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CEO Daily: Monday, 12th September

Good morning.


It’s only been eight years since one Hank Paulson was Treasury secretary, but it seems like another era – back when China was still more friend than enemy, and Goldman Sachs was not yet a vampire squid.


This morning, Paulson returns, publishing a paper that argues direct investment from China is likely to increase sharply in the coming decades, and that Americans should welcome it. Unlike U.S. – China trade – which can cost Americans jobs in certain industries – or investment in Treasury securities – which can be pulled out at a moment’s notice, direct investment can create jobs and increase U.S. competitiveness.


In an interview Friday with Geoff Colvin and myself, Paulson acknowledged that foreign direct investment is never popular. And investment from China is particularly problematic, given concerns “that China engages in rampant intellectual property theft, that our companies don’t get reciprocal access to markets in China, that there are charges about currency manipulation, and that State-Owned Enterprises compete on an unfair playing field with state subsidies.”


But, he says, “although there is truth to much of this, that’s no reason we should penalize ourselves, and not welcome capital investments that are going to help our economy.” He acknowledges concerns about lost jobs, but argues that “most of those jobs are being lost to advances in technology,” not trade. And he says that’s “all the more reason we need to attract foreign investment to create more high-quality jobs.”


Paulson also advises Chinese acquirers to start their efforts to win support in the U.S. at the local level, where people are more likely to appreciate the effects of the investment on jobs. You can read his full paper here.


Paulson hasn’t been reticent to express his concerns about the rising protectionism that is sweeping the U.S. and other countries. In June, the Republican wrote a piece in the Washington Post saying for this reason and others, he will not vote for Donald Trump but will support Hillary Clinton instead.


I’m on a flight to China this morning, and will be reporting news from Guangzhou tomorrow. Stay tuned. In the meantime, more below.


Alan Murray

Top News

Clinton’s Swoon Goes Beyond the Polls

Hillary Clinton’s health became a central issue in the presidential election campaign after she cancelled a two-day campaigning trip to California due to a bout of pneumonia. Clinton and her campaign staff had concealed the diagnosis she received on Friday, and the Democratic nominee had subsequently had to leave a memorial ceremony for the victims of the 9/11 attacks early, visibly unwell. Her doctor said Sunday that she had been dehydrated and was “recovering nicely.” Anyone can catch pneumonia, of course, but Clinton’s mishandling of the episode—perhaps accentuated by reports of her lead in the polls narrowing–suggests an over-eagerness to squash the claims by her opponent, Donald Trump, that she doesn’t have the physical stamina to be commander-in-chief. Her fainting fit, captured on amateur video, rounded off a miserable weekend for the Democratic nominee, who had already been forced to take back her comment that half of her opponent’s supporters fell into “a basket of deplorables.” Fortune

Markets Get a Bout of Centralbankitis

World stock and bond markets are opening the week with a fainting fit of their own, although the diagnosis is more “Melancholia Monetaris” than “Pre-Election Apoplexy.” Markets are taking fright at the thought that the Federal Reserve will raise rates sooner rather than later and that other central banks such as the ECB and the Bank of Japan are starting to doubt the effectiveness of negative interest rates and ever-wider asset purchases. Asian stock indices were down between 1.2% and 4% (Hong Kong faring the worst), while European markets were down by an average of around 2% in early trading. Correlations across asset classes are eye-catchingly high: commodities and even bonds are also falling, with yields on the benchmark German 10-year note rising back above zero for the first time in two months. Crude oil futures are down 1.7% and hovering above $45 a barrel. All of which should make for an interesting moment when Lael Brainard, one of the Fed’s more hawkish governors, speaks later today.  Reuters

Elon Musk and Tim Cook Change Lanes

Elon Musk confirmed that Tesla will move towards using radar as the primary sensor for its’ Autopilot systems. Up until now, radar has only supplemented Autopilot’s camera-based detection system. Tesla also announced an array of other Autopilot tweaks and upgrades, including better reaction to braking from leading cars, and better avoidance of nearby cars nearing the edge of their lane. While the changes come after some high-publicity incidents involving the Autopilot software, Musk took pains to stress that correlation wasn’t causation. The reports come only a couple of days after Apple was reported to have laid off dozens of staff on its secrecy-shrouded Project Titan, and closed down parts of the project entirely. The reports suggested that Apple had backed away from building a vehicle of its own to concentrate on developing autonomous driving software.  Fortune

A 9-Digit Pay-Off for Wells Fargo’s ‘Sandbagger’-in-Chief

Wells Fargo’s “sandbagger”-in-chief, Carrie Tolstedt, is leaving the giant bank with an enormous pay day—$124.6 million. Despite beefed-up “clawback” provisions instituted by the bank after 2008, it appears that the bank is not requiring Tolstedt, who was in charge of the unit where employees opened more than 2 million largely unauthorized customer accounts, to give back any of her nine-figure retirement package, almost all of it in the form of stock, options and restricted shares. In the July announcement of her exit, which made no mention of the soon-to-be-settled case, Wells Fargo’s CEO John Stumpf said Tolstedt had been one of the bank’s most important leaders and “a standard-bearer of our culture” and “a champion for our customers.” It isn’t clear how closely, if at all, Tolstedt was aware of the widespread abusive tactics at the bank.  Fortune


Around the Water Cooler

Praxair, Linde Call off Merger Talks

Praxair and its German rival Linde AG have called off talks over a $60 billion merger, in a move that may herald the end of consolidation in the global market for industrial gases. The two had been compelled to react to the merger earlier this year of Airgas Inc. with France’s Air Liquide, as a result of which the French company had leapfrogged its German rival in terms of size. Linde said in a statement that governance issues rather than industrial logic were responsible for the breakdown of talks, suggesting that the German side wasn’t prepared to structure the deal as a merger of equals. Praxair has a higher market value than Linde despite having barely one-third of its revenues. Recent talk had suggested that the two couldn’t agree on where to base the combined company (and, by extension, who would take the top jobs). (CORRECTION: The initial version of this newsletter incorrectly stated that Air Liquide had merged with Air Products Inc.) Fortune

Relief for Retailers as Hanjin Starts to Unload

Holiday Season is saved. Hanjin Shipping, the bankrupted Korean freight group whose freighters have been unable to dock for the last week, has finally won the right to unload its cargoes in U.S. ports, after a New Jersey bankruptcy court ruled Friday that it could do so without having its assets seized. Three Hanjin ships with millions of dollars worth of cargo destined for Walmart, J.C. Penney and others have been stranded by the stand-off between the company and its creditors since it filed for bankruptcy protection in Korea. More than half of the company’s vessels were stranded last week, blocked from unloading by ports, which feared that they wouldn’t be paid. Hanjin’s parent company has raised $90 million to fund unloadings around the world, but that’s still well short of the estimated $543 million needed to cover all of its vessels currently at sea. Fortune

Will Dakota Access Be the New Keystone?

The government’s decision to rule in favor of Native American protesters against a vital new pipeline in North Dakota is coming at a high price for producers and for shipper Energy Transfer Partners, its biggest shareholder. The Justice Department Friday asked operators of the Dakota Access pipeline to suspend construction along a 40-mile stretch in North Dakota, overturning a district court decision just minutes earlier. The 1,100-mile, $3.7 billion Dakota Access pipeline was originally expected to start up later this year, to deliver more than 470,000 barrels a day of crude from North Dakota’s prolific Bakken shale play through Illinois and toward refinery row on the Gulf Coast. If the pipeline is delayed substantially, it will hit producers who had counted on demand for oil to be rapidly shipped to the Gulf, as well as shippers who could find themselves stuck with crude, putting them at risk of unloading it at a loss. Phillips 66, Marathon Petroleum, Enbridge and Sunoco Logistics are also shareholders in the project alongside ETP. Fortune

Samsung’s Recall Warning Sends Shares up in Flames

With markets in a bad mood everywhere, it’s an unfortunate day to have to put out particularly negative news. Samsung’s shares fell 7% to a two-month low in Seoul after the company issued a notice to buyers of its fire-prone Galaxy Note 7 phone to turn them off and return them immediately. Warnings from regulators and airlines around the world have raised fears for the future of the flagship device, which the company had hoped would go down as the ‘best smartphone ever.’ It’s now on course for a very different moniker. Even if the Note 7 ultimately returns to market with fireproof batteries, it will have lost the advantage it had from launching before the iPhone 7. Investors have wiped over $14 billion off the company’s market value since the problem came to light. Fortune