Top Whistleblower Says This Conglomerate Is “A Fraud Bigger Than Enron”

Stocks opened flat this morning with the Dow up 34.83 points to 25,514.25, while the S&P 500 was up just 5.6 points and the Nasdaq gained 103.39 points. 

“The economic data this morning are having a calming effect on the equity markets,” said Raymond James chief investment officer, Larry Adam. “Yesterday with all these growing fears of a global recession including the U.S., those numbers today showed the consumer particularly continued to be fairly robust here.”

That economic data included initial jobless claims numbers, which came in at 220,000 for the week though the labor market continues to look strong, New York and Philadelphia business indexes, which both pointed to continued expansion in August despite concerns that the U.S.-China trade war was dampening growth, and U.S. retail sales for July, which rose a healthy 0.7% in a signal that fears of slower global growth that have roiled financial markets haven’t hurt consumer confidence.

Walmart reported its second quarter earnings early Thursday, topping expectations and raising its outlook for the full year. The stock jumped 5% on the news. This marks the 20th consecutive quarter of sales gains in the U.S. for the retail giant, as well as its 19th straight quarter of traffic growth in the U.S. “Customers are responding to the improvements we’re making, the productivity loop is working, and we’re gaining market share,” Walmart CEO Doug McMillon said in a statement. The company said e-commerce sales surged 37% during the quarter, and Walmart is still calling for sales growth in this segment to come in at 35% for the year. 

It was reported Wednesday that VMWare is proceeding with an agreement to acquire software development platform, Pivotal Software, the service best known for commercializing the open source Cloud Foundry platform. Pivotal shares were up as much as 72% in early trading Thursday. The deal would see VMWare acquire all outstanding shares of Pivotal’s class A stock at $15 per share in cash, an 80.7% premium on Pivotal’s Wednesday closing price. As of May 3, VMWare owned a 16% stake in Pivotal and a 24% voting interest in the company. Pivotal said on Wednesday that, while it is in talks with VMWare regarding a “potential business combination,” no agreement has yet been made.

In trade war news, U.S. stock futures swung from earlier gains to losses Thursday after China announced it would take unspecified “necessary countermeasures” to counter President Trump’s latest round of tariffs on about $300 billion worth of Chinese goods. “We hope the U.S. side will meet China half-way, and implement the consensus reached by the two leaders during their meeting in Osaka, and look for mutually acceptable solutions through dialogue on the basis of equality and mutual respect,” China’s foreign ministry spokesperson said Thursday. China gave no indication how trade talks planned for September in Washington might be affected.

GE shares dropped after a prominent whistleblower reported the company is “a bigger fraud than Enron.” Harry Markopolos, the whistleblower who had raised concerns over Bernie Madoff before the investment manager’s Ponzi scheme was exposed, targeted the conglomerate alleging it has been hiding the extent of its problems in fraudulent financial statements. Markopolos said in the report issued Thursday that GE’s insurance unit will need to increase its reserves by $18.5 billion in cash immediately with an additional non cash charge of $10.5 billion when new accounting rules take effect in 2021. He also alleged that GE isn’t properly accounting for its interest in oil-and-gas services company, Baker Hughes. “My team has spent the past 7 months analyzing GE’s accounting and we believe the $38 Billion in fraud we’ve come across is merely the tip of the iceberg,” Markopolos said in the report. Just before the report was made public, GE said in a statement, “While we can’t comment on the detailed content of a report that we haven’t seen, the allegations we have heard are entirely false and misleading.” 

Stocks We’re Watching

Purple Innovation (NASDAQ: PRPL): Shares of this mattress and pillow maker popped more than 18% late Wednesday after the release of its Q2 earnings report. Purple reported a net revenue surge of 36% to $103 million, far above the Street’s projection of $95 million. “The positive top-line momentum we experienced at the start of the year carried over into the second quarter,” CEO Joe Megibow said in a press release. “We once again delivered strong year-over-year revenue growth as our wholesale door expansion and enhanced marketing programs are continuing to drive greater awareness of the Purple brand and create even greater demand for our differentiated product offering.”

Northstar Realty Europe Corp (NYSE: NRE): NRE begins trading ex-dividend tomorrow, and shareholders who purchase the stock before tomorrow will be eligible for a cash dividend payment of $0.15 per share—or 3.52%—scheduled to be paid on August 23. The stock is up more than 17% year-to-date, and has an ROE of 5.7%.

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