Red flags

MARKETS

• Europe: Christine Lagarde made her first big policy speech as president of the European Central Bank. She encouraged European governments to focus more on their domestic markets than on exports.
• Trade: President Xi Jinping said China’s working toward a trade deal partially based on “equality.” President Trump said, “I didn’t like his word ‘equality’ because we started off so low.” We're taking away the remote if you two can’t stop bickering.

INTERNATIONAL

The U.S. Stonewalls Foreign Takeovers

A report released yesterday showed that the U.S. government was investigating foreign deals with much greater frequency than in the past.

First, let’s meet the investigators. The Committee on Foreign Investment, or CFIUS (pronounced sih-fee-us), reviews business deals involving foreign investors for any signs of national security risks. In 2017 and 2018, it found red flags all over the place.

• CFIUS investigated 73% of proposed foreign acquisitions in 2017 and 69% in 2018.
• The panel investigated less than 50% of proposed deals before them in each year from 2009 to 2016, the WSJ reports.

All that investigating can wear you out. Foreign companies abandoned 11% of investments reviewed by CFIUS last year and 14% in 2017.

Zoom out: Brew readers won’t be shocked to learn that China was the No. 1 home for foreign companies investigated by CFIUS, suggesting the Trump administration’s trade war with China is not only about trade deficits but also control over important technologies. A third of all CFIUS investigations from 2016–2017 involved computer and electronic manufacturing deals.

More trouble for Chinese firms

Yesterday, the Federal Communications Commission (FCC) took aim at Chinese telecom companies Huawei and ZTE. It voted 5–0 to ban companies that use Huawei or ZTE networking gear from tapping $8.5 billion in available government subsidies. On top of that, it designated those firms “national security threats.”

FCC Chairman Ajit Pai explained why:

• “Both companies have close ties to China’s communist government and military apparatus.”
• “Both companies have engaged in conduct like intellectual property theft, bribery and corruption.”

Bottom line: These Chinese companies are the best in the world at what they do—selling cheap telecom equipment to carriers in rural areas of the U.S. But the U.S. government is taking no chances in ensuring the country’s next-gen 5G networks are safe from cyberspies in Beijing.

MARKETS

The WSJ Pokes the Bear

Friday morning, the WSJ published a story suggesting Ray Dalio’s Bridgewater Associates, the world’s biggest hedge fund, bet more than $1 billion that global stock markets would fall by spring 2020. Shortly after, Dalio said the story was false.

The WSJ claimed that Bridgewater wagered about 1% of its total assets under management on put options on the S&P 500 and Euro Stoxx 50 expiring in March.

• Brewgle Translate: Bridgewater makes $$$ if one or both of the indexes fall.

Dalio continued, “I believe that we are now living in a world in which sensationalistic headlines are what many writers want above all else...You can believe me or you can believe The WSJ writer.”

Big picture: Dalio did say earlier this week that, given rising pension and healthcare debts, low interest rates, and handcuffed central banks, the economy is heading for a “Great Sag.” Not a recession, not $1 billion worth of bearish sentiment...but a Great Sag.

AUTO

Tesla Cybertruck: The Reviews Are Reviews

You’ve now had a day to get acquainted with Tesla’s new Cybertruck. We’re told the electric pickup’s doors can withstand a bullet from a 9mm handgun...but can Tesla withstand the hot takes?

The unveiling was a “glass disaster,” per Fox. In fact, most coverage revolved around the destruction of two supposedly indestructible glass windows:

And the rest focused on the vehicle’s “weird...like really weird” design. While we usually care more about what’s on the inside, the Cybertruck’s unorthodox look could have serious consequences:

• Tesla’s entry into pickup trucks with what RBC called “a Hummer for the green millennial generation” was seen as a potential threat to legacy automakers like Ford and GM.
• But, as analysts pointed out, the Cybertruck’s design might only be a hit with a very specific crowd—coastal techies with bad taste, not the traditional F-150 lovers of Middle America.

And if the market’s any indication, Detroit knows it. Tesla shares fell 6.1% Friday, while Ford stock rose 2.1% and GM 1.9%.

ENTERTAINMENT

Do You Want to Build a Franchise?

Six years after blowing past box office records with the $1.3 billion hit Frozen, Disney’s back and ready to ruin more road trips.

Frozen 2 came close to presale records for an animated movie, and Thursday night previews brought in $8.5 million. Disney expects the film to do $100 million in domestic ticket sales this weekend.

• That would be impressive for any animated movie outside the summer, but especially so for a month when box office sales are down 28% annually.
• We’ll see whether kids who fell in love with Elsa the first time still think it’s cool to watch Disney movies.

Plus, this time, it’s a full-blown franchise. In 2013, toymakers scrambled to push out Olaf dolls before they melted. Ahead of Frozen 2, Disney’s been inundating the market with themed toys and a marketing siege. Promotional partners run from Saks and Ziploc to Google and McDonald’s.

+ While we’re here: After receiving criticism for cultural appropriation in the original, Disney signed a contract and worked with the Scandinavian Sámi people to respectfully portray indigenous culture in Frozen 2.

WHAT ELSE IS BREWING

• Belinda Johnson, the COO of Airbnb, will step down in March and join the company’s board.
• WeWork will shift away from its business model of signing long-term leases in some cities, reports the FT.
• IBM’s artificially intelligent machine Project Debater struggled onstage in Cambridge, England.
• Jet, a subsidiary of Walmart, will end its fresh food delivery business in NYC, reports Bloomberg.

SATURDAY HEADLINES

It’s that time of the week to tell truth from fiction. We scoured the internet for three very bizarre (but real) headlines, and then we scoured or imagination for the final fake one. Can you spot it?

1. “Taylor Swift fans boycott J.Crew over private equity ties”
2. “Cambridge University students cry fowl over 17th century painting that upsets vegetarians"
3. “Why the world is running out of sand”
4. “Manager drives from New York to Pennsylvania to return keys”

Breakroom Answers