which the government said would help create new jobs, an effect that as yet has failed to materialize.

Bolsonaro supports Temer’s labor reform and wants to further cut work regulations to boost jobs. Haddad has suggested putting the labor reform, which was opposed by unions, to a referendum, while also advocating a short-term stimulus program.

Costa, however, was unwilling to wait and see what Brazil’s next president comes up with.

His meals-on-wheels business started slowly, selling 13-reais ($3) lunches from the back of his car in Rio’s wealthy Barra da Tijuca neighborhood. But business took off when he joined forces with his friend, Stefan Weiss, whose white BMW provides a ritzier shop window from which they now sell roughly 200 hot meals each day.

“At the moment, Brazil faces a big problem in relation to the economy and the lack of jobs,” said Weiss, who works on an offshore oil platform but sells meals on days off to earn extra cash. “The people who lost their jobs are trying to find new ways to establish themselves in the market.”

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Into the Fold? What’s Next for Instagram as Founders Leave

When Kevin Systrom and Mike Krieger sold Instagram to Facebook in 2012, the photo-sharing startup’s fiercely loyal fans worried about what would happen to their beloved app under the social media giant’s wings. 

None of their worst fears materialized. But now that its founders have announced they are leaving in a swirl of well wishes and vague explanations, some of the same worries are bubbling up again — and then some. Will Instagram disappear? Get cluttered with ads and status updates? Suck up personal data for advertising the way its parent does? Lose its cool? 

Worst of all: Will it just become another Facebook?

“It”s probably a bigger challenge (for Facebook) than most people realize,” said Omar Akhtar, an analyst at the technology research firm Altimeter. “Instagram is the only platform that is growing. And a lot of people didn’t necessarily make the connection between Instagram and Facebook.”

Instagram had just 31 million users when Facebook snapped it up for $1 billion; now it has a billion. It had no ads back then; it now features both display and video ads, although they’re still restrained compared to Facebook. But that could quickly change. Facebook’s growth has started to slow, and Wall Street has been pushing the company to find new ways to increase revenue.

Instagram has been a primary focus of those efforts.

Facebook has been elevating Instagram’s profile in its financial discussions. In July, it unveiled a new metric for analysts, touting that 2.5 billion people use at least one of its apps — Facebook, Instagram, WhatsApp or Messenger — each month. While not particularly revealing, the measurement underscores the growing importance Facebook places on those secondary apps. 

Facebook doesn’t disclose how much money Instagram pulls in, though Wedbush analyst Michael Pachter estimates it’ll be around $6 billion this year, or just over 10 percent of Facebook’s expected overall revenue of about $55.7 billion. 

Facebook CEO Mark Zuckerberg has long seen Instagram’s promise. At the time, it was by far Facebook’s largest acquisition (although it was dwarfed by the $19 billion Zuckerberg paid for WhatsApp two years later). And it was the first startup allowed to operate mostly independently. 

That has paid off big time. Not only did Instagram reach 1 billion users faster than its parent company, it also succeeded in cloning a popular Snapchat feature, dealing a serious blow to that social network upstart and succeeding where Facebook’s own attempts had repeatedly failed. Instagram also pioneered a long-form video feature to challenge YouTube, another big Facebook rival.

Recently, Instagram has been on a roll. In June, Systrom traveled to New York to mark the opening of its new office there, complete with a gelato bar and plans to hire hundreds of engineers. Only a month earlier, Instagram had moved into sparkly new offices in San Francisco. In a July earnings call, Zuckerberg touted Instagram’s success as a function of its integration with Facebook, claiming that it used parent-company infrastructure to grow “more than twice as quickly as it would have on its own.”

But Instagram has also been a case study in how to run a subsidiary independently — especially when its parent is mired in user-privacy problems and concerns about election interference, fake news and misinformation. And especially when its parent has long stopped being cool, what with everyone and their grandma now on it.

Instagram’s simple design — just a collection of photos and videos of sunsets, faraway vacations, intimate breakfasts and baby close-ups — has allowed it to remain a favorite long after it became part of Facebook. If people go to Twitter to bicker over current events and to Facebook to see what old classmates are up to, Instagram is where they go to relax, scroll and feast their eyes.

So, will that change?

“I don’t think Zuckerberg is dumb,” Akhtar said. “He knows that a large part of Instagram’s popularity is that it’s separate from Facebook.”

As such, he thinks Facebook would be wise to reassure users that what they love about Instagram isn’t going to change — that they are not going to be forced to integrate with Facebook. “That’ll go a long way,” he said. 

Internally, the challenge is a bit more complicated. While Systrom and Krieger didn’t say why they’re leaving, their decision echoes the recent departure of WhatsApp’s co-founder and CEO Jan Koum, who resigned in April. Koum had signaled years earlier that he would take a stand if Facebook’s push to increase profits risked compromising core elements of the WhatsApp messaging service, such as its dedication to user privacy. When Facebook started pushing harder for more revenue and more integration with WhatsApp, Koum pulled the ripcord.

One sign that additional integration may be in Instagram’s future: Zuckerberg in May sent longtime Facebook executive Adam Mosseri to run Instagram’s product operation. Mosseri replaced longtime Instagrammer Kevin Weil, who was shuffled back to the Facebook mothership. 

That likely didn’t sit well with Instagram’s founders, Akhtar and other analysts said. Now that they’re gone as well, Mosseri is the most obvious candidate to head Instagram. 

“Kevin Systrom loyalists are probably going to leave,” Akhtar said. 

Which means Facebook may soon have a new challenge on its hands: Figuring out how to keep Instagram growing if it loses the coolness factor that has bolstered it for so long.

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Global $500M Data Drive Aims to Boost Harvests, End Hunger

A $500 million data drive aims to improve the harvests of hundreds of millions of farmers worldwide as rising hunger levels threaten a global goal to end hunger by 2030, organizations involved in the initiative said Tuesday.

Developing countries and donors launched the “50 X 2030” scheme on the sidelines of the U.N. General Assembly, seeking funding to gather farming data through surveys in 50 nations across Africa, Asia and Latin America over the next 12 years.

Basic statistics, such as what farmers are planting, their yields and access to finance, are often lacking, incomplete or unreliable, making it difficult for governments and donors to know where or how to invest their cash, the United Nations said.

“Each year, governments, businesses and the private sector invest hundreds of billions of dollars in agriculture and design policies without this critical information,” said Emily Hogue, a U.N. Food and Agriculture Organization senior adviser. “This could cause losses in agricultural productivity and income and could also lead to continuing hunger and poverty.”

The push for better data was announced weeks after new U.N. figures showed world hunger has risen for three years running, with 821 million people — one in nine — going hungry in 2017.

Eliminating hunger is one of the 17 U.N. sustainable development goals ( agreed upon by world leaders in 2015.

The initiative aims to increase the coverage and frequency of agricultural surveys so that governments have the information needed to plan and implement the right policies, experts said.

In sub-Saharan Africa, where at least one in four people is estimated to have suffered from chronic hunger in 2017, only two out of 44 nations have high-quality agriculture data, according to the Global Partnership for Sustainable Development Data.

For example, agriculture experts puzzled for years over why milk production was stagnant in an area of East Africa with an abundance of grazing land and rising consumer demand. A detailed survey conducted in 2014 discovered that a lack of basic livestock services, including veterinary care, was hampering production, which rose after the needs were addressed.

“Better data means governments can get the right support to farmers at the right time to increase production and improve their lives,” Claire Melamed, head of the Global Partnership — a network of 300 partners — told the Thomson Reuters Foundation. “It’s a long-term investment.”

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European Union Sets Up Payment System with Iran to Maintain Trade

The five remaining parties to the Iran nuclear deal have agreed to establish a special payment system to allow companies to continue doing business with the regime, bypassing new sanctions imposed by the United States.

Envoys from Britain, France, Germany, Russia, China and Iran issued a statement late Monday from the United Nations announcing the creation of a “Special Purpose Vehicle” that will be established in the European Union. The parties said the new mechanism was created to facilitate payments related to Iranian exports, including oil. 

Federica Mogherini, EU’s foreign policy chief, told reporters after the deal was announced that the SPV gives EU member states “a legal entity to facilitate legitimate financial transactions with Iran…and allow European companies to continue to trade with Iran in accordance to European Union law and could be open to other partners in the world.”

Mogherini said the financial agreement is also aimed at preserving the agreement reached in 2015 with Iran to scale back its nuclear program in exchange for relief from strict economic sanctions. The deal was reached under then-President Barack Obama, but Obama’s successor, Donald Trump, pulled out of the accord in May of this year, saying it didn’t address Tehran’s ballistic missile program or its influence in the Middle East.

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Instagram Co-founders Resign from Social Media Company

The co-founders of Instagram are resigning their positions with the social media company.

 

Chief Executive Kevin Systrom said in a statement late Monday that he and Mike Krieger plan to leave the company in the next few weeks.

 

Krieger is chief technical officer. They founded the photo-sharing app in 2010 and sold it to Facebook in 2012 for about $1 billion.

 

There was no immediate word on why they chose to leave the company but Systrom says they plan to take time off to explore their creativity again.

Representatives for Instagram and Facebook didn’t immediately respond to after-hours messages from The Associated Press.

 

Instagram has seen explosive growth since its founding, with an estimated 1 billion monthly users and 2 million advertisers.