What economists are worried about for 2019

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Economists size up 2019 

It’s time for economists to make their predictions for the year ahead. Among the main questions: What are the biggest threats to the U.S. economy, and will the country fall into a recession?

Trade tensions are the top concern. About 47.3 percent of the economists surveyed by the WSJ said the continuing conflict between the U.S. and China was the biggest economic risk of 2019. About one in five cited disruptions in the financial markets as their biggest worry, and 12.7 percent were most worried about a slowdown in business investment.

Don’t sweat rising interest rates. Only 7.3 percent of the economists polled by the WSJ said Fed rate increases were the biggest threat to the economy. Economists told the WSJ and Reuters that they only expect two increases next year.

Expect a recession soon(ish). Over half of the economists polled by the WSJ expect a recession to start in 2020, and slightly more than one in four expect it in 2021. Just one in ten expect a recession next year. Economists surveyed by Reuters put the chances of a recession in the next two years at 40 percent; Pimco has put the odds of one next year at 30 percent. Make of all that what you will.

Bonus: If you think this is all too much talk and not enough action, you are not alone. “I propose a new standard,” writes Daniel Moss of Bloomberg Opinion. “Anyone noting a slowdown in major economies or predicting a recession is expected to also suggest how officials should respond.”

Can Nissan and Renault fill their power vacuum?

With Carlos Ghosn in a Tokyo jail facing criminal charges of underreporting his income, the automakers have a major problem. Mr. Ghosn masterminded and led the alliance that allowed the two companies to prosper. But, as Jack Ewing, Motoko Rich and Liz Alderman of the NYT write:

• “Mr. Ghosn had not cultivated a clear successor, and that leaves the alliance’s survival in doubt: Neither Nissan nor Renault has a plan for preserving the arrangement that has been a juggernaut.”
• “Mr. Ghosn’s power and unusually long tenure may have prevented the alliance from evolving as Nissan became by far the bigger and more profitable partner, yet Renault exercised more control.”
• “The Renault board said on Thursday that an internal inquiry into Mr. Ghosn’s compensation had uncovered no irregularities, and that he would remain chief executive.” (Reuters says that could change.)
• “Nissan’s board will meet on Monday to appoint a replacement for Mr. Ghosn.” (Reuters isn’t expecting them to succeed.)
• “With Mr. Ghosn in jail, the most complicated problem for the alliance is that it simply has no leader.”

Inside Elon Musk’s manufacturing hell

Tesla has long struggled with production issues on its new Model 3 electric car, and Elon Musk, the carmaker’s C.E.O., is known to have worked hard to overcome them. But a new investigation by Wired paints a deeply unflattering picture of his methods. Here’s a particularly illuminating passage:

He walked along the assembly line, red-faced and urgent, interrogating workers he encountered, telling them that at Tesla excellence was a passing grade, and they were failing; that they weren’t smart enough to be working on these problems; that they were endangering the company, according to someone who observed him.

Employees knew about such rampages. Sometimes Musk would terminate people; other times he would simply intimidate them. One manager had a name for these outbursts — Elon’s rage firings — and had forbidden subordinates from walking too close to Musk’s desk at the Gigafactory out of concern that a chance encounter, an unexpected question answered incorrectly, might endanger a career.

A $9.5 million sign of CBS’s big #MeToo problem

When sexual comments by the star of the prime-time CBS drama “Bull,” Michael Weatherly, made the actress Eliza Dushku uncomfortable, she confronted him. Shortly after, she was written out of the show. Believing it to be an act of retaliation, Ms. Dushku went through mediation with CBS and won a $9.5 million settlement.

Her story, which emerged amid an investigation by outside lawyers for CBS into sexual misconduct allegations against Les Moonves, the company’s former C.E.O., is laid out in a draft report reviewed by The New York Times. The document contains some damning conclusions:

• “The lawyers said the company’s handling of Ms. Dushku’s complaints was not only misguided, but emblematic of larger problems at CBS.”
• “When faced with instances of wrongdoing, the company had a tendency to protect itself, at the expense of victims, the investigators wrote.”

And an investment bank’s #MeToo stand

In a letter to staff members, Richard Handler, the C.E.O. of the investment bank Jeffries, explained that he was vexed by “the thoughtless, paranoid and fundamentally wrong reaction that many people in our industry are expressing about the #MeToo movement.”

• “If you don’t know how to conduct yourself as a responsible, courteous and balanced human being, the fault lies exclusively with you and not with an allegedly flawed system designed to ensnare the innocent,” he wrote.
• His conclusion: “We cannot control the markets, but we can control how we act and behave.”

How Big Oil covertly pushed to gut car emissions rules

When President Trump announced a rolling back of car emission regulations this year, automakers said it was too much even for them. But the U.S. oil industry had secretly pressed for such extreme measures all along, writes Hiroko Tabuchi of the NYT:

• “The industry had reason to urge the rollback of higher fuel efficiency standards proposed by former President Barack Obama. A quarter of the world’s oil is used to power cars, and less-thirsty vehicles mean lower gasoline sales.”
• “In Congress, on Facebook and in statehouses nationwide, Marathon Petroleum, the country’s largest refiner, worked with powerful oil-industry groups and a conservative policy network financed by the billionaire industrialist Charles G. Koch to run a stealth campaign to roll back car emissions standards.”
• “The campaign’s main argument for significantly easing fuel efficiency standards — that the United States is so awash in oil it no longer needs to worry about energy conservation — clashed with decades of federal energy and environmental policy.”

Why investors are so eager to “sell the rally”

Stocks on Wall Street are poised to end the week higher than they started it, with trade tensions between China and the U.S. apparently easing.

But one developing trend has some people concerned: Yesterday, for a fifth straight day, investors sold an early rally, leaving stocks with only modest gains. The FT explains what’s happening:

Year after year of support from global central banks and their multi-trillion dollar asset purchase programmes had indoctrinated the BTD [buy the dip] moneymaking strategy: buy on any sign of a pullback, policymakers have you covered.

But with the Federal Reserve well into a policy tightening cycle and concerns about the U.S.-China trade war weighing on the global growth outlook, investors appear a lot less keen to place their belief — at least for now — that stocks always go up.

More on markets: Investors often treat tech stocks like members of a close-knit family that always travel together. That’s wrong. Headlines about trade have kept investors on tenterhooks in recent weeks, flustering stock markets in much of the world — except, oddly, in China.

Europe ends its huge money-printing program

The European Central Bank said on Thursday that it would stop adding to its stockpile of government and corporate bonds at the end of December, winding down a scheme that has held down interest rates and encouraged lending for nearly four years, reports Jack Ewing of the NYT.

It’s an expected end. “The bank signaled in June that the bond-buying program, which pumped 2.5 trillion newly created euros, or $2.8 trillion, into the eurozone economy, would probably end in December,” Mr. Ewing writes.

But the central bank still has worries. “The latest data and survey results have been weaker than expected,” said Mario Draghi, the bank’s president. “This may suggest some slower growth momentum ahead.”

Don’t expect an economic shock. “An enormous stockpile of government bonds will remain in the central bank’s possession for years,” Mr. Ewing writes. “The central bank emphasized on Thursday that it was in no hurry to reduce its holdings, and reiterated that it would not begin to raise interest rates before the end of next summer.”

Revolving door

• Lucy Peng will step down as the C.E.O. of Alibaba’s Lazada, an e-commerce company focused on Southeast Asia. (WSJ)
• George Osborne, the former chancellor of Britain’s Exchequer, will become an adviser to his brother’s Silicon Valley venture fund, 9yards Capital. (FT)
• Caterpillar’s C.E.O., Jim Umpleby, will also serve as its chairman. (WSJ)
• Morgan Stanley will close its equities and foreign exchange desks in Moscow, with some job losses. (FT)

The speed read

Deals

• The French luxury-goods company LVMH has agreed to acquire the hotel operator Belmond for $2.6 billion. (WSJ)
• L Brands is selling the lingerie business La Senza to the private-equity firm Regent. (WSJ)
• G.E. is spinning off its software business. (NYT)
• The delivery start-up Instacart will end its partnership with Whole Foods, which began before Amazon bought the supermarket chain. (Axios)
• A coalition of telecom companies opposes T-Mobile’s plan to buy Sprint. (Reuters)

Politics and policy

• Federal prosecutors are examining whether foreign nationals illegally funneled donations to President Trump’s inaugural committee and a super PAC. (NYT)
• Mr. Trump blamed his recently jailed former lawyer, Michael Cohen, for anything illegal about his hush payments to two women. But a tabloid publisher’s admission to its role in one payoff makes Mr. Trump’s position precarious.
• The Trump administration has a new Africa strategy. It’s about China. (NYT)
• Maria Butina pleaded guilty over her role in a Russian effort to influence U.S. conservatives. (NYT)
• Prime Minister Theresa May of Britain received a brutal response from E.U. leaders to a request for help making a Brexit agreement palatable to her lawmakers. (FT)

Trade

• Huawei said it would do “anything” to convince the world that its hardware isn’t a security threat. (FT)
• How the arrest of Huawei’s C.F.O. has hurt Canada. (NYT)
• The U.S. government confirmed that China had resumed buying American soybeans. The orders are small so far, and it’s not clear whether more are coming. (Reuters)

Tech

• The West Coast doesn’t have all the talent the U.S. technology industry needs, so companies are looking further afield. (NYT)
• Qualcomm filed a patent lawsuit in China in hopes of banning the sale of Apple’s latest iPhone models. Qualcomm had already tried to block the sale of previous iPhones, and Apple said it would push out a software update to address those objections.
• Can cryptocurrencies survive regulation? (DealBook)
• Richard Branson’s space-tourism company, Virgin Galactic, reached the edge of space for the first time yesterday. (WSJ)
• Bitcoin spammers sent bomb threats — but, it appears so far, not bombs — across the U.S. (Verge)

Best of the rest

• Wall Street banks are offloading leveraged loans, as concerns mount about the quality of financing for private equity buyouts. (FT)
• Palladium has been worth more than gold for the past three days of trading. (NYT)
• Many former Goldman Sachs partners are deeply concerned about the company’s role in the 1MDB scandal. (Bloomberg)
• While the billionaire Mohammed Al Amoudi vanished for 400 days, his business empire flourished. (Bloomberg)
• There’s a fatal flaw in many climate change investments. (WSJ)
• How the world’s wealthiest 0.001 percent invest. (Economist)

Thanks for reading! We’ll see you next week.

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