BRIC house

MARKETS

• Markets: There was a lot of red yesterday. More on that in a second.
• Retail: Bring on the holidays. The NRF (National Retail Federation) hiked its retail sales outlook for the rest of the year. It now forecasts at least a 4.5% annual gain given strong consumer sentiment and job growth.
• Crypto: Ether (the second-largest cryptocurrency by market value) fell to a new low for 2018 yesterday, trading under $300 for the first time since November.

INTERNATIONAL

So You Think You Know Turkey’s Problems?

Sure, you're well aware Turkey's on the brink of economic collapse. You've read the stories about the government's contingency plans. And you know President Trump's doubled down on tariffs.

But what you may not know? Just how massive the impact could be on other emerging markets and the U.S. companies operating there. (FYI, emerging market economies are countries that aren't quite considered "developed," but are trying to get there through rapid industrialization and growth).

Why does it matter?

Unsurprisingly, Goldman's BRIC portfolio suffered during Turkey's tumble in Q2.

• "23% of [BRIC stocks] missed consensus sales estimates by more than one standard deviation, nearly double the percent of negative surprises in the S&P 500."

But let's go back to Turkey, where things are...bad

It's grown at a breakneck speed in the last decade, but that growth has been fueled by foreign currency debts—which Turkey can't pay back currently.

And to make matters worse, Turkish President Erdogan opposes interest rate hikes, even though inflation is more than three times central bank targets.

Summing it up: JPMorgan said Turkey's "in the midst of a perfect storm" with gruesome economic conditions, wavering investor sentiment, and withering trade relationships.

• That storm's sunk the Turkish lira ~45% this year, capped by an 8% drop versus the dollar yesterday. The Argentine peso and the South African rand were also guilty by association, each falling on uncertainties stoked by Turkey's crisis.

Bottom line: Turkey jitters are spreading faster than mono did freshman year. Global markets are unsettled, and U.S. companies could feel the side effects.

AUTO

Musk Explains ‘Funding Secured’

Remember when Elon Musk tweeted that he had "secured" funding to take Tesla (+0.26%) private?

Well, with the SEC poking around and short sellers grabbing their pitchforks, he tried to clear that statement up with a classic Monday morning blog post...

The mysterious funder: Saudi Arabia's sovereign wealth fund (which has taken a less than 5% stake in Tesla) had been meeting with Tesla beginning in 2017 as part of its push to diversify away from oil. Sorry Brew readers, it's not the ghost of Steve Jobs, Bruce Wayne, or LeBron.

Why Musk tweeted "funding secured": The managing director of the Saudi fund "strongly expressed his support" for going private, and Musk "understood from him that no other decision makers were needed and they were eager to proceed." Will regulators buy this explanation?

The structure of the deal: "Most of the capital required for going private would be funded by equity rather than debt..." which is not a standard leveraged buyout structure.

Next steps: Elon said he'll continue to talk with investors and will hash out a final proposal as things develop.

MEDIA

Netflix CFO David Wells Will Step Down

Cue "Pomp and Circumstance." It's graduation time for Netflix CFO David Wells.

Wells announced he's leaving his post as Netflix's (-1.32%) finance chief once he finds his replacement. That successor (who could come from inside or outside of Netflix HQ) will take over the role Wells has held since 2010.

And as Wells readies for the next stage of life (he says he's getting into philanthropy), it's as good a time as any to look back on Netflix's highlights since he joined in ‘04.

• A steep increase in spending: Wells signed off on Netflix spending ~$8 billion on content this year, an enormous increase since his early days at the company (aka pre-House of Cards).
• Insane growth: Netflix had ~20 million U.S. subscribers when Wells became CFO...now it has over 130 million subscribers around the world. And sales of $2.2 billion in 2010 pale in comparison to an expected $15.9 billion this year.
• Major deals: Wells also helped facilitate lucrative deals with TV producers including Shonda Rhimes and Stranger Things's Shawn Levy.

Next story playing in 15 seconds...

DEALS

The Urge to Merge Backfires

Here are a few things you may not have heard before:

1. "Acquisitions worth more than $540 billion have been scuppered so far this year," per the FT.
2. The word "scuppered" used in a sentence.

But that just may be the perfect term (meaning "to defeat or put an end to") to describe the many would-be deals that have been tossed in the garbage in 2018. Here are just a few:

• Qualcomm is a main character in the deal drama. President Trump blocked Broadcom's $117 billion takeover attempt of the chipmaker. And last month, China didn't approve Qualcomm's $44 billion bid for NXP Semiconductors.
• Last week, Tribune Media called off its $3.9 billion deal with Sinclair as the FCC expressed "serious concerns."
• Rite Aid and Albertsons scuppered (hey, why not?) their $24 billion merger.

Connecting the dots: Heightened government scrutiny of foreign investment is definitely a factor, but per the FT, don't discount increased shareholder activism and companies trying risky Hail Mary deals.

VENTURE CAPITAL

The New Fund Hoping to Boost Black Representation in Tech

VC powerhouse Andreessen Horowitz is launching a new fund exclusively "targeted at black celebrities, athletes, and media figures," per the WSJ.

And it's assembled a dream team to sign on as initial limited partners: NBA star Kevin Durant, Will Smith (you know him), and business mogul Richelieu Dennis, to name a few.

We're light on details but thanks to the WSJ, we do know that...

• The fund will total ~$15 million.
• The firm will redirect the proceeds it would usually collect from fees and carried interest to nonprofits working to boost black representation in the tech industry.
• 0 of the 29 investing partners at Andreessen Horowitz are black.

TECH

Need an Eye Doctor Rec? Google’s Got You

DeepMind, Google's London-based artificial intelligence business, is planning clinical trials for technology used to diagnose eye disease.

• The nitty gritty: DeepMind's algorithm combs through 3D retinal scans for signs of major eye diseases like glaucoma or diabetic retinopathy.

And here's what could send your ophthalmologist to your therapist: early tests showed DeepMind's results were as accurate (and sometimes even more so) than human doctors.

How it went down

DeepMind teamed up with London's Moorfields Eye Hospital to pit man vs. machine. The verdict? DeepMind's algorithm beat eight retinal specialists at the hospital when tested on 997 patient scans.

• Those eight doctors' error rate: between 6.7% and 24.1%.
• DeepMind's error rate: Just 5.5%.

The findings are "absolutely jaw-dropping," experts said...and real-world applicable. The AI could be rolled out in England's National Health Service within three years. And if that's successful? A DeepMind medical product could be on the way.

WHAT ELSE IS BREWING

• Bayer stock fell 11.3% after its recent acquisition, Monsanto, was ordered to pay $289.2 million in a lawsuit over whether its weed killers caused cancer.
• Office Depot (+0.67%) is piloting its first-ever coworking space in a Los Gatos, CA store.
• Chinese regulators blocked sales of Tencent's new video game, "Monster Hunter: World," just days after it launched.
• Security researchers found a way to hack into the Amazon Echo smart speaker and turn it into a spy bug.
• Elliott Management has taken a more than 8% stake in TV ratings company Nielsen Holdings (+12.01%) and is now pushing it to sell itself.

BREAKROOM

REQUIRED READING
Summer's almost over, but that doesn't mean your reading list should stop growing. Thanks to the Financial Times and McKinsey, you're set ‘til next summer. Here are the 15 books in the running to become their Business Book of the Year. Hope you like adventures in capitalism.

BRAIN TEASER
Arrange the digits 0, 1, 1, 2, 3, 4, 6, and 7 to form a single fraction that equals 1/5. (Here is one example to get you started, which is...not true: 101/23467=1/5)

(Answer located at bottom of newsletter)

Breakroom Answers