Skip to Content

CEO Daily: Wednesday, April 29th

It’s profoundly ironic that we are counting on Prime Minister Abe of Japan to convince the U.S. Congress of the virtues of free trade when he makes his historic speech to a joint session today — the first ever by a Japanese leader. A generation ago, Japan was the problem when it came to trade. Today, the problem lies within.Senate Majority Leader McConnell said yesterday that trade deals will be “Congress’s biggest accomplishments before the 2016 election.” That statement requires some unpacking. First, it’s a low bar – what else has this Congress done? But second, the trade deal isn’t done. Trade Representative Michael Froman may be the hardest working and most optimistic man in Washington, and if he wins this, the President should give him a vacation home in Hawaii. But at the moment, the votes aren’t there. The left wing of the Democratic party is firmly against trade deals; the right wing of the Republican party doesn’t want to give Obama a win; and these days, the wings rule. That leaves the President, and the business community, stranded in the middle.Even among the U.S. public – more reasonable than its representatives in Washington – support for trade remains weak. The percentage of Americans who believe growing trade and business ties with other countries are a good thing fell from 78% in 2002 to 53% after the recession, and had only recovered to 68% last year, according to my former colleagues at Pew Research. Meanwhile, a full 50% believe trade destroys jobs. It’s telling – if not totally surprising – that Hillary Clinton still refuses to give the pacific trade deal her support.

Next month’s trade votes also will be a test of just how low support in Congress for measures backed by “big corporations” has fallen. We won’t make a prediction; but this one bears watching.

I’ll be back in Washington tonight for dinner at the State Department with Fortune’s Most Powerful Women, featuring an interview with U.S. Treasurer Rosie Rios.

Enjoy the day.

Alan Murray

Top News

Twitter: A victim of its own platform

Earnings leaks are always exciting news for journalists and a nightmare for press relations teams and executives. The cause of the latest leak, which hit Twitter, took some time to sort out but it was pretty ironic that the source was tweets sent out by Selerity, a financial data service. The news spread quickly as market speculators, traders and journalists shared the tweets on, well Twitter, leading the social media company to eventually unveil its earnings report before the market officially closed. When investors got a look at the numbers, it was ugly. Shares sharply fell as the company missed analysts expectations on revenue and revised its guidance downward for the rest of the year.  Fortune

U.S. auto industry again rely on trucks for profits

U.S. automakers have come full circle: sales of trucks and sport utility vehicles in the U.S. are covering for losses overseas. Sound familiar? It was the business model before the financial crisis. Ford in the latest quarter lost money in South America and Europe, while General Motors reported $2.2 billion in earnings from North America but break-even results outside that region. Though executives and analysts say the risks aren’t the same, there are some warning signs of problems. A stronger dollar, for example, allows foreign rivals to cut prices. Reuters

• Airbnb’s success could spawn a M&A frenzy

Thomas Barrack, an investor that made billions on real estate, has warned that the disruptive effects of technologies like Airbnb have not yet been fully felt by large owners of real estate like hotel chains. He says Airbnb, which likely won’t be subjected to the same regulatory requirements that the hospitality sector faces, will likely inspire a wave of consolidation as it pressures its rivals. “You’re going to see a hotel manager merge with Airbnb,” Barrack says. Hotel executives are often dismissive about Airbnb, saying it caters to a different market than those of traditional hoteliers. Still, it cannot be denied that Airbnb, Fortune’s #4 “unicorn,” has had a lot of success. And hotel executives are constantly asked about the threat of the website’s popularity.  Fortune

A smartphone ‘loser’ can still make money on the device’s popularity

By now it is clear that Apple’s iPhones are a clear winner in the smartphone wars, while other major names of the past, like Sony or BlackBerry, are deemed the losers. But that doesn’t mean that the relics of the past can’t still make money on the victor’s spoils. Sony Corp., for example, rings up sales each time a new iPhone 6 or Samsung Galaxy S6 phone is shipped. Sony makes image sensors used in digital cameras and to meet rising demand, the company is investing millions more into factories. Analysts say Sony-made image sensors and related parts can generate revenue of as much as $20 per phone. A consolation prize to be sure, but it is something.  WSJ (subscription required)

Around the Water Cooler

• The rationale behind Tesla’s battery packs

Numerous media outlets, including Fortune, have reported Tesla Motors on Thursday is expected to unveil battery packs that can be paired with solar panels and plugged into the power grid. But why now? Fortune dives into the history of the technology, which began with a small project roughly five years ago, and also the rationale. One big reason is California’s energy storage mandate, which says that the state’s utilities need to buy more than a gigawatt of energy storage services by 2020. California is the first state to do this in the U.S., but more states could follow suit and help open up the market for grid storage even more.  Fortune

Wall Streeters expected to earn more

Financial professionals sure sound like gloomy dinner party guests. A recent survey conducted by Bloomberg found traders, analysts and money managers weren’t optimistic about much, lamenting pay, tighter regulation and having little faith regulators could prevent another meltdown. Interestingly, 48% of those polled said compensation is less or much less than they had hoped for when asked whether they earn more or less than expected when deciding to pursue a finance career. And as for the size of those enormous U.S. banks? Still too big to fail, according to Wall Street.  Bloomberg

Pharmaceutical firms going gluten free

The gluten-free craze isn’t just something that is sprouting up on restaurant menus and in your local grocery store. Pharmaceutical companies are also taking note, with some developing the first drugs for celiac disease, which researchers say is far more common than previously thought. There are some caveats: no drugs are expected until 2018 at the earliest and the treatments in development would not eliminate the need for a gluten-free diet. Importantly, they would alleviate symptoms after some gluten leaks into food. Celiac research has helped inspire drug companies to develop treatments, though most of the work now is done by smaller companies.  New York Times (subscription required)

• Can a leaner McDonald’s lead to a turnaround?

Whenever McDonald’s makes a new proclamation (wages, a proclamation on antibiotics), it always feels like the fast-food chain is following decisions already made by the competition. McDonald’s is now generating headlines for cutting a handful of sandwiches from its menu, in an effort to offer a smaller, easier menu that will presumably speed up service. Can it help sales, which have struggled in the U.S., turnaround? That will be determined in future earnings reports but again, McDonald’s is lagging the competition. Chipotle earlier this week said it uses just 46 ingredients for its entire menu (excluding tortillas).  Fortune

Fortune’s 5 things to know today

Wal-Mart in China and Microsoft techies — 5 things to know today. Today’s story, found here.