MONEY wall street

Shhh…E.F. Hutton Is Talking Again

A storied financial brand far removed from its glory days makes a comeback, modeled after...Uber?

Bring back shoulder pads and the mullet. E.F. Hutton, another 1980s throwback, is in the financial services business again. The big question: Is this once iconic brand worth anything?

Hutton is launching the website Gateway to connect investors with independent financial advisers, estate lawyers, accountants, and insurance agents. The firm will vet its roster of financial pros, which individuals can access for free.

But this is really about helping advisers find clients. The advisers will pay Hutton a fee based on revenue they collect from clients that find them on the site. Stanley Hutton Rumbough, the grandson of legendary founder E.F. Hutton, is leading the brand’s revival from within a relatively new entity called E.F. Hutton Financial, which was incorporated in Colorado in 2007 and has no legal relationship with the old E.F. Hutton. The new firm likens itself to car service Uber in that it takes a small cut of the business it generates for advisers.

Hutton was a Wall Street heavyweight 40 years ago and is best known for its advertising slogan: “When E.F. Hutton talks, people listen.” The firm’s ads ran for years and typically featured crowds of people leaning in to hear the advice of a Hutton broker. (That’s one in the video above.) This was a powerful image during the bull market that started in 1982. After the lost decade of the 1970s, investors were getting excited about stocks again. The Hutton ad suggested that only through a broker could you gain an investing edge.

In some ways, the suggestion was ironic—coming just ahead of the massive insider trading scandals of the late 1980s, when dozens of Wall Street players, including Ivan Boesky and Michael Milken, were found to have skirted the rules for their own advantage. So much for the broker edge, which in those cases anyway was about illegal stock tips sometimes in exchange for suitcases full of cash.

Hutton became embroiled as well, and in 1985 pleaded guilty to 2,000 counts of mail and wire fraud, and paid more than $10 million in penalties in connection with a check-kiting scheme. The firm would make bank withdrawals and deposits in such a way that it gained illegal access to millions of dollars interest free for days at a time while waiting for the checks to clear.

A further irony lies in reams of new data that show that over the long haul stock pickers tend to underperform simple, low-cost index funds. Over time, the fees that active fund managers charge overwhelm their ability to pick winning stocks. This is now so well understood that the good old-fashioned stockbroker is a dinosaur. Today, industry leaders like Merrill Lynch and Morgan Stanley employ financial advisers or wealth managers who counsel clients in all aspects of their money life.

Founded in 1904, Hutton ran into capital issues following the 1987 stock market crash and disappeared in 1988 amid a spate of mergers that included Shearson Lehman Bros., American Express, Smith Barney, Primerica, and Citigroup. Former Hutton executive Frank Campanale tried reviving the brand three years ago. Campanale ditched the effort for a job with the established asset manager Lebenthal and Co., but continues to have a financial stake in the Hutton brand.

With a checkered past and four decades removed from glory, you have to wonder how much the Hutton name is worth. Then again, Michael Milken has resurfaced as a philanthropist and neon is back in style. Power up the flux capacitor, Doc. We’re going back the future.

Editor’s note: This article was updated to clarify that: 1) E.F. Hutton Financial is a different company from the original E.F. Hutton brokerage that ran into legal troubles in the 1980s; and 2) Mr. Campanale has retained a financial interest in E.F. Hutton Financial since his departure.

 

TIME Economy

What Did We Learn From the Dotcom Stock Bubble of 2000?

Nasdaq board
Chris Hondros—Getty Images A passer-by looks over the prices on the Nasdaq board in Times Square in New York, April 3, 2000.

It was 15 years ago that the tech-stock bubble burst

Fifteen years can seem like a long time — and the year 2000 can seem like a different world. Back in those halcyon days of the early new millennium, America was enjoying a post-Lewinsky Scandal, pre-9/11 glow. The Yankees were winning World Series. Justin and Britney were America’s hottest couple. And the “dotcom” economy was chugging along, with new internet-based companies seeming to pop up every single week.

But in March of 2000, 15 years ago, one of those things came to a crashing halt. The dotcom bubble, which had been building up for the better part of three years, slowly began to pop. Stocks sunk. Companies folded. Fortunes were lost, and the American economy started to slip down a slow mudslide that would end up in full-on recession.

Today, in the middle of another boom in technology-based businesses, let’s look back at what happened to the early techno-tycoons — and what, if anything, we can learn from their mistakes.

The Buildup

The dotcom bubble started growing in the late ’90s, as access to the internet expanded and computing took on an increasingly important part in people’s daily lives. Online retailing was one of the biggest drivers of this growth, with sites like Pets.com — you know, the one with the cute sock-puppet mascot starring in the funny ads — getting big investors and gaining a place in American consumer culture.

With the investment and excitement, stock values grew. The value of the NASDAQ, home to many of the biggest tech stocks, grew from around 1,000 points in 1995 to more than 5,000 in 2000. Companies were going to market with IPOs and fetching huge prices, with stocks sometimes doubling on the first day. It was a seeming wonderland where anyone with an idea could start making money.

The Burst

In March of 2000, everything started to change. On March 10, the combined values of stocks on the NASDAQ was at $6.71 trillion; the crash began March 11. By March 30, the NASDAQ was valued at $6.02 trillion. On April 6, 2000, it was $5.78 trillion. In less than a month, nearly a trillion dollars worth of stock value had completely evaporated. One JP Morgan analyst told TIME in April of 2000 that a lot of companies were losing between $10 and $30 million a quarter — a rate that is obviously unsustainable, and was going to end with a lot of dead sites and lost investments.

Companies started folding. (Pets.com was one.) Magazines, including TIME, started running stories advising investors on how to limit their exposure to the tech sector, sensing that people were going to start taking a beating if their portfolios were too tied to e-tailers and other companies that were dropping like flies.

During the 2000 Super Bowl, 17 dotcom companies had paid $44 million for ad spots, according to a Bloomberg article from the following year. At the 2001 Super Bowl, just one year after that bonanza, only three dotcom companies ran ads during the game.

Does history repeat itself?

The shadow of 2000 dotcom bubble burst looms especially large now, as the economy is in another era of huge growth in the tech sector. Chinese e-tailer Alibaba had a history-making IPO last fall. Companies like Uber, Palantir and AirBnB are “Unicorns,” start-ups held privately and worth more than $1 billion — so-called because, for a long time, people thought they couldn’t really exist.

Are we in for another bubble burst?

Entrepreneur and Dallas Mavericks owner Mark Cuban thinks so, arguing recently on his blog that the difference between the 2000 bubble and today’s economy is that today’s bubble isn’t really about the stock market. It also includes private “angel” investments, which can’t just be sold off like stocks. And that, he says, is a problem:

So why is this bubble far worse than the tech bubble of 2000?

Because the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity.

If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it?

Essentially, Cuban thinks that despite the huge investments many start-ups are getting, there just isn’t any real cash in those companies. Eventually, that will become apparent, but the investors will be stuck.

Some claim that we’re safe, though, that there’s more scrutiny from investors today. In response to Cuban, entrepreneur Amish Shah wrote on Business Insider that investors today aren’t looking for the type of quick return many were in 2000. Instead, they know that private investment is a long-term process, where earning a profit would likely take years. Plus, he adds, investors today are so wary of what happened 15 years ago that they’re careful. In other words, whether or not the world has learned anything else from the problems of the year 2000, one thing won’t be forgotten: it was bad, and nobody wants it to happen again.

Read next: How the Cheap Euro Is Hurting Your Investments

Listen to the most important stories of the day.

TIME stocks

The Average Wall Street Bonus Was $172,860 in 2014

A trader works on the floor of the New York Stock Exchange shortly before the end of the day's trading in New York July 31, 2013
Lucas Jackson—Reuters A trader works on the floor of the New York Stock Exchange shortly before the end of the day's trading in New York July 31, 2013

But that's only a 2% rise on the previous year

Despite falling profits, the average bonus on Wall Street rose to $172,860 last year, according to a report released Wednesday by New York State Comptroller Thomas P. DiNapoli.

That marks a 2% increase from 2013 and is the highest average payout since 2007 — right before the financial crisis.

The bump comes as estimated pre-tax profits fell by 4.5% from $16.7 billion in 2013 to $16 billlion last year.

“The cost of legal settlements related to the 2008 financial crisis continues to be a drag on Wall Street profits, but the securities industry remains profitable and well-compensated even as it adjusts to regulatory changes,” DiNapoli said in a press release.

The New York Office of the State Comptroller, whose main duty is to audit government operations and operate the retirement system, has been tracking the average bonus paid on Wall Street for nearly three decades. When it began recording in 1986, the average payout was $14,120. The highest average bonus was $191,360 in 2006.

After two years of job losses, the industry added 2,300 jobs in 2014 to a total of 167,800 workers.

TIME Economy

What’s Really to Blame for Weak Economic Growth

The George Washington statue stands covered in snow near the New York Stock Exchange (NYSE) in New York, U.S. Wind-driven snow whipped through New Yorks streets and piled up in Boston as a fast-moving storm brought near-blizzard conditions to parts of the Northeast, closing roads, grounding flights and shutting schools.
Jin Lee—Bloomberg via Getty Images The George Washington statue stands covered in snow near the New York Stock Exchange

Finance is a cause, not a symptom, of weaker economic growth

After years of hardship, America’s middle class has gotten some positive news in the last few months. The country’s economic recovery is gaining steam, consumer spending is starting to tick up (it grew at more than 4 % last quarter), and even wages have started to improve slightly. This has understandably led some economists and analysts to conclude that the shrinking middle phenomenon is over.

At the risk of being a Cassandra, I’d argue that the factors that are pushing the recovery and working in the favor of the middle class right now—lower oil prices, a stronger dollar, and the end of quantitative easing—are cyclical rather than structural. (QE, Ruchir Sharma rightly points out in The Wall Street Journal, actually increased inequality by boosting the share-owning class more than anyone else.) That means the slight positive trends can change—and eventually, they will.

The piece of economic data I’m most interested in right now is actually a new report from Wallace Turbeville, a former Goldman Sachs banker and a senior fellow at think tank Demos, which looks at the effect of financialization on economic growth and the fate of the working and middle class. Financialization, a topic which I’m admitted biased toward since I’m writing a book about it, is the way in which the markets have come to dominate the economy, rather than serving them.

This includes everything from the size of the financial sector (still at record highs, even after the financial crisis and bailouts), to the way in which the financial markets dictate the moves of non-financial businesses (think “activist” investors and the pressure around quarterly results). The rise of finance since the 1980s has coincided with both the shrinking paycheck of most workers and a lower number of business start-ups and growth-creating innovation.

This topic has been buzzing in academic circles for years, but Turberville, who is aces at distilling complex economic data in a way that the general public can understand, goes some way toward illustrating how the economic and political strength of the financial sector, and financially driven capitalism, has created a weaker than normal recovery. (Indeed, it’s the weakest of the post war era.) His work explains how financialization is the chief underlying force that is keeping growth and wages disproportionately low–offsetting much of the effects of monetary policy as well as any of the temporary boosts to the economy like lower oil or a stronger dollar.

I think this research and what it implies—that finance is a cause, not a symptom of weaker economic growth—is going to have a big impact on the 2016 election discussion. For starters, if you believe that the financial sector and non-productive financial activities on the part of regular businesses—like the $2 trillion overseas cash hoarding we’ve heard so much about—is a cause of economic stagnation, rather than a symptom, that has profound implications for policy.

For example, as Turberville points out, banks and policy makers dealt with the financial crisis by tightening standards on average borrowers (people like you and me, who may still find it tough to get mortgages or refinance). While there were certainly some folks who shouldn’t have been getting loans for houses, keeping the spigots tight on average borrowers, which most economists agree was and is a key reason that the middle class suffered disproportionately in the crisis and Great Recession, doesn’t address the larger issue of the financial sector using capital mainly to enrich itself, via trading and other financial maneuvers, rather than lending to the real economy.

Former British policy maker and banking regular Adair Turner famously said once that he believed only about 15 % of the money that followed through the financial sector went back into the real economy to enrich average people. The rest of it merely stayed at the top, making the rich richer, and slowing economic growth. This Demos paper provides some strong evidence that despite the cyclical improvements in the economy, we’ve still got some serious underlying dysfunction in our economy that is creating an hourglass shaped world in which the fruits of the recovery aren’t being shared equally, and that inequality itself stymies growth.

TIME Innovation

Five Best Ideas of the Day: February 10

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. Is the technology that is supposed to increase resilience actually making us vulnerable?

By Colin Dickey in Aeon

2. Stock buybacks — usually to prop up a corporation’s perceived value on Wall Street — are draining trillions from the U.S. economy.

By Nick Hanauer in the Atlantic

3. The Navy of the future wants to use lasers and superfast electromagnetic railguns instead of shells and gunpowder.

By Michael Cooney in Network World

4. An after-school culinary skills program gets teens ready for work — and thinking about food in our society.

By Emily Liedel in Civil Eats

5. The next wave of bike lanes in London could be underground.

By Ben Schiller in Fast Co.Exist

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME

Investors Sink Their Teeth Into Shake Shack’s IPO

Shares of Shake Shack more than doubled on the first day of trading

Shares of Shake Shack more than doubled on the first day of trading Friday, as investors feasted on a chance to get a piece of the New York burger chain before it opens hundreds of additional restaurants in the U.S.

Shake Shack’s stock was trading at around $49 per share early in Friday’s session, a roughly 133% gain above the $21 initial offering price that was set on Thursday evening. The company had initially anticipated a share price in the range of $14 to $16, but investor enthusiasm prompted the company to raise that range by $3 on Wednesday. Shares are trading on the New York Stock Exchange under the symbol “SHAK.”

A bet on Shake Shack, a fast-casual restaurant operator with just 63 global locations, is an investment in a company that could one day become the next Chipotle. Those two chains are the model that all other fast-casual chains could one day aspire to achieve. Fast-casual restaurants have menus that are filled with food that consumers perceive as healthier fare than what fast-food competitors sell, but without the table service found at casual dining chains.

Though Shake Shack is growing — generating nearly $79 million in “Shack sales” for the first nine months of 2014 — there are some worries that growth at stores that have been open for at least two years has slowed.

MORE The 17 Most Influential Burgers of All Time

Shake Shack can be seen as more thrilling investment than McDonald’s , which this week saw the resignation of its CEO after a string of poor sales. But the newer chain is also facing stiff competition from other fast-casual burger chains such as Smashburger and Five Guys. And McDonald’s, while it faces major challenges, still booked $4.8 billion in profit last year.

Burger chains are in prime position, at least when it comes to prevailing trends in the restaurant world. Nine billion servings of burgers were ordered at U.S. restaurants and foodservice outlets last year, an increase of 3% from 2013, despite weakness in traffic at other restaurants, according to research firm NPD Group. That indicates the burger chains can court rising consumer interest in their core menus.

History was on Shake Shack’s side when it debuted on Friday. The fast-casual chains that have debuted on the market the past decade have reported an average gain of 95% on their first day of trading, according to IPO ETF manager Renaissance Capital. If Shake Shack’s early pop holds until the end of the day, it will have reported the best first-day performance among the seven restaurant chains that have gone public over the last 10 years.

Of the now seven fast-casual chains Renaissance Capital tracked, only Chipotle has been on the stock market for greater than two years. It listed in 2006 and has gained over 3,100% from its IPO price, suggesting investors are willing to place a bet on what could be the next huge concept in the category.

This article originally appeared on Fortune.com

MONEY wall street

Wall Street Walloped Tuesday After Snowstorm

A blizzard kept the New York Stock Exchange trading floor mostly empty Tuesday, but there was enough activity to send shares downward.

MONEY stocks

Why Main Street’s Gain Is Wall Street’s Pain

150106_HO_Lede
Carlo Allegri—Reuters via Corbis Trader Joseph Mastrolia works on the floor of the New York Stock Exchange while wearing 2015 novelty glasses on New Year's Eve, the last trading day of the year, in New York December 31, 2014.

Monday's 331-point drop in the Dow shows that the tables have turned on Wall Street.

Up until now, the bull market seemed to defy the everyday experience of many Americans: As Main Street households struggled through a recovery that repeatedly fell short of expectations, investors on Wall Street rejoiced.

That’s because the economy was growing fast enough to justify higher share prices, but not so fast that inflation was viewed as a real threat.

This year, though, the script seems to be flipped.

As Main Street Americans finally begin to see the economy improving, it’s the stock market that’s falling short, as evidenced by Monday’s 331-point drop in the Dow.

Monday’s dive was driven by two major economic trends that on the surface should be a boon for U.S. consumers. First, oil prices continued their sudden and surprising slide, driving prices at the pump down with them.

Brent Crude Oil Spot Price Chart

Brent Crude Oil Spot Price data by YCharts

At the same time, the U.S. dollar is now at a nine-year high against the struggling euro. That bolsters the purchasing power of Americans traveling abroad and U.S. consumers purchasing imported goods.

^DXY Chart

^DXY data by YCharts

Thanks to both trends, auto sales last year reached their highest level since before the global financial crisis.

Yet none of this is moving the dial on stock prices so far in 2015.

Some analysts think this could be a recurring trend throughout this year. “Expect a good year on Main Street but a more challenging environment for Wall Street,” says James Paulsen, chief investment strategist for Wells Capital Management.

Why?

Before, lukewarm news on the economic front bolstered the hope that the Federal Reserve would keep interest rates near zero for the foreseeable future. Now, some investors worry that the forces causing oil prices to fall and the dollar to rise — the weak global economy abroad — may be too much for the Fed to tackle even if rates stay low throughout this year.

Moreover, falling oil prices and the strengthening dollar may be giving the market false hope about low inflation.

“Some have argued that lower oil prices give the Fed more room to maneuver. This is a mistake,” says David Kelley, chief global strategist for J.P. Morgan Funds.

While it is true that lower energy prices are reducing inflation in the near term, “falling oil prices are also a big boost for consumers,” Kelly said. “Even if gasoline prices were gradually to move up to $2.75 a gallon by the end of this year from $2.39 at the end of last year, consumers would spend roughly $90 billion less on gasoline in 2015 than they did in the 12 months ended in June 2014.”

Not only is this a financial boost, “it is also a psychological positive with sharp increases seen in consumer confidence readings in the last few weeks,” Kelly said. “This should power an increase in consumer demand which should, in turn, boost prices in other areas.”

TIME Markets

IPOs Raise $249 Billion in 2014 Amid Funding Frenzy

Dow Rises Over 400 Points Day After Fed Signals No Rise In Interest Rates
Andrew Burton—Getty Images A trader works on the floor of the New York Stock Exchange in New York City during the afternoon of Dec. 18, 2014.

Last year was a busy one for public offerings, even without Alibaba’s record-breaking listing

A company looking to raise money in 2014 didn’t have to look too far. Last year was the busiest for initial public offerings since 2010.

From Alibaba Group’s $25 billion IPO to much-hyped smaller listings, such as GoPro and Ally Financial, companies listing on the stock markets raised $249 billion worldwide, according to data collected by Thompson Reuters. Even without Alibaba’s record-breaking offering, last year was a standout period for IPOs.

IPOs picked up pace from 2013: about 40% more companies listed on public markets in 2014 compared to the year prior. They also raised more money. Leaving out Alibaba’s offering, which many agree is a once-in-a-generation kind of IPO, companies raised almost 36% more money year-over-year, according to the New York Times.

The booming market has led some analysts to speculate that it is inflated past realistic valuations, pumped up by overly optimistic investors. For instance, Lending Club’s December IPO valued the online lender at 35 times estimated revenue for 2017, which would put it on par with tech companies such as Facebook.

The public markets weren’t the only place to raise big bucks. The private market also saw big number sums, including Uber’s $1.8 billion fundraising round that valued it at $40 billion. Chinese smart phone maker Xiaomi and online home rental service Airbnb also raised huge sums that valued the startups at $10 billion or more.

Fundraising in both the public and private markets have been driven by a confluence of factors, including low interest rates that have pushed investors toward higher-growth opportunities and a skyrocketing stock market.

While no mega-IPO like Alibaba is set for the year ahead, there are some big-name companies that are scheduled to go public, including file-sharing startup Box and “fine casual” dining chain Shake Shack.

Other potential IPOs remain the subject of much speculation. Investors are watching startups such as Uber, Pinterest and Fitbit carefully, though none have yet indicated when or if they will list on public markets.

This article originally appeared on Fortune.com

MONEY Economy

Economy Delivers a Last-Minute Gift to Wall Street

141223_INV_Party_1
Getty Images/Purestock

The U.S. economy isn't exactly partying like 1999, but it came pretty close in the third quarter, growing faster than it has since 2003.

It’s time to stop describing this economic recovery as being “tepid.”

A new report from the Commerce Department Tuesday morning revealed that the U.S. economy had grown at an annual rate of 5% in the third quarter. Not only does that represents a major jump from earlier estimates of 3.9% growth, it marks the economy’s best performance in 11 years. And it’s the second straight quarter in which U.S. gross domestic product grew at or near the historically high mark of 5%.

Wall Street reacted as you’d expect, pushing the Dow Jones industrial average up another 60 points in early morning trading Tuesday to above the 18,000 mark. In just the past week, the so-called Santa Claus rally has now lifted the benchmark Dow up nearly 1000 points.

Most of that rally, however, centered on the bad news surrounding the global economy, as the slowdown overseas is putting a lid on inflation and allowing the Federal Reserve to keep interest rates near zero for some time.

Today’s bump, though, was all about the surprising health of the U.S. economy in general and American consumers in particular.

Earlier reports showed that consumer spending, which represents more than two thirds of total economic activity in the country, had grown a decent 2.2%. But today’s new report updated that figure to 3.2%. “The boost to personal consumption was much stronger than we had expected,” noted Michael Gapen, chief U.S. economist for Barclays Research.

This would imply that the improved job market and rising net worth due to improvements in the stock and housing markets are finally being felt by American households—just in time for the holidays.

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