CVS fills its presciption

Quote of the Day

Venezuela will create a cryptocurrency.”

Market Snapshot

• U.S. indexes took a hit after Mike Flynn pleaded guilty to lying to the FBI.
• European markets dropped as they awaited news of U.S. tax reform (spoiler: it passed).
• Oil got a lift from OPEC promising further production cuts.
• U.S. regulators approved Bitcoin futures, sending the cryptocurrency back to $10,500.

The Senate Passed a Tax Bill and Promptly Took a Nap

The Senate did their best second-semester senior year impression, making last-minute changes and narrowly avoiding an all-nighter before passing a major overhaul of the U.S. tax code.

And since the 479-page bill will affect nearly every molecule of American society, we might as well take a peek inside the thing (tl;dr: it’s similar to the House’s version, but with a few notable differences).

Corporations

No surprises here. The Senate hacked away at the corporate income tax, dropping it to 20% from 35% (but not until 2019). As for multinationals, they’ll be able to bring home foreign cash at a low rate of 14.5%, and won’t pay tax on income earned overseas moving forward.

Pass-through businesses

LLCs, partnerships, and sole proprietorships (which comprise 95% of all U.S. businesses) can take advantage of a generous 23% deduction. Analysts say this could lead to tax avoidance by individuals, so don’t be surprised when Uncle Joe forms a few S corps before organizing your family’s March Madness pool.

Individuals

The Senate keeps the current model of seven brackets, but drops the rates on most of them, including the top rate. It also doubles the standard deduction ($12,000 for singles, up from $6,350), which means you’ll probably opt for that instead of taking pains to list out your deductions one-by-one (called “itemizing”). Plus, we still haven’t figured out how to characterize those Taylor Swift tickets as a “charitable gift.”

Homeowners

The Senate is keeping the mortgage interest deduction (allowing homeowners to write off interest on up to $1 million of debt). But there’s a catch. Since most people won’t be itemizing deductions anymore, they probably won’t use this write off. This won’t make your local RE/MAX broker too happy.

The deficit

While most Republican leaders will tell you the bill pays for itself, most nonpartisan agencies say otherwise. The Congressional Budget Office claims the bill will add almost $1.5 trillion to the federal deficit over the next decade, as economic growth spurred by the tax cuts won’t make up for lost revenue.

In the next few weeks, the House and Senate will try to work out their differences. But you have to feel good about the bill’s chances to pass if it’s come this far.

CVS Fills Its Prescription for Aetna

CVS sealed the deal on its $69 billion acquisition of Aetna—it’s the largest corporate sale this year.

The cash-stock purchase integrates CVS’ pharmacy and pharmacy benefits manager (PBM) business with Aetna’s insurance network of 23 million people. It’s an alliance that will create $750 million in annual cost synergies and improves CVS’ negotiating power over drugmakers.

Of course, there were other forces at play.

Amazon sent the healthcare industry into a panic when it secured pharmacy licenses in 12 states. As Bezos sees it, with sky-high drug prices and little-to-no delivery solutions, the industry is ripe for disruption. Nothing quite like Clonazepam Prime.

But with CVS’ acquisition, even Amazon will have a tough time stealing any of the company’s $178 billion $240 billion in revenue. So long as antitrust regulators don’t get in the way…

Tencent and Spotify Become Blood Brothers

Forget sharing playlists, why not share equity? That’s the thinking behind Tencent Music and Spotify discussing taking 10% stakes in each other’s companies, as both gear up for 2018 IPOs.

Aside from the opportunity to profit from their public listings, the partnership would allow the two streaming services to negotiate more favorable licensing deals with record labels and artists.

But there are other motives. Spotify’s been struggling to attract Chinese investors, so it hopes a vote of confidence from Western-facing Tencent (owns 12% of Snap) will get others to follow.

As for Tencent Music, a subsidiary of the $500 billion tech giant, it’s a chance to take notes from Spotify’s success in transitioning users from freeloaders to paid subscribers. Forty-six percent of Spotify listeners have a premium membership, while the same can be said of only 2-3% of Tencent’s user base.

And with Tencent’s three streaming services (QQ Music, Kugou, and Kuwo) reaching 700 million active users, it may be a monetization lesson worth paying attention to.

Legalize Sports Betting: It’s a Lock

If you’re looking for a new bookie, you might have some more options. New Jersey is pleading its case to the Supreme Court this week to remove a 25-year-old ban that restricts sports gambling in all but four states: Nevada, Oregon, Delaware, and Montana.

And if Jersey gets the nod of approval, it could open the floodgates to country-wide revenue streams of nearly $15 billion a year. That’s compared to $270 million right now.

But this decision isn’t in the bag. The ban dates back to 1992 after sports gambling brought about a number of scandals—like in ‘78 when Boston College shaved points off basketball games for mobsters to cover the spread.

That said, Jersey argues the days of Guns N’ Pete Roses are over. And NBA commissioner Adam Silver agrees, suggesting sports gambling checks the boxes for more revenue and better ratings.

Unfortunately, we’ll have to wait until June 2018 for the final verdict.

What Else Is Happening…

• Three managers from Uber’s security unit resigned following the hack of 57 million accounts.
• Catch up on all the announcements from the AWS event last week.
• Fiat Chrysler is close to a tech partnership with Hyundai.
• Mining giant Rio Tinto found itself a new chairman: industry insider Simon Thompson.

Economic Calendar

• Monday     Earnings: No Events

                    Economic Events: Factory Orders

• Tuesday    Earnings: Dave & Buster’s, Lands’ End

                  Economic Events: International Trade, ISM Non-Mfg Index

• Wednesday    Earnings: Broadcom, Lululemon

                        Economic Events: ADP Employment Report, Petroleum Status

• Thursday   Earnings: Cloudera

                   Economic Events: Jobless Claims

• Friday       Earnings: No Events

                 Economic Events: Consumer Sentiment

From the Crew

Michael—Let’s go see Hamilton

I was catching up on Curb last week and got to the episode where (spoiler) Larry falls asleep at Hamilton. And it got me thinking…

I really want to go see Hamilton. So let’s try a little experiment. There’s a raffle every day to win Hamilton tickets and you can enter here. I want to see how many people we can get to sign up. But here’s the catch. If you win, you have to take me.

Neal—HQ in the HQ

3 pm at the Brewery (we’re still workshopping names for our office) is sacred. We all stop what we’re doing and get hype for HQ Trivia. This app brings live trivia straight to your phone twice a day, and with a hilarious host, a scrolling comments section filled with “dilly dilly,” and serious prize money at stake it’s a thrilling break from work. Sure, with a guy talking to you on your phone it borders on something out of Black Mirror. But we can’t help ourselves.

Join us for the best five minutes of the day.

The Breakroom

Question of the Day

What digit occurs the least frequently in the numbers between 1 and 1,000 (inclusive)?

(Answer located at the bottom of newsletter)

Business Trivia

There are currently five states which don’t collect a sales tax. Can you name them?

(Answer located at the bottom of newsletter)

Stat of the Day

375 million—The number of people who might have to switch careers by 2030 due to automation. Let’s just hope robots don’t starting writing newslet...101010.

Breakroom Answers

Question of the Day: 0 (Explanation)

Business Trivia: Oregon, Montana, Delaware, Alaska, New Hampshire