Month: August 2016

Fed Chair Janet Yellen signaled a rate hike could be coming this year, but December is still seen as more likely even though Yellen opened the door wider for September and markets increased the odds of an earlier rate hike.

The markets initially read Yellen’s much-anticipated Jackson Hole, Wyoming, speech as slightly hawkish, but then saw it as benign with no impact on expectations the Fed would move sooner than December.

Stocks rallied, bond yields drifted lower and the dollar fell.

But many of those moves were reversed after Fed Vice Chair Stanley Fischer put the focus on next week’s August jobs report and forward data, in an interview with CNBC.

Stocks turned lower and the dollar turned positive as Fischer spoke just before midday. Fischer noted that the economic data has strengthened with strong jobs growth in the last three months.

“In our view, if the employment report continues to indicate an improving labor market, the FOMC may well raise rates at the September meeting,” wrote Goldman Sachs economists. “As a result, we have increased our subjective odds of a hike at next month’s meeting to 40 percent from 30 percent previously.”

In the interview, Fischer said that Yellen’s comments were consistent with a September rate hike and possibly two hikes this year, but the Fed won’t know the course of normalization until it sees the data. He said that inflation is increasing though it remains below the Fed’s 2 percent target.

“We’re reasonably close to what is thought of as full employment,” Fischer said. On Monday, the Fed’s preferred inflation measure, the PCE deflator will be released and on Friday, August nonfarm payrolls are reported.

“Fischer didn’t say anything different than he said earlier. (Yellen) had put everyone on notice for a rate hike in September,” said Peter Boockvar, chief market analyst at The Lindsey Group.

But Boockvar said Fischer’s emphasis on the upcoming data made market participants rethink the potential for an earlier rate hike. Fed funds futures showed market odds swinging higher to 34 percent for September, from less than 30 percent, and to 60 percent for December, from less than 55 percent.

“All she said was the case for a rate hike has strengthened in recent months,” said Ward McCarthy, chief financial economist at Jefferies. “The lack of specificity on a timetable looks like it’s going to happen later rather than sooner.”

North Korea’s latest missile test has security analysts admitting that the military-led country is closer than ever to possessing a nuclear missile system capable of attacking another country.

On Wednesday, a North Korean submarine-launched missile flew about 500 kilometers east, landing for the first time in Japan’s Air Defense Identification Zone (ADIZ).

Pyongyang’s official KCNA news agency reported that regime leader Kim Jong Un supervised the test and described it as “the greatest success and victory”.

Research Analyst in Proliferation and Nuclear Policy at RUSI, Emil Dall, said to CNBC that Wednesday’s launch appears to be North Korea’s most successful missile test.

“It demonstrates Pyongyang’s continued determination to develop a fully-workable nuclear weapon capability, and this is another piece in that puzzle.

Dall said Thursday it was also probable the rogue state now has a nuclear bomb that can fit on the missile.

“Whether North Korea has been able to construct a nuclear warhead small enough to fit on to an intermediate-range missile is uncertain, but should be assumed at this point,” he said via email.

Analysts at the US-Korea Institute at Johns Hopkins University reported on their website on Wednesday that, “While North Korea still faces significant technological challenges, including building of a new class of submarine to carry the missile, it is on track to develop the capability to strike targets in the region, including Japan, by 2020”.

Following the test launch, Japanese Prime Minister Shinzo Abe accused Pyongyang of carrying out an “unforgivable act”.

A United Nations spokesperson also repeated that the actions were a violation of Security Council resolutions and urged the Democratic People’s Republic of Korea to take steps to “de escalate the situation and return to dialogue on denuclearization”.

WhatsApp users just got a taste of the old dictum, “If you’re not paying for the product, you are the product.” And not everyone liked it.

The messaging giant announced on Thursday that it would share its huge database of users’ mobile numbers with Facebook. The social media company announced in 2014 that it was buying WhatsApp for USD 19 billion, a deal that later grew to USD 22 billion as the value of Facebook’s stock rose.

According to WhatsApp, the move was to help its parent company show Facebook users more relevant advertisements and friend recommendations. But some WhatsApp users – the service has more than a billion of them – accused the app of breaking its long-time privacy promises.

Back in June 2012, WhatsApp wrote a blog post explaining that it didn’t sell adds because “no one wakes up excited to see more advertising, no one goes to sleep thinking about the ads they’ll see tomorrow.”

After they were bought by Facebook, WhatsApp sought to reassure users that “absolutely no ads [would be] interrupting your communication” – a theme it continued on Thursday when it said that the company’s “belief in the value of private communications is unshakeable.”

That’s not how some users saw it, however.

Nick Savvides, a “security evangelist” at Symantec, said the level of upset reflected the fact that privacy was now a big issue for all social media users.

Billionaire entrepreneur Richard Branson says he thought he was going to die after flying head first off his bicycle in the British Virgin Islands. 

The Virgin Group boss hit a hump in the road on Virgin Gorda, one of the islands in the Carribbean, catapulting him into the road. The 66-year-old Branson posted pictures of his bloodied face on social media on Friday, showing the gruesome injuries that included a cracked cheek, torn ligaments and severe cuts.

He said: “My life was literally flashing before my eyes.”

Branson said he was lucky that his shoulder and cheek took the brunt of the impact. He said wearing a helmet saved his life.

In the late 1990s, General Motors got an unexpected and enticing offer. A little-known Japanese supplier, Takata, had designed a much cheaper automotive airbag.

But when Autoliv’s scientists studied the Takata airbag, they found that it relied on a dangerously volatile compound in its inflater, a critical part that causes the airbag to expand.

“We just said, ‘No, we can’t do it. We’re not going to use it,'” said Robert Taylor, Autoliv’s head chemist until 2010.

Today, that compound is at the heart of the largest automotive safety recall in history. At least 14 people have been killed and more than 100 have been injured by faulty inflaters made by Takata. More than 100 million of its airbags have been installed in cars in the United States by General Motors and 16 other automakers.

Details of GM’s decision-making process almost 20 years ago, which has not been reported previously, suggest that a quest for savings of just a few dollars per airbag compromised a critical safety device, resulting in passenger deaths. The findings also indicate that automakers played a far more active role in the prelude to the crisis: Rather than being the victims of Takata’s missteps, automakers pressed their suppliers to put cost before all else.

“General Motors told us they were going to buy Takata’s inflaters unless we could make a cheaper one,” Ms Rink said. Her team was told that the Takata inflaters were as much as 30 percent cheaper per module, she added, a potential savings of several dollars per airbag. “That set off a big panic on how to compete.”

Tom Wilkinson, a spokesman for General Motors, which was reorganized as a new company after declaring bankruptcy in 2009, said the Takata discussions “occurred two decades ago between old GM and a supplier,” and therefore it was “not appropriate for us to comment.”

“We knew that GM was getting low-cost inflaters from others,” said Chris Hock, a former member of Mr Taylor’s team who left Autoliv in April. “That was a dangerous path.”

Even with the record recall, deadly accidents and research critical of ammonium nitrate, Takata continues to manufacture airbags with the compound — and automakers continue to buy them. The airbags appear in the 2016 models of seven automakers, and they are also being installed in cars as replacement airbags for those being recalled.

Takata said in a statement that it had taken steps to protect the ammonium nitrate it uses against temperature changes, which along with moisture are the main factors contributing to its volatility. The manufacturer said it was also studying, along with safety regulators and some automakers, inflaters with a drying agent “to better understand and quantify their service life.”

‘It turned it into shrapnel’

The new airbag came not a moment too soon for Takata.

The Japanese supplier had been making seatbelts in the United States since the mid-1980s, but its airbag business, which it began in earnest in the 1990s, was in trouble.

A previous generation of airbags supplied to Nissan had the problem of deploying too forcefully. Those airbags were linked to at least 40 eye injuries in the 1990s.

Takata began experimenting with alternative propellants. But in 1997 its inflater plant in Moses Lake, Wash., was rocked by a series of explosions that destroyed equipment and greatly curtailed production, according to insurance claims made by the company at the time.

After the blast, Takata was forced to buy inflaters from competitors and airlift them to automakers across the country. The company’s American business struggled “to maintain corporate viability,” Takata said in a lawsuit filed against its insurer.

It was against that difficult backdrop that Takata embraced the cheaper new compound, ammonium nitrate, in its airbag inflaters, according to former employees. Mark Lillie, who had worked as an engineer at Takata, told The New York Times in 2014 that considerations over cost spurred the supplier to use the compound, despite the dangers associated with it. Mr Lillie raised concerns over the risks in the late 1990s, but his warnings went unheeded.

Around the same time, the team at Autoliv was asked to study the Takata design. Mr. Taylor, the head Autoliv chemist, said his team immediately recognized the risks posed by the ammonium nitrate.

“We tore the Takata airbags apart, analyzed all the fuel, identified all the ingredients,” he said. The takeaway, he said, was that when the airbag was detonated, “the gas is generated so fast, it blows the inflater to bits.”

Mr. Hock, the former member of Mr Taylor’s team, said he recalled carrying out testing on a mock ammonium nitrate inflater that produced explosive results that left his team shaken. “When we lit it off, it totally destroyed the fixture,” he said. “It turned it into shrapnel.”

The former Autoliv scientists said that they considered their verdict against the ammonium nitrate irrefutable, so much so that they understood Autoliv had alerted other automakers to the danger.

An Autoliv spokesman declined to comment on the company’s dealings with its automotive customers, which at the time also included Chrysler, Ford, Honda, Mazda, Mitsubishi and Toyota. Those automakers all started using Takata’s airbags in the early to mid-2000s.

Fiat Chrysler declined to comment, while Honda, Mitsubishi and Toyotasaid that they had not located any pertinent information from that period.

“There was no industry understanding in the late 1990s” that ammonium nitrate propellants, or explosives, were risky, Matt Sloustcher, a Honda spokesman, said in an emailed statement.

Autoliv’s concerns were backed by well-known research. Widely available studies going back decades warned of the tricky properties of ammonium nitrate, which can break down when exposed to moisture or temperature changes — vital factors, federal regulators said, with the defective Takata airbags.

“Some of the worst industrial accidents at the worldwide level involve ammonium nitrate,” Luigi T. De Luca, an Italian academic and a leading expert in solid propellant rockets, said in an email.

In a 2003 presentation, a propellant expert at TRW, which also made airbags with ammonium nitrate for several years in the early 2000s, outlined what he called “well-known issues” with using the compound, warning of “conditions that stimulate an explosive response.” The expert, Harold R. Blomquist, said that explosive response could be triggered by moisture and by temperature swings.

To make the inflaters safe, TRW had adopted several practices, according to Mr. Blomquist’s presentation and a spokesman at TRW. It freeze-dried its ammonium nitrate to protect it from moisture during the manufacturing process. It fitted its inflaters with a pressure release valve to prevent ammonium nitrate from overpressurizing. And it used advanced welding to keep the inflaters airtight.

Those safeguards, however, were not cost-effective, and the company phased out its use of ammonium nitrate in 2006. (Both Autoliv and TRW now use a propellant based on guanidine nitrate, a compound that is less sensitive to moisture and temperature swings.)

The dangers associated with ammonium nitrate made it difficult at times for Takata to find a supplier. An internal memo prepared in March 2000 by the Mississippi Chemical Corporation, an agricultural fertilizer supplier, states that early talks to supply Takata with ammonium nitrate fell apart over liability issues. A handwritten note on the memo notes: “Send letter informing them about explosion hazard.”

Self-regulation gone wrong

Airbag design and performance specifications are set by a consortium of automakers, with little involvement by safety regulators. In congressional testimony, Takata has insisted that specifications set by the automakers did not anticipate the problems caused by exposure to heat and humidity over many years.

But a review of the consortium’s design and performance specifications by The Times shows the automotive industry had raised concerns about the risks of ammonium nitrate more than a decade ago.

A 2004 update to its specifications singled out ammonium nitrate inflaters and required them to “undergo added stability evaluation.”

The specifications from the consortium, known as the United States Council on Automotive Research, show a clear understanding of the damaging effects of moisture and temperature on airbag explosives. Inflaters must be evaluated for their “resistance to temperature aging in an environment of high humidity,” the specifications said.

The problem, it appears, is that no one enforced the specifications.

The update in the specifications was issued four years before Honda, the automaker most affected by the defective airbags, started issuing recalls in 2008. It was not until 2013 that other automakers started recalling cars with the airbags. Today, 64 million of the defective airbags have been subject to the recall.