Well, that was a surprise.
Angry American voters rose up and walloped the establishment, handing the U.S. presidency to Donald Trump, and making fools of pollsters, pundits, political reporters, and a lot of other people in the process.
Global markets took an initial nosedive in response, with the S&P 500 falling 5 percent. The Trump victory - built on anti-trade, anti-immigrant, isolationist rhetoric - represents a resounding repudiation of the policies of globalization that the post-World War II economy was built upon. Many of the specific economic policies he advocated – forcing Mexico to pay for a wall on the Southern border, imposing stiff tariffs on Chinese imports, requiring U.S. companies to bring home jobs they have shipped overseas, etc. – seem more bluster than serious proposal, but nevertheless will leave a huge question mark hanging over the global economy for months to come.
To his credit, Trump used the moment to try and heal the nation’s divisions, after the most rancorous election in modern history. He said “it is time for us to come together and be one united people.” He also praised his opponent – whom he had repeatedly called “crooked Hillary” during the campaign - for her service, and said he “will be president for all Americans.”
Republicans also kept control of the Senate and the House, meaning the biggest disagreements in Washington after Jan. 20 will be the huge rifts that the election unveiled within the party. But Mr. Trump also will need the support of some Democrats to get the 60 votes needed to move major legislation through the Senate.
Attention now turns to building a cabinet. On the economic front, Trump’s best-known allies are an odd assortment of iconoclasts – activist investor Carl Icahn, billionaire tech investor Peter Thiel, hedge fund manager Anthony Scaramucci, and distressed asset investor Wilbur Ross. He has indicated he may ask his finance chairman, Steven Mnuchin - a veteran of Goldman Sachs - to be Treasury Secretary.
More news below. For those considering a move to Canada, Fortune’s Jeff John Roberts offers some pointers.
This is going to be interesting.
• Markets Go Long Reflation, Short Mexico
After an initial swoon, stock futures have now recouped more than half their losses, pharma companies being among the big winners now that the threat of Democratic price controls has evaporated.
The dollar has regained all of its initial losses against the euro and pound, but not against the yen, which suggests that the initial 'risk-off' reaction is not going to be fully reversed.
Gold has also only given up half of its gains, while oil futures are also heading back to the pre-results start line, just below $45 a barrel. But the most interesting market reaction has been in the bond market.
Treasury bond prices rose sharply on an initial safe-haven bid, but are now lower than they were Tuesday evening. Yields, which move inversely to prices, are rising sharply on the perception that a Trump presidency is, essentially, going to be a reflationary one. The 30-year yield is at a 10-month high of 2.80%, while the 10-year yield is testing an eight-month high of 1.95%.
As for the poor old Mexican peso, look away now if you’re squeamish: it’s down 9.5%. Reuters
• Meanwhile, 2007 Says Hi
Shares in OneMain Holdings, the country’s biggest subprime lender, tanked 40% after it scaled back growth forecasts in response to a spike in delinquencies. OneMain said 2.7% of its core loans were in arrears by between one and three months. It’s the first concrete proof of what the nation’s credit data have been hinting at for a while–that borrowing has been outstripping wages. The turn of the interest rate cycle, a tightening market for short-term financing due to new regulation, and the deterioration of credit quality among the segment of the population dependent on the precarious incomes of the gig economy could be a potent cocktail next year. FT, metered access
• Tesla Strengthens Mass Production Capability
Tesla Motors made its first significant investment in Germany, agreeing to buy privately-held Grohmann Engineering to improve its automated manufacturing systems for an undisclosed price. Establishing a battery and car production site in Europe will be a long-term target for Tesla as it moves into the mass market, even if its top priority for now is increasing production capacity in Nevada. Musk also indicated he was looking at an acquisition in the U.K., to tap into the expertise in the motor racing sector. Most Formula 1 teams now concentrate their operations in Britain. Fortune
• Valeant Aimed Low And Missed
Valeant Pharmaceuticals failed miserably in its efforts to bury bad news on election day. Its stock fell 22% after it slashed its guidance for the rest of the year, even though there’s only eight weeks of it left. It also cut its revenue and profit forecast for next year, underlining the problems of transition to a new and more sustainable business model. Slow sales of certain products, greater competition, and new problems including a recall of irritable bowel syndrome drug Librax as well as an FDA warning about one of its manufacturing facilities all contributed to the dismalness. It also blamed the media and the collapse of the Egyptian pound, which sort of speaks for itself. Fortune
Around the Water Cooler
• Walgreens Sues Theranos for $140 Million
Walgreens has filed a $140 million lawsuit against blood-testing company Theranos, a former business partner. Walgreens’ lawsuit reportedly claims that it was misled by Theranos over the state of its blood-testing technology when the companies first struck a deal. Last month, Theranos announced it was closing down its labs and “Wellness Centers,” and shifting its efforts onto its “minilab,” a device for blood-testing it intends to sell to clinics. It laid off 340 employees, or nearly half of the 790 employees it had as of August. Fortune
• Buffett’s Brazilian Partners Eye a Megabid
3G Capital, the buyout firm controlled by Brazilian billionaire financier Jorge Paulo Lemann, is raising between $8 billion and $10 billion to finance an acquisition of a global consumer goods firm, a Brazil-based blog said on Tuesday. Investors have long speculated what the next target for Lemann, who is worth $28 billion according to Forbes, and 3G could be Oreo cookies maker Mondelez International or General Mills, which owns Pillsbury and Betty Crocker. Lemann has teamed up several times in the past with Warren Buffett, most recently in the merger of Kraft Foods and H.J. Heinz. Fortune
• CVS Is on Walgreens’ Radar Too
Walgreens has been going after more than just Theranos. CVS shares fell 16% after it said recent moves by health insurers seeking to cut costs by limiting pharmacy choices would slam CVS Health. Those insurers are bringing their business to its arch rival, costing CVS a big chunk of its drug-filling business. In its third-quarter earnings release, CVS warned investors of a likely “loss of more than 40 million retail prescriptions related to new restricted pharmacy networks.” Last year, CVS filled or managed approximately 1 billion prescriptions, giving it 21.7% of the market and making it the biggest player. Fortune
• Alphabet Drops Managers From Drones
Google parent Alphabet has pushed out two of the managers on its drone-delivery project, casting further doubt over whether it will be able to realize its dream of disrupting the logistics sector. ‘Project Wing’ had already lost its original head two years ago, and the Wall Street Journal reported that the company had axed the current project chief Dave Vos and top commercial executive Sean Mullaney over a dispute between them and the group’s engineers. The WSJ’s narrative suggests that engineers won a battle against being rushed into commercial tests, which, if true, would be an interesting counterpoint to such episodes as the Samsung Galaxy Note debacle. Astro Teller, the leader of Alphabet’s research arm, has temporarily taken charge of the project. WSJ, subscription required