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CEO Daily: Tuesday, May 10

Good morning. Today’s topic is debt, and what officials in the two largest economies in the world plan to do about it.

 

In China, people are scratching their heads over the meaning of a mysterious but clearly authoritative “source” in the People’s Daily who attacked the country’s debt-fueled growth, comparing it to “growing a tree in the air.” The front-page article in the Communist Party’s mouthpiece newspaper seemed to be a high-level attack on recent economic policies, and a sign of the government’s intention to scale back stimulus. That’s probably not a bad thing. Moody’s says China’s total debt has now risen to 280% of GDP, and predicted that a sizable amount will have to be restructured.

 

Meanwhile in the U.S., presumptive Republican nominee Donald Trump has been developing his stance on debt, revising statements from last week suggesting he would reduce the national debt by renegotiating it. “People said I wanted to go and buy debt and default on it, I mean these people are crazy,” Trump told CNN. “First of all, you never have to default because you print the money, I hate to tell you, OK?” But he is sticking to the notion that he might repurchase debt if rates go up.

 

The comments raise more questions than they answer, and I for one don’t quite know what to make of them.

 

You can do your own deciphering by reading the transcript here. I’m off for a second cup of coffee.

 

More news below.

 

Alan Murray
@alansmurray
alan.murray@fortune.com

 

 

 

Top News

• Citizen Zuck

Cue outrage. Gizmodo reports that human editors at Facebook have been routinely suppressing conservative news sources from the ‘Trending Topics” section of its website, rather than allowing it to be populated, as it has always claimed, by an impartial algorithm. “It was absolutely bias. We were doing it subjectively,” Gizmodo quoted a former editor as saying. Breitbart, the conservative website whose content is among the most shared in the U.S., was one notable victim. Now, all humans, even those at Fortune, have biases. The difference with Facebook, whose content is seen by over a billion people a day, pretends it doesn’t. Awkward questions would be raised by admitting that it is a media company, rather than a politically-neutral technology company that just happens to be bleeding the media industry dry of advertising revenue. The company is bumping up against the limits of wanting to have its cake and eat it too.   Fortune Gizmodo

•  The March of Populism

The disruption of mainstream politics continues apace across the world. In the Philippines, the populist mayor of Davao, Rodrigo Duterte, won the first round of the presidential elections by a landslide, polling 39% of the vote and getting 6 million more votes than his nearest rival. Duterte has promised to end the country’s democracy and replace it with a ‘revolutionary government’ that will fill Manila Bay with the bodies of alleged criminals. He’s riding to power on a wave of disgust at the crime and corruption that has flourished under the government of the outgoing Benigno Aquino, a stark reminder that economic growth (of which the Philippines had had plenty in recent years) is no guarantor of democracy without security and justice too. Given that claims of corruption have already stuck to Duterte pretty convincingly, we’d be surprised if he proved any better at delivering any of the three. Fortune

• The March of Populism, II

Austria’s center-left Chancellor Werner Faymann resigned yesterday after his party’s recent humiliation in elections to the largely ceremonial office of president. When the Iron Curtain fell in 1989, Faymann’s Socialists and the center-right People’s Party had over 90% of the national vote. But neither has made it to this year’s presidential run-off, which will be between Norbert Hofer of the anti-immigration Freedom Party, with its historical roots in the alums of the Nazi SS, and Alexander van der Bellen, a former head of the Green Party. Austria is interesting because it’s a frontline state in the E.U.’s migrant crisis that has been remarkably effective in marshalling opposition to the open-doors policy of its much larger German neighbor. To historians it also has an unofficial, almost superstitious, status as the canary in the coalmine of Europe, ever since a 1931 banking collapse ushered in the depression that led to Hitler’s seizure of power in Germany. The tensions behind Hofer’s success were bubbling again across the border Tuesday after a knife-wielding man ran amok on a suburban train near Munich, killing one commuter and injuring another four. According to eyewitness accounts, he had shouted ‘Allahu Akbar!’ and called other passengers ‘unbelievers’, although that detail hasn’t yet confirmed by prosecutors.  Reuters

• Mind the Gap

Gap’s shares tumbled yesterday after a hugely disappointing sales report that showed how far behind schedule CEO Art Peck is with his pledge to turn the struggling fashion retailer around. The year-on-year decline in sales continued into its 13th straight month in April, with all of its major brands—Gap, Banana Republic and Old Navy—affected. Peck had said in June that spring 2016 would be the company’s “no excuses moment.” The company’s investor relations head Jack Calandra invited speculation that it would close most of its foreign stores after singling out only China as promising. At home, the company plans to close 175 stores over the next few years, but many analysts fear even that may not be radical enough.  Fortune

 

 

Around the Water Cooler

Sumner Redstone Isn’t Incompetent

A California judge has thrown out a suit challenging the mental competency of Sumner Redstone, the controlling shareholder of Viacom and CBS, ending a six-month saga that has delighted the nation’s gossipers and dismayed pretty much everyone else. Judge David Cowan said Redstone’s former girlfriend Manuela Herzer hadn’t proven he was incompetent when he evicted her from his home and asked his daughter Shari to take responsibility for his healthcare. He said that wasn’t a judgment on the credibility or motives of either woman. Redstone has already stepped down as chairman of both Viacom and CBS, but the questions over future control of his companies remain unsettled.  WSJ, subscription required

Sunspots at SolarCity

In the shadow of SunEdison’s well-publicised troubles, Elon Musk’s SolarCity also pulled in its horns yesterday. Its shares fell 15% in after-hours trading in reaction to a bigger-than-expected loss in the first quarter and, more importantly, a cut in its forecast for solar panel installations over the rest of the year. The company said it expects to install 1.0-1.1 gigawatts of new capacity in 2016, lower than the 1.25 gigawatts it had forecast in February. On the upside, it said it expected recent regulatory decisions in California, Massachusetts, New Hampshire and New York to provide more clarity for potential clients, meaning that operating conditions should continue to improve from a low in the fourth quarter of last year. On the downside, there’s no end in sight to the low gas and coal prices that are capping the attractiveness of what is, for now, still a higher-cost alternative source of power.   Fortune

• Relief in Sight for Greece? 

The Eurozone’s finance ministers appear to have opened at least tentative talks on relieving Greece’s debt burden. Without such action, the International Monetary Fund is threatening to abandon its support for the bailout process because it doesn’t think the burden will ever be sustainable. Yesterday’s meeting of the Eurogroup saw Germany soften its previous view that talking about debt relief was unnecessary. The group is aiming to have a solution ready by May 24, which would have the benefit of neutralizing at least one source of potential volatility in financial markets if British voters decide to leave the E.U. the following month. Otherwise, the issue could come to a head in July, when Greece’s next big debt repayment is due.  Financial Times, metered access

Thiel for Trump

Peter Thiel, who was a cofounder of PayPal and owns a substantial stake in Facebook, is on the ballot in California as a Republican delegate for Trump in the San Francisco-based 12th congressional district. Thiel’s name was on a list submitted to the California secretary of state’s office by the Trump campaign as an approved candidate, according to The Guardian. A longtime Republican contributor, Thiel was one of the biggest donors to Ron Paul’s superPAC in 2012.  Thiel had previously expressed criticism of Trump saying that the billionaire was “sort of symptomatic of everything that is wrong with New York City.” However, he does share certain ideological beliefs with Trump, notably in his hawkish views on immigration.    The Guardian