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The path to a 2019 downturn
The chances that the U.S. will fall into recession have increased sharply in the last two weeks. Here’s how it could happen, according to Neil Irwin of The Upshot:
• “The trade wars and a breakdown in international economic diplomacy cause businesses around the world to pull back.”
• “This leads to further tumbles in markets and job losses, prompting American consumers to become more cautious.”
• “High corporate debt loads create a wave of bankruptcies.”
• “And central bank policy proves impotent, combined with fiscal policy that is nonexistent.”
“Chances of a near-term recession are only about one in three, in the view of most forecasters,” Mr. Irwin adds. “But if it does develop, the big question will be whether the usual tools to fight it are up to the task.”
And what would it look like on the ground? Besides the hardships for businesses and individuals, Ross Douthat of the NYT makes a few predictions in his latest column:
• President Trump could lose re-election, as he would be unlikely to muster enough votes if his boom evaporates.
• Venture-capital funding could start to dry up, which might make business like Uber and WeWork unsustainable.
• The immigration crisis could diminish, as the U.S. becomes less attractive to those in other countries, while domestic social problems like suicide rates and drug overdoses could get worse.
More: Mr. Trump dismissed the threat of a recession. But Larry Kudlow, the White House economic adviser, said that the administration was “looking at” potential stimulus measures like tax cuts. And the Fed chairman, Jay Powell, may now be facing the toughest decisions of his tenure.
SoftBank’s employees could invest in its new Vision Fund
The company is taking the unusual step of lending its staff huge amounts of money to invest into the second of its big tech funds, according to reports in the WSJ and FT.
SoftBank “plans to lend up to $20 billion to its employees to buy stakes in its second giant venture-capital fund,” the WSJ reports, citing unidentified sources. The FT pegs the figure at $15 billion. That would bring employee contributions to the fund to 14 percent to 19 percent.
It’s not unusual for executives to invest like this, industry experts told the FT. (SoftBank did something similar with the first Vision Fund, but with just $8 billion of employee money in an almost $100 billion fund, the WSJ notes.) But “typically the amount of employee contribution would be less than 5 percent of the total funds raised,” the FT explains.
SoftBank believes the move would “better align its managers’ interests with those of Vision Fund investors because the fund investments can be canceled if someone departs or is found to have done a reckless deal,” the WSJ writes.
But it could leave SoftBank exposed to “a start-up economy that is starting to show cracks,” the WSJ adds. The first Vision Fund’s investments in Uber (whose stock price has fallen by 30 percent since going public in May) and WeWork (which last week disclosed huge and growing losses as it filed for an I.P.O.), for instance, now look riskier than ever.
Mixed messages from the White House on Huawei
The administration is set to further suspend its punishment of the Chinese technology company — but President Trump also undercut that idea overnight.
Because of national security concerns, Huawei was blocked in May from buying U.S. supplies. But that ban was quickly followed by a reprieve, to allow the Chinese company to continue buying some goods and services from American companies if they weren’t considered a security threat. That reprieve ends today.
An extension of that reprieve was first reported by Reuters and the WSJ. Both reports said that Huawei would be allowed to continue doing some business in the U.S. for another 90 days. Larry Kudlow, the White House economic adviser, confirmed the news Sunday, and told NBC that it was a gesture of “good faith” amid trade negotiations with China, to give American companies more time to obtain licenses to continue trading after the ban takes effect.
But Mr. Trump tamped down expectations. “We’re looking really not to do business with Huawei,” he told reporters last night. “We’ll see what happens,” he said of the reprieve extension, adding that he was “making a decision” on it today.
September could be make-or-break on gun legislation
Lawmakers plan to cut their summer recess short and return to Washington early next month to vote on three gun safety bills. It could be their last chance to take action on firearms before the 2020 election.
• The House Judiciary Committee announced last week that lawmakers would return to vote on the gun bills on Sept 4.
• They will consider measures that include a ban on high-capacity magazines, a federal “red flag” law meant to prevent those “deemed a risk to themselves or others from accessing firearms,” and another bill that bars people convicted of misdemeanor hate crimes from buying a gun.
• The committee will also convene a hearing on Sept. 25 “to consider ways to address the dangers posed by assault weapons,” though it stopped short of promising a vote on an assault weapons ban.
But “it’s September or bust,” an unidentified source involved in the gun bill negotiations between the White House and Capitol Hill told Axios. “We’ll either have everything ready for when Congress returns, drop it on the floor, vote on it and move on — or we blow it.”
Companies feel heat from China over Hong Kong protests
Beijing is increasingly putting pressure on the business world to take its side in the protests in Hong Kong. Both global and local companies are falling in line — and their employees are caught in the crossfire, Sui-Lee Wee and Raymond Zhong of the NYT report.
• “The most dramatic example came on Friday, when Rupert Hogg, the chief executive of Hong Kong-based Cathay Pacific Airways, resigned in the face of Chinese pressure after some of the airline’s workers participated in the demonstrations.”
• “Now, global accounting firms are coming under the same pressure.”
• “The Big Four firms — PwC, Deloitte, KPMG and Ernst & Young, now known as EY — put out statements distancing themselves from a full-page ad supporting the demonstrations that appeared in Hong Kong’s Apple Daily newspaper on Friday. The ad was signed and paid for by a group of anonymous employees of the firms.”
• “The Global Times, a tabloid controlled by the Chinese Communist Party, has urged the firms to ‘fire employees found to have the wrong stance on the Hong Kong situation.’ Mainland Chinese internet users have warned them against ‘becoming the next Cathay Pacific.’ ”
The world has a diamond glut
At every stage of the diamond supply chain the numbers of the precious gemstones are piling up. But don’t expect bargains at the jewelry counter, Elizabeth Paton of the NYT reports.
• ”The top diamond miners in the world, including the two largest, Alrosa and De Beers, have an inventory problem. So do many of the cutters and polishers who buy the rough stones and sell them to retailers.”
• “A glut in many other industries would ordinarily lead to deep price cuts. But consumers are buying stones that have passed through many layers of middlemen: traders, polishers and cutters, who have absorbed much of the raw stones’ price volatility.”
• That means “the oversupply of rough stones and the increasingly strained finances of middlemen have hit miners’ balance sheets in recent months as they try to manage the surplus and increase the value of existing stones.”
• De Beers is scaling back production; Petra Diamonds, a mining group, has reported full-year revenue below analyst estimates and expects next year’s production to be even lower.
The Consumer Financial Protection Bureau named Robert Cameron, previously a top compliance official at the Pennsylvania Higher Education Assistance Agency, as its new ombudsman.
The speed read
• Warren Buffett is buying bank stocks. Why isn’t everyone else? (DealBook)
• A federal judge on Friday allowed the parent company of Pacific Gas and Electric “to retain the sole rights to propose a plan to exit bankruptcy.” (Reuters)
• Alibaba had been planning a $15 billion public offering in Hong Kong — but the unrest there is reportedly causing it to think very carefully about its timing. (Reuters)
• An e-commerce joint venture of JD.com and Walmart called Dada-JD Daojia is reportedly planning an I.P.O. in the U.S. to raise $500 million. (Information)
• Only 84 new companies have been listed in Europe this year, the fewest in a decade by far. (Bloomberg)
Politics and policy
• The Trump administration approved an $8 billion sale of F-16 fighter jets to Taiwan, which is certain to anger China and could complicate the trade war. (NYT)
• President Trump said yesterday that buying Greenland is “strategically” interesting. The idea has drawn derision from residents of the semiautonomous Danish territory. (Hill, NYT)
• A federal appeals court ruled that the U.S. can block migrants seeking asylum, but only in some states. (NYT)
• An Iranian oil tanker that was held for six weeks after being impounded left Gibraltar on Sunday. (NYT)
• Germany said it could spend $55 billion on fiscal stimulus in an economic crisis. Also: What happens if its economy stumbles? (Bloomberg, NYT)
• Shortages of food, fuel and medicine are all plausible in the event of a no-deal Brexit, according to leaked government documents. (Times)
• Low-level trade talks between the U.S. and China are expected to restart within 10 days. But President Trump suggested that he would like China to resolve the protests in Hong Kong in a humanitarian fashion before a trade deal is made. (Reuters)
• Mr. Trump said that Tim Cook, Apple’s C.E.O., made “a very compelling argument” about how the company would struggle to compete with Samsung if iPhones are subject to import tariffs. (Bloomberg)
• A.I. still has to learn from humans — and it’s endlessly repetitive work. (NYT)
• Terrorists have turned to fund-raising using Bitcoin. (NYT)
• Silicon Valley is expanding — into Toronto. (WSJ)
• Landlords who lease building space to WeWork may be exposed to over $40 billion of rent commitments, with little recourse if the company fails to pay. (FT)
• Mastercard is reportedly assembling its own cryptocurrency team. (NY Post)
• Beto O’Rourke said that he would clamp down on Big Tech’s legal immunity if he was elected president. (Verge)
• Documents revealed how Mr. Epstein’s lawyers tried to sway prosecutors into assigning him a milder sex-offender status nearly a decade ago. (WSJ)
• Joichi Ito, the director of M.I.T.’s Media Lab (and a member of The New York Times Company’s board) apologized for his ties to Jeffrey Epstein. (NYT)
Best of the rest
• There’s been 12 months of stock market angst, and barely anything to show for it. (NYT)
• “In designing the flight controls for the 737 MAX, Boeing assumed that pilots trained on existing safety procedures should be able to sift through the jumble of contradictory warnings and take the proper action 100 percent of the time within four seconds.” (WSJ)
• How an unlikely group of activists in an Appalachian town recognized the early stages of the opioid epidemic, and fought in vain to stem its rise. (The Weekly)
• Chinese headwinds threaten to blow HSBC off course. (FT)
• A blunder by Sotheby’s meant that a 1939 Porsche Type 64, expected to fetch $20 million, failed to sell. (Bloomberg)
• Momofuku’s secret sauce? A 30-year-old C.E.O. (NYT)
Thanks for reading! We’ll see you tomorrow.
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