Rare defeat

MARKETS

• Stimulus: The Senate will kick back into gear today, and first on the agenda is making tweaks to the Paycheck Protection Program, the often-chaotic aid program tasked with doling out $670 billion in forgivable loans to small businesses. White House economic adviser Larry Kudlow said a third funding infusion might be necessary.

INVESTING

Buffett: "Ducks Fly Together"

It probably won't rank among the best pump-up speeches of all time, but Berkshire Hathaway CEO Warren Buffett tried to give us a little jolt of optimism Saturday.

Speaking at an unrecognizable Berkshire shareholders meeting (the event that usually draws 40,000+ to Omaha was virtual this year), the 89-year-old investing icon said the U.S. has “faced tougher problems” than the coronavirus pandemic, and the “American miracle, the American magic, has always prevailed.”

“Never bet against America,” read one slide.

While Buffett isn’t betting against America, he isn’t betting on the American airline industry. Berkshire Hathway sold its entire stake in Delta, Southwest, United, and American in April—over $6 billion worth of stock. Here’s why:

• “The airline business—and I may be wrong and I hope I'm wrong—I think it has changed in a very major way.”
• “I don’t know if two or three years from now if as many people will fly as many passenger miles as they did last year.”

Execs in the industry pretty much agree as they downsize their fleets and workforces to adjust to lower demand.

Like all of us, Buffett will want to forget this quarter

Berkshire Hathaway, a conglomerate with stakes in some of the country’s biggest companies, recorded a $49.7 billion loss in Q1. That reflects the pain inflicted on stock prices by the pandemic.

• We should mention...under a new accounting rule, Berkshire must report unrealized gains and losses, but because of its massive stock holdings the company says those figures are “usually meaningless.”
  Even with the market hammering prices on many assets, Buffett still hasn’t found an acquisition target worthy of bringing into the family. The company’s cash pile now sits at $137 billion, though he is “willing to do something very big” (very big to Buffett = $50 billion).

Final note: You and Warren Buffett have something in common. "It's been seven weeks since I've had a haircut," he said.

ECONOMY

The 90% Economy

There’s no shortage of hot takes about the future of the economy, but this one from The Economist seems especially smart: the “90% economy.” The basic argument is if you look at countries that have largely controlled the spread of the virus (such as China and South Korea), it appears that national output will be capped at 90% of its potential because of persistent social distancing measures.

There are three distinguishing features to the 90% economy:

• Fragile: The threat of the coronavirus returning (leading to more lockdowns) will make it nearly impossible for businesses to plan months ahead. Without long-term planning, it’s difficult to envision businesses sinking money into investment projects.
• Less innovative: Less face-to-face socializing = fewer opportunities for the sorts of spontaneous brainstorming sessions that lead to world-changing ideas.
• More unfair: As Fed Chair Jerome Powell noted last week, this economic crisis has disproportionately hurt lower-income workers. Oxford researchers found that Americans who make

SPORTS

USWNT Suffers Rare L

On Friday, the U.S. women's soccer team aka the most successful soccer team in U.S. history lost a significant legal battle in its equal pay lawsuit, ESPN reports.

The backstory: The women's players argued that after winning the World Cup in 2015 and 2019 they would have been paid more under the terms of a men’s collective bargaining agreement (CBA), and therefore U.S. Soccer was in violation of the Equal Pay Act.

The ruling: A federal judge concluded that any differences in payment structure between the men’s and women’s CBA were the results of the specific terms the players and their union agreed upon, not discrimination from U.S. Soccer.

• He also wrote that between the period of 2015–2019, the women's national team was paid more than the men's national team on both a total and a per-game basis.

Looking ahead...claims of unequal working conditions, specifically related to travel accommodations and support from medical and training staff, can still go to trial in mid-June.

RETAIL

Social Distancing We Can Get Behind

Spotted in a bathroom at Allen Premium Outlets in Allen, TX. The state allowed restaurants, malls, retail stores, and movie theaters to reopen on Friday at 25% capacity. Florida will also start to reopen many businesses across the state today with heavy restrictions.

Is anyone going to go? We can use Apple Maps mobility data to measure whether people are actually moving about more. The short answer is yes, it looks like there's been a significant uptick in every mode of transportation but mass transit. Yesterday, driving activity was only 11% below baseline levels in the U.S.

CALENDAR

The Week Ahead

Friendly reminder that Mother's Day is less than a week away...

Monday: Pulitzer Prize winners announced; earnings (Shake Shack, Tyson Foods, AIG)

Tuesday: Trade balance report; Cinco de Mayo; National Teacher Day; earnings (Disney, Beyond Meat, Pinterest, Activision Blizzard, Electronic Arts)

Wednesday: National Nurses Day; earnings (T-Mobile, GM, Shopify, Peloton, CVS, Fox Corp., Lyft, Etsy, Square, PayPal, Wendy's)

Thursday: Jobless claims; earnings (Bristol-Myers Squibb, Roku, AB InBev, Uber, ViacomCBS, Yelp, Hilton Worldwide, Booking Holdings, Nintendo)

Friday: The most important jobs report in recent history

STAR WARS

The Imperial Banking System: Too Far Away to Fail

In 2015, Zach Feinstein, an assistant professor at Washington University, set out to answer the question nobody asked: What was the state of the Galactic economy following the Empire’s collapse at the end of Episode VI: Return of the Jedi?

The answer: On the brink of failure. A massive government project, the second Death Star, has just been destroyed by the Rebel Alliance, and the Galactic economy was set to enter a depression of “astronomical proportions.”

• Feinstein estimates the DS2 would’ve cost $419 quintillion to build ($226 quintillion in steel alone). Including R&D, the first Death Star was a bargain—just $193 quintillion.
• Assuming the first Death Star had a similar cost profile to the Manhattan Project during WWII, Feinstein estimates Gross Galactic Product (GGP, similar to GDP) at $4.6 sextillion per year.

The only option: A bailout of the Imperial financial sector. The Rebel Alliance would need to prep a rescue package of at least 15% of GGP in order to prevent “catastrophic economic collapse.”

Looking ahead...the Force doesn’t awaken in Episode VII for 30 years following the Rebel victory, enough time for a U-shaped economic recovery.

WHAT ELSE IS BREWING

• Secretary of State Mike Pompeo said there’s “enormous evidence” that the coronavirus outbreak began in a lab in Wuhan, China. But he agreed with U.S. intelligence that the virus was not man-made.
• Elliott Management is financing a patent lawsuit against streaming service Quibi over its signature "Turnstyle" tech, reports the WSJ.
• Roche has received FDA approval for emergency use of its antibody test.
• Intel appears to be close to buying Israeli transportation app developer Moovit for roughly $1 billion.
• Spain and Italy relaxed more restrictions, though Russia hit a new daily high for COVID-19 cases.

CROSSWORD

This week's crossword is Star Wars themed. You can complete it here (Toby made it a little easier than previous editions).

Here are three clues to whet your appetite:TEXT

1. Secret Starbucks size (6 letters)
2. Gungan general in Star Wars (11 letters)
3. Meryl Streep alma mater (6 letters)