Wednesday, 11th July
Many years ago, as a graduate student at the London School of Economics, I was taught that economic expansions don’t die of old age. They die from policy mistakes. And the executioner is usually the Federal Reserve.
My professor at the time was Janet Yellen, who now holds the ax. She will testify today and tomorrow about her plans to keep the current expansion alive. She is in a tough position, fighting against two ghosts—inflation and recession—even though there is no economic evidence that either is imminent. Yet with the economic expansion now entering its ninth year, history suggests that, despite the economists’ adage, odds of recession may be growing.
My former colleague Greg Ip of The Wall Street Journal—who, for my money, is the best journalist writing about economics today—penned an interesting piece last week saying all the “preconditions for recession” are now in place—a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm. That last one is particularly interesting. Ip’s piece about “preconditions” suggests he believes recessions may die, at least in part, of natural causes, and one of those is that as the last recession fades into memory, people stop worrying. When that happens, excesses build up in the economy that lead to the next downturn.
That’s why I take some comfort from the swoon of Snap this week. The ephemeral photo app, which finds its strongest advocates among teenage girls, took a tumble Tuesday after Morgan Stanley, the lead underwriter for Snap’s March IPO, downgraded the stock. The IPO price was $17 but it jumped over $24 dollars on the first day of trading, giving the company a market capitalization of $33 billion dollars, on par with giants like Target and Marriott. Yesterday, the price fell to $15.50.
That’s bad news for boy wonder Evan Spiegel and the risk-loving souls who invested heavily in his stock. But it’s good news for the rest of us. It means the market hasn’t lost all sense of risk. It may be capable of curing some of its sillier imbalances without a full-blown recession.
More news below.
• “I love it”
Donald Trump Jr. released a chain of e-mails that he said backed his view that his meeting with Russian lawyer Natalia Veselnitskaya was no big deal. However, the e-mails also showed his eagerness to get dirt on Hillary Clinton (“I love it”) outweighing any concern at the ultimate source of the information, clearly identified from the start as Russia’s chief prosecutor. They also show that Paul Manafort and Jared Kushner, who were running Trump Sr.’s campaign at the time, were invited to the meeting. Kushner recently amended his disclosure forms to include the meeting, having initially failed to do so, according to various reports. White House spokeswoman Sarah Huckabee Sanders continued to insist that no-one in the Trump campaign had colluded with Russia to influence the election. TIME
• Tillerson Takes the Heat off Qatar
Qatar promised the U.S. it would share more information and do more to track down the sources of terrorist funding, in a deal that takes the brewing crisis in the Gulf off the boil. The deal will force Qatar to honor commitments it made to its Gulf neighbors three years ago, but which it has reportedly failed to implement. At the same time, it guarantees a measure of U.S. insurance against the more aggressive demands of a Saudi/Egypt-led bloc. Secretary of State Rex Tillerson is due to meet representatives of that bloc later today, and appears likely to urge them to moderate their demands. WSJ, subscription required
• Medical Device Makers Get a Break from the FDA
Makers of medical devices will get more time to report faults in their products under a regular review of regulations that is scheduled for a vote in the House of Representatives later today. The New York Times reports that a provision in the review will extend the deadline for reporting malfunctions to the FDA from 30 days to three months. The NYT puts the changes in the context of increased lobbying by device makers recently. But it also notes that the FDA gets reports of around 65,000 device-related “adverse events” every month. NYT
• U.K.’s Gig Economy Clean-up Threatens Uber
The U.K. government will consider introducing a new category of worker called the “dependent contractor” in an effort to restore some degree of security to those at the more vulnerable end of the Gig Economy. If its recommendations are adopted, the likes of Uber could be forced to pay non-wage social security contributions (National Insurance), neutering much of its cost advantage vis-à-vis incumbents. The status of a dependent contractor should be defined by the degree of control and supervision by the contracting company, according to the report’s authors. Uber argued yesterday that it exercises neither. Fortune
Around the Water Cooler
• Hey Siri, I Don’t Know Whether It’s You, Me or Alexa
Apple’s virtual assistant Siri is losing its luster. According to app-measurement company Verto Analytics, it lost nearly 15% of its U.S. user base, 7.3 million users, in the year to May. Even those who still use it are using it less. By contrast, the user base of Amazon’s Alexa assistant more than tripled to 2.6 million. That’s still only 6% of Siri’s user base (the iPhone is better established than the Echo). Usage of other virtual assistants (chiefly on Android-driven devices) is also rising. The research raises the question of whether Siri’s problems are specific and remediable, or whether they define the length of the hype cycle for the whole virtual assistant market. Fortune
• Germany Tightens Foreign Takeover Rules
Germany, the aspiring champion of global free trade, is tightening rules to protect “strategically important” companies from takeovers from outside Europe. Ostensibly, the move is a reaction to two controversial Chinese takeovers of high-technology manufacturers last year. As such, it’s in line with what the Committee on Foreign Investment in the U.S. does for a living. However, it comes at a time when German industrials are attracting a lot of interest—not all of it welcome—from U.S. rivals, and it doesn’t take much of a leap of imagination to see the new rules being invoked in a more protectionist spirit (not only since CFIUS blocked a U.S. acquisition last year by Germany’s largest chipmaker Infineon). Sueddeutsche Zeitung
• Paris, L.A. to Get the 2024, 2028 Olympics
A barnstorming intervention by French President Emmanuel Macron appears to have clinched the 2024 Olympic Games for Paris, while Los Angeles, the only other city still in the contest, looks like its getting the 2028 games. The International Olympic Committee, which heard pitches from both yesterday, has decided to make a single decision covering the next two summer games. The dynamic of this beauty contests has swung sharply in recent years, as the cost of hosting has frightened even wealthy cities such as Boston, Stockholm and Hamburg out of pursuing their bids. Fortune
• Post-IPO Blues Not Exclusive to Snap
The harsh scrutiny of public markets is taking its toll on more than just Snap. Blue Apron, another recent high-profile listing, fell 12% yesterday to close at $7.14, nearly 30% below its IPO price. The trigger was the meal delivery company’s first analyst rating since the IPO, which led with an attention-grabbing price target of $2. With Snap also struggling, talk is already starting to circulate about the consequences for other big planned IPOs such as Uber, Airbnb and Dropbox. Fortune
Summaries by Geoffrey Smith Geoffrey.email@example.com;