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Wall Street Layoffs Thousand’s as Biden’s Economy Tanks

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Wall Street Layoffs Thousand's as Biden's Economy Tanks

President Joe Biden is facing criticism for his leadership as the economy deteriorates and Wall Street’s Goldman Sachs Group announces layoffs of thousands of employees to navigate a difficult economic environment.

The layoffs are the latest indication that layoffs are spreading across Wall Street as dealmaking slows. Investment banking revenues had fallen this year due to a slowdown in mergers and stock offerings, a sharp contrast to the blockbuster 2021 when bankers received large pay raises.

Goldman Sachs had 49,100 employees at the end of the third quarter after hiring heavily during the pandemic. According to the source, its headcount will remain above pre-pandemic levels. According to a filing, the workforce stood at 38,300 at the end of 2019.

The number of employees affected by the layoffs is still being discussed, and the details are expected to be finalized early next year, according to the source.

According to a separate source familiar with the situation, the bank is considering a significant reduction in the annual bonus pool this year. According to Reuters, this compares to increases of 40% to 50% for top-performing investment bankers in 2021, citing people with direct knowledge of the situation.

“GS needs to demonstrate that its costs are as volatile as its revenues, especially after a year in which it provided special rewards to top managers during the boom times,” wrote Mike Mayo, a Wells Fargo banking analyst.

“Goldman Sachs must now demonstrate that it can do the same when business is not as good and that they live up to the old Wall Street adage that they ‘eat what they kill,'” he wrote in a note.

In afternoon trading, JPMorgan & Chase Co (JPM.N) fell 1.3%, while shares of Morgan Stanley (MS.N) fell 0.6% and 1.3%, respectively.

This year, Goldman’s stock has dropped nearly 10%. They have, however, outperformed the S&P 500 bank index (.SPXBK), which is down 24% year to date.

According to a source, the latest plan would result in the layoff of hundreds of employees from Goldman’s consumer business.

In October, the bank signaled that it was scaling back its plans for Marcus, its loss-making consumer unit. Goldman also intends to discontinue the origination of unsecured consumer loans, a source familiar with the matter told Reuters earlier this week, indicating yet another exit from the industry.

With Marcus, Chief Executive Officer David Solomon took over in 2018 and attempted to diversify the company’s operations. In October, it was merged with the wealth business as part of a management reshuffle that included trading and investment banking units.

Trading and investment banking accounted for nearly 65% of Goldman’s revenue at the end of the third quarter, compared to 59% in the third quarter of 2018, when Solomon took over as CEO.

According to people familiar with the situation, Semafor reported on Friday that Goldman would lay off up to 4,000 employees as the bank struggles to meet profit targets.

Goldman cut about 500 employees in September after pausing the annual practice for two years due to the pandemic, according to a source familiar with the matter at the time.

In July, the investment bank warned it might slow hiring and cut costs.

Global banks, including Morgan Stanley (MS.N) and Citigroup Inc (C.N), have reduced their workforces in recent months as a dealmaking boom on Wall Street has cooled due to high-interest rates, tensions between the US and China, the Russia-Ukraine war, and soaring inflation.

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Wall Street Loses Ground as Fed Raises Rates to Fight Biden Inflation

Wall Street lost more ground on Friday as concerns mounted that the Federal Reserve and other central banks are willing to instigate a recession to combat Biden inflation.

The S&P 500 fell 1.1% for the third time in a row. The Dow Jones Industrial Average fell 0.8%, while the Nasdaq Composite fell 1%. The major indices fell for the second week in a row.

The pullback was substantial. More than 80% of the stocks in the S&P 500 index fell. Stocks in technology and health care were among the market’s heavyweights. Microsoft fell 1.7%, while Pfizer fell 4.1%.

The Fed raised its forecast for how high-interest rates will eventually go this week, snuffing out some investors’ hopes for rate cuts next year. In Europe, the central bank came across as even more aggressive in the eyes of many investors.

“Inflation remains the monster in the room,” said Liz Young, SoFi’s head of investment strategy.

Inflation has slowed from the highest levels in decades, but it remains excruciatingly high. As a result, the Fed has maintained its aggressive price-cutting strategy by raising interest rates to slow economic growth. The strategy increasingly risks slamming on the brakes too hard and sending an already slowing economy into a recession.

“It’s still unclear whether we’re in a mild, medium, or deep recession,” Young said.

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Wall Street S&P 500 Down

S&P Global released a mixed report on Friday, emphasizing the recession risk. This month’s business activity slowed more than expected due to rising inflation. It also stated that the drop was the sharpest since May 2020, but inflationary pressures have been easing.

“In short, the survey data suggest that Fed rate hikes are having the desired effect on inflation,” Chris Williamson, a chief business economist at S&P Global Market Intelligence, said.

The S&P 500 dropped 43.39 points to 3,852.36. This year, it is down about 19%. The Dow finished the day down 281.76 points at 32,920.46. The Nasdaq index fell 105.11 points to 10,705.41.

Small-company stocks suffered less severe losses than the broader market. The Russell 2000 index dropped 11.19 points, or 0.6%, to 1,763.42.

Bond yields were volatile. The 10-year Treasury yield, which influences mortgage rates, increased to 3.49% from 3.45% late Thursday. The two-year Treasury yield, which closely tracks Fed expectations, fell to 4.21% from 4.24% late Thursday.

The Fed ended its final meeting on Wednesday by raising its short-term interest rate by half a percentage point, the seventh increase this year. Wall Street had hoped the Fed would signal a slowing of rate hikes in the run-up to 2023, but the Fed did the opposite.

The federal funds rate is at its highest in 15 years, ranging from 4.25% to 4.5%. Fed policymakers predict that the central bank’s rate will be in the 5% to 5.25% range by the end of 2023. Rate cuts are not expected before 2024, according to their forecast.

Several companies outperformed the market on Friday, reporting strong financial results and forecasts. Adobe rose 3% after exceeding Wall Street’s fiscal fourth-quarter earnings forecast. United States Steel rose 5.8% after providing investors with a positive earnings forecast.

Source: Reuters, AP, PBS

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Why Is Costco’s Hot Dog Still $1.50 When Everything Has Become So Expensive?

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Inflation has affected almost everything over the last two years, including Trader Joe’s 19-cent banana. However, Costco’s hot dog-and-soda combo price remains unchanged.

Costco’s hot dog deal, available in its food courts, remains at $1.50, the same price as in 1985, before the Great Recession, the housing crisis, the pandemic, and the most recent about of decades-high inflation.

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Why Is Costco’s Hot Dog Still $1.50 When Everything Has Become So Expensive?

According to the Bureau of Labor Statistics, consumer prices have increased about 20% since the pandemic began. Many crucial industries, such as housing and groceries, have seen even higher price increases.

If Costco’s hot dog sale had kept up with inflation, it would be three times as expensive now, nearly $4.50. But Costco’s $1.50 combo is a deliberate decision, also known as a loss-leader: The firm is willing to lose money selling the hot dogs at that price — inflation be damned — as long as it helps Costco attract and retain consumers.

“It’s branding,” explained Scott Mushkin, a retail analyst at R5 Capital. The $1.50 offer fosters client loyalty, he noted. “It reminds customers of who Costco is.”

Costco loses money on more than 100 million hot dogs yearly, but it counters these losses by raising prices on other products. Costco has raised the prices of pizzas and other goods in its food courts.

However, Costco has a unique business plan allows it to keep costs low: it makes almost all of its money from memberships, selling things on its warehouse floor for practically cost – and occasionally less.

In a recent interview, Richard Galanti, Costco’s longstanding financial chief who retired this month, stated that the $1.50 pricing was “probably safe for a while.”

costco

Why Is Costco’s Hot Dog Still $1.50 When Everything Has Become So Expensive?

declining inflation and declining prices
Most businesses need the benefit of a membership model like Costco. They can’t afford to sell the majority of their items for a small profit — or to lose money on products that sell 100 million units each year.

Inflation has fallen significantly since its peak of 9.1% in June 2022. To reduce inflation, the Federal Reserve implemented 11 severe rate hikes designed to crush demand and discourage spending.

According to the Bureau of Labor Statistics, total consumer prices increased by 3.2% in February.

While we may want reduced prices, decreasing prices are a red flag indicating that the economy is in bad shape. We’re not there yet, so don’t worry.

Companies have reported unusually high profitability in recent months owing to strong consumer spending. Even when companies like Costco must hike prices (even on hot dogs in some circumstances), Americans continue to spend.

Consumer spending is the most powerful engine driving the US economy. When individuals spend less money, firms prefer to lay off employees, which can lead to even lower spending and more layoffs. This cycle has the potential to drive the economy into a recession, but again, this is not occurring yet.

“A lack of demand causes price declines. “That means we’d be in a recession,” said Gus Faucher, chief economist at PNC.

“If you raise the effing hot dog, I will kill you.”
Costco’s hot dogs fought inflation from the outset.

Costco’s hot dog offering originated in the company’s early days. Costco added a Hebrew National kiosk to its second warehouse store in Portland, Oregon, shortly after it opened in 1983.

To keep hot dogs’ pricing consistent, Costco found ways to cut other costs in the food court, such as switching from 12-ounce soda cans to cheaper 20-ounce fountain drinks.

costco

Why Is Costco’s Hot Dog Still $1.50 When Everything Has Become So Expensive?

Costco sold kosher hot dogs in its food courts until 2009 when meat supplies began to run low. Recognizing the value of low-cost hot dogs, the business moved production in-house and launched its Kirkland Signature brand. Costco’s factories generate around 388 million non-kosher hot dogs annually for both food courts and retail sales.

Jim Sinegal, Costco’s co-founder, famously threatened former CEO Craig Jelinek, “If you raise the effing hot dog, I will kill you.” “Figure it out.”

“I know it sounds crazy making a big deal about a hot dog, but we spend a lot of time on it,” Sinegal told the Seattle Times in 2009. “We’re recognized for our hot dogs. That is something you do not mess with.

Last year, Costco sold over 130 million hot dog-soda combos worldwide, totaling around $195 million.

SOURCE – (CNN)

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Krispy Kreme Donuts Are Coming To McDonald’s.

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Customers at McDonald’s will soon be able to pair Krispy Kreme doughnuts with their morning McCafe, thanks to a new food alliance that aims to expand both brands but may harm them.

McDonald’s outlets will begin selling three types of Krispy Kreme doughnuts later this year: original glazed, chocolate iced with sprinkles, and chocolate iced “kreme” filled, the firms told CNN on Monday.

Krispy Kreme stock soared over 18% on Tuesday morning. McDonald’s shares fell 0.2%.

This is not the first time two contestants have partnered together. For example, Wendy’s added Cinnabon to its breakfast menu early this year. According to some studies, brand alliances can lead to new customers, brand expansion, and innovation. However, some retail experts believe that alliances might be dangerous and undermine the respective brand names.

krispy kreme

Krispy Kreme Donuts Are Coming To McDonald’s.

According to Truist analysts, the Krispy Kreme doughnut delivery strategy must determine how to successfully serve rural McDonald’s locations more than 20 miles from an urban hub.

Customers have also criticized McDonald’s when the prices of its other menu items climb. McDonald’s chief financial officer, Ian Borden, stated earlier this month that some lower-income Americans are choosing to cook at home rather than dine at its restaurants. In February, CEO Chris Kempczinski addressed McDonald’s “affordability” issue, indicating that the business might reduce prices on certain menu items.

To commemorate the collaboration, Krispy Kreme will give away a free glazed doughnut to guests who visit a donut location between 5 and 9 p.m. on Tuesday.

Adding a Krispy Kreme doughnut to McDonald’s breakfast orders began as a test in 160 Kentucky stores. The doughnuts will be accessible countrywide at participating eateries by the end of 2026, following a staggered deployment that begins later this year. Trust experts say the extensive testing period decreases risk for both sides.

krispy kreme

Krispy Kreme Donuts Are Coming To McDonald’s.

The donuts will be available individually or in six packs, beginning at breakfast and continuing until supplies run out.

The company have fewer outlets than McDonald’s, which had about 13,500 in the United States in 2022. However, customers can purchase Krispy Kreme doughnuts at other locations, including Walmart and other grocery stores. The collaboration could broaden Krispy Kreme’s reach, as the company has been increasing its supply chain to meet its promise of delivering fresh dough daily.

“By making Kreme Krispy (sic) accessible to fans nationwide through this partnership, we expect to more than double our points of access by the end of 2026,” stated Krispy Kreme President and CEO Josh Charlesworth.

Krispy Kreme has centered its business activities around its doughnuts. The Charlotte-based corporation also owns Insomnia Cookies but said in 2023 that it is considering other possibilities, such as selling the cookie brand.

krispy kreme

Krispy Kreme Donuts Are Coming To McDonald’s.

The company returned to the market in 2021 with an initial public offering (IPO). However, its stock remains trading below its IPO price of $17.

“What does this signify for the company’s previously announced aspirations to expand its locations? How will it affect an existing point of access from a McDonald’s down the street? Truist analysts stated.

SOURCE – (CNN)

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Apple, Google And Meta At Risk Of ‘Heavy’ Fines As Europe Launches New Probes

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The European Union has begun investigations into Apple, Google, and Facebook parent Meta, alleging they fail to comply with a new historic European rule to encourage competition in digital services.

The European Commission stated that it “suspects” that all three corporations’ actions “fall short of effective compliance” with the Digital Markets Act (DMA), which took effect earlier this month. If the investigations reveal a “lack of full compliance,” they may face “heavy fines,” according to European Commissioner Thierry Breton.

europe

Apple, Google And Meta At Risk Of ‘Heavy’ Fines As Europe Launches New Probes

The DMA mandates dominant online platforms to provide users with more options and competitors with more opportunities to compete. It currently applies to the three internet titans under investigation, as well as Amazon (AMZN), Microsoft (MSFT), and TikTok’s Chinese parent company, ByteDance.

The EU has stated that the list might include Elon Musk’s X and Booking.com by mid-May.

Violations of the new rule may result in severe penalties, including fines of up to 10% of a company’s global revenue and up to 20% for further violations. This would amount to tens of billions of dollars for most regulated enterprises.

The European Commission is looking into Meta’s “pay or consent” policy, among other activities. Last October, Meta (META) announced a subscription service named “Subscription for no ads,” which allows European users of Facebook and Instagram to pay up to €12.99 ($14) per month for ad-free versions.

“The Commission is concerned that the binary choice imposed by Meta’s ‘pay or consent’ model may not provide a real alternative in case users do not consent, thereby not achieving the objective of preventing the accumulation of personal data by (large companies),” the agency said in a statement.

A Meta representative responded: “Subscriptions as an alternative to advertising are a well-established business model across many industries, and we created ‘Subscription for no advertisements’ to fulfill multiple overlapping legal duties, including the DMA. We will continue to work constructively with the Commission.

The EU is also looking into app marketplaces run by Apple (AAPL) and Google. According to the DMA, significant digital platforms, often called gatekeepers, must allow app developers to “steer” consumers to deals outside the two leading shops for free.

europe

Apple, Google And Meta At Risk Of ‘Heavy’ Fines As Europe Launches New Probes

Among other issues, the EU fears that Apple and Google’s parent Alphabet (GOOGL) limit developers’ capacity “to freely communicate (with end-users), promote offers, and directly conclude contracts, including by imposing various charges,” the Commission stated.

“We are concerned that Alphabet, Apple, and Meta are not meeting their obligations; for example, Apple and Alphabet continue to charge recurring fees to app developers,” European Commissioner Margrethe Vestager wrote on X Monday.

The European Commission has also raised concerns about Apple’s “choice screen” for Safari. According to the DMA, Apple must alert consumers with “choice screens that must effectively and easily allow them to select an alternative default service, such as a browser or search engine on their iPhones.”

In a statement to CNN, Apple said: “We’re confident our plan complies with the DMA, and we’ll continue to constructively engage with the European Commission as they conduct their investigations.”

Another of the Commission’s worries is about Google Search. Alphabet may not have done enough to guarantee that third-party services appearing in search results are treated in “a fair and non-discriminatory manner” compared to Alphabet’s services, such as Google Shopping and Google Flights.

europe

Apple, Google And Meta At Risk Of ‘Heavy’ Fines As Europe Launches New Probes

Google’s competition chief, Oliver Bethell, said in a statement: “To comply with the Digital Markets Act, we have made major modifications to how our services function in Europe.

“Over the last year, we have held dozens of events with the European Commission, stakeholders, and third parties to solicit and respond to input, as well as to balance competing needs within the ecosystem. We will continue to defend our stance in the coming months.”

SOURCE – (CNN)

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