DealBook Briefing: 10 Years of Economic Growth, and Counting
America is in its longest boom since World War II. There's reason to celebrate the milestone, and also to expect that it may not last.
July 2, 2019
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A worker at a Ford plant in Chicago. Jim Young/Agence France-Presse — Getty Images
The boom turned 10
America’s economic expansion reached double digits yesterday, becoming the longest boom since World War II. There’s reason to celebrate the milestone — and also to fret that it may not last.
It’s “been going on for longer than The Beatles were together,” Brian Levitt, a strategist at Invesco, told Robin Wigglesworth of the FT. “It’s older than Instagram.”
By some measures, the big winners have been minority women, Jeanna Smialek of the NYT reports. Employment rates for Hispanic women age 25 to 54 have jumped 2.2 percentage points since mid-2007, while those for black women rose 1.6 percentage points.
By other measures, things look much the same as ever. “The richest 1 percent of earners — who are heavily white and male — have notched outsize earnings throughout the expansion and recovery,” Ms. Smialek adds.
Either way, this boom has been weaker than others. America’s economic output “is now about 20 percent bigger than its pre-crisis peak,” Mr. Wigglesworth of the FT writes. “In contrast, the 1990s boom increased the size of the U.S. economy by 41 percent, according to RBC Capital Markets.”
And there are signs that the boom’s end may be coming:
• Stock markets may be rising, but earnings growth in the S&P 500 is falling.
• Seventy-seven percent of companies that have issued earnings-per-share guidance ahead of publishing financial results have warned that their upcoming numbers will fall short of Wall Street estimates.
• And a global manufacturing index produced by JPMorgan Chase and IHS Markit fell in June to its lowest level since 2012, showing an industrial slump.
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Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York, and Michael J. de la Merced and Jamie Condliffe in London.
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Airbus planes in Toulouse, France. Jean-Vincent Reymondon/Agence France-Presse — Getty Images
U.S. proposes more tariffs on Europe
A continuing spat between the U.S. and Europe over government support of aircraft manufacturers escalated again yesterday when the Trump administration threatened to impose further tariffs on the E.U., Reuters reports.
• The Office of the U.S. Trade Representative said yesterday that it would consider tariffs on a further 89 European items with an annual trade value of $4 billion, including cheese and whiskey.
• That’s an expansion of earlier tariff threats, which would affect another $21 billion worth of goods. The E.U. has also threatened tariffs on the U.S.
At the root of the tit-for-tat fight are a U.S. belief that Europe unfairly subsidized its domestic airline manufacturer, Airbus, and an equivalent view in Europe that the U.S. unfairly subsidized Boeing. The two sides have been tussling before the World Trade Organization for almost 15 years over the claims.
“These tariffs differ from most others pursued by the Trump administration because they would be imposed in response to an official W.T.O. ruling, rather than being unilaterally initiated by Washington,” the WSJ notes.
They may go into effect this year, because the W.T.O. could decide in the coming months whether the tariffs can be introduced and how large they can be.
It’s been over a year since he quit the advertising giant he created, WPP, amid a controversy over his personal expenses. Now, Mr. Sorrell is building a new rival business, called S4 Capital — and it’s part comeback, part WPP nose-thumb, David Segal of the NYT writes.
S4 is focused on one of Mr. Sorrell’s passions: deals. Shortly after its formation, it announced a $350 million takeover of Media Monks, a digital production company. And in December S4 paid $150 million for Mighty Hive, a digital media-buyer.
His company’s mantra seems to be “better, faster, cheaper.” Its focus is on digital ads in a variety of formats: A recent campaign for Nestlé started with a one-minute commercial that was sliced and diced into 127 formats, including for Instagram and Snapchat.
But some wonder whether S4 can compete, especially as consulting companies with technical know-how are gobbling up market share. “S4 is too small, too narrow and too yesterday,” Rishad Tobaccowala, an executive at rival ad giant Publicis, said last month. (Mr. Sorrell shot back that Mr. Tobaccowala “sounds rattled.”)
WPP, meanwhile, is trying to move on. It has moved headquarters, sold off investments in 35 companies, laid off 3,500 employees and even changed its logo. Most of all, it’s trying to overcome problems that began under Mr. Sorrell, including a declining stock price and stagnant revenue.
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Early beers at Deutsche Bank while waiting for the ax
Life at the German bank’s Wall Street headquarters has slowed considerably as employees there await a restructuring plan that could cut hundreds of jobs in the U.S. — an announcement that could come as soon as this week. Bloomberg News paid a visit:
• “Brown boxes have been stacked in the offices of the senior-most executive in the Americas,” Bloomberg reports.
• “More than 40 flights down, on the trading floor, seats sit empty at midmorning. Computer screens are black. Some who remain are openly hunting for jobs at rival banks. Their bosses know, and don’t mind.”
• “On a recent weekday, an executive spied junior traders enjoying beers at the nearby Full Shilling pub. It was just past 1 p.m.”
• “Zia Huque, the C.E.O. of Deutsche Bank’s securities division in the U.S., hasn’t been seen at work in weeks.”
• After a slow drip of rumors about impending job cuts, “a number of U.S. staffers have grown to resent their London and Frankfurt-based counterparts, according to interviews with nearly a dozen current and former employees.”
A Rivian S.U.V. Brendan McDermid/Reuters
Say hello to Tesla’s secretive rival
In February, Amazon led a $700 million investment in an electric vehicle company called Rivian. Two months later, Ford invested $500 million. All told, Rivian has raised $1.7 billion without selling a vehicle. But you probably don’t know much about it, because until recently it was in stealth mode, writes Nelson Schwartz of the NYT, who has taken a close look at the company.
Rivian promises to do for trucks what Tesla did for luxury cars. Its R1S S.U.V. (which will compete with the Tesla Model X) bears a resemblance to a Range Rover; and its R1T pickup has shorter flatbed than the best-selling Ford F-150. Both will start at around $70,000, or up to $90,000 for fully loaded model that can travel up to 400 miles on a charge.
Why are investors so interested?
• “For Ford, investing in Rivian is a way to leapfrog the competition and get new ideas from a start-up as it and other automakers race to prepare for an electrified future.”
• Amazon hasn’t explained the thinking behind its investment, but “Rivian’s vehicles could help the retail giant reduce its carbon footprint as it builds its own distribution network.”
Rivian’s C.E.O. isn’t much like Tesla’s Elon Musk. R.J. Scaringe and his company have “spent a decade fine-tuning their designs,” according to Mr. Schwartz. He has his own idiosyncrasies, though: He usually dresses in blue, and hopes to turn the land around Rivian’s manufacturing plant in Normal, Ill., into a farm.
The company will need to overcome big challenges that Tesla has faced. “Rivian will have to create assembly lines for its vehicles and batteries, which Tesla’s problems have shown is very difficult,” writes Mr. Schwartz. And “the company will also have to establish a retail operation to get its vehicles to buyers,” which is no mean feat.
Fred Thornhill/The Canadian Press, via Associated Press
The Rolling Stones know what you need: An annuity
It’s 2019, and the sole sponsor of the Rolling Stones’ latest tour has nothing to do with cigarettes or alcohol. Instead, it’s the Alliance for Lifetime Income, a trade association that promotes the sale of annuities, Jeff Sommer of the NYT reports.
The band’s demographic has aged, and that has commercial consequences. According to the Alliance for Lifetime Income, people who attend the band’s shows are the group’s target demographic: 45- to 72-year-olds with investable assets from $75,000 to $2 million.
There are “not huge investors with really a lot of money; they are the middle class,” said Jean Statler, the executive director of the annuities group. “They are people who have worked hard and accumulated some savings and may have the benefit of living longer than they had ever planned, and realize they may not have enough savings to last that life span.”
“Millions of people who belong to this group — and I am one of them — may never have imagined, when they were teenagers, that anyone would ever connect the Stones and annuities,” Mr. Sommer writes. “I didn’t. I had no idea what an annuity was.”
Revolving door
Mercedes Schlapp is stepping down as the White House’s director of strategic communications to join President Trump’s re-election campaign.
Iqbal Khan is said to be quitting as chief executive of Credit Suisse’s international wealth management arm, reportedly to take a senior post at Julius Baer.
• Brookfield Asset Management and the Singaporean sovereign wealth fund GIC agreed to buy Genesee & Wyoming, the American freight railroad operator, for about $6.4 billion. (Reuters)
• The American semiconductor company Applied Materials plans to buy a Japanese rival, Kokusai, from KKR for about $2.2 billion. (Reuters)
• Broadcom, the semiconductor giant, said yesterday that it planned to focus on buying software companies after its bid to buy Qualcomm was blocked last year. (Business Insider)
• The struggling cosmetics company Coty said it planned to take a $3 billion write-down on brands that it acquired from Procter & Gamble, as part of an expansive turnaround effort. (Reuters)
• WPP has begun exclusive talks to sell its Kantar data analytics unit to Bain Capital. (Reuters)
Politics and policy
• Iran said it had violated a key provision of the 2015 nuclear deal and would soon breach another, in a rebuke of U.S. sanctions. (NYT)
• The American investor Andrew Intrater had his fortune frozen because of ties to a Russian oligarch implicated in the special counsel investigation. Now he wants his life back. (NYT)
• The Trump administration is split over how tough to be in renewed nuclear talks with North Korea. (NYT)
• An advocacy group backed by Charles Koch plans to run a large ad campaign attacking the Export-Import Bank and some corporate tax breaks. (CNBC)
• Mayor Pete Buttigieg of South Bend, Ind. raised $24.8 million in the second quarter, thanks to a mix of deep-pocketed fund-raisers and small online donors. (NYT)
Tech
• Facebook evacuated four buildings after a package at its Silicon Valley mail center was suspected of containing the nerve agent sarin. (Reuters)
• The U.S. Customs and Border Protection agency has opened an investigation into a secret Facebook group in which agents joke about migrant deaths and mistreatment. (ProPublica)
• Tim Cook said that reports about tensions between him and Apple’s departing chief design officer, Jony Ive, were “absurd.” (Dylan Byers of NBC)
• Amazon is testing image recognition A.I. to track goods in its warehouses. (FT)
Best of the rest
• Ashok Varadhan, the last of Lloyd Blankfein’s trading protégés at Goldman Sachs, faces the difficult task of reviving the bank’s trading arm. (Bloomberg)
• The S&P 500 hit a record high. Thank the trade truce between the U.S. and China. (WSJ)
• Warren Buffett will donate $3.6 billion worth of his Berkshire Hathaway shares to five foundations as part of his plans to give away his fortune. (WSJ)
• Madison Square Garden lost $200 million in market value yesterday after the New York Knicks failed to score a single high-profile free agent. (Business Insider)
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