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Confronting the Changing Reality

Today’s theme is the eternal difficulty of confronting reality when it changes, and we will find this theme in the news without even touching the issue of people who still aren’t confronting the reality of a President Trump. For example:

-The world’s largest industry, energy, is changing profoundly, and not all of its leaders are facing what that means. As OPEC members meet in Vienna, some seem to think it’s still 1978, when a few of them could set production limits and send the price rocketing. But now some of the world’s largest oil producers – Russia, the U.S. – aren’t OPEC members, and even the members can’t agree; they haven’t managed to set production limits since 2008, despite repeated attempts. More important, the world isn’t as oil-dependent as it used to be, and that’s a long-term trend. Some companies, including Royal Dutch Shell and Hungary’s MOL, and some big oil producing countries, notably Saudi Arabia, are embracing the new reality. But others, including Algeria and Venezuela, still hope to work magic. An agreement is possible on Wednesday, but it would be a stop-gap response to a long-term change.

-U.S. car dealers can’t believe their hundred-year-old business model is changing. Their latest panic is in Virginia, where they’re suing Tesla for daring to try selling cars directly to consumers. In a video, the president of the state dealers’ association exhorts his members to fight back – not by innovating their business model to give consumers a better alternative to Tesla, but by lobbying legislators to change the law in their favor. This is classic denial of a changing reality, and it can work for a time; car dealers wield major clout in state legislatures, and Arizona, Michigan, and Texas have outlawed direct sales of cars. It’s also classic King Canute behavior. Longer term, no one can doubt where this is going.

-Most of us are unrealistic about our future investment returns. Back in 1999, a survey of investors found that even the pessimists expected stocks to return 12.9% annually over the coming decade. Warren Buffett told them to expect maybe 6% annually over the next 17 years and was just proven almost exactly right, as the great Carol J. Loomis explains. Today’s debate is whether you can expect even 5% a year after inflation over the next decade. No one can know for sure, of course, but the uncomfortable reality, difficult for most investors to confront, is that we’d be foolish to count on it.


Still addled by excessive turkey and stuffing, I inexplicably made Nicolas Maduro Ecuador’s president in yesterday’s note. A thousand apologies. He is, of course, overseeing the implosion of Venezuela.

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What We’re Reading Today

Trump taps Tom Price for HHS head 
According to reports, Congressman Tom Price of Georgia will take the helm of the Department of Health and Human Services. Although President-elect Donald Trump at one point indicated he might be willing to step back from repealing Obamacare, Price is a hardliner and has been a staunch critic of the Affordable Care Act. Fortune

Embattled South Korean President says she’s willing to resign
President Park Geun-hye has been embroiled in a corruption scandal as there are allegations whether she allowed a long-time friend, Choi Soon-sil, to influence decisions for personal profit. Park denies any wrongdoing but says she will resign, if the South Korean National Assembly decides that is the best course.  Washington Post

Congress likely to pass a $6.3 billion health care bill
In a rare show of bipartisanship, Congress is poised to approve the 21st Century Cures Act. It’s a nod to Vice President Joe Biden, whose son passed away following a battle with cancer. The bill provides research funding for cancer and other diseases. It will also affect the regulatory process, which could decrease the time it takes for the government to approve new drugs or medical devices. NYT

Intel teams up with Delphi on self-driving cars
Auto parts and electronics maker, Delphi, made a deal with Brian Krzanich’s Intel to purchase the tech giant’s computer processors. Such high-powered processors are necessary to create fully autonomous-car systems. ABC News

Building Better Leaders

75% of companies say they will give holiday bonuses this year
The average expected amount of a bonus has jumped from $858 last year to $1,081.  WSJ

Only 10% of U.S. fund managers are women
And the chance that a woman is a fund manager has dropped since 2008. Fortune

Does humility matter anymore?
What has worked this year in politics won’t necessarily have the same impact at your company.  SmartBrief

Fighting Back

‘Fight for $15’ rally targets McDonald’s
Fast food workers, along with some Uber drivers and airport employees, are set to protest across the country for a minimum wage of $15 an hour. Convening in front of various McDonald’s  locations, the rallies will be the first major protest since the election of Donald Trump as president. Last year Trump said that workers’ wages were “too high” and it made the US non-competitive but this year Trump reversed himself, saying states should raise the minimum wage. Fortune

Theranos’ unusual string of investors
Elizabeth Holmes‘s health care tech startup received funding from unlikely sources, such as Bechtel Group Chairman Riley Bechtel, the family-controlled Cox Enterprises and Rupert Murdoch. Their stakes could be now almost worthless, thanks in large part to an investigative report by Murdoch’s Wall Street Journal, exposing Theranos’ tech failures. Two other investors – investment banker Robert Colman and Hilary Taubman-Dye – have filed suit against Theranos, asking for class-action status WSJ

AT&T targets cord cutters
In an effort to combat Sling TV and Playstation Vue, Randall Stephenson‘s AT&T has developed DirecTV Now. The streaming service provides 60 or 120 channels for $35 to $70 a month. As more consumers no longer want to pay for bundled TV packages, AT&T is trying to lure them with a mix of cable channels at a lower cost. Some worry the discount is too steep. Los Angeles Times

Fortune Reads and Videos

Inside an Amazon fulfillment center on Cyber Monday
The New Jersey fulfillment center is the size of 28 football fields and employs over 4,000.  Fortune

Tiffany’s weak third quarter performance…
…was caused partly by protests and road closures around Trump Tower. Its flagship store, which accounts for 8% of the company’s revenues, sits nearby and says the impact could continue. Fortune

Sallie Krawcheck writes a letter to her daughter
In a note following the election, Krawcheck wrote of the growing difficulty for women in the workplace, but added, “Recognize that the issues we face as women advancing in business are issues my grandmother would have loved to have had. And fight the good fight nonetheless.” Fortune

China tests grading citizens…
…based on their social and financial behavior. The social credit score could impact the ability to travel or obtain loans. Fortune

Happy Birthday

Chicago Mayor Rahm Emanuel turns 57 today.  Biography

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Produced by Ryan Derousseau