Raphael Stevens

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    Your 401(k) is up, and a new report shows increased savings. But Americans need to do more

    Halfpoint Images | Moment | Getty Images

    How’s your 401(k) looking? A new report shows Americans are saving more, but probably need to do even more. 
    Vanguard has released its annual report, How America Saves 2024. Vanguard and Fidelity are the two biggest sponsors of 401(k) plans, and this is a snapshot of what nearly five million participants are doing with their money. 

    The good news: stock market returns are up and, thanks largely to automatic enrollment plans, investors are saving more than they did in the past. 
    The bad news: account balances for the median 401(k) of a person approaching retirement (65+) remains very low. 
    The takeaway: Americans are still very reliant on Social Security for a large chunk of their retirement. 
    Higher returns, participation rates, savings rates 
    Why do we care so much about 401(k) plans? Because it’s the main private savings vehicle Americans have for retirement. More than 100 million Americans are covered by these “defined contribution” plans, with more than $10 trillion in assets. 
    First, 2023 was a good year to be an investor.  The average total return rate for participants was 18.1%, the best year since 2019. 

    But to be effective vehicles for retirement, these plans need to: 1) have high participation rates, and 2) hold high levels of savings. 
    On those fronts, there is good news. John James, managing director of Vanguard’s Institutional Investor Group, called it “a year of progress.” 
    Plan participation reached all-time highs. Thanks to a change in the law several years ago, a record-high 59% of plans offered automatic enrollment in 401(k) plans. This is a major improvement: ipreviously, enrollment in 401(k) plans were often short of expectations because investors had to “opt-in,” that is they had to choose to participate in the plan.  Because of indecision or simple ignorance, many did not. By switching to automatic enrollment, participants were automatically enrolled and had to “opt-out” if they did not want to participate. 
    The result: enrollment rates have gone up. Plans with automatic enrollment had a 94% participation rate, compared with 67% for voluntary enrollment plans. 
    Participant saving rates reached all time highs. The average participant deferred 7.4% of their savings. Including employee and employer contributions, the average total participant contribution rate was 11.7%. 
    A few other observations about Vanguard’s 401(k) plan investors: 
    They prefer equities and target date funds.  They love equities over bonds or any other investments. The average plan contribution to equities is 74%.  A record-high 64% of all 2023 contributions went into target-date funds, which automatically adjust stock and bond allocations as the participant ages. 
    They don’t trade much. In 2023, only 5% of nonadvised participants traded within their accounts; 95% did no trading at all. “Over the past 15 years, we have generally observed a decline in participant trading,” Vanguard said, which it partially attributed to increased adoption of target-date funds. 
    Despite gains in the market, account balances are still low
    In 2023, the average account balance for Vanguard participants was $134,128, but the median balance (half had more, half had less) was only $35,286. 
    Why such a big difference between the average and the median? Because a small group of investors with large balances pull up the averages. Forty percent of participants had less than $20,000 in their retirement accounts. 
    Distribution of account balances

    Less than $20,000     40%
    $20,000-$99,999        30%
    $100,000-$249,900  15%
    $250,000 +                  15%

    Source:  Vanguard 
    Median balances for those near retirement are still low
    A different way to look at the problem is to ask how much people who are retirement age have saved, because it’s an indication of how prepared they are for imminent retirement.
    Investors 65 years or older had an average account balance of $272,588, but a median balance of only $88,488. 
    A median balance of $88,488 is not much when you consider older participants have higher incomes and higher savings rates. That is not much money for a 65-year old nearing retirement.
    Of course, these balances don’t necessarily reflect total lifetime savings. Some have more than one retirement plan because they had other plans with previous employers. Most do have other sources of retirement savings, typically Social Security. A shrinking number may also have a pension. Some may have money in checking accounts, or have stocks or bonds outside a retirement account. 
    Regardless, the math does not look great
    So let’s do some retirement math. 
    A typical annual drawdown for a 401(k) account in retirement is about 4%. Drawing down 4% of $88,488 a year gets you $3,539 every 12 months. 
    Next, Social Security. As of January 2023, the average Social Security benefit was almost $1,689 per month, or about $20,268 per year.
    Finally, even though pensions are a vanishing benefit, let’s include them. 
    According to the Pension Rights Center, the median annual pension benefit for a private pension is $9,262 (government employees have higher benefits). 
    Here’s our yearly retirement budget:

    Personal savings $3,539
    Pension                 $9,262
    Social Security   $20,264
    Total:                   $33,065

    It’s certainly possibly to live on $33,000 a year, but this would likely only work if you own your home, have low expenses and live in a low-cost part of the country. 
    Even then, it would hardly be a robust retirement. 
    And these are the lucky ones. Only 57% of retirees have a tax-deferred retirement account like a 401(k) or IRA. Only 56% reported receiving income from a pension. 
    And that extra income largely determines whether a retiree feels good or bad about their retirement. 
    In 2023, four out five retirees said they were doing at least okay financially, but this varied tremendously depending on whether retirees had sources of income outside of Social Security. Only 52% of retirees who did not have private income said they were doing at least okay financially. 
    What can be done? 
    To have a more robust retirement, Americans are just going to have to save more. 
    One issue is investors still don’t contribute the maximum amount allowed. Only 14% of participants saved the statutory maximum amount of $22,500 per year ($30,000 for those age 50 or older). The likely reason: most felt they couldn’t afford to. 
    However, only 53% of even those with income over $150,000 contributed the maximum allowed.  Given that the employee match is “free money,” one would think participants in that income bracket would rationally choose to max out their contribution. The fact that many still don’t suggests that more investor education is needed. 
    Regardless, it’s very dangerous to assume that retirees are going to be bailed out by an ever-rising stock market. Another year anywhere near 2022, when the S&P 500 was down 20%, and investor confidence in their financial future will likely deteriorate. More

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    in Business

    YouTube dominates streaming, forcing media companies to decide whether it’s friend or foe

    YouTube made up nearly 10% of all viewership on connected and traditional TVs in the U.S. in May, according to Nielsen. Netflix ranked second, claiming 7.6% of viewership.
    “We’re not talking about your mobile phone, your laptop … but on the biggest screen in the house, the TV,” said LightShed media analyst Rich Greenfield. “Every [media] executive has to be paying attention.”
    Media companies such as Netflix, Disney and Warner Bros. Discovery don’t have a uniform strategy to deal with the threat.

    It’s been almost 20 years since the founding of Alphabet’s YouTube, and Hollywood still doesn’t really know what to do with it.
    YouTube, which effectively invented user-generated content, claims a daunting share of overall media consumption. And it’s no longer just dominating the internet, it’s dominating the living room, too.

    YouTube made up 9.7% of all viewership on connected and traditional TVs in the U.S. in May — the largest share of TV for a streaming platform ever reported by Nielsen’s monthly “The Gauge” report. Netflix ranked second, claiming 7.6% of viewership. Among streamers only, YouTube’s total viewership was close to 25% market share.
    “We’re not talking about your mobile phone, your laptop, that I’m sure you see your kids using all the time, but on the biggest screen in the house, the TV,” said LightShed media analyst Rich Greenfield. “Every [media] executive has to be paying attention.”
    But media companies such as Netflix, Disney and Warner Bros. Discovery aren’t sure whether YouTube is friend or foe.
    Some media executives see YouTube as a companion platform to subscription streaming services and cable TV — an unwieldy behemoth of non-narrative, creator-led content with a social media slant that doesn’t really fit the New York-Hollywood nexus of professional media. Others — even at times the same executives — view YouTube as an existential threat to the entertainment industry, stealing viewership from subscription streaming services and, with it, the cultural center of American youth.
    Those competing truths have led media and entertainment companies to concoct a wide array of strategies to combat the growing threat.

    Disney leaders discuss YouTube “every day” in strategic meetings and have considered adding user-generated content to Disney+, though it’s not on the immediate roadmap, according to people familiar with the matter, who asked not to be named because the discussions are private.
    Netflix and Warner Bros. Discovery, on the other hand, have consciously chosen to focus on the other 90% of the TV viewing world that isn’t YouTube.
    “I do think it snuck up on people that YouTube was as important a presence in people’s lives and people’s viewing experiences not just on the phone but in the living room,” said Tara Walpert Levy, YouTube’s vice president of Americas, in an interview.
    “When Nielsen first noted that YouTube was winning the streaming wars in terms of viewing, full stop, not just for ad-supported platforms, I had a ton of my friends from advertising, from media, who were like, ‘Can you believe it?’ It exceeded even our expectations,” she said.

    YouTube’s growing dominance

    Google’s Tara Walpert Levy, now YouTube’s vice president of Americas, speaks during a 2016 Advertising Week New York event, Sept. 28, 2016.
    John Lamparski | Getty Images

    Earlier this year, YouTube Chief Executive Officer Neal Mohan announced that users watch more than 1 billion hours of YouTube content on TV screens each day. More than 150 million Americans watch YouTube on connected TVs each month, according to the company.
    Ad dollars have followed. In 2023, YouTube took in $31.5 billion in advertising revenue, up 8% from 2022 and 271% from six years ago. In the first quarter of 2024, YouTube’s ad revenue climbed 21% from a year earlier to $8.1 billion.
    YouTube, founded in 2005, sold to Google for $1.65 billion a year later. It’s since ballooned in size as advertisers flocked to the platform. MoffettNathanson media analyst Michael Nathanson estimated in March that YouTube would be worth a whopping $400 billion as a standalone company — more than Disney and Comcast combined.
    “YouTube is still the 800-pound gorilla in this space, and I do believe they’re a pretty unstoppable juggernaut,” said Candle Media co-CEO Kevin Mayer, who previously ran Disney’s streaming business and was briefly CEO of TikTok.

    Disney’s YouTube focus

    Disney executives are particularly attuned to YouTube’s rising dominance, given its grip on younger people, according to people familiar with the company’s thinking.
    Disney has a legion of super-fans who flock to YouTube and other social media sites to promote and critique its parks, rides and merchandise, movies and TV shows. Integrating some of that content as shoulder programming to Disney’s scripted series and movies could help keep users on Disney+.
    A Disney spokesperson declined to comment on conversations about adding original content to the platform.

    You’re betraying your audience. You’re leaving YouTube to act, and then you’re not posting online anymore, and you’re asking them to wait on a project that’s in development for what? A year, two years? People are going to forget about you, girl. That’s how the internet works.”

    Brittany Broski
    YouTube creator

    “I think what we’re seeing from all of these traditional media companies is they don’t have enough content, and it’s too expensive to produce the types of premium content at scale that they need. And so maybe the [user-generated content] economy is a place they look … not to create their competitor, but as a lower cost way to add content to their services,” said LightShed’s Greenfield.
    Disney is also considering putting more full episodes of Disney+ and Hulu series geared to older kids and adults directly on YouTube to entice an audience that isn’t currently subscribing to its streaming platforms, said a person familiar with the matter.
    This is a strategy Disney has done with kids content for years, helping amplify hit animated series such as “Bluey,” “Spidey and his Amazing Friends” and “Mickey Mouse Clubhouse.”

    Cartoon characters from the children’s show “Bluey” are displayed during the Brand Licensing Europe event at ExCel, in London, Oct. 4, 2023.
    John Keeble | Getty Images News | Getty Images

    “At the end of the day, Disney is a storytelling machine,” said Mayer. “We used short-form video on YouTube as a promotional device for our content. But I don’t think that we at Disney, nor have any other traditional media companies, leaned into YouTube as an original storytelling device the way they probably should have.”
    According to internal research, Disney executives concluded that younger Americans use YouTube as an online encyclopedia, said one of the people familiar with the company’s discussions. That’s led the company to focus on the benefits of the platform’s discovery functionality while also programming against it, the person said.
    Disney has made bespoke YouTube content for its new preschool series “Disney Junior’s Ariel,” which debuts June 27, to introduce the mermaid character to kids. It has also developed a series of “Winnie the Pooh” shorts so that it can research how the animated bear and his friends resonate with today’s youth.
    The company is now considering making a full-length animated series on “Winnie the Pooh” based on the short-form video data, the person said.

    Netflix’s muted response

    Netflix is taking on YouTube from a different angle.
    It doesn’t view the platform as the same singular threat to viewership that some of its peers do. Netflix famously considers everything that could occupy a user’s time, even sleep, as a long-term competitor.
    For the time being, Netflix executives consider YouTube as catering to a different consumer need.
    “We have built a hard-to-replicate combination of a strong slate, superior recommendations, broad reach and intense fandom, which drives healthy engagement on Netflix. Improvement in these key areas is the best way to delight our members and continue to grow our business,” Netflix said in its most recent quarterly shareholder letter.
    Netflix has even found some success duplicating content on YouTube in specific instances.
    “Cocomelon,” the animated toddler-geared short-form video series owned by Candle Media’s Moonbug Entertainment, has become massively popular on both YouTube and Netflix. “Cocomelon” has 175 million subscribers to its English language YouTube channel, and “many more if you add in all languages,” Mayer said.
    At the same time, “Cocomelon” frequently tops Netflix’s most-watched list among kids shows.

    Posters showing “Blippi” and “Cocomelon” characters are displayed at the Moonbug Entertainment stand during the Brand Licensing Europe event at ExCel, in London, Oct. 04, 2023.
    John Keeble | Getty Images

    The more immediate YouTube threat for Netflix comes from an advertising perspective. Netflix is now going head-to-head with YouTube for marketing dollars after introducing its ad-supported tier in November 2022.
    Netflix said in May that it has 40 million global monthly active users for its advertising tier. That’s a far cry from YouTube’s more than 2 billion monthly active users.
    Netflix is even contemplating launching free versions of its service in certain international markets to court advertisers, though there’s nothing concrete planned, Bloomberg reported earlier this week.
    Netflix declined to comment for this story.

    Other strategies

    Comcast-owned NBCUniversal has experimented with new ways to copy the rabbit-hole effect of YouTube Shorts, which force-feed users content based on interest, by offering curated clips of “Saturday Night Live” sketches, scenes from “The Office” or favorite Bravo show moments.
    If younger users are being conditioned to watch in a certain way, NBCUniversal’s Peacock streaming service wants to give consumers that choice in addition to its long-form movies and TV shows.
    But simply curating feeds within a content vertical now feels like a “YouTube 1.0 strategy” given how TikTok, YouTube Shorts and Instagram Reels have redefined short-form viewing, according to Nathanson.
    “I don’t think, at this point, there’s a strategy in place among any of the traditional media players to create content for the YouTube generation that’s more than just their branded strategy they’re doing now,” said Nathanson. “The future strategy is to use AI to deliver personalization for each of us. Today, none of the traditional media players has that. That’s YouTube 2.0.”
    Amazon is trying a more direct plan of attack — pay YouTube’s biggest star to make a show for their own service.
    The company announced a deal earlier this year with MrBeast, whose real name is Jimmy Donaldson, to make a reality TV show, “Beast Games,” that will pay the winner $5 million in cash. The format will largely borrow from previous MrBeast giveaway videos that pit many contestants against each other for cash, using a “fast-paced and high-production format,” as Amazon has promised.

    MrBeast accepts the Favorite Male Creator award onstage during the 2023 Nickelodeon Kids’ Choice Awards in Los Angeles, March 4, 2023.
    Monica Schipper | Getty Images

    MrBeast’s YouTube channel has the most subscribers worldwide at 289 million and expects to take in a whopping $700 million in revenue in 2024, primarily through advertising and brand deals.
    But while MrBeast may have crossover appeal, there’s skepticism among creators that YouTube celebrities will have success making shows for subscription streaming services. Moreover, the entire Hollywood system may operate too slowly for a younger generation that demands immediate content.

    YouTube’s community

    The popularity of YouTube stems from the authentic relationship creators have with their fans, according to Brittany Broski, 27, whose YouTube channel has more than 2 million subscribers.
    “I still watch Netflix and HBO, where if I want a good fantasy series or whatever, I know where to go for that. But what YouTube is more concerned with is in this digital age, we’ve lost a sense of community and a sense of third spaces where we can go to hang out and meet new friends,” Broski said.
    Broski’s audience, which she described as Generation Z and young millennial women and members of the LGBTQ+ community, ballooned during the pandemic. Stuck at home with limited social options, hundreds of thousands of people found Broski as they searched for fresh, real-time content.
    That personal relationship is YouTube’s secret sauce, and it doesn’t translate when creators port to other services, Broski said.
    “You’re betraying your audience,” said Broski. “You’re leaving YouTube to act, and then you’re not posting online anymore, and you’re asking them to wait on a project that’s in development for what? A year, two years? People are going to forget about you, girl. That’s how the internet works.”

    Brittany Broski at VidCon 2022 in Anaheim, California, June 23, 2022.
    David Livingston | Getty Images Entertainment | Getty Images

    The business model of YouTube for successful creators incentivizes staying on the platform. YouTube has shared more than $70 billion with its creators over the last three years through its Partner Program, which shares advertising revenue with more than 3 million channels on the platform.
    “Why would I create a show and sell it to a network when I could just put it on YouTube?” Broski said. “You’re self-funding, but if the money you’re making from AdSense is going right back into your content to make more money, why do you even have to contact that third party?”
    YouTube also benefits from a low barrier to entry to create content and from instant feedback through comments from fans that often help shape future content immediately. That model can’t be replicated in a scripted form, where full seasons of TV shows are premade and rolled out on specific schedules.
    “In the traditional industry, it’s about proving to other people that the content deserves to be made, deserves to be seen, deserves a marketing campaign, deserves dollars behind it,” said YouTube star and former professional cyclist Michelle Khare, 31, whose channel has more than 4.5 million subscribers. “With YouTube, if you have the drive, the ability, and in many cases, your phone, you can skip those steps and put it out into a democratic platform where the audience ultimately decides what rises to the top.”

    Michelle Khare at The 2023 Streamy Awards in Los Angeles, Aug. 27, 2023.
    Gilbert Flores | Penske Media | Getty Images

    Aging out

    Warner Bros. Discovery executives are perhaps the least concerned of all legacy media companies about YouTube’s rising dominance, which skews younger. Ninety-three percent of teenagers say they’ve used YouTube, far outpacing TikTok (63%), Snapchat (60%) and Instagram (59%), according to a 2023 Pew Research study. A 2023 survey from marketing firm InMobi found 61% of Gen Z respondents, or those ages 18-24 at the time of the survey, named user-generated content as their favorite form of media.
    Warner Bros. Discovery’s Max streaming service has moved away from programming geared toward kids and teenagers — barring the occasional accidental hit such as “Euphoria.” The company’s focus on prestige dramas and adult movies is about as far away from YouTube’s typical fare as an entertainment company can offer.
    Baked into the question of whether YouTube is friend or foe to the media industry is a second query: Will younger consumers simply grow out of YouTube’s bread and butter — the creator-led, non-narrative style of storytelling?
    “My suspicion is that there will be a bit of an aging out,” said Mayer. “I think longer form storytelling is hard to replace with super short form storytelling.”
    There may be room for both subscription streamers and YouTube to survive and flourish, with each operating in a lane that doesn’t impede the other’s too much. Still, YouTube is experimenting with episodic and scripted series to appeal to all audiences — a direct threat to traditional Hollywood. “Cobra Kai,” a spinoff of “The Karate Kid,” began on YouTube’s ad-free subscription service YouTube Premium, picked up a fan base and then moved to Netflix.
    “There is some amount of conditioning that happens when you become familiar with a certain format that resonates with you, but what we are seeing is it’s not so black-and-white between a certain type of audience wanting a certain type of content,” said Nicky Rettke, YouTube’s vice president of product management.
    There’s also the future threat of artificial intelligence on YouTube. While Hollywood’s use of AI is contractually restricted, and was a sticking point of recent strike negotiations, there are no current rules for user-generated content. Theoretically, this gives YouTube creators a huge leg up in experimenting with technology that could rival the production values of professional studios, putting even more pressure on traditional media.
    Disclosure: Comcast’s NBCUniversal is the parent company of CNBC. More

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    Rivian secures up to $5 billion from Volkswagen, shares soar more than 50%

    Volkswagen plans to invest up to $5 billion in electric vehicle startup Rivian, starting with an initial investment of $1 billion.
    The additional $4 billion is expected to be invested following the establishment of a joint venture, according to joint releases by the automakers Tuesday.
    Rivian stock is down roughly 49% in 2024.

    Workers assemble second-generation R1 vehicles at electric automaker Rivian’s manufacturing facility in Normal, Illinois, on June 21, 2024.
    Joel Angel Juarez | Reuters

    Volkswagen Group plans to invest up to $5 billion in electric vehicle startup Rivian, starting with an initial investment of $1 billion.
    The additional $4 billion is expected by 2026. It includes plans for $1 billion each in 2025 and 2026, followed by $2 billion in 2026 related to an expected joint venture to create electrical architecture and software technology, according to a release by the automakers Tuesday.

    Shares of Rivian soared more than 50% during after-hours trading Tuesday, two days ahead of an investor event for Rivian, which has been under pressure from Wall Street due to its cash burn and significant losses. Rivian stock closed Tuesday at $11.96 a share, down roughly 49% in 2024.
    The initial $1 billion from Volkswagen will be in the form of a convertible note, which could be converted to Rivian shares on or after Dec. 1, the release said.
    The deal will help Rivian on its journey to become cash flow-positive, Rivian CEO and founder RJ Scaringe said Tuesday night during an investor call.
    He noted the capital is expected to carry the company through the production ramp-up of its smaller R2 SUVs at its plant in Normal, Illinois, starting in 2026, as well as production of the midsize EV platform at a plant in Georgia, where Rivian paused construction earlier this year.

    “We believe the opportunity ahead is significant. This deal is possible because we’re focused on vertically integrating our network architecture, topology, V-CPUs, and associated software platforms,” he said. “I’ve spoken about the importance of these platforms in the past, and how difficult it is to replicate them.”

    Volkswagen is expected to use Rivian’s electrical architecture and software stack for vehicles beginning the second half of the decade, according to Scaringe. He said the joint venture does not include anything with battery technologies, vehicle propulsion platforms, high voltage systems or autonomy and electrical hardware.
    Scaringe said the expected joint venture will be led by a “balanced” leadership group, including two co-CEOs, with Rivian appointing the technical leadership and Volkswagen appointing a chief operating officer.
    The closing of the joint venture is expected in the fourth quarter of this year, according to Rivian Chief Financial Officer Claire McDonough.

    A provided image of Oliver Blume, CEO of Volkswagen Group and RJ Scaringe, founder and CEO of Rivian, as the companies announce joint venture plans on June 25, 2024.
    Courtesy: Business Wire

    Volkswagen will be the second legacy automaker to take a stake in the California-based company. Ford Motor was among Rivian’s largest stakeholders, at roughly 12%, alongside Amazon when Rivian went public in 2021. The Detroit automaker exited Rivian in 2023 after walking back a plan to codevelop EVs with the company.
    The Volkswagen-Rivian partnership comes as automakers shift strategies amid slower-than-expected adoption of EVs.
    Pietro Zollino, head of VW corporate communications, said the deal with Rivian does not change the German automaker’s plans to build a $2 billion EV plant for its announced Scout Motors trucks and SUVs in South Carolina.
    “Our commitment towards Scout has not changed at all,” he said in an email Tuesday night.
    Rivian has been on a cost-cutting mission for months. It has trimmed staff, retooled its Illinois plant to increase efficiencies and paused construction of a new multibillion-dollar factory in Georgia. That last measure is expected to save more than $2.25 billion in capital spending, including the impact of starting production of Rivian’s upcoming, less expensive R2 vehicles at its plant in Illinois instead of Georgia during the first half of 2026. 
    McDonough said Volkswagen’s investment is expected to carry the company through the ramp-up of its new, less expensive R2 vehicles in Illinois as well as the midsize EV platform at its plant in Georgia.
    The EV maker reported a loss of $1.45 billion during the first quarter of this year, as it retooled its plant in Normal, Illinois, to launch updated versions of its R1T pickup and R1S SUV EVs ahead of its next-generation vehicles in 2026.
    Rivian reported $7.86 billion in cash, cash equivalents and short-term investments to end March, with more than $9 billion in total liquidity.

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    in Finance

    The yuan’s status as a global currency might be gaining ground. But top CEOs see more hurdles to clear

    For China’s yuan to be used more globally, the currency needs more “applications” such as stocks and bonds, Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Limited, said on a panel Tuesday.
    “We’re not just going to hold on to a bunch of RMB and put it into this bank account,” she said.
    Fred Hu, founder, chairman and CEO of Primavera Capital, said on the same panel Tuesday that the internationalization of the yuan is probably going to take longer than many expect, despite increased statements from Beijing.

    A bank employee count China’s renminbi (RMB) or yuan notes next to U.S. dollar notes at a Kasikornbank in Bangkok, Thailand, January 26, 2023.
    Athit Perawongmetha | Reuters

    DALIAN, China — For China’s yuan to be used more globally, the currency needs more “applications” such as for stocks and bonds, Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Limited, said on a panel Tuesday.
    Beijing has long touted its ambitions for increasing global use of the Chinese yuan — also known as the “renminbi” or “RMB” — in an international financial market where the U.S. dollar is the dominant currency. U.S. sanctions on Russia have also increased the pressure on some countries to have alternatives to the greenback.

    Chan, speaking during the World Economic Forum’s “Summer Davos” meeting in Dalian, China, noted that people hold a currency for trade, or, more importantly, as a store of wealth.
    “We’re not just going to hold on to a bunch of RMB and put it into this bank account,” she said. “You want to have bonds, you want to have equities, etc.”
    “One of our strategic imperatives [has] been changed to make sure that we continue to produce more RMB-denominated security products,” Chan said, “so that investors around the world can actually see more applications of the RMB and be able to use those as the medium to store wealth in the form of the RMB.”

    Last year, the HKEX announced a “Dual-Counter” program that allows investors to trade Hong Kong-listed securities in Hong Kong dollars or Chinese yuan.
    In a significant step toward internationalization of the yuan, the International Monetary Fund in 2015 announced that it would add the yuan to its basket of reserve currencies the following year.

    The yuan was the fourth-most active currency for global payments by value in May, accounting for nearly 4.5% of such transactions, according to the interbank messaging network SWIFT. The U.S. dollar had a nearly 48% share.
    In trade finance, the yuan ranked third at about 5.1% in May, according to SWIFT. The euro was slightly higher at 5.6%, while the U.S. dollar dominated with a nearly 85% share, the data showed.
    Fred Hu, founder, chairman and CEO of Primavera Capital, said on the same panel Tuesday that the internationalization of the yuan is probably going to take longer than many expect, despite an increased amount of statements from Beijing.
    While China is the largest trading nation and has large financial centers, “we’re not as big, as deep as the U.S.,” Hu said. “Besides our capital account is also closed, it’s not fully convertible, [which] also in some way [is] hampering the internationalization of the renminbi.”

    A maturing financial market

    Developing more Chinese yuan-denominated investment products also requires a maturation of the local financial sector. Part of that includes having a more sophisticated investor base.
    Chan said that during the annual Lujiazui Financial Forum in Shanghai last week, nearly every conversation with top leaders included the term “patient investing.”
    The phrase has emerged in official releases to encourage long-term investing over short-term speculation.
    “Patience comes from learning through the market volatility,” Kenny Lam, CEO of Two Sigma Asia-Pacific, said during the same panel on Tuesday.
    He said that policymakers have been giving more thought to making their policies more stable and consistent.

    Waiting for more Chinese IPOs

    Chinese companies have long sought to tap U.S. financial markets for the prestige and greater market liquidity they offer, but increased regulatory scrutiny by both Beijing and Washington, D.C., has drastically slowed such listings in the last three years.
    “I think IPOs are essential for attracting investors to come back in the market. All of the storytelling around it, it shows that there’s a lot of progress happening,” Jonathan Krane, the founder and CEO of KraneShares, also said on the panel on Tuesday.
    “In the U.S. we see all this innovation, AI and all these companies going public and doing well, and then in China, the same industry, same innovations happen and those stories should be told through the IPO market,” Krane said, noting he is hearing that the IPO market “is going to start coming back.”
    Chinese authorities last week announced a new effort to support initial public offerings, especially in Hong Kong.
    Chan said so far this year the Hong Kong exchange has received 73 new listing applications — a 50% increase versus the second half of last year, she said. “The pipeline is building up nicely,” she said, noting about 110 IPOs in total are in line. “All we need is a set of good market conditions so these things get to launch and price nicely,” she added. More

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    FedEx shares jump after hours as massive cost-cutting measures kick in

    The company reported revenue and earnings beats and a drop in capital spending on Tuesday for its fiscal fourth quarter.
    FedEx is in the midst of a $4 billion cost-cutting effort, including the consolidation of its air- and ground-shipping businesses.

    A pedestrian walks by a parked FedEx delivery truck on March 21, 2024 in San Francisco, California.
    Justin Sullivan | Getty Images

    FedEx shares soared more than 15% after hours Tuesday after the company reported results that topped analysts’ estimates in both earnings and revenue.
    Here’s how the company did in its fiscal fourth quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

    Earnings per share: $5.41 adjusted vs. $5.35 expected
    Revenue: $22.11 billion vs. $22.07 billion expected

    The company reported net income for the three-month period that ended May 31 of $1.47 billion, or $5.94 per share, compared with $1.54 billion, or $6.05 per share, a year earlier.
    Revenue rose to $22.1 billion, up slightly from $21.9 billion a year earlier. For the full fiscal year, revenue was $87.7 billion, down from $90.2 billion.
    FedEx reported that capital spending for fiscal 2024 was $5.2 billion, down 16% from $6.2 billion in fiscal 2023 and less than the $5.7 billion it forecasted in its fiscal 2024 guidance last year.
    For fiscal 2025, the company said it expects low to mid-single-digit revenue growth year over year, driven in large part by e-commerce and low-inventory levels, FedEx Chief Customer Officer Brie Carere said on the company’s earnings call.
    “We think e-commerce is going to outpace the B2B growth,” Carere said. “We like the fundamentals from an e-commerce perspective that will help us here in the United States and around the world.”

    The capital spending decline comes as the company amps up its cost-cutting measures as part of a sweeping commitment to cut $4 billion by the end of fiscal 2025.
    Following weak freight demand, FedEx enacted its DRIVE transformation program to cut costs and consolidate the business.
    “DRIVE continues to change the way we work at FedEx. We achieved our target of $1.8 billion in structural costs out in fiscal year ’24,” CEO Raj Subramaniam said on the call.
    Subramaniam said the company is firmly on track to achieve the $4 billion cost-cutting goal and further expects another $2 billion from the company’s plans to consolidate its air and ground services.
    As part of the DRIVE initiative, FedEx announced in April 2023 that it will be consolidating its delivery companies Express, Ground, Services and others into a unified Federal Express Corporation, operating under the FedEx brand and alongside the company’s Freight segment which will continue to exist separately. The company said at the time that it expects the combined delivery business to handle all deliveries starting June 2024.
    The newly combined segments are expected to be the larger driver of fiscal year 2025 adjusted income and margin improvement, finance chief John Dietrich said on the call.
    FedEx further expects the demand environment to moderately improve through the next fiscal year, according to Carere.
    Investor’s eyes are also on the company’s largest segment Express, which has been struggling with margin growth the past year. The segment’s margins ended the fourth quarter at 4.1%, unchanged year over year. Its operating margin for fiscal 2024 was 2.6%, up slightly from 2.5% last year.
    Subramaniam said improving performance of the Express segment is a “top priority” for the company.
    While the company hiked its quarterly dividend by 10% earlier this month, investors do foresee headwinds, particularly after the company lost its U.S. Postal Service contract to rival United Parcel Service n April.
    UPS will become the primary air cargo provider for USPS starting Sept. 30, after FedEx’s contract expires. USPS was the largest customer for the company’s Express segment. The company shared that it expects a $500 million headwind from the loss in fiscal 2025.

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    GM’s Cruise names former Amazon, Microsoft Xbox executive as new CEO

    General Motors’ Cruise autonomous vehicle unit on Tuesday announced Marc Whitten, a former Amazon and Microsoft executive, as its new CEO.
    His appointment comes at a crucial time for Cruise, as the GM subsidiary attempts to relaunch its autonomous vehicles on public roadways after the company ceased operations weeks following an Oct. 2 accident.
    As of this month, Cruise has resumed supervised driving in Phoenix, Houston and Dallas, in addition to its ongoing testing in Dubai.

    A Cruise vehicle in San Francisco on Feb. 2, 2022.
    David Paul Morris | Bloomberg | Getty Images

    DETROIT – General Motors’ Cruise autonomous vehicle unit on Tuesday announced former Amazon and Microsoft executive Marc Whitten as its new CEO.
    Whitten was a founding engineer at Microsoft’s Xbox before leaving the company after more than 17 years to become chief product officer of audio company Sonos in 2014, according to his LinkedIn profile. He then worked at Amazon as vice president of entertainment devices and services before his most recent role as chief product and technology officer for software development company Unity’s Create.

    His appointment comes at a crucial time for Cruise, which is testing and relaunching its autonomous vehicles on public roadways. It ceased operations weeks after an Oct. 2 accident in which a pedestrian in San Francisco was dragged 20 feet by a Cruise robotaxi.
    Following the incident, several key leaders, including Cruise CEO and co-founder Kyle Vogt, departed the company.
    “Marc is a proven technology and business leader with extensive experience in scaling products and building ecosystems around them,” GM CEO and Chair Mary Barra, who also leads the Cruise board of directors, said in a release. “He has sparked innovation and driven growth in complex, fast-paced environments throughout his career, and I believe that will prove crucial to Cruise’s vision of creating technology that provides real, tangible benefits to society.”
    A third-party probe into the October incident ordered by GM and Cruise found that culture issues, ineptitude and poor leadership fueled regulatory oversights that led to the accident. The probe also investigated allegations of a cover-up by Cruise leadership, but investigators did not find evidence to support those claims.
    During that time, San Francisco-based Cruise was attempting to expand its operations into a revenue-generating business for GM, which has been a majority owner of the company since acquiring it in 2016. Other investors now include Honda Motor, Microsoft, T. Rowe Price, and Walmart.

    As of this month, Cruise has resumed supervised driving in Phoenix, Houston and Dallas, in addition to its ongoing testing in Dubai. It has not relaunched in San Francisco, where it remains under investigation related to the accident.
    Cruise was a crucial part of GM’s plan to double revenue to $280 billion by the end of this decade.
    GM announced Whitten’s appointment in conjunction with other executive changes. The automaker said Nick Mulholland, who led communications for Rivian, would become Cruise’s chief marketing and communications officer.
    Craig Glidden, who has served as GM’s legal and chief policy officer, also will join Cruise as president and chief administrative officer, responsible for legal, government affairs, finance, communications, and human resources, the automaker said in a separate release Tuesday.
    Glidden will be replaced by Grant Dixton, who has held senior leadership roles at Activision Blizzard and Boeing.
     ”GM is an iconic company I have always admired,” Dixton said in a statement. “I am grateful for the opportunity to work with Mary, her leadership team, and the strong legal and policy teams in place at GM to help the company achieve its bold vision as it continues to provide vehicles that customers around the world love.” 

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    U.S. auto sales are expected to slow during the second half of 2024

    Cox Automotive expects U.S. sales growth to slow during the second half of the year to end 2024 at 15.7 million units, roughly a 1.3% increase compared to 2023.
    Vehicle inventory levels are growing, incentives are increasing and there’s growing uncertainty during surrounding the economy, interest rates and U.S. presidential election.
    That’s largely good for consumers, some of whom have been waiting years to purchase a new vehicle, but a headwind for automakers.

    Cars sit on a Chevrolet dealership’s lot on June 20, 2024 in Chicago, Illinois. A cyber attack on CDK Global, a software provider that helps dealerships manage sales and service, has crippled the workflow at approximately 15,000 dealerships across the United States and Canada. 
    Scott Olson | Getty Images

    DETROIT — U.S. auto sales through the first half of the year are expected to be up by 2.9% compared to a year ago, but there are concerns that the auto industry may not be able to continue that momentum through year-end.
    Vehicle inventory levels are growing, incentives are increasing and there’s growing uncertainty surrounding the economy, interest rates and U.S. presidential election, according to Cox Automotive.

    The auto data and research firm expects sales growth to slow in the next six months to 15.7 million units, roughly a 1.3% increase from 2023. And, unlike in recent years, growth is coming from commercial sales rather than more profitable consumer sales.
    “Overall, we’re expecting some weakness in the coming few months,” said Cox chief economist Jonathan Smoke during a midyear review briefing Tuesday. “We basically are making some assumptions that we can’t quite hold the pace that we’ve been seeing. But we’re not expecting a collapse either.”

    Good for consumers

    Such circumstances are largely good for consumers, some of whom have been waiting years to purchase a new vehicle amid unprecedented supplies of new vehicles and record prices during the coronavirus pandemic.
    But those circumstances are a headwind for automakers, many of which posted record profits due to the high demand and low availability of new vehicles during the global health crisis. Wall Street has been predicting challenges in vehicle pricing and profit for most automakers compared to the record or near-record levels of recent years.

    Brand-new Tesla cars sit parked at a Tesla dealership on May 31, 2024, in Corte Madera, California.
    Justin Sullivan | Getty Images

    “There’s a lot of uncertainty that lies ahead, and it may make recent sales successes hard to build upon,” Charlie Chesbrough, Cox’s senior economist, said during the briefing. “We are concerned that the second half of the year cannot maintain the growth we’ve seen so far.”

    Rental, commercial and leasing are showing signs of double-digit growth, while Cox expects retail share of the overall industry to be down nine percentage points from 2021 to roughly 79%.

    Winners and losers

    The sales “winners” through the first half are expected to be General Motors, Toyota Motor and Honda Motor, according to Cox.
    Chesbrough said if Toyota can continue its growth, it may once again challenge GM to rank as the top-selling automaker in the U.S. The Japanese company topped all other automakers for the first time ever in 2021.
    Underperformers included Tesla, with sales estimated to be down 14.3%, and Stellantis, which is forecast to be down by 16.5% through June. Honda beat Stellantis in U.S. sales during the first half, pushing the Chrysler and Jeep parent to No. 6 in sales, down from its recent No. 4 rank.
    Stellantis CEO Carlos Tavares earlier this month said the company is correcting what he described as “arrogant” mistakes by himself and the company in its U.S. operations that led to sales declines, bloated inventories and investor concerns.
    “Higher supply means we officially bid farewell to the seller’s market that has defined the last four years … which means further deterioration in new vehicle grosses and dealer profitability,” Smoke said.

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    Here’s how bad housing affordability is now

    Prices in April rose 6.3% compared with April 2023, according to the S&P CoreLogic Case-Shiller National Home Price Index.
    Home prices are now 47% higher than they were in early 2020, with the median sale price now five times the median household income.
    Half of all renter households — more than 22 million — spent more than 30% of their income on housing this year, which is considered “cost burdened.”

    Home prices set another record in April, even as mortgage rates rose and the supply of homes for sale increased. Usually, under those circumstances, prices would weaken, but today’s housing market is unlike any other in recent history.
    Prices in April rose 6.3% compared with the year-earlier month, according to the S&P CoreLogic Case-Shiller National Home Price Index. It marks the second straight month that the national index jumped at least 1% over its previous all-time high.

    Although this is a three-month moving average, it’s important to note that those price gains come even as the average rate on the 30-year fixed mortgage jumped sharply in April, from 6.9% to 7.5%, according to Mortgage News Daily.
    “2024 is closely tracking the strong start observed last year, where March and April posted the largest rise seen prior to a slowdown in the summer and fall,” said Brian Luke, head of commodities, real and digital assets at S&P Dow Jones Indices, in a news release. “Heading into summer, the market is at an all-time high, once again testing its resilience against the historically more active time of the year.”
    The only potential sign of relief is that the annual and monthly gains on the price index are slowing a little bit. March’s annual gain was 6.5%.
    Still, it feeds into what is now one of the least affordable housing markets in U.S. history for both homeownership and renting. The housing cost burden has hit a record, according to a new report from Harvard’s Joint Center for Housing Studies.
    Home prices are now 47% higher than they were in early 2020, with the median sale price now five times the median household income, according to the study.

    For renters, even though rent growth is slowing due to a big increase in new apartment units this year, prices are still 26% higher than they were in 2020 and rising in three out of every five markets.
    Half of all renter households — more than 22 million — spent more than 30% of their income on housing, which is considered “cost burdened” by HJCH. Twelve million of those households spend more than half their income on rent.
    For homeowners, 20 million are considered cost burdened by their monthly payments.
    All of those cost-burdened levels represent records.
    Homeowners are also facing a sharp increase in insurance premiums, up an average 21% between 2022 and 2023, according to the HJCH report, and property taxes are also rising.
    Prices continue to be supported by an imbalance in supply and demand. Housing supply was already low before the Covid pandemic hit, because homebuilders had yet to recover from the 2008 financial crisis. Then there was a pandemic-induced run on housing, causing supply to drop to record lows for several years. Homebuilders couldn’t keep up.
    Supply is now rising, with an 11% increase in new listings in April from March, according to Zillow, and a 16% increase from April 2023. That pushed total for-sale inventory up 18% year over year. While that might sound like a lot, supply is still quite lean, especially compared with the strong demand.
    “The rapid and sudden increase in mortgage rates in April pushed housing affordability further out of reach for many potential buyers while some who could still afford held back,” said Zillow’s senior economist Orphe Divounguy in a release. “As a result, the share of listings with a price cut shot up to 22.4% in April, the highest rate for April in the past six years, and a significant step up from 17.2% a year earlier.”
    But he added that despite the relative slowdown in April sales, homes that were priced well sold in just 13 days, only three days slower than in April 2023.
    In May, inventory rose to a 3.7-month supply. A six-month supply is considered a balanced market between buyer and seller.

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