The June issue of Fortune magazine, just now hitting newsstands, takes a deep look at one of the most disturbing trends of 2016: the retreat from public equity markets. The dearth of IPOs this year – only two so far, despite a blessing of unicorns in the wings – is one clear sign. Another is the clear frustration heard from companies that have long been public.
We are in the midst of our annual survey of Fortune 500 CEOs, with full results to be published in June. But here’s an early result: We asked whether they agreed with the statement, “It would be easier to manage my company if it were a private company rather than a public company.” As of this morning, 38 CEOs have said yes; 3 skipped the question; not one said no.
Tightening regulation of public companies is clearly one reason for the frustration: 65% of those responding to the survey say increased government regulation is one of the top three challenges facing their company. The short-term focus of public market investors is another rising concern. It has become increasingly difficult to manage a company for long-term growth while satisfying the demands of investors clamoring for immediate returns.
But whatever the reasons, the retreat from public markets isn’t a good thing. Private capital markets are less transparent, and offer less access to the average investor. American capitalism – and American democracy – need strong public markets.
Take time this weekend to read Geoff Colvin’s smart take on the rebellion against public markets online. Or even better, get a copy of the print magazine. If you are like me, you spend your weekdays staring into computer screens. On weekends, magazines are a much-welcome luxury.
Happy Friday. More news below.
• “Who the Hell Cares About a Trade War?”
Presumptive Republican nominee Donald Trump escalated his rhetoric against China’s currency manipulation and the outsourcing of U.S. labor, defending his aggressive trade policies from conservative critics. At his first rally in nearly two weeks, in New Jersey, Trump stood by earlier assertions he’ll repeal NAFTA and impose a 35% tariff on goods made overseas by U.S. companies. “We’re losing $500 billion to China,” he said. “Who the hell cares about a trade war? We’re like a big, big sloppy bully who gets punched in the face and gets knocked down.” The event was a fund-raiser for New Jersey Governor Chris Christie to pay off the debts from his abortive campaign. Christie, the first high-profile Republican to endorse Trump back in February, is often touted as a potential running mate for Trump. Fortune
• Yahoo – Cheaper Than You Thought
The bids for Yahoo’s core search and Internet businesses are likely only half of what the company and its bankers had been hoping for, according to The Wall Street Journal. The paper’s sources said the bids are likely to be around the $2-$3 billion range, compared with earlier estimates of $4-$8 billion. The current round of bids aren’t due until the first week of June. The WSJ’s story ends with a kicker that if the bids come in lower than expected, Yahoo could abandon the sale process and leave CEO Marissa Mayer to continue with her turnaround effort—a prospect that isn’t likely to appeal to anyone, against a backdrop of the 18% drop in year-on-year revenues in the first quarter. WSJ, subscription required
• Walmart Bucks the Trend
Walmart posted strong first-quarter results as two years of heavy investment into e-commerce, store layouts and inventory management started to pay off. One other investment, into its staff, also appears to be bringing dividends: the company said higher wages (it raised its minimum hourly wage to $10 in February) and more money spent on training had had a visible impact on customer satisfaction. After an otherwise dismal reporting season for conventional retailers (Gap announced another 75 store closures yesteday), it’s evidence that the challenges facing them don’t need to be fatal, they just require the right responses (and the financial strength to afford them). Fortune
• This Time is Diff… (Whoops, Nearly Said it)
U.S. credit card balances are on track to hit $1 trillion this year, The Wall Street Journal reports, close to their 2008 peak of $1.02 trillion. Earlier this month, the Federal Reserve said consumer credit rose at an annual growth rate of 10% in March, proof that the record amount of new general-purpose plastic issued last year was being liberally used. Experian reported that U.S. auto loans passed $1 trillion for the first time ever in the first quarter (delinquency rates are rising). It’s hard not to flinch at such data points, especially when wages—i.e., the ability to service growing debt—are so weak. We’d like to believe that 2008 is still recent enough to keep the animal spirits of the U.S. consumer within limits. And there is some comfort in how much more capital U.S. banks have today than they did in 2008. But credit is a cyclical business, and the ‘direction of travel’, to use today’s cliché of choice, is clear. It’s only a matter of time before someone tells us, yet again, that this time is different. In one respect, let’s hope that they’re right–in that the regulators may be paying more attention. WSJ, subscription required
Around the Water Cooler
• Uber Tests Driverless Cars
Uber has started testing self-driving cars in Pittsburgh as the ride-hailing company pursues a future where drivers will no longer be needed. The ride-hailing company is using a hybrid Ford Fusion to collect mapping data as well as test self-driving capabilities, Uber said in a blog post Thursday. A Ford spokesman said the company is not collaborating with Uber. That’s a contrast with General Motors, which has been upfront about its partnership with Uber’s rival Lyft as they aim to test out self-driving taxis next year. The trend poses some interesting questions for both companies in the long term. At present, they charge a fee of 20% or so to enable others to deliver a taxi service (often by skirting the regulation that applies to licensed operators). Going driverless will allow them to capture more of the value of taxi services, but they will have to work harder to keep the extra costs of operating and maintaining fleets of cars off their famously ‘asset-light’ balance sheets. Fortune
• EgyptAir Search Continues
The search for wreckage from EgyptAir flight MS804 continues, with Egyptian officials providing contradictory status reports, as they did after the downing of a Russian airliner over the Sinai peninsula in November. Authorities so far aren’t ruling anything out: no group has yet claimed responsibility for the crash, leaving room for some hope that it was not the result of a terror attack. But Egypt’s aviation minister has said a terror attack was more likely than a technical failure. Where an attack may have been made is unclear: the plane had made five journeys in the space of 24 hours, first flying from Asmara in Eritrea and Cairo and then making a round trip to Tunis before heading on to Paris. It was on its way back from Paris to Cairo when it crashed. Fortune
• Debt Crises, Puerto Rico-Style and à l’européenne
Congress struck a deal on allowing Puerto Rico to restructure its $70 billion debt burden, in a rare moment of bipartisan cooperation. Under a bill introduced to the House Thursday, the island commonwealth gets the chance to write down its debt but will have to submit its budget drafts to a federal oversight board in future. The bill still faces opposition from some Republican representatives, and the Senate’s opinion is also still unclear. Elswhere, on the subjects of bailouts and fiscal moral hazard, the European Commission again held off from imposing fines on Spain and Portugal for failing to keep their budget deficits within agreed limits. Discretion, rather than fiscal rules, is still running the Eurozone. Some say that’s a good thing that shows how it’s learned the lesson of imposing too much austerity. Others say it’s how the currency union got into its last debt crisis, and brings the next one closer. Financial Times, metered access
• Mickelson Dodges a Bullet
Golfer Phil Mickelson escaped charges in an insider trading case that he became embroiled in when he accepted a hot stock tip from a friend to whom he owed money. In a ruling that neatly illustrates how the risks of insider trading are now delineated, Mickelson was cited as a ‘relief defendant’—someone who only made money as a result of someone else’s wrongdoing, rather than someone guilty of wrongdoing himself. The chairman of the company whose stock was at the center of the case, Dean Foods Co’s Thomas Davis, wasn’t so lucky: he was criminally charged by federal prosecutors along with Mickelson’s friend, Las Vegas veteran Billy Walters. Fortune