Finance

Things are big in America. That is true of houses, cars and food portions. Perhaps most shocking of all is the size of tips. In much of the rest of the world, gratuities are a small gesture for good service. In American restaurants they are de rigueur. And they are becoming more generous and more common. For workers who already get them, tips are growing; for those who do not get them, tips may be coming their way. But this cannot go on for ever. Look closer at the tipflation gripping America and a surprising conclusion emerges: the country may be approaching peak tip.As with so much these days, Donald Trump has a hand in this. At a recent rally in Las Vegas, he casually inserted a radical proposal about halfway through his speech. “For those hotel workers and people that get tips, you’re going to be very happy. Because when I get to office we are going to not charge taxes on tips,” he said. It was, he argued, only right to stop the government from going after the earnings of people who provide good service. More

What is income, really? Ask an economist and they might describe “Haig-Simons” income—the value of a person’s consumption of goods and services, plus the change in their net worth over a certain period. A lawyer might refer to Section 61(a) of the IRS Code 26, which defines “gross” income as “all income from whatever source derived”, including but not limited to commission, interest, property deals and wages. An accountant might talk about how to reduce that gross income, via deductions or carve-outs, to a skinnier “taxable income base”.The answer matters. Whether governments should levy taxes on unrealised capital gains, as well as realised ones, is a topic of hot debate. In March, during the State of the Union address, Joe Biden reiterated his commitment to imposing a “billionaire minimum income tax” if re-elected. This would include a 25% tax on unrealised capital gains for Americans with more than $100m in assets, which he expects would raise $500bn (2% of GDP) over a decade. The Supreme Court is also considering the question. Its justices are poised to issue an opinion in Moore v the United States, a case in which the plaintiffs are arguing that a one-off tax on gains from an overseas investment was unconstitutional, since the 16th amendment, which enshrines in America’s constitution the federal government’s right to impose income taxes, does not apply to unrealised income. More

India’s stockmarket swooned upon the news that Narendra Modi, the country’s business-friendly prime minister, would return to power diminished and in a coalition after a recent general election. One benchmark, though, fell especially sharply and has yet to recover: the Bombay Stock Exchange’s index for Public Sector Undertakings (BSE PSU). It comprises 56 companies that have some private ownership but remain mostly owned, and entirely controlled, by the state.This curious corporate structure dates back to India’s independence from Britain in 1947 and the country’s subsequent embrace of state planning, which was extended to encompass, in the Marxist-infused language of the time, “the commanding heights of the economy”. This came to include companies in everything from aviation and insurance to artificial limbs and banking. Only when India’s economy opened to the world in the 1990s did the approach change. Since then, politicians have tried, with varying degrees of enthusiasm, to put firms under private control. More

Owing to the rapid spread of solar power, Spanish energy is increasingly cheap. Between 11am and 7pm, the sunniest hours in a sunny country, prices often loiter near zero on wholesale markets (see chart). Even in Germany, which by no reasonable definition is a sunny country, but which has plenty of wind, wholesale prices were negative in 301 of the 8,760 tradable hours last year.As solar panels and wind farms take over Europe, the question facing the continent’s policymakers is what to do with all the power they produce. Ultra-low—and indeed negative—prices suggest that it is not being put to good use at present, reflecting failures in both infrastructure and regulation. There are three main ways that firms and regulators could establish a more efficient market: sending energy to areas where there is no surplus, shifting demand to hours when energy is plentiful, and storing energy as electricity, fuel or heat. More

How can you tell it’s time to get out of the market? In 1929 Joseph Kennedy, an American businessman and politician, supposedly realised the party was over upon hearing a shoe-shine boy dispensing stock tips. In 2000 the exit doors beckoned after 17 “dotcom” firms paid millions of dollars each for brief advertising slots during the Super Bowl, an American football extravaganza.And so to a sell signal fit for 2024: Keith Gill is back on social media. Mr Gill was an architect of the meme-stock frenzy of 2021, exhorting retail traders to buy shares in GameStop, a struggling chain of video-game shops. After a three-year absence he is posting once again, now apparently in possession of a stake in the firm worth a few hundred million dollars. GameStop’s share price has resumed a gut-churning rollercoaster ride and is up by more than 40% since Mr Gill’s return; the ailing company has made use of the excitement to issue some $3bn-worth of new shares. If you are looking for signs of speculative excess in markets, this is Exhibit A. More

Ratings agency Fitch no longer expects China to cut its policy rate this year, instead delaying such a reduction to next year as the U.S. Federal Reserve keeps its interest rates high.
Fitch now forecasts China will keep its one-year medium-term lending facility (MLF) unchanged this year at 2.5%, and cut it to 2.25% next year.
In March, the ratings agency had forecast one cut for 2024.

People walk past the headquarters of the People’s Bank of China (PBOC), the central bank, in Beijing, China September 28, 2018. 
Jason Lee | Reuters

BEIJING — Ratings agency Fitch no longer expects China to cut its policy rate this year, and has pushed back its expectations for a reduction to next year as the U.S. Federal Reserve keeps its interest rates high.
Fitch now forecasts China will keep its one-year medium-term lending facility (MLF) unchanged this year at 2.5%, and cut it to 2.25% next year. In March, the ratings agency had forecast one cut for 2024.

“There are a couple of factors behind this. First on the external side, concerns around the exchange rate against the U.S. dollar, because of changing expectations for the Fed, restrain the [People’s Bank of China],” Jeremy Zook, Fitch Ratings’ head of sovereign rating in Asia Pacific, said during a presentation Wednesday.
Next year, “as the Fed begins to cut policy rates we think that should give a bit more space for the PBOC to maneuver,” he said. Zook expects Beijing to make greater use of fiscal policy this year.
The Fed last week held steady on its key interest rate and indicated just one cut by the end of the year. That contrasts with investor expectations heading into 2024 that the Fed would soon ease monetary policy after aggressively hiking rates.

Tighter Fed policy has kept the U.S. dollar strong against the Chinese yuan, which is close to re-touching lows last seen in 2008, according to Wind Information data. A weaker Chinese currency increases the pressure of capital outflows.
“Also there do seem to be concerns around bank net interest margins being quite low, and this also poses challenges for the PBOC,” Zook said. Net interest margin (NIM) is a measure of bank profitability as it calculates the difference between the interest the financial institution receives from borrowers and how much it must pay on deposits.

The last time China cut the one-year MLF was in August 2023, according to official data accessed through Wind Information.
The People’s Bank of China sets the MLF every month and uses it to guide the benchmark loan prime rate (LPR), which is the major reference for financial institutions’ lending rates.
PBOC Governor Pan Gongsheng said in a speech earlier on Wednesday that monetary policy would remain “supportive,” and noted the yuan’s exchange rate has “remained basically stable under complex circumstances,” according to a CNBC translation of the Chinese transcript.
He noted that major developed economies have repeatedly postponed a shift in their monetary policy, and that “the interest rate gap between China and the U.S. remains at a relatively high level.” More

British online payments firm Zilch says it has raised $125 million in debt financing from Deutsche Bank in a deal that will help the company triple sales in the next couple of years and move closer toward an IPO.
The buy now, pay later firm said the debt was structured as a securitization, where multiple loans can be packaged together.
Zilch said its deal with Deutsche Bank came with more flexible terms and would enable it to draw down up to $315 million of credit in total — including from different banks.

Zilch CEO Phil Belamant.

LONDON — British fintech firm Zilch said Wednesday it’s raised $125 million in debt financing from German banking giant Deutsche Bank in a deal that will help the company triple sales in the next couple of years and move closer toward an initial public offering.
The company, which offers shoppers the ability to purchase items and pay off the debt they owe in monthly, interest-free installments, said the debt was structured as a securitization, where multiple loans can be packaged together.

Zilch initially sourced credit for its installment plans and other loans from Goldman Sachs’s private credit arm. The company said the deal with Deutsche Bank came with more flexible terms and would enable it to draw down up to $315 of credit in total — including from different banks.
Philip Belamant, Zilch’s CEO and co-founder, noted the terms of its arrangement with Goldman Sachs were beneficial for a young, fast-growing startup — but ultimately too restrictive. Zilch’s capital needs have accelerated as the business has matured, and required a credit arrangement that was more flexible, he said.

“For us, we think it’s a major milestone in the company’s growing stage, which is, we’ve gone through the line we have with Goldman, it’s been a brilliant relationship and partnership,” Belamant told CNBC. “But now we’re stepping it up to securitization … so we [can] continue scaling.”
The additional $190 million of credit will become available to Zilch as the firm continues to grow. Belamant said the firm is already planning to strike agreements with other banks to raise more debt in the coming months.
The move is a sign of how buy now, pay later upstarts are continuing to double down on their products and loan growth, even as larger incumbent players in finance and technology are bowing out of the once-buzzy market.

This week, Apple announced it would shutter its BNPL program, Pay Later, which let users split purchases over four interest-free installments. It will integrate third-party services from firms like Affirm and Citi, instead. Meanwhile, Goldman Sachs recently sold Greensky, a BNPL firm it bought in 2021.

IPO within 2 years?

Belamant said that with additional capital of $125 million, the firm’s path toward an IPO will likely be accelerated, with Zilch currently aiming to go public in the next 12 to 24 months.
The deal will help Zilch generate $3.75 billion of gross sales by 2026, Belamant said.
He explained that for every $1 of debt raised, Zilch can generate $30 of gross merchandise value (GMV) — the combined value of sales processed on its platform.
So, with $125 million of capital, that will drive $3.75 billion of gross sales. Once Zilch has reaches the $315 million maximum funding threshold, it expects to generate nearly $10 billion of GMV by 2026.
Zilch has already generated over £2.5 billion in GMV since its founding in 2018. The firm reported revenues of £30 million ($38 million) in the 12 months ended March 2023. Losses totaled £71.7 million, marginally down from a 2022 loss of £78.3 million.

Zilch has three key ways of making money. The first is through interchange fees, where card networks charge merchants’ bank account each time a consumer makes a payment. The second is commission fees, where merchants pay to appear on Zilch’s app.
Zilch also has an advertising sales network where it provides placements for retailers to promote their wares to consumers. The UK firm claims it is able to achieve conversion rates of up to 55%, more than 10 times higher than the search industry average.
Belamant caveated the firm is keeping a watchful eye on uncertainty around the U.K.’s upcoming election and market conditions more generally.
“It’s hard to obviously say we’re on that range just due to the market, [and] there’s an election happening, [so] obviously we’ll see what happens,” he said. More

Billionaire investor Steve Cohen’s Point72 plans to launch a separate, artificial intelligence-focused hedge fund to capitalize on the boom.
The firm is aiming to raise $1 billion, with Cohen himself and Point72 employees expected to contribute.

Steve Cohen, chairman and CEO of Point72, speaking to CNBC on April 3, 2024.

Billionaire investor Steve Cohen’s Point72 plans to launch a separate, artificial intelligence-focused hedge fund to capitalize on the boom, according to a person close to the firm’s plans.
The new long/short equity fund, to be launched later this year or early 2025, will be focused on AI and AI-related hardware, the person said.

The firm is aiming to raise $1 billion, with Cohen himself and Point72 employees expected to contribute, the person added. This stand-alone public equity offering will live outside the main fund due to the need for a more-flexible net exposure, the person said.
Point72 declined to comment. Bloomberg News first reported on the potential offering Tuesday.
Cohen recently came out as a long-term AI bull. He has called AI a “really durable theme” for investing, comparing the rise to the technological developments in the 1990s.
The massive rally in AI-related stocks such as Nvidia has lifted the broader market to record highs this year. The chipmaker giant has topped a $3 trillion market cap amid the increasing enthusiasm, while any stock tangentially connected to AI has experienced a runup in value.
“I don’t see it as a bubble. I think the markets are discounting some of what we … think AI is going to do for companies,” the Point72 founder said in a CNBC interview in April.

The Mets owner highlighted AI’s role in enhancing productivity at basically every company. Cohen said his investment firm found a way to save $25 million by using large language models such as ChatGPT to improve efficiency.
Point72 oversees nearly $34 billion in assets as of April.

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