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Power Sheet – May 26, 2016

The “anger” hypothesis for explaining the rise of Donald Trump and Bernie Sanders has become the conventional one, and this is a rare occasion when I believe the conventional view is right. Recent news stories show why the Trump-Sanders phenomenon will not be fleeting.

The Fed reported yesterday that nearly half of Americans would have trouble meeting an unexpected $400 expense. In addition, about one-fifth of Americans were working two or more jobs simultaneously last year, and about one-third have no retirement savings or pension. Not a bright picture. Nonetheless, Americans’ overall financial well-being has improved slightly during the past two years, the Fed says. So if the picture is at least improving, why is there so much anger? The answer is that the averages mask differences, and the picture actually hasn’t been improving for significant numbers of people. Trump and Sanders haven’t been attracting, and have not needed, majority support. The minority support they’ve been attracting has been big enough to shift the entire race.

More Americans age 18 to 34 are living with their parents than with a spouse or partner, the first time that has happened in the 136 years such data has been collected, says the Pew Research Center. Little wonder that in a January poll for CNNMoney and E*Trade, 56% of Americans said they believe the next generation will be worse off than they are. That expectation may be wrong on average, as Warren Buffett explained in his most recent letter to shareholders. But again, the average masks differences. Buffett acknowledged that the gloomy expectation may be correct for some, and if it’s true for some, and – just as important – if a majority believe it to be true, then it feeds the anger fueling Trump and Sanders.

It’s clear that a substantial number of voters think they’ve been cut out of America’s implicit economic deal without their consent and without their having broken the rules. They got at least a basic education and worked hard, but their living standard has stopped improving as it’s supposed to. They’re so angry that their strongest political impulse is to stick a finger in the eye of established authority; if they think government is the villain they vote for Trump, and if they think business is the villain they vote for Sanders. To the extent they care about a candidate’s policy positions, they just want policies that punish established authority.

The causes of their economic distress are deep; they can be changed, but not immediately. And while the anger vote may not be a majority, it doesn’t have to be. A sizable minority can easily swing election outcomes. That’s why Trump and Sanders voters will be every candidate’s quarry in November and for years to come.

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What We’re Reading Today

Class action suit filed against Theranos 

An Arizona resident has sued the troubled blood testing company, accusing it of consumer fraud. The suit claims Elizabeth Holmes‘s Theranos advertised that a couple of drops of blood could be used for hundreds of tests. But Holmes’s Edison machine has failed recent trials, and earlier results have been retracted. Stefano Pessina‘s Walgreens Boots Alliance could face similar suits as reports indicate it didn’t conduct proper due diligence in vetting Theranos before partnering with the startup.  Fortune

State Department says Clinton violated email rules

An independent watchdog investigating Hillary Clinton‘s use of a personal email server says the former secretary of state broke “detailed and sophisticated” rules. The report found fault with email use by the five previous secretaries but was particularly harsh on Clinton. The investigation is separate from an FBI review of Clinton’s handling of classified information. Washington Post

States sue the Obama administration over transgender directive 

Earlier this month, the administration told states that prohibiting transgender students from using their preferred bathroom in public schools violates the Civil Rights Act and Title IX of the Education Amendments of 1972. Eleven states have responded by suing the Obama administration; nine have Republican governors.  NBC News

Peter Thiel explains Gawker attack  

The billionaire confirmed reports that he’s helping to fund lawsuits against Nick Denton‘s media company, including a recent suit by Hulk Hogan. Thiel, co-founder of PayPal (yesterday we mistakenly said eBay), says revenge isn’t his motivation. Though he is now openly gay, one of Gawker’s sites threatened to out him in 2007, and he says the suits are ways to prevent the bullying he faced.  NYT

Building a Better Leader

A startup with a 10,000-person waitlist 

They want to buy lipstick from Glossier, which has focused relentlessly on its brand after building a digital community. Business Insider

By expecting perfection from employees…

…you increase their fear and prevent them from innovating. Fortune

Update from the company with a $70,000 minimum wage 

Gravity Payments made headlines almost a year ago with its dramatic increase in minimum pay. Higher labor costs have not been the biggest problem the policy has caused. USA Today

Aggressive Actions

KKR in talks to purchase Takata

Henry Kravis‘s company has proposed taking a 60% stake in Takata in order to bolster the airbag maker as it reacts to one of the largest automobile recalls in history. Shigehisa Takada‘s company has hired the investment bank Lazard to find cash sources to help the business survive. Fortune

Volkswagen challenges U.S. right of jurisdiction

In an apparent strategic about-face, Matthias Müller‘s company filed suit in San Francisco arguing that its cars were sold in the U.S. by local businesses, not by Volkswagen itself, and thus the court lacks jurisdiction over VW. The company also argues that the statute of limitations voids any claims before 2010. But the company also reiterated it’s working with the Justice Department to reach an agreement on penalties. NYT

Sanofi moves to replace Medivation’s board

Olivier Brandicourt‘s company stepped up its pursuit of the cancer drug maker, calling for a vote to replace Medivation’s board with eight candidates of its own. Medivation’s David Hung has urged investors not to side with Sanofi. Brandicourt argues that the company just wants to negotiate with Medivation, something that Hung has avoided after rejecting a $9.3-billion bid last month. Reuters

Up or Out

Donald Trump‘s political director Rick Wiley will leave just six weeks after joining the campaign.  Politico

Hormel Foods CFO Jody Feragen will retire in October. She will be succeeded by James Sheehan.  WSJ

Fortune Reads and Videos

Investigators of Alibaba’s accounting are looking…

…at business practices that Jack Ma‘s company views as strengths. Fortune

Snapchat closes a $1.8-billion funding round

It has been in the works since February 2015. Fortune

Bob Iger attacks Bernie Sanders’s claims…

…that Disney pays low wages. Iger said Disney has created 18,000 jobs in the past five years, then asked how many jobs Sanders had created. Fortune

Uber becomes a Foursquare customer

The social media company has refocused on becoming a location data provider. Fortune

Quote of the Day

“It’s less about revenge and more about specific deterrence…I saw Gawker pioneer a unique and incredibly damaging way of getting attention by bullying people even when there was no connection with the public interest…I thought it was worth fighting back.“ — Peter Thiel discussing why he’s providing financial support for those filing lawsuits against Gawker NYT

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@ryanderous
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