The Wall Street Journal - 16.08.2019

© 2019 Dow Jones & Company. All Rights Reserved. ***** THE WALL STREET JOURNAL. Friday, August 16, 2019 |B

PERSONAL TECHNOLOGY: TRACKING FRIENDS AND FAMILY CAN BE CREEPY, BUT HELPFUL B

BUSINESS&FINANCE

GE Shares Fall 11%

As Madoff Critic

Assails Accounting

people. About a third of its

employees left in 2018, some

of the people said.

Capital One last month dis-

closed that a hacker accessed

the personal information of

about 106 million of its card

customers and applicants. Be-

fore the hack was made public,

employees had raised concerns

about what they saw as staff-

ing issues and other problems

to the bank’s internal auditors,

human-resources department

and other senior executives,

according to some of the peo-

ple.

A bank spokeswoman said:

“Safeguarding information is

essential to our mission and to

our role as a financial institu-

Please turn to page B

Before a giant data breach

at Capital One Financial

Corp., employees raised con-

cerns within the company

about what they saw as high

turnover in its cybersecurity

unit and a failure to promptly

install some software to help

spot and defend against hacks,

according to people familiar

with the matter.

The cybersecurity unit—re-

sponsible for ensuring Capital

One’s firewalls were properly

configured and scanning the

internet for evidence of a data

breach—has cycled through

senior leaders and staffers in

recent years, according to the

BYANNAMARIAANDRIOTIS

ANDRACHELLOUISEENSIGN

Capital One Cyber Unit

Flagged Staffing Woes

BUSINESS NEWS

WeWork faces a

fundamental problem:

Losses are growing as

fast as its revenueB

MONEY & INVESTING

Mondelez and Kraft

say the government

has violated terms of

a consent orderB

J.C. Penney Tries Secondhand Clothes for Size

The department-store chain unveiled apartnership with thredUp to sell used apparel. B

MATT YORK/ASSOCIATED PRESS

S&P2847.60À0.25% S&PFINÀ0.31% S&PITg0.19% DJTRANSg0.79% WSJ$IDXÀ0.03% LIBOR3M 2.124 NIKKEI (Midday)20424.33À0.09% See more at WSJ.com/Markets

websites operating at least 12

months grew 2.8%, bolstered

by strong grocery results, on-

line and off, and an uptick in

customer traffic. The com-

pany’s U.S. e-commerce sales

rose 37% from a year earlier.

“We’re gaining market

share. We’re on track to exceed

our original earnings expecta-

tions for the year,” Walmart

Chief Executive Doug McMillon

said in a company statement.

The retailer now expects

growth in U.S. comparable

sales for the full year to regis-

ter at the upper end of a previ-

ously forecast range of 2.5% to

3%. Its current growth streak

extends beyond four years.

Its shares rose 6.1% to

$112.69.

Walmart had previously said

it expected a drop in earnings

per share for its current fiscal

year, but on Thursday forecast

a “slight decrease to slight in-

crease.” In the prior year, it

posted adjusted earnings per

share of $4.91.

Walmart’s upbeat report

contrasts with general nervous-

ness in the stock market about

the strength of the economy

and weak sales at some other

retailers. On Wednesday,

Macy’sInc. lowered its earn-

ings outlook after sales in the

latest quarter fell short of ex-

pectations, sending its shares

down 13%. And on Thursday

department-store rival J.C.

PenneyCo. reported a 9% drop

in sales.

“Other results from the sec-

tor need to be viewed against

this context: At present there is

just no evidence of a material

downturn,” said Neil Saunders,

managing director of Global-

Data Retail. “Performance re-

mains largely the responsibility

of the strategies of individual

retailers.”

National data released

Thursday pointed away from a

broader slowdown, with the

Commerce Department report-

ing that retail sales in July rose

a seasonally adjusted 0.7%, well

above economists’ expecta-

tions.

Other major retailers, in-

cludingTargetCorp.,Home

DepotInc. andLowe’sCo. Inc.,

are scheduled to report quar-

terly results next week, which

should provide a clearer pic-

ture of the sector’s overall

health.

In recent years, Walmart has

spent heavily to grow online

and build up the digital capa-

bilities of its stores, for exam-

ple, enabling shoppers to buy

groceries online for pickup in

store parking lots. It is also in-

creasing automation in stores

to help cut labor costs and in-

vest in faster online shipping

and such e-commerce initia-

Please turn to page B

WalmartInc. posted higher
second-quarter sales and raised
its profit outlook, extending a
multiyear streak of growth as
the retail giant takes market
share from struggling competi-
tors and expands online.
Sales at its U.S. stores and

BYSARAHNASSAUER

Walmart Adds to Sales Run as Rivals Lag

Grocery and online

contribute to strong

quarter and prompt

outlook boost

 Heard on the Street: Shoppers

shrug off caution signals.. B

motivated by personal profit

rather than accurate financial

analysis.

GE’s shares dropped 11% to

$8.01, a seven-month low. That

is the largest percentage de-

crease since April 2008.

Mr. Culp bought $2 million

of GE stock at $7.93 a share

Thursday, after buying $3 mil-

lion worth at $9.03 Monday. A

spokeswoman said the pur-

chases reflect his confidence in

the company.

Mr. Markopolos said he and

his colleagues are working with

an undisclosed hedge fund,

which is betting GE’s share

price will decline.

Mr. Markopolos’s group gave

the investor access to the re-

search before publication and

will receive a portion of any

trading proceeds. He declined

to identify the hedge fund. The

group also is sharing its find-

ings with securities regulators,

hoping to collect a cash reward

as part of a whistleblower pro-

gram, Mr. Markopolos said.

Asked Thursday to respond

to GE’s criticism of his motiva-

tion and methods, Mr. Marko-

polos was dismissive. “Who

contacts the bad guys so they

can cover it up?” he said.

The group’s research indi-

cates that GE is low on working

capital—a measure of liquid-

ity—and that its cash situation

is far worse than disclosed in

its regulatory filings.

GE responded that it has a

“strong liquidity position, com-

mitted credit lines, and several

executable options to monetize

Please turn to page B

An accounting expert who
raised red flags about Bernie
Madoff’s Ponzi scheme took
aim atGeneral ElectricCo.,
sending shares of the conglom-
erate to their worst one-day
performance in over a decade.
In a research report released
Thursday, Harry Markopolos al-
leged the conglomerate has
masked the depths of its prob-
lems, resulting in inaccurate and
fraudulent financial filings with
regulators. The report, which
numbers more than 170 pages,
is a mixture of detailed financial
analysis and sweeping claims.
In an interview, Mr. Marko-
polos said his group found GE’s
insurance unit will need to bol-
ster its reserves by $18.5 billion
in cash, and he faulted the way
the company is accounting for
its oil-and-gas business. All told,
he said, the accounting prob-
lems amount to $38 billion, or
40% of the conglomerate’s mar-
ket value before the report was
posted online.
“This is market manipula-
tion—pure and simple,” GE
Chief Executive Officer Larry
Culp said. “Mr. Markopolos’s
report contains false state-
ments of fact, and these claims
could have been corrected if he
had checked them with GE be-
fore publishing the report.”
GE stood by its financial re-
porting and said the Markopo-
los report was produced to help
short sellers by creating volatil-
ity in GE shares. Mr. Culp ac-
cused Mr. Markopolos of being

BYTHOMASGRYTA
ANDMARKMAREMONT

STREETWISE|By James Mackintosh

Ultralong Bonds Are the Real Gamble These Days

In the old

days, the gov-

ernment-bond

market was

the calm, de-

pendable one

keeping a watchful eye on its

excitable equity-market sib-

ling. No longer. Bonds are now

just as good a place to be if

you like to bet on big price

moves, and stocks—while not

exactly a tranquil place to in-

vest—haven’t moved any more

than is usual.

The reason: panic. Yet again

there is a global rush for the

longest-dated bonds, pulling

down the 30-year Treasury

yield Thursday to below 2% for

the first time. In the past three

months, the soaring price of

that bond has led to a return

of more than 20%, something

that since the 1980s had hap-

pened only in the financial col-

lapse in late 2008 and the U.S.

credit-rating-downgrade-plus-

eurozone-crisis of 2011.

Superlow yields on super-

long bonds are everywhere:

Germany’s 30-year is at mi-

nus-0.22%; Japan’s 40-year, at

0.19%; Britain’s 50-year, at

0.94%, and Austria’s century

bond, at a mere 1.1%. All yield

less than inflation.

These yields can’t be justi-

fied on the basis of holding the

bonds to maturity. To make

sense, investors would have to

think both that the world will

have extremely low interest

rates and no inflation for de-

cades and that governments

won’t respond by borrowing

and spending. That might be

true for a while, but to believe

in both lasting without a politi-

cal upheaval—until 2117 in Aus-

tria’s case—is to deny history.

For the moment, these

bonds are huge winners—even

more so overseas, where lower

yields and longer maturities

accentuate price moves. The

price of Austria’s 100-year

bond has more than doubled

since it was issued two years

ago, and in the past three

months it has jumped 50%.

Compared with equities,

long bonds have had just as

many big moves since the cri-

Please turn to page B

Dealership lots remain

crowded with aging vehicles at

a time car companies typically

focus on selling newer models,

posing a threat to dealers’

profits while promising bigger

discounts for shoppers.

Auto retailers are sitting on

an unusually large number of

past-year models in their new-

vehicle inventory this summer.

Some dealers say they are even

saddled with 2018 model-year

vehicles when 2020 models are

showing up for the traditional

fall changeover.

The inventory glut reflects

a continued cooling of the U.S.

auto market, which has been

on a historically strong run.

Sales remain relatively

healthy, but auto makers ha-

ven’t adjusted their produc-

tion schedules quickly enough

to account for slowing de-

mand, leading to a backup of

outgoing model-year vehicles,

analysts say.

Dealers say they are sweet-

ening incentives to purge their

inventory, pressuring profit

margins that have already been

pinched by manufacturers.

“This is probably the big-

gest carry-over problem we’ve

seen in the last several years,”

said Mike Maroone, a former

president of AutoNation Inc.

who owns dealerships in Colo-

rado and Florida. “It has been

very painful.”

Car shoppers should bene-

fit. For example, a 2018 Jeep

Renegade can be had for

$19,190 this month, an unusu-

ally generous 16% off the small

SUV’s sticker price, according

to car-shopping site Kelley

Blue Book.

Last month, 2018 models

accounted for 34% of Rene-

Please turn to page B

BYNORANAUGHTON

Older Models Burden Car Dealers

...and their share

of inventories

Sources: J.D. Power (sales); CarGurus (inventory)

2019 2018

January December

0

5

10

15

20

25%

Even in 2009 ,asnewcar

sales hit a low point, dealers

sold down prior-year models

atafasterrate.

Prior-year models’ share

of new-vehicle sales...

2012 ,

when the

economy and

auto industry

were rebounding,

saw one of the most

rapid selldowns of

prior-year models.

0

10

20%

Jan. July

Overall new

vehicles

0

10

20%

Jan. July

SUVs

0

10

20

30%

Jan. July

Pickup trucks

0

10

20%

Jan. July

Sedans

2019 is on track to be a terrible

year for model year changeover,

as discounted 2018s linger on

lots in a cooling auto market.

Vanessa Qian/THE WALL STREET JOURNAL

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