Bloomberg Businessweek USA - November 08 2018 PDF

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Actual investors think in decades. Not quarter

○ Wall Street ○ Google and ○ The best bu

November 12, 2018

The smoothe period of Trump presidency is over. Reall It onlygets

 CONTENTS

Bloomberg Businessweek

 IN BRIEF  AGENDA  VIEW

5 6 6

Michigan ignites pot stocks; CME Group bails on London Amazon’s gift to holiday shoppers; Italy invites Putin ove House majority in hand, Dems must set a new tone

 REMARKS

8

Democrats now possess GOP-honed weapons

1

BUSINESS

12

Maine’s lobster business was booming—until the trade war put it in hot water

2

2

3

TECHNOLOGY

19 20 22

Why the downturn in tech stocks could drag on Do musicians need a label if they’ve got Spotify? Japan’s mobile gaming giants are being cut down to size

FINANCE

25 26 27

In search of returns, investors rolled the dice on debt Business loans from the little guy YieldStreet’s exotic portfolio comes with unusual risks

ECONOMICS

30

Meet the man entrusted with rescuing Brazil’s economy

There’s a reason people choo Mutual of America: People.

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Bloomberg Businessweek

 IN BRIEF ○ Amazon.com’s yearlong search for a second headquarters is nearing an end—only now the company may split HQ2 in two.

○ CME Group, which last month handled

$240b

in instruments, said it would move its market for short-term financing from London to Amsterdam as it braces for Brexit.

○ Boeing issued ○ Cab servi a warning numbe instructing pilotsin the how to counteract consu ditch a software glitch for str that could send such a its 737s into a steep dive. Net chan satellite

Long Island City in Queens, N.Y., and Crystal City, near Arlington, Va., are said to be the chosen locales. An Amazon spokesman declined to comment.

The directive comes days after one of Q2 ’16 the planes plunged into the sea near Indonesia, killing all 189 people aboard.

○ BMW profit from its vehicle business swooned

40%

in its third quarter, as the German company was broadsided by an escalating trade war. Meanwhile, in the U.K., Brexit anxiety has put a chill on car sales.

SIMON DAWSON/BLOOMBERG

○ A Nov. 5 ceremony in Morhange, France, commemorated the 100th anniversary of the end of World War I.

○ Pot stocks pufed higher on the morning after the midterm elections (page 34), as voters made Michigan the 10th U.S. state to legalize recreational marijuana. (North Dakotans rejected a similar measure.) The stocks rose yet again that afternoon, when U.S. Attorney General

○ Zhejiang Geely Holding, the owner of Volvo, and China Aerospace Science & Industry, a major space contractor, agreed to develop supersonic trains. The idea is to marry magnetic levitation with a kind of vacuum tube that reduces air resistance.

○ “Generally, w you fight with yo banker, it’s n good outcom

 AGENDA

Bloomberg Businessweek

⊲ Still Watching for Inflation Economists and investors will parse the Nov.14 consumer price index data for signs of a jump in inflation. Economists surveyed by Bloomberg expect to see a 0.3percent increase for October, after increases of 0.2percent and 0.1percent in August and September, respectively.

⊲ At the annual meeting of 21st Century Fox on Nov.14, Executive Chairman Lachlan Murdoch may reveal more about the trimmer “new Fox.”

⊲K upd Nov into rate hou

⊲ Tencent, the mobile gaming titan, reports earnings on Nov.14. The Chinese company has been hobbled by a regulatory crackdown on new titles.

⊲A Targ two elim stan bef

⊲ European finance ministers will gather in Brussels on Nov.19 to discuss “euro-area reform,” according to Eurogroup President Mário Centeno.

⊲ It Pre to a in P that con

 THE BLOOMBERG VIEW 6

enacting national automatic vo the Voting Rights Act of 1965 (wh Supreme Court ruling), safeguar expanding and strengthening ethi The nation desperately needs ○ With their new majority, the Democrats need to come up tion reform. That process should with a careful set of priorities and a new tone in Congress House, grounded in expertise and with a bill that can be brought to To put their new majority in the U.S. House of Representativessuch legislation meets insurmoun to best use, Democrats will need to set careful priorities. and White House, it can serve as Their House caucus is not just larger, but also broader—moredebate in 2020 and for successful female, more diverse, and encompassing a political range Likewise, if Democrats can from moderate to Democratic Socialist. Yet inding common Republicans on infrastructure i ground needn’t be diicult. Donald Trump remains president. they should pursue them. Neither appetite to address the stark iscal Blunting his assaults on rule of law while resuscitating ethical of divided government are often t behavior is an easy consensus priority. Democrats should also work together to establish a new New investigations of the ex tone in Congress, where polarization has grown into able; proper oversight requires the

How to Rule the House

 REMARKS

The Democrats’ New Power Tools

Subpoen

The House majority will go after Trump’s agenda with instruments perfected by their GOP rivals By Joshua Green

Oversig 8

The Nov. 6 elections ended two years of unfettered Republican“Between appropriations and overs control of Washington and brought the curtain down on what the subpoenas, they’re going to gri will likely be—despite its exhausting, near-constant chaos—a halt,” says Steve Bannon, Trump’s the smoothest period of Donald Trump’s presidency. Really. “It’ll be the Moscow Show Trials eve Things will get even rockier from here. Trump’s administration ofers The Democrats coming to Washington are younger, more pursue. “The waste, fraud, and ab diverse, more female, and more liberal than before. They’ll Democratic Representative Elija control the U.S. House of Representatives and the subpoena who’s in line to become chairm power it grants them—and they’ll be mindful that voters sent Oversight Committee, which has view to launch investigations an them to Congress to act as a check on Trump. The Republicans who survived the midterm purge are testimony from the administrati older, whiter, and Trumpier than before. They were sent instead of exercising accountabil to Washington not to check Trump, but to supercharge his poena power to haul Trump oicial agenda. The new Republican senators who defeated red-state for the purpose of political theate Democrats in places such as North Dakota and Missouri won’t One reason Trump supporter forget that the president’s closing message of angry nativism Democratic oversight is that Rep propelled them to victory. Even in the House, the far-right, broadening and weaponizing the d d di i hi h f h i d

 REMARKS

Bloomberg Businessweek

Regulatio

Hearings

I pea h e

subpoena power to 14 committee chairmen to help them go successfully stonewalled congressi after Barack Obama’s administration. By contrast, outside groups can During Trump’s presidency, those powers have mostly laindemand the same documents and do s dormant. But Democrats such as incoming House Judiciaryger enforcement power of the courts Committee Chairman Jerrold Nadler of New York have left litOversight iled a lurry of lawsuits d tle doubt that they plan to use them. In April, Nadler put out ainvestigators: One involves the bot report listing all the areas in which he felt the Republican-led canes Maria and Irma; another concer committee had turned “a blind eye to gross misconduct” anda-Lago members in shaping policy a shirked its oversight duties. “In ordinary times, under the leadVeterans Afairs; and ive complaint ership of either party,” he wrote, “the Committee would haveference in plans to build a new FB focused its attention on election security, enforcement of fedWashington hotel. “Our goal is to sta eral ethics rules, obvious breaches of the Foreign Emoluments transparency as soon as possible to su Clause of the Constitution, allegations of obstruction of justice, oversight in 2019,” Evers says. and preserving the independence of the Department of Justice, Oversight isn’t just the key to hold among other matters.” It’s also the mechanism Democrats w In addition, Democrats will have weapons they previislative agenda that could come to f ously lacked. Taking a page from Judicial Watch and other people expect. To understand how, i i li i i h hi h b d il d h b h l i

 REMARKS

10

Bloomberg Businessweek

Lawrence, who was chief of staf to House Speaker Nancy years from now if Democrats, runn Pelosi of California and has written a new book, The Classable of map, defeat Trump and take f ’74: Congress After Watergate and the Roots of Partisanship. “But At least for now, there’s little of course, the urgency of the inancial crisis obligated everypriorities. In light of mounting one to behave like grown-ups.” restrictions on who can vote and o No one has any illusions about grown-up obligations now. Democrats are expected to introdu Absent another global crisis—and perhaps even if one should a package of reforms that would arise—the conventional wisdom that Trump’s Republicans andAct, enable nationwide automatic the Democratic House will ind little common legislativeate purnonpartisan congressional red pose is probably correct. Trump still holds a veto stamp, and reforms and campaign inance cha congressional Republicans, more in thrall to him than ever, Health care will be another pri have the numbers to enforce it. But here again, as House the Wesleyan Media Project, the is Democrats showed a decade ago, oversight power can point of pro-Democratic ads in the electi a path forward and lay the groundwork for legislative gains. far and away the top concern among “Part of our strategy was to use oversight aggressively,”appeared in 32 percent of pro-Rep Lawrence says, “a task made easier by the fact that we had that health-care coverage is a sou seasoned chairmen who were very good at it: Waxman at which gives Democrats added mot Oversight, George Miller at Education and Labor, and BarneyTrump administration’s eforts to Frank at Financial Services. We knew we didn’t have theCare Act have driven up insurance capacity to enact legislation, but we were building the basisSoon enough, however, Democrat for the more extensive agenda that would come the next timeabout where to pursue Trump and h Democrats took power.” whether to emulate Waxman’s bi They didn’t have to wait long. The Democratic oversightthe more recent style of Republ of 2007-08 presaged laws that came to fruition only after chairmen such as Darrell Issa an Obama won the presidency and Democrats took the Senate. mindedly pursued their politic Three major pieces of legislation—led by the trio Lawrence most Democrats have heeded Pelo enumerated—had their genesis during this period. inlammatory talk of impeachme Miller held extensive hearings on the issue of equal pay impeachment for unless it’s biparti women, after the U.S. Supreme Court ruled against the plain-night. But that reluctance could v tif in a gender discrimination lawsuit. Senate Republicans Robert Mueller completes his Rus blocked the resulting bill in 2008. But less than a year later, his indings to Congress (a probe Obama signed the Lilly Ledbetter Fair Pay Act into law. Frank’s exposed after the forced resignati inquiries into systemic risk in inancial markets and his examJef Sessions). “If Mueller comes i ination of government-backed mortgage lending informed dation on indictment,” Lawrence the landmark 2010 inancial reform that bears his name: the While the Election Day verdi Dodd-Frank Wall Street Reform and Consumer Protection Act. capturing the House and Republic Waxman’s oversight hearings were a carefully choreographedmajority, the biggest efect of the o examination of the inancial crisis’s causes and malefactors. checks and balances absent duri (Years earlier, he had orchestrated the iconic “Seven Dwarfs”Trump’s presidency. Democrats lo hearing at which the major tobacco company chief executiveand Florida and didn’t fare nearly oicers stood and swore under oath that tobacco isn’t addic- nors’ races as they’d hoped. But the that Trump cannot thwart or wrest tive.) That lair for the dramatic helped build momentum for Dodd-Frank. Summoning Alan Greenspan, the world’s most Watergate may be an apt histor

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Bloomberg Businessweek

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Bloomberg Businessweek

until sometime in the 1800s … lobster was liter low-class food, eaten only by the poor and ins tutionalized”) and morality (“It’s not just that l sters get boiled alive, it’s that you do it yourse of our love afair with Homarus americanus. consider the lobster now, almost 15 years later, to study crustacean economics just as U.S.-Chi trade tensions reach a roiling boil. As Trump has rewritten America’s econom relationships, some of the country’s most pri exports —Kentucky bourbon, Harley-Davidso motorcycles, Midwestern soybeans—have becom retaliatory targets for China and the Europe Union. For its part, Beijing began imposing a 25 cent tarif on a long list of imports from the including live lobsters, on July 6. “The second t happened, I said to my sales team, ‘China’s dead Barlow says. Correspondence with his Chinese c ○ Trump’s tarifs have inflictedtomers conirmed his hunch. “I don’t think there [a] way to import U.S. lobster,” one buyer texted economic pain in Maine The blow is signiicant for Maine, the coun top producer and exporter. The state’s lobsterme had found a lucrative market in China, where c sumer demand has grown exponentially in rece In his cargo shorts and T-shirt, Mark Barlow looked years. In 2017, U.S. exports of live lobsters to Chi anything but an international trade warrior. Yet a were worth $128.5 million, up from a third of few weeks ago, when he slid open the door to his in 2015. Maine’s dealers have responded by scra low-slung warehouse in a scrappy industrial lot to bling to ind other markets. Barlow has had h reveal concrete tanks illed with 375,000 gallons of 26-year-old son and members of his sales team fo 40-degree water and a fortune in live Maine lobsters, on other Asian markets, including Singapore he might as well have been leading a battleield tour. Taiwan. His biggest concern: The trade war’s c Since the 1990s, Barlow has built his company, sequences are unlikely to be short-term. Island Seafood, into a $50 million-a-year busi- Luke Holden, who left investment banking ness by shipping live lobsters around the world. 2009 to start Luke’s Lobster, a “shack” in New York He exported one out of every ive to China until East Village that’s since become an internatio recently. A lobster plucked from a trap in Maine’s restaurant chain and lobster-processing busine frigid waters—home to North America’s richestis worried that the tarifs and other trade efe ishery—could surface on a dinner plate in Beijingwill force structural changes in the industry. “ two days later. The irst months of 2018 were the reality is that these tarifs have created a very lo best start in Island Seafood’s history, says Barlow, term uphill battle,” he says, “and we’ve just starte who this year expected to ship a million poundsto climb that hill.” of lobster to Shanghai, Guangzhou, and other One problem for American lobstermen is th Chinese cities, where he’s built relationships for Canadian rivals. Thanks to a trade agreeme d d h l ld b f i i i i d k ih

Asthe TradeWar HeatsUp, Lobsters GetCooked

EK. PROP STYLIST: AJA COON. DATA: NATIONAL MARINE FISHERIES SERVICE

November 12, 2018

 BUSINESS

14

Bloomberg Businessweek

Canada to take advantage of the tarif advantage there. “This guy [Trump] has handed Canada the lobster industry—a $1.5 billion industry,” Barlow says. “He’s just handed it to Trudeau: ‘Here you go, boys.’ ” Across the border, Canadians have started to complain about transshipping. (If the term sounds familiar, that’s because it was at the root of the steel tarifs Trump imposed on Canada earlier this year when he claimed the country had become complicit in China’s trade cheating.) “Lobster from Maine is coming into Canada and being exported to China,” says Geof Irvine, executive director of the Lobsterof rapacious acquisitions and disruptions t Council of Canada. “Everybody knows what’s hap- come in other resource-driven industries that pening. … Anything that isn’t Canadian lobsterhas targeted elsewhere. “They’re going to should not be sold as Canadian lobster.” up the logistics [and] grab pricing power,” There is yet another force at work—Chinese says. While he credits Trump for calling att finance and the country’s seemingly insatiable China’s economic practices, he doesn’t like th appetite for natural resources. In recent years, ident’s tactics and worries that he’s actuall Chinese seafood companies have taken stakes in ing to accelerate Chinese control of his i some Canadian wholesalers and begun running “He’s not hurting [China],” Barlow says. “Th weekly charter lights carrying live lobsters from laughing at him.” Halifax, N.S., to Chinese cities. “There’s been signif The present and future of the Maine l icant Chinese investment in the [Canadian] indus-looks very diferent to Kristan Porter, who try for several years,” Irvine says. “They’re buying1991 has been tending lobster traps of the ishing village of Cutler a half-hour’s dr plants and buying capacity to ship.” Irvine argues the Chinese investors act like anythe Canadian border. In March, just as the tr other. But Barlow and others in Maine see a more war rhetoric heated up, Porter took over the p worrying trend at work, one that echoes the sort idency of the Maine Lobstermen’s Associ

 BUSINESS

Bloomberg Businessweek

which represents the bulk of the state’s 5,400 independent ishermen. The issue of China’s tarifs and Trump’s trade wars, however, “is a long way down the list for most guys,” he says. More important for the association’s members is a looming reduction in quotas on the herring catch, which is likely to drive up the cost of bait, and updated regulations to protect migrating North Atlantic right whales from getting entangled in the ropes lobstermen use to retrieve their traps. Why the lack of concern? Shouldn’t trade problems be a higher priority? Perhaps, but the overall strength of the U.S. economy seems to provide courage for conviction—and the reality is that times have been very good of late for the Maine lobster industry. “We’ve been kind of spoiled the last few years,” Porter says. Indeed, from the end of World War II until the late 1980s, there was a remarkable consistency to Maine’s lobster catch. Year after year it ran about 20 million pounds. In 1990, Maine’s lobstermen had what was then their most lucrative year ever. The 28 million pounds they caught was worth $61.6 million in today’s dollars. In the decades since, however, upward traject...