CEO Daily

By Alan Murray
October 17, 2016

Good morning.

I spent Thursday and Friday with the CEOs of some of the nation’s largest companies, and got an earful about election 2016. They aren’t in agreement on a candidate – some favor Clinton, some Trump, and some are still avoiding the choice. But they are in agreement about how thoroughly the campaign debate has missed the issues that matter to the future growth and prosperity of the U.S.

John Chambers, executive chairman of Cisco, expresses the prevailing view in his interview with Aaron Task on the podcast Fortune Unfiltered, which is being released this morning.

“When you look at our leadership on both sides, neither one has articulated a clear vision of where our country is going economically or how we are going to address our issues in terms of jobs,” says Chambers, who has supported Republican candidates in past elections but is unsure what he’ll do this time. “They aren’t focusing on what every other country in the world is focused on, which is how you move from an internet economy into a digital world that will completely transform every business in this country, our education system, and so on. Nobody is even putting a plan out.”

The Cisco chief says he is particularly worried about education. “If we don’t transform the education system to retrain the work force and retrain our young people, we are going to have a digital divide that is much worse than it is now.”

Chambers spends a great deal of time traveling the world, and says he finds it ironic that other countries are so focused on digital transformation, while the U.S. “is completely missing the dialogue. Merkel gets it in Germany. May gets it in the UK. Renzi in Italy. Hollande in France. Netanyahu in Israel. We are the only country in the world that is in denial.”

You can hear the full Chambers interview, as well as others in the Fortune Unfiltered series, here.

I’m in California this morning, within earshot of the Pacific Ocean, and will be reporting from Fortune’s Most Powerful Women Summit for the next couple of days. The program starts with Apple’s Angela Ahrendts tonight and ends with Ivanka Trump on Wednesday. You can see full coverage on Fortune.com.

More news below.

Alan Murray
@alansmurray
alan.murray@fortune.com

Top News

Pepsi’s Health and Climate Change Kick

PepsiCo set a target for cutting the sugar in its soft drinks around the world as part of a suite of goals aimed at tackling problems ranging from obesity to climate change. The company is due to announce later Monday that, by 2025, at least two-thirds of its drinks will have 100 calories or fewer from added sugar per 12 oz serving. At present only 40% of its range can boast that. It aims to achieve its goal by introducing more zero- and low-calorie drinks and reformulating existing drinks. The World Health Organization called for ‘sugar taxes’ on soft drinks around the world to curb consumption and address obesity and diabetes-related issues. Other targets include a 15% improvement in the water efficiency of PepsiCo’s direct agricultural supply chain in water-stressed areas by 2025 and a 20% drop in greenhouse gas emissions across its supply chain by 2030. Fortune

Deutsche May Cut U.S. Investment Bank

Deutsche Bank is looking at a radical scaling-down of its investment banking activities in the U.S. as one of the options for strengthening its balance sheet, according to Bloomberg. There are many reasons why this option could be the path of least resistance for the embattled German lender. It doesn’t involve asking shareholders (or the government) for more money; the associated job cuts would largely fall outside of politically-sensitive Germany; it would not greatly hit Deutsche’s ability to service its blue-chip corporate clients; it would sharply cut the bank’s leverage and the systemic threat of shortcomings in the bank’s risk management, a long-standing source of concern to the Federal Reserve; and Deutsche’s competitors in the U.S. will hardly rush to lobby against a solution that gives them more market share, helping them to boost margins. On the downside, it does involve persuading someone to buy a multi-trillion dollar chunk of derivatives, much of which carries the ominous “hard to value” tag. It would also badly eat into the bank’s earning power. Bloomberg

The OPEC Head Fake Drags On

Crude oil prices are holding above $50 a barrel after sliding on Friday due to another increase in U.S. drilling activity. Baker Hughes said late Friday that the number of rigs drilling for oil in the U.S. last week rose by 4 to 432, marking the 15th increase in 16 weeks, although it’s still well off shale boom highs. Earlier Monday, the managing director of national oil company NIOC made some intriguing comments, saying that the country is pumping 3.89 million barrels a day, rather than the 3.6-3.65 million suggested by western data compilers. The claim that Iran is already producing close to its pre-sanctions level of 4.08 million b/d may make it easier for the sides to bridge their differences when OPEC meets at the end of November with the intention of allocating output cuts and quotas to its members. That’s good for market sentiment, and a further step away from open hostilities in the battle for market share. Bloomberg

Here Comes Another Blockbuster Chinese IPO

Chinese logistics company ZTO Express has set terms for what could be the largest U.S. IPO this year, and also the biggest in the U.S. by a Chinese company since Alibaba in 2014. ZTO’s IPO later this month is slated to raise as much as $1.5 billion. China is the world’s largest express delivery market, with 21 billion parcels delivered in 2015, according to market research firm iResearch—around 50% larger than the total parcel volume of the U.S.. ZTO delivers parcels for two big names already familiar to U.S. investors, Alibaba and JD.com. Reuters sources suggest that existing shareholders are in something of a hurry to monetize their stakes, although they aren’t in a hurry to say why. Fortune



Around the Water Cooler

Tesla Expands Panasonic Cooperation

Tesla is expanding its partnership with Panasonic. The two companies announced their (non-binding) intention to manufacture solar cells and modules in Buffalo, NY. Tesla said the products will work seamlessly with its energy storage products Powerwall and Powerpack. The deal builds on an existing agreement to use Panasonic’s expertise in making batteries for Tesla’s debut in mass production, the Model 3. Tesla expects Panasonic to begin production at the Buffalo facility in 2017, and will give a long-term purchase commitment for those cells. The deal is interesting in part because of the pummeling U.S. solar cell producers have had from Chinese competition, albeit not precisely in this niche. It’ll be interesting to see how competitive manufacturing in the U.S. can be under Japanese management. In other news, Tesla founder Elon Musk put back a much-touted announcement, thought to relate to its assisted-driving technology, by two days. Fortune

The China Crown Affair

It’s time for a spasm in casino operators’ shares after one of China’s sporadic and unpredictable enforcement actions against the business. Shares in Crown Resorts fell 14% on Monday after China arrested 18 employees on suspicion of “gambling crimes.” Crown, an Australian operator, has done well out of luring Chinese high-rollers to the Lucky Country, far from the frowns of watching Communist Party officials. Its profits more than doubled in the year to June, due largely to a surge in Chinese visitors. However, it’s still illegal in China to arrange foreign casino tours for large groups. WSJ, subscription required

The Money Centrifuges Spin at Rosneft

Russia’s national oil champion Rosneft struck the sector’s biggest acquisition deal this year at the weekend, teaming up with trading company Trafigura and UCP, a Russian private equity house, to buy Essar Oil, India’s biggest refiner, for $12.9 billion. It’s the biggest foreign acquisition ever by a Russian company, and the biggest-ever acquisition of an Indian company by any foreign one. UCP’s role, with 24%, is to create the illusion that Rosneft, a company under western sanctions, isn’t actually controlling the entity. Rosneft also swallowed up another one of its local rivals, Bashneft, last week, in another weakly contested privatization ‘auction’ (who dares compete with Igor Sechin, after all?). But such favors come at a price: Vladimir Putin also said at the weekend it may also have to buy a package of shares that the government wanted to sell for budgetary purposes this year (because nobody else wants to invest in Igor Sechin’s company, after all). Reuters

Pearson’s ‘Temporary’ Woes Continue

Shares in educational publisher Pearson dropped 10% in London after the company blamed an inventory “correction” at U.S. bookstores for a 7% drop in underlying revenue in the third quarter. CEO John Fallon said he expected demand from college bookstores to rebound, saying there had been no “fundamental change” in behavior either by students or by colleges, and one would guess that the decline in U.S. college enrolments would bottom out eventually. All the same, the whiff of structural decline familiar to companies that depend on the printed word refuses to go away. Despite generating nearly two-thirds of its revenue in the U.S., the company’s sterling-denominated stock is now at a new nine-month low. FT, metered access

 

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