Elon's summer fling

MARKETS

  • Remembering John McCain: The Vietnam War hero, senator, and presidential hopeful died from brain cancer at age 81.
  • Trade: Keep your eyes peeled...a NAFTA agreement between the U.S. and Mexico could be reached as early as today.

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ECON

Amazon Is Messing with the Economy in More Ways Than One

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There's no better way to kick off Back to School Week at the Brew than by studying a new economics paper.

Did we get your blood pumping yet? No? Well...this might: the paper (presented this weekend at the Jackson Hole symposium) offers a way to connect some of the most important issues facing our economy today.

Let's start here: have you heard of the "Amazon Effect?"

It's the idea that Amazon's growing market share in retail has pressured competitors to lower their prices, which in turn has squeezed their margins.

But there's more going on, says the paper's author, Harvard Business School economist Alberto Cavallo—we'll call it the "Amazon Effect 2.0"...

  • By changing prices almost instantaneously through algorithms, Amazon has forced other multi-channel retailers (like Walmart, which sells online and through brick-and-mortar) to also change their prices more frequently.
  • Not only that, Amazon has brought about more uniformity in prices across locations—aka the price of a product will be the same whether you're in New York or New Mexico.

Zoom out: The growth of online shopping has revolutionized transparency in retail. Amazon's competitors have to respond to not only lower prices (Amazon Effect 1.0), but how quickly and where those prices are changing (Amazon Effect 2.0).

So why does this matter?

Because we may have to rethink how we view inflation (aka how the price of goods and services increases over time). Cavallo explains that retailers constantly fiddling with their prices can lead to a higher "sensitivity of prices" to shocks. These shocks can take the form of fluctuating gas prices, exchange rates...or even tariffs.

Bottom line, courtesy of The Upshot's Neil Irwin: "If online retail makes prices jump around more than they once did, policymakers should be more reluctant to make abrupt policy changes based on short-term swings in consumer prices."

AUTOS

Musk Thinks Better of Taking Tesla Private

Like most summer romances, Elon Musk's fling with a private Tesla ended in a series of tears, hushed conversations, and a goodbye letter.

That letter was a Friday night blog post, in which Elon reversed course on his bold Twitter declaration that he intended to take his electric automaker private. So what changed his mind?

  • "Given the feedback I've received, it's apparent that most of Tesla's existing shareholders believe we are better off as a public company...the sentiment, in a nutshell, was ‘please don't do this.'"
  • "I knew the process of going private would be challenging, but it's clear that it would be even more time-consuming and distracting than initially anticipated. This is a problem because we absolutely must stay focused on ramping Model 3 and becoming profitable."

Thanks for the memories: Summer romances may feel like a dream, but as Musk will find out...they are very real.

  • As he tries to make Tesla profitable, Elon will have to deal with the SEC, which is still inquiring about his "funding secured" claim that boosted Tesla stock. And you can be sure criticism of his recent erratic behavior will only get louder with any more missteps.

RIDE-HAILING

Didi Suspends Carpool Service After Another Murder

Didi Chuxing, China's biggest ride-hailing company, is suspending its Hitch carpool service today after a 20-year-old woman was raped and killed by her driver Friday.

Didi said the driver had a clean record and provided authentic documentation, but...

  • There was a prior complaint against the driver made on Thursday (a day before the incident). That passenger said the driver took her to a remote location, then followed her after she got out of his car.

China's police and transport ministry said Didi bears an "unshirkable responsibility" in the woman's death. Keep in mind, this is the second time a woman using Hitch has been killed this year.

Didi's response: "[The incident] shows the many deficiencies with our customer service processes...This is too high a cost to pay."

Remember, SoftBank-backed Didi's the biggest ride-sharing company in the world by number of trips (its Hitch social ride sharing service—think hitching a ride with a stranger—has racked up more than a billion trips in the last three years alone).

So what's next? Two execs are already out. Plus, Didi is reevaluating the Hitch business model and said it'll overhaul compliance operations by Sept. 1.

CALENDAR

The Week Ahead

It's the (unofficial) last week of summer...time to make the most of it.

Monday: U.S. Open tennis tournament begins
Tuesday: Starbucks launches its Pumpkin Spice Latte; consumer confidence index; Turkey's government returns to work after an extended national holiday; Earnings (H&R Block, Tiffany & Co., Best Buy)
Wednesday: GDP revision, pending home sales; Earnings (Salesforce, American Eagle, Express, Dick's Sporting Goods)
Thursday: Personal income, consumer spending, core inflation; Warren Buffett turns 88; Earnings (Dollar Tree, American Outdoor Brands, lululemon, Dollar General, Campbell Soup, Ulta, Abercrombie & Fitch)
Friday: Bank of Korea meets; consumer sentiment index; Aretha Franklin's funeral; Trail Mix Day; Pack for the long Labor Day weekend ahead

EDUCATION

By the Numbers: Business School

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This week, we're celebrating Back to School Week with features on education. Today, we're breaking down the numbers on graduate business school, per recent GMAC research.

85%—U.S. employers predicting they'll hire MBA grads this year, down from 91% in 2017. Per the WSJ, that's the biggest drop since the start of the recession.

3—Consecutive years that applications to full-time MBA programs in the U.S. have dropped, as of 2017.

90%—Companies in the Asia Pacific region that plan to hire MBA grads in 2018. Compare that to Europe, where only 64% of companies plan to hire MBAs.

$105,000—What U.S. companies will offer MBA graduates as a base salary in 2018...down from $110,000 in 2017.

6%—Business schools made up of large, popular programs (201 or more students). Incredibly, those programs received 55% of total applications and 32% of enrollments. And the divide between the "have" and "have-nots" is only growing over time...

Bottom line, courtesy of the WSJ: "Once considered a prerequisite for successful careers in American corporations, the flagship two-year degree is attracting fewer students across the U.S., which has strained school finances and driven officials to launch shorter, more customized programs for millennials."

WHAT ELSE IS BREWING

  • Multiple people were killed in a shooting at a video game tournament in Jacksonville, FL.
  • Neil Simon, a Pulitzer Prize-winning playwright, died at age 91. Forbes once referred to him as a “one-man entertainment conglomerate.”
  • Cigna and Express Scripts shareholders voted to approve their $52 billion deal. That comes despite criticism from activist investor Carl Icahn.
  • "Crazy Rich Asians" kept up the momentum, topping the box office again in its second weekend.
  • Instagram's IGTV is still trying to find its footing two months in.
  • Walt Disney World workers will be paid $15/hr by 2021, per the terms of a new deal.

BREAKROOM

BACK TO SCHOOL TIPS
Brew readers don't agree on everything...but most think it's a smart idea to introduce yourself to your professor (even in a massive lecture). Two readers explain why:

  • "That small interaction puts a name to a face and can help you later in the term should you need to call on them for additional support."
  • "I have found that most professors truly want to see you succeed. Simply showing that you are interested in learning (remember that your professor has literally dedicated her life's work to the topic) goes a long way."

BACK TO SCHOOL TRIVIA
Can you name the top three universities with the largest endowments?

(Answer located at bottom of newsletter)

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Breakroom Answers


Back To School Trivia
Harvard ($37.1 billion), Yale ($27.2 billion), Stanford ($24.8 billion)

 

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