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Market jitters lead to more declines as investors face growing risks



It’s been a shaky month for investors in North American markets.

Tuesday saw benchmark stock indexes register more triple-digit declines — an occurrence that’s become all too familiar in recent weeks.

All three major U.S. indexes — the Dow Jones, S&P 500 and Nasdaq — have fallen at least six per cent so far this month. Canada’s S&P/TSX composite isn’t far behind with a 5.5 per cent decline of its own in October.

Motivations to sell also seem to be increasing, according to analysts.

Everything from geopolitical events to concern over slowing economic growth, disappointing company earnings, and higher interest rates are being blamed for the recent slide in stocks.

Karl Schamotta, chief market strategist at Cambridge Global Payments, said strong growth in the U.S., which has enjoyed one of the longest expansions on record, is “beginning to show its age.”  

“The Trump administration’s double-barrelled stimulus package is beginning to lose steam — tax cut impact was heavily front-loaded, and historical evidence would suggest that the ‘multiplier effect’ associated with government spending will diminish quickly,” Schamotta said. 

“With the Democrats likely to mount stiff opposition after the mid-terms [elections], markets are increasingly aware that the pork barrel is nearing empty.”

Large industrial companies like Caterpillar and 3M, which are considered bellwethers of the global economy, sank more than 5.7 per cent and 4.4 per cent respectively in New York on Tuesday. Their earnings’ reports disappointed investors and ignited fears about how rising borrowing costs, wages, and tariffs will affect company results.

Trade protectionism is also playing a bigger role in the markets, according Schamotta. He thinks many companies that accelerated purchases ahead of tariffs are now sitting on excess inventory, and higher supply chain costs will likely be a drag on earnings for many years to come. 

Higher rates hurt liquidity

Added to the slump in stocks, the CBOE Volatlity Index, which measures trading volatility on Wall Street, jumped as much as 25 per cent today to its highest in more than a week.

Bipan Rai, executive director of macro strategy at CIBC Capital Markets, said there are definitely more risks ahead, given that central banks are no longer providing the degree of liquidity that they had been in years past.

“All else being equal, it’s the liquidity withdrawal story that is most relevant, considering that is what causes the rate at which future returns are discounted to rise,” Rai said.

“Liquidity withdrawal will affect higher premium assets like emerging market assets and global equities first, before they move into other assets. This is a theme that markets will have to deal with in the quarters ahead,” he said.

Meanwhile, the Bank of Canada is widely expected to raise interest rates on Wednesday for the fifth time since it started its tightening cycle in July of last year.

Falling oil

Strategists at the Bank of America Merrill Lynch expect the central bank to continue to raise its key lending rate after tomorrow’s expected rise until it hits 2.75 per cent by the end of 2019.

Another factor weighing on the Canadian market was declining oil prices, which brought down heavyweight energy shares like Suncor Energy and Imperial Oil.

Crude oil prices fell to their lowest level since September, tumbling more than four per cent in New York, after Saudi Arabia pledged to meet any supply shortfall that resulted from Iranian sanctions.

Alfonso Esparza, senior market strategist at foreign exchange brokerage Oanda, said the bull run in the stock market is at a turning point where it’s running out of steam at a time of high uncertainty in world politics.

“The last quarter of 2018 will be packed with market events as central banks are expected to close out the year with major policy decisions, while there are big political events like the U.S. midterms, Italian budget, Brazil elections, etc.,” he said. 

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Gymboree Files For Bankruptcy For The Second Time In Almost 2 Years




Jan 17 (Reuters) – Children’s clothing retailer Gymboree Group Inc filed for Chapter 11 bankruptcy protection, the second time in almost two years, and said on Wednesday it will close more than 800 Gymboree and Crazy 8 stores.

The San Francisco-based company said it will also sell its high-end line, Janie and Jack, as well as its intellectual property and online platform.

The company’s Canadian arm, Gymboree Inc, also intends to seek bankruptcy protection, it said.

Gymboree is the second U.S. retailer to file for bankruptcy on Wednesday. Earlier, Shopko Stores, a general merchandise store operator, filed a voluntary petition in Nebraska.

More than 20 U.S. retailers, including Gymboree, Sears Holdings Corp and Toys R US, have filed for bankruptcy since the start

SOPA Images via Getty Images

More than 20 U.S. retailers, including Gymboree, Sears Holdings Corp and Toys R US, have filed for bankruptcy since the start of 2017.

More than 20 U.S. retailers, including Sears Holdings Corp and Toys R US, filed for bankruptcy since the start of 2017, succumbing to the onslaught of fierce e-commerce competition from companies like Amazon Inc.

Gymboree, which started making children’s clothing more than 30 years ago, operates about 540 Gymboree stores and outlets in the United States and Canada. It also has about 265 stores across the United States under the ‘Crazy 8’ brand and 139 shops under ‘Janie and Jack’.

Gymboree Group listed assets in the range of $100 million to $500 million and liabilities of $50 million to $100 million, its court filing showed.

Gymboree earlier filed for bankruptcy protection in June 2017 and was one of the few brick-and-mortar retailers that managed to escape liquidation in a wave of bankruptcies that swept the sector.

The company said it signed an asset purchase deal with Special Situations Investing Group Inc (SSIG), an affiliate of Goldman Sachs & Co LLC, and SSIG will serve as the so-called “stalking-horse” bidder in the sale of Janie and Jack.

Gymboree has received a commitment for $30 million debtor-in-possession financing from Goldman Sachs Specialty Lending Holdings Inc and SSIG.

Gymboree, including all its U.S. subsidiaries, filed the petition in the U.S. Bankruptcy Court for the Eastern District of Virginia, it said. Its Canadian arm also intends to seek bankruptcy protection in the Ontario Superior Court of Justice. 

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California Utility Tied To Devastating Wildfires To File For Bankruptcy




Pacific Gas and Electric, the power company blamed for sparking several devastating wildfires in California in recent years, announced Monday it will file for bankruptcy later this month.

The company is facing billions of dollars in claims related to November’s Camp fire, which destroyed nearly 19,000 structures and killed at least 86 people, as well as several infernos in 2017.

The Camp fire, which obliterated the town of Paradise, is the deadliest and most destructive wildfire in California’s history and was the costliest natural disaster worldwide in 2018. The cause of the blaze is still under investigation, but CNN reported last month it is believed to have started when a PG&E power line came in contact with tree branches.

An attorney representing victims of the fire said there’s “pretty overwhelming” evidence that the utility is at fault, CNBC reported in November.

In October 2017, a series of wind-driven wildfires, aptly named the Northern California “firestorm,” ripped through several counties. Investigators with the California Department of Forestry and Fire Protection later determined that a dozen of those blazes were started by PG&E equipment and power lines, and that in eight of those cases the company was in violation of state laws concerning maintenance and brush clearing.

PG&E faces at least $30 billion in liabilities from damage during the 2017 and 2018 wildfire seasons. And its stock has plummeted, down 88 percent from late 2017.

The utility plans to file for Chapter 11 bankruptcy around Jan. 29. The announcement comes one day after the resignation of company CEO 

“The people affected by the devastating Northern California wildfires are our customers, our neighbors and our friends, and we understand the profound impact the fires have had on our communities and the need for PG&E to continue enhancing our wildfire mitigation efforts,” interim CEO John Simon said in a statement Monday. “We remain committed to helping them through the recovery and rebuilding process.”

Simon said that a court-supervised bankruptcy “will best enable PG&E to resolve its potential liabilities in an orderly, fair and expeditious fashion.”

Newly inaugurated California Gov. Gavin Newsom (D), who has prioritized combating California’s wildfire crisis, said in a statement Monday that he will work with lawmakers and stakeholders in the coming months to find “a solution that ensures consumers have access to safe, affordable and reliable service, fire victims are treated fairly, and California can continue to make progress toward our climate goals.”

Reuters contributed to this report.

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Elon Musk’s SpaceX To Slash 10 Percent Of Staff




In a major shakeup at Elon Musk’s aerospace company, SpaceX announced Friday that it will cut 10 percent of its employees.

Behind the move is a planned realignment of its workforce in order to meet its long-term business goals. However, it will mean a significant hit for its current labor pool, which numbers roughly 6,000 people.

In a statement, a SpaceX spokesperson told HuffPost the reduction in staff was needed so that the company could set itself up for future successes.

To continue delivering for our customers and to succeed in developing interplanetary spacecraft and a global space-based Internet, SpaceX must become a leaner company. Either of these developments, even when attempted separately, have bankrupted other organizations. This means we must part ways with some talented and hardworking members of our team.

We are grateful for everything they have accomplished and their commitment to SpaceX’s mission. This action is taken only due to the extraordinarily difficult challenges ahead and would not otherwise be necessary.

One of SpaceX’s major goals, as alluded to in its statement, has been to send tourists into space, potentially even landing humans on Mars with a project called Starship. In September, it was revealed that Japanese entrepreneur Yusaku Maezawa would be among the first passengers on the company’s voyage to the moon, which is expected to take off in 2023.

SpaceX has also embarked on a mission to beam internet services to Earth around the globe through a network of satellites dubbed Starlink, the first set of which will be deployed this year.

Despite the staffing cuts, the company has expressed confidence in its financial standing and its investors, and it plans to launch two missions of its Falcon Heavy rockets along with starting test hops of Starship before year’s end.

On Friday morning, SpaceX marked its first mission of 2019 with the launch of a Falcon 9 rocket from Vandenberg Air Force Base in Southern California. 

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