Apple hits record $1 trillion US stock market valuation

Apple Inc. became the first $1 trillion publicly listed U.S. company on Thursday, crowning a decade-long rise fuelled by its ubiquitous iPhone that transformed it from a niche player in personal computers into a global powerhouse spanning entertainment and communications.

The tech company’s stock jumped 2.8 per cent on Nasdaq to as high as $207.05 US, bringing its gain to about nine per cent since Tuesday when it reported June-quarter results above expectations and said it bought back $20 billion of its own shares.

Started in the garage of co-founder Steve Jobs in 1976, Apple has pushed its revenue beyond the economic outputs of Portugal, New Zealand and other countries. Along the way, it has changed how consumers connect with one another and how businesses conduct daily commerce.

Apple’s stock market value is greater than the combined capitalization of Exxon Mobil, Procter & Gamble and AT&T. It now accounts for four per cent of the S&P 500.

One of three founders, Jobs was driven out of Apple in the mid-1980s, only to return a decade later and rescue the computer company from near bankruptcy.

Stock surge

He launched the iPhone in 2007, dropping “Computer” from Apple’s name and super-charging the cellphone industry, catching Microsoft, Intel, Samsung Electronics and Nokia off guard. That put Apple on a path to overtake Exxon Mobil in 2011 as the largest U.S. company by market value.

The Silicon Valley stalwart’s stock has surged more than 50,000 per cent since its 1980 initial public offering, dwarfing the S&P 500’s approximately 2,000-per cent increase during the same almost four decades.

During that time, Apple evolved from selling Mac personal computers to becoming an architect of the mobile revolution with a cult-like following.

Jobs, who died in 2011, was succeeded as chief executive by Tim Cook, who has doubled the company’s profits but struggled to develop a new product to replicate the society-altering success of the iPhone, which has seen sales taper off in recent years.

In 2006, the year before the iPhone launch, Apple generated less than $20 billion in sales and net profit just shy of $2 billion. By last year, its sales had grown to $229 billion — the fourth highest in the S&P 500 — and net income had mushroomed at twice that rate to $48.4 billion, making it the most profitable publicly listed U.S. company.

One of five U.S. companies since the 1980s to take a turn as Wall Street’s largest company by market capitalization, Apple could lose its lead to the likes of Alphabet or Amazon.com if it does not find a major new product or service as demand for smartphones loses steam.



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Aimia in talks with Oneworld alliance as potential Aeroplan partner

Aimia Inc. says it’s in talks with the Oneworld airline alliance, a potential partner for its Aeroplan program, which is currently a takeover target by an Air Canada-led group that has offered to buy the loyalty points program.

The Montreal-based company confirmed the discussions with Oneworld, whose members include British Airways, American Airlines and Cathay Pacific, the same day that the Air Canada bid is set to expire.

The group has offered to pay Aimia $250 million and assume about $2 billion in liabilities, making its offer worth about $2.25 billion.

Aimia declined to elaborate on its strategic talks and referred further inquiries to Oneworld, a direct rival to the Star alliance that includes Air Canada as a member.

Shares of Aimia were higher by 0.6 per cent to $3.49 in morning trading on the Toronto Stock Exchange.

Air Canada said last week that Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Visa Canada wants to buy the Aeroplan loyalty business to allow customers to transfer their points to its own platform in 2020.

The group said the offer would expire Aug. 2 but such deadlines are often amended.

Some analysts have said the Air Canada group would need to increase its offer but the airline said last week that it is offering a substantial premium.

Under the proposal, a corporation to be formed by the consortium would acquire Aimia’s loyalty business, including roughly $2 billion worth of Aeroplan points obligations as of March 31, 2018, for $250 million in cash.

The future of Aeroplan, which has more than five million members, has been in doubt since Air Canada announced in May 2017 that it planned to launch its own loyalty rewards plan in 2020.

Aimia’s 30-year-partnership with Air Canada is due to expire in July 2020.



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WestJet’s Swoop to fly to 5 U.S. destinations including Florida and Vegas this fall

Swoop will become Canada’s first ultra low cost airline to fly to the United States when it launches service this fall to five popular tourist destinations in Florida, Nevada and Arizona.

The subsidiary of WestJet Airlines Ltd. will start Oct. 11 with flights to Las Vegas from Abbotsford, B.C., and Edmonton, Alta., about four months after Swoop began to fly.

Service will be added over the following couple of weeks between Hamilton, Ont., and Las Vegas as well as to the Florida cities of Fort Lauderdale, Orlando and Tampa Bay. Flights between Edmonton and Phoenix will start Oct. 27.

Most destinations will be serviced a few times per week but daily service will be flown between Edmonton and Las Vegas.

The transborder service will be launched to these U.S. gateways as Swoop receives delivery of its fifth and sixth airplane, said Swoop president Steven Greenway.

“They really blend well to the model that we provide in terms of low cost, high volume type of leisure profile that we definitely are targeting,” he said in an interview.

Everyday one-way fares start as low as $149 including taxes and fees through April, however it will offer 4,100 seats at low promotional fares of $99 and $119 for travel booked online until Feb. 13.

The airline’s model is based on passengers paying ancillary fees for additions such as bags, premium seats, and Wi-Fi that inflate travel costs depending on individual passenger needs.

Swoop currently receives about $36 per passenger, twice the level at WestJet. But more of these non-fare revenues are expected to be generated as others services are added like car rental, hotel, third-party travel insurance and beefed up food and drink offerings.

“As we mature, as we grow the airline, that’s really where we start seeing some differences,” Greenway added, declining to forecast potential per passenger ancillary revenues.

WestJet’s goal is to use Swoop’s low fares to stimulate demand from people who don’t typically fly and help to repatriate some of the five million Canadian travellers who cross the border to depart from U.S. airports.

“I think we can get a reasonable chunk both out of Abbotsford and Hamilton,” he said.

While the low Canadian dollar is making U.S. flights more expensive, the launch of Swoop’s service should also help increase Canadian transborder demand and Americans flying to Western Canada, Greenway said, adding prices are likely not low enough to persuade Americans to fly out of Canada for destinations in their own country.

The U.S. expansion will see Swoop operate to a mix of secondary airports — Phoenix-Mesa Gateway Airport — and highly popular ones like McCarran International Airport in Las Vegas where there are no alternatives.

Swoop faces domestic competition largely from Kelowna-based ultra low cost rival Flair Airlines, Air Canada and WestJet but also from lower cost competitors like Sunwing and Transat with large tour operations on transborder and Caribbean routes, Cameron Doerksen of National Bank Financial wrote in a report.

“We therefore see limited room for new (ultra low cost carriers) to capture significant sun destination traffic, unless it is sold at heavily discounted (and potentially unsustainable) fares.”



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Loonie could brace for a return to ‘Dutch disease’ if oils stays strong: Don Pittis

This week’s startling jump in economic growth was due to just one thing.

As economists and commentators fretted over a trade war with the United States and concerns that Europe and Mexico might be making deals that excluded Canada, the Canadian oil industry was on a tear.

Almost exactly four years since the Canadian petroleum industry went from hero to zero as oil prices plunged, investment in the Alberta oilsands and the Atlantic offshore industry are on the rise again.

And despite a stubborn unwillingness of the Canadian dollar to budge off its lows, there are reasons to think it may follow oil up.

Oil on the rise

According to figures released this week by Statistics Canada, construction was still the biggest driver of the Canadian economy — but remained relatively flat.

A surge in oil and gas investment, meanwhile, meant the sector beat out the sagging banking and insurance industries to take second place at seven per cent of the economy.

Investment in the oilsands is up 14 per cent in the last year, hitting an all-time high.

There are, of course, many qualifications, including a statistical quirk in the comparison between sectors. But Canadians have their own way of confirming the surge in global demand for oil: the cost of a tank of gas is heading back toward 2014 levels.

Select industries as a proportion of GDP. (Robson Fletcher/CBC)

There are no guarantees in the oil and gas business. As has been observed many times in the past, an industry that cannot foresee a decline in prices — from about $100 in 2014, to about $30 two years later — cannot be trusted to know the future.

Oil has been off its recent highs of more than $70 US, but since hitting its 2016 lows, the trend is undeniable: In the last year alone, oil prices have marched steadily higher.

In its latest Global Risk Radar report, the Swiss banking giant UBS contemplated the global economic impact of oil prices at $120 US a barrel, giving such an event a 20 to 30 per cent probability in the next six to 12 months.

“During previous episodes of large oil supply shocks, global equities fell about 15 per cent on average, but recovered within six months,” said the UBS report.

Running out?

That kind of supply shock would require a major collapse in output by a large supplier, caused by something like an outbreak or escalation of conflict in the Middle East. (As one commentator pointed out, such scary events are for scenario planners and risk testers.)

But fresh evidence suggests oil demand and prices will remain strong.

From a low of about $45 last summer, the price of oil has rallied and risen steadily higher ever since. (Kevin Lacroix/CBC)

Several reports suggest that Saudi oil — the bottomless pit for satisfying global demand — cannot expand production quickly or easily. Data crunched yesterday from Bloomberg News shows crude output from both Saudi Arabia and Russia neared record peak levels in July.

China and India, meanwhile, are consuming record amounts of oil from Iran. And the huge reserves in Venezuela lay idle as the country’s economy continues its tailspin, with its inflation rate heading toward 1 million per cent.

It is a well-accepted fact that the earth has plenty of oil. Even as oil prices and investment in new production declined, output continued to grow.

What we are seeing now may be a sign that as underdeveloped economies catch up with Europe and North America in energy use, and the developed world heads into a U.S.-led economic growth spurt, production just hasn’t been keeping pace.

At any moment, supply and demand are in balance. Under-producing by just a little pushes prices up, giving the signal it is time to invest. 

Back on track

If this analysis proves true, the Canadian oil industry is back on track. If it can be finished before the next oil slump, the Trans Mountain pipeline expansion will be a great taxpayer investment — purely in financial terms.

Ironically — and painfully, for some — this new oil-and-gas boom comes just as forest fires and deadly heat waves offer new evidence of the impact of burning fossil fuels.

But even countries committed to fighting climate change are somehow caving into the economic pressure to produce and consume more oil.

An employee looks over Aramco’s Ras Tanura oil refinery in Saudi Arabia on May 21, 2018. (Ahmed Jadallah/Reuters)

As my colleague Pete Evans reported last month, fears of the effects of trade sanctions have so far cured Canada’s Dutch disease — the tendency that the currency of a small economy, like ours, will rise as oil exports grow.

Interestingly, a similar phenomenon has been observed among other so-called petrocurrencies.

 

As well as sparking debate, the widening spread between the price of oil and oil-linked currencies has some forex traders rubbing their hands, imagining the killing to be made once the individual forces holding the loonie and its companions down begin to weaken.

Currencies share with oil a reputation for refusing to follow any analytical script, instead heading off with minds of their own. But it would seem reasonable that anyone wanting to do something that benefits from a low loonie — selling a company to a foreign buyer or moving cash to Canada to invest — should consider doing it while they have the chance.

In the longer run, the prediction that worsening climate damage to our one and only Earth will convince people to leave fossils fuels in the ground may finally prove true.

Despite the latest blast of heat and flame, the current political and economic trend seems to be heading in the opposite direction.


Follow Don Pittis on Twitter: @don_pittis





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Sears board members have earned more than $600K since retailer’s demise — and are still being paid

It’s time for Sears Canada’s board of directors to disband and stop racking up costs, according to the law firm representing the defunct retailer’s former employees, which will argue for the board’s removal in Ontario Supreme Court on Aug. 27.

Although Sears closed its final stores in January, its four directors remain on the job. So far this year, they’ve incurred more than $600,000 in professional fees and earned more than $600,000 total in pay, according to court documents.

The employees’ counsel argues the court-appointed monitor handling the retailer’s insolvency can wind up its few final matters. It also suggests money going to the board could instead go to people still owed money by Sears, such as laid-off workers who didn’t get severance.

Sears Canada closed its final stores in January 2018 following mass liquidation sales. (CBC)

“The Directors have become unnecessary,” writes lawyer Erin Epp, of the Toronto law firm Ursel Phillips Fellows Hopkinson LLP,​ in an affidavit.

“They are a significant financial drain.”

In her affidavit, Epp says that she’s been informed the board members are “prepared” to reduce their monthly pay to $5,000 each. Court documents don’t provide the exact current compensation for each member.

But Epp argues the pay cut isn’t good enough, because it doesn’t address the added legal and financial adviser fees incurred by the board — at least $1.74 million since Sears became insolvent last June — that could instead benefit former workers. 

Former retail planner Marinella Gonzalez says money going to board members should be going to former workers who didn’t get severance. (CBC)

About 17,000 Sears Canada employees lost their jobs due to the retailer’s demise. Many have filed claims in court and expect to receive between zero and 10 per cent of what they’re owed in severance pay.

Marinella Gonzalez, a former retail planner, worked for Sears in Toronto for 17 years. Her pension has already been cut by 20 per cent, and she’s now waiting to hear how much — if anything — she’ll get for the estimated $40,000 she lost in severance.

“There is no need for them to be there,” she says about the board. “We should save as much money as possible so that we can give that back to the employees.”

Board fights back

According to the board of directors, it’s in everyone’s best interest to keep them on the payroll.

Since Sears Canada filed for bankruptcy protection, the directors have been “heavily involved” in the process “all with a view to maximizing value and acting in the best interest of the company,” said board chair, Graham Savage in an affidavit filed in court.

Savage, a former executive at Rogers Communications, said he and the other board members: R. Raja Khanna, Deborah Rosati and Heywood Wilansky “collectively bring an extensive and diverse set of corporate governance skills and experience.”

He said, going forward, the board will be involved in tasks such as managing fees incurred by the insolvency process and ensuring that the sale of Sears’ remaining real estate reaps maximum profit.

Savage also takes aim at Epp, stating that she only recently started practising law, and has no apparent experience with corporate boards.

“She has not attended any Sears Board meetings and has no direct insight into the Board’s role.” 

He also said that the fees incurred by the board are minimal, and that the directors have already cut back costs, such as twice reducing their pay since Sears became insolvent. 

Epp’s firm declined a request for an interview. Lawyers representing the board didn’t respond to a request for comment. 

Conflict of interest?

The employees’ counsel also claims that allowing the board to remain poses a conflict of interest. That’s because the court monitor has appointed a litigation investigator to review the contentious $3 billion in dividend payouts to Sears Canada shareholders between 2005 and 2013.

Savage responded that, at this point, no one is pointing fingers at the directors and none of them has done anything to impede the investigation.

“The board has added value to the company,” he said, “and will continue to do so.”

Commercial litigation lawyer Tamara Ramsey says it will be an uphill battle to get the board of directors removed. (CBC)

Commercial litigation lawyer Tamara Ramsey says the employees’ lawyers face an uphill battle in getting the board removed.

“They’d have to find that the directors are unreasonably impairing the process or acting inappropriately,” said Ramsey, who is with the Toronto firm Chitiz Pathak LLP.

She says, in general, there’s nothing questionable about a board staying on to take part in insolvency proceedings. 

“The directors are still the decision makers for the corporation.”



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Fed keeps key rate unchanged while signalling future hikes

The Federal Reserve on Wednesday left its benchmark interest rate unchanged while signalling further gradual rate hikes in the months ahead as long as the U.S. economy stays healthy.

The Fed’s widely expected decision left the central bank’s key short-term rate at 1.75 per cent to 2 per cent— the level hit in June when the Fed boosted the rate for a second time this year.

The Fed projected in June four rate hikes this year, up from three in 2017. Private economists expect the next hike to occur at the September meeting with a fourth rate hike expected in December.

In a brief policy statement, the Fed noted a strengthening labour market, economic activity growing at “a strong rate,” and inflation that’s reached the central bank’s target of 2 per cent annual gains.

While officials saw the economic risks as roughly balanced, there was no mention in the statement of what many economists see as one of the biggest risks at the moment: rising tariffs on billions of dollars of U.S. exports and imports that have been imposed as a result of President Donald Trump’s new get-tough approach on trade.

The Fed statement did not make any mention of the rising trade tensions or of recent criticisms Trump has lodged against the Fed’s continued rate hikes. Instead, it was decidedly upbeat about the economy, using the word “strong” three times in the opening paragraph to describe various developments.

The Fed’s decision was approved on a unanimous 8-0 vote. It was little surprise, given that this meeting followed a June session where the Fed took a number of steps including raising rates by another quarter-point and changing its projection for hikes this year from three to four.

The March and June rate hikes followed three hikes in 2017 and one each in 2015 and 2016. The Fed’s key policy rate is still at a relatively low level. But it’s up from the record low near zero where it remained for seven years as the central bank worked to use ultra-low interest rates to lift the economy out of the Great Recession.

TD senior economist Leslie Preston said in a commentary that “it makes sense for monetary policy accommodation to continue to be removed, but there is little urgency for the Fed to pick up the pace from what was outlined in June.”

“We expect two more 25 basis point hikes this year, with the next one in September,” Preston said.

The string of quarter-point rate hikes is intended to prevent the economy from overheating and pushing inflation from climbing too high. But higher rates make borrowing costlier for consumers and businesses and can weigh down stock prices. Trump has made clear he has little patience for the Fed’s efforts to restrain the economy to control inflation.

“Tightening now hurts all that we have done,” Trump tweeted last month, a day after he said in a television interview that he was “not happy” with the Fed’s rate increases.

Over the past quarter-century, presidents have maintained silence in public about Fed actions, believing that lodging complaints would be counter-productive. That’s because it could produce even faster rate hikes if the central bank feels the need to convince financial markets that it will not yield to political pressure and allow inflation to rise to worrisome levels.

At the moment, economic growth is strong, rising at an annual rate of 4.1 per cent in the April-June quarter, the best showing in nearly four years. Unemployment is at a low four per cent, and some analysts believe it will fall further when the government releases the July figures on Friday.

But there are worries as well, led by fears of what a Trump-led trade war might do to growth in the United States and around the world.

Many analysts believe that the possible harm from rising tariffs was a key discussion topic this week. While trade was not mentioned in the statement, it likely will show up in the minutes of the Fed’s discussion which will be released in three weeks.



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Tesla plans to build up to 55,000 Model 3s, profitably, in third quarter

Tesla said it would build up to 55,000 Model 3s in the current quarter at a positive gross margin, buoying hopes that the electric vehicle maker led by Elon Musk will meet its goal of profitability and positive cash flow in 2018, as it strives to recover from manufacturing challenges.

Tesla said that during July it had “multiple times” hit its earlier goal of building about 5,000 Model 3s per week, and reiterated a target of producing 6,000 per week by late August. Analysts have questioned whether that 5,000 rate would be sustainable.

Building 55,000 vehicles in the third quarter works out to an average weekly rate of 4,230 Model 3s.

Tesla said demand for the Model 3 remained strong. It delivered its 200,000th electric car – including its more expensive Model S and X vehicles – in July, a threshold which means a $7,500 US federal subsidy begins to phase out two quarters after that milestone was reached.

Tesla said it produced 53,339 vehicles in the second quarter and delivered 18,449 Model 3s.

“We aim to increase production to 10,000 Model 3s per week as fast as we can,” the company said.

Chief executive Musk is under intense pressure to prove he can deliver consistent production numbers for the new sedan, which has faced a host of manufacturing challenges since last year. The company has consistently denied it will need to raise cash but several Wall Street analysts expect a move by the end of the year.

Tesla ended the second quarter with $2.78 billion in cash after spending $610 million in quarterly capital expenses. It had ended the first quarter with $3.2 billion in cash after spending $656 million in capital expenses.

Free cash flow, a key metric of financial health, narrowed to negative $740 million in the second quarter from negative $1 billion in the first quarter, excluding costs of systems for its solar business.

The company last quarter cut its spending forecasts and Tesla has begun to lay off nine per cent of its workforce.

Last month, Tesla opened up reservations for the closely-watched Model 3, allowing new buyers of pricier models to jump ahead of those who had ordered base models of the vehicle two years ago. That angered some deposit-holders, and analysts questioned whether more would drop out because of delays making the cheaper $35,000 version of the sedan. Tesla said in July there were about 420,000 reservations for the Model 3, and did not update that number on Wednesday.

Musk’s behavior has come under scrutiny, in part after he dismissed financial analysts on the previous quarter’s conference call as boring, sparking a sell-off, and lashed out on Twitter at critics.

Musk’s tweet last month calling a British diver working on the cave rescue of Thai schoolboys a “pedo guy,” or pedophile, elicited a rare rebuke from Tesla’s fourth-largest shareholder, Baillie Gifford, that Musk should stop tweeting and focus on executing the company’s business at hand. Musk apologized to the diver.

Tesla reported a loss of $717.5 million, or $4.22 per share, for the second quarter ended June 30, compared with a loss of $336.4 million, or $2.04 per share, a year earlier.

Excluding items, Tesla reported a loss of $3.06 per share.

Total revenue rose to $4 billion from $2.79 billion.

Tesla shares were up five per cent at $316.45 in after-market trading on Wednesday. The stock has slumped 19 per cent since a 2018 high of $370.73 in June.



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China warns of retaliation if U.S. takes more trade steps

China’s government warned Wednesday it will retaliate if Washington imposes new trade penalties, following a report the Trump administration will propose increasing the tariff rate on an additional $200 billion of Chinese imports.

A foreign ministry spokesperson, Geng Shuang, said Beijing was ready for “dialogue and consultation” to defuse the escalating dispute.

“If the United States takes further measures that escalate the situation, China will definitely fight back,” said Geng. He gave no details of possible measures but said, “we are determined to safeguard our legitimate and lawful rights and interests.”

Washington imposed additional 25 per cent tariffs on $34 billion of Chinese goods July 6 in response to complaints Beijing steals or pressures companies to hand over technology. Beijing responded by imposing the same penalties on the same amount of U.S. imports.

U.S. President Donald Trump’s administration imposed 25 per cent tariffs on $34 billion in Chinese goods July 6 and sources say more penalties could come. (Jeff Roberson/Associated Press)

Bloomberg News reported, citing three unidentified sources, the Trump administration would propose imposing 25 per cent tariffs on a $200-billion list of Chinese goods targeted in a new round of penalties, up from the planned 10 per cent.

Geng gave no indication whether the two sides were preparing to resume negotiations.

“I need to stress that dialogues must be conducted on the basis of mutual respect and equality,” he said. “Unilateral threats and pressure will only be counterproductive.”

The Chinese ministry of commerce didn’t respond to questions by phone and fax about the status of possible negotiations.

Chinese-made children’s shoes bearing a Chinese map and U.S. flags on display for a sale at a shop in Beijing July 13. (Andy Wong/Associated Press)



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