By Alan Murray
October 28, 2016

Good morning.

I received an email yesterday from a man who praised me for going three straight days without touching politics in the opening essay of CEO Daily, and urged me to continue the trend – else he would cancel. I wish I could comply. But this year’s election keeps kicking up issues of critical interest to business. (Sorry, Tom. We will miss you.)

Today’s topic is the latest stash of stolen Clinton emails, which show just how intricately interwoven the Clinton charity, Clinton State Department, and Clinton family finances really were. I’ll spare you the details, but if you missed it, you can read TIME’s story here.

All of this may have been legal—there’s a heavy burden of proof on those who call it a “criminal enterprise.” Moreover, as I’ve written before, the Clinton foundation clearly did good work in the world. But it’s now beyond doubt—if there ever was any—that many of the companies contributing to the foundation were interested in buying influence in Washington. And they also were personally enriching the Clintons in the process—or as one aide has now memorably dubbed it, building “Bill Clinton Inc.”

I’ll leave the political conclusions and needed government reforms to others. But a sizable number of Americans have already come to their own conclusion: the system is rigged and big business is in on the rigging. The potential consequences are dire—public companies need the trust of the public to survive and thrive. To rebuild that trust, business leaders will need to radically rethink an approach that is undermining the legitimacy of capitalism.

There’s an important—or rather, essential—lesson for business here. Election 2016 has shown that the battle business must win is not the one in the no-longer-smoke-filled backrooms – where cash contributions and closeted tête-a-têtes often win the day. The important battle is the one for the public’s heart and mind—and that’s the one business is losing.

More news below.

Alan Murray
@alansmurray
alan.murray@fortune.com

Top News

Bonds Take Fright at the Approach of 3Q GDP

The U.S. is due to report gross domestic product figures for the third quarter today, with the annualized rate of growth expected to accelerate above 2% for the first time in a year. One key factor will be what happens to private inventories: they’ve been drawn down for five quarters in a row (creating a drag on GDP), and that sequence has to end sometime. The GDP data (and the components that make up GDP) will play a large role in determining whether and when the Federal Reserve next raises interest rates. Bond yields have been backing up sharply in the last couple of days as that move comes into focus (the 30-year Treasury yield is up 13 basis points since Monday, the 10-year up 12 basis points, and they’re now at five-month highs.
Reuters

Amazon’s Halo Slips…

Shares in Amazon fell 6% in after-hours trading after a sharp rise in operating costs left third-quarter profits well short of expectations. The outlook for the all-important holiday quarter was also weak: it forecast operating profit between zero (yes, zero) and $1.25 billion (Wall Street expected $1.7 billion). Amazon Web Services, its Cloud server business, continues to blow past expectations, but higher shipping costs, plus the construction of 18 more large-scale warehouses and distribution centers, are offsetting such gains. With the core retail business pushing into even lower-margin areas in bricks-and-mortar retail, it doesn’t seem out of place to wonder how long AWS can live under the same roof. 
Fortune

• …While Alphabet Tightens Its Belt

Google’s parent Alphabet faces similar challenges, in trying to ensure that its ‘moonshot’ investment projects use the cash generated by its search and advertizing business effectively. The challenge will get stiffer as lower-margin mobile ads replace higher-margin desktop ones (for now, Google is still making up the difference with volume growth). Cash constraints have already led this week to the company scaling back its plans to roll out fiber-based networks, a move that will entail some rare layoffs for the company. In distantly related news, Google’s biggest peer in China, Baidu, reported its first-ever quarterly sales drop after a government crackdown on ads from makers of dodgy health products and equipment. It expects sales to drop another 5% in the fourth quarter.
Fortune

Why Wait out the Election?

The $47 billion deal announced yesterday between chipmakers Qualcomm and NXP Semiconductors means that this is now officially the biggest ever month for M&A, according to Dealogic figures reported by The Wall Street Journal. There’s been a dramatic acceleration in deals after a slow start to the year (Chinese acquisitiveness notwithstanding), a development that augurs well for the banks over the next couple of quarters. Two more tie-ups hit the wires after the chipmaker deal yesterday: CentryLink and Level 3 Communications are in advanced talks to merger, according to the WSJ, while General Electric is looking at partnering its oil and gas business with oilfield services group Baker Hughes.   at BH’s mooted deal with Halliburton fell foul of antitrust regulators, and GE says it is not considering an outright acquisition.
WSJ, subscription required



Around the Water Cooler

ExxonMobil Eyes…Gulp…Trading

The angels will be setting up a casino in heaven next. ExxonMobil is considering setting up a large-scale trading operation for the first time in its history. The Financial Times says that the downturn in prices has led some of its top brass to “consider the case for” a division that buys and sells other producers’ crude as well as its own. BP, Shell and Total have all recently posted earnings that showed the value of having such an operation. The issue may be related to the battle to succeed Rex Tillerson, who is due to step down as CEO next March. Tillerson, an upstream specialist first and foremost, is expected to be replaced by Darren Woods, who heads the downstream unit and may be more open to the greater operational flexibility that trading would bring, the FT says.
FT, metered access

Twitter Shutters Vine, Cuts 350 Jobs

Twitter will lay off 9% of its workforce—some 350 people—as it struggles to turn a profit against a background of slowing user growth. It’s also closing Vine, the short-form video service that it bought back in 2012 for $30 million but never successfully monetized. Vine has now been largely overtaken by competitors such as Facebook Live and Snapchat. The news overshadowed slightly better-than-expected profit figures for the quarter. Twitter’s apparent focus on cutting costs, rather than growing revenues, is raising questions among analysts about its commitment to Periscope, another video streaming service that it bought last year.
Fortune

A Bad Day for Hackers

It’s easy to despair when news of hacks and data breaches rains in from one day to the next, but yesterday was a bad day for hackers. A Florida court secured its second guilty plea in a case tied to the hack of JPMorgan (albeit he was more involved in laundering the proceeds through a bitcoin exchange, Coin.mx). Five others will in all likelihood stand trial next year, while one U.S. suspect remains at large in Russia. Meanwhile, a judge sentenced the Pennsylvania man responsible for the “Celebgate” scandal, in which nude pictures of Jennifer Lawrence, Kate Upton et al. were posted on the internet, to 18 months in jail. It’s hardly proving that crime doesn’t pay, but it may, at the margin, help to raise a deterrent awareness of risk among those whose greed and computer skills outstrip their ethics. 
Fortune

• Someone Needs a Beer

This will have SAB Miller shareholders grinding their teeth again. AB Inbev reported one of its weakest quarters in years as profit margins in recession-hit Brazil shrunk. The weakness of some markets pushed back expected price increases to the fourth quarter, and some misjudged currency hedges depressed earnings further at the maker of Budweiser, Corona and Stella Artois. Not much of this appears to have been priced in when the two companies’ shareholders were haggling over relative valuations in their $104 billion merger. The company’s shares fell 4.4% in morning trading in Europe.
Reuters

Summaries by Geoffrey Smith geoffrey.smith@fortune.com

@geoffreytsmith

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