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CEO Daily: Monday, 8th May

Good morning.

Here’s hoping you didn’t spend your weekend reading or watching coverage of the health bill passed by the Republican House last week. I did, and it was time wasted. Neither the journalists covering the bill nor the political partisans defending and attacking it did a very good job explaining to the American people exactly what this bill does.

That’s partly because the effects are complex and indeterminate. In simplest terms, the bill gives states and insurers more freedom to craft insurance plans as they please, reducing Washington mandates and subsidies. Inevitably, that will create winners and losers. But without knowing which states will request waivers, or how insurance companies will reshape and reprice their plans, it’s hard to know exactly who the winners and losers will be.

Here ‘s one thing, however, that’s already abundantly clear: Merits aside, this bill is a political loser for the Republicans. There are three simple political rules that explain why:

1) Anecdotes and stories are more powerful than data and analysis. Even if the bill’s defenders are right that it will create less expensive and more flexible insurance options for most people, stories of those who see their health insurance bills skyrocket because of preexisting conditions will grab the headlines and the public attention.

2) Real losses matter more than potential losses. Even if the House bill is trading off higher costs for some people with preexisting conditions in return for lower premiums for the majority, the former will feel the pain more clearly than the latter will feel the benefits.

3) Losers scream louder than winners. That’s a political reality that also will haunt the Trump team if it tries to tackle tax reform (as opposed to everyone-wins-for-now tax cuts.)

At the risk of being repetitive: this is why complicated social legislation needs to be passed with bipartisan support. Back in 1983, Alan Greenspan headed a bipartisan commission that raised the Social Security retirement age in order to balance the program’s finances. If Republicans had done that alone, they would have been slaughtered with political ads in the 1984 election. But because both parties joined hands and jumped together, it was accepted as a necessary, if painful, fix. That’s how political leadership should work.

Could the Senate still take a bipartisan approach to health care? It’s possible, as Democratic Senator Joe Manchin told Politico recently. But it requires Republicans to turn from “repealing” the Affordable Care Act to “fixing” it—a semantic distinction that’s now blocking compromise.

More news below, including a victory for globalism in France.


Alan Murray

Top News

Macron’s Emphatic Victory

Emmanuel Macron won France’s presidential election in some style, with 66.1% of the vote against Marine Le Pen’s 33.9%. Markets are selling the fact after buying the rumor for the last couple of weeks, with both CAC 40 and Euro Stoxx 50 opening lower, and the euro only briefly poking its head above $1.10. French 10-year yields have still fallen 0.35 percentage point, and the CAC 40 has risen 8%, since the Le Pen scare peaked in March. Market thoughts are now turning to whether Macron’s fledgling party, En Marche, can repeat his success in legislative elections in June. The biggest risk is that the two traditional parties of the center-left and center-right will prove difficult to unite on any issue more controversial than rejecting Russian-backed extremism. Fortune

Oil Still Struggling Despite Saudi Support

Saudi Arabia’s oil minister Khalid al-Falih all but confirmed that OPEC and other major oil exporters will extend their current deal on output restraint for at least another six months. Al-Falih told a conference that “the worst is behind us” and said the trend to rebalancing in the global market was still intact. Despite the verbal support, crude prices barely bounced from last week’s 6% drop. Benchmark U.S. crude futures slid 0.2% to $46.14 a barrel, still digesting Goldman Sachs’ warning Friday that it may revise down its forecast for an average price of $50 a barrel this year as speculative buyers “near capitulation.” Fortune

Akzo Nobel Can’t Put a Price on Culture

Paints and coatings Akzo Nobel rejected a third approach from PPG Industries, which raised its offer to 26.9 billion euros ($29.5 billion). The Dutch company said the offer undervalues it, faces antitrust risk and doesn’t address “cultural differences”—the last being another way of saying that today’s board doesn’t like the idea of evicted from their seats, while local production sites are gutted by a new generation of foreign management. With European stocks enjoying strong inflows as political risks recede, PPG may end up ruing its failure to deliver a knockout bid earlier. Reuters

Comcast, Charter Join Forces on Mobile

Comcast and Charter Communications are on the verge of announcing a partnership in the wireless communications business, according to The Wall Street Journal. Under the deal, neither side will make a major acquisition in wireless carriers without the other’s blessing. Both cable providers and network carriers are under pressure from technological disruption, and the deal ought logically to strengthen the hand of the cable powers vis-à-vis the likes of Sprint or T-Mobile in any future consolidation. Comcast also launched a new cloud-based WiFi service Monday in an effort to keep customers loyal.  Fortune

Around the Water Cooler

Guardians of the Dividend

Disney’s movie business seems to have another hit franchise on its hands. Guardians of the Galaxy Vol. 2, put down an impressive marker for the summer box office season, taking $145 million in its weekend debut across the U.S.. That’s in addition to two strong international weekends that mean total takings are already over $420 million. The sequel’s success effectively ensures that an initially low-profile part of the Marvel universe will prove to be a huge long-term source of revenue. It will also help the mood when Disney updates on its more challenged TV business when it reports first-quarter earnings Tuesday. Fortune

Sloan Prepares to Appease Wells Shareholders

Wells Fargo CEO Tim Sloan will announce new cuts of up to $3 billion in costs at the scandal-plagued bank this week, on top of the $2 billion already announced, according to the Financial Times’ sources. The bank, which didn’t confirm the report, has an investor day Thursday, and Sloan and the company’s board are still licking their wounds after a mauling by shareholders earlier in the month. The cuts will likely be supported by Warren Buffett, whose Berkshire Hathaway is Wells’s biggest shareholder with nearly 10%. Buffett was scathing about the bank’s management when he faced his own shareholders on Sunday. FT, metered access

Sinclair Nears $4 Billion Deal For Tribune

Sinclair Broadcast Group is nearing a deal to acquire Tribune Media for close to $4 billion, according to Reuters’ sources. 21st Century Fox, which had considered bidding for a company that owns a large number of its broadcast affiliates across the U.S., reportedly chose not to bid in the event. The deal values Tribune Media at around $44 a share, just under 30% above its prevailing level before talks started. Fortune

Goldman Gets a Pass on Volcker Rule Compliance

Wall Street banks look to be winning significant concessions from regulators to keep hold of assets that they were supposed to dispose of under the so-called Volcker Rule, according a Financial Times analysis. Most had asked for another five years to sell ‘illiquid assets’ such as private equity and hedge fund holdings. Goldman Sachs said in a filing last week it has had approval to hold on to $6.2 billion in such assets, while PNC Financial has similar approval for $300 million. Morgan Stanley is still waiting for an answer to an extension for $1.9 billion in illiquid holdings. FT, metered access


Summaries by Geoffrey Smith; @geoffreytsmith