MARKETS
- Global economy: More than 30 central banks globally have cut interest rates this year to keep their countries recession-proof, per the NYT. What’s worrying about that? Rates were already at historically low levels.
- Domestic economy: President Trump’s economic advisers went on the Sunday talk shows to defend the administration’s trade war with China and calm fears about a volatile stock market. Larry Kudlow said, “No, I don’t see a recession.”
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TOURISM
I NY a Little Less, Say Tourists
Retailers have a problem not named Bezos: A decline in tourist spending.
- Macy’s said last Wednesday sales from international tourists fell 9% in Q2.
- Tapestry, the owner of Coach and Kate Spade, blamed a bad quarter for Coach on “pressure from lower tourist spend” in North America. Shares tanked 22% last Thursday.
- Tiffany’s U.S. sales to Chinese tourists dropped over 25% in the first quarter, a major issue considering foreign tourists account for a low-double-digit percentage of its U.S. sales.
Focus on China
The headline stat: In 2018, the number of Chinese tourists to the U.S. fell 5.7%, the first annual decrease since 2003.
That’s a problem for businesses. According to the National Travel and Tourism Office, Chinese nationals contribute more to the U.S. economy than tourists from any other country. On average, they stay 18 nights and spend almost $7,000 per trip, 50% more than other international visitors.
It’s getting so bad, the number of Chinese visitors to Hawaii dropped more than 23% through the first four months of 2019. Who could possibly resist going to Hawaii?
Diagnosing the trend
While it’s impossible to quantify the effect of the U.S.-China trade war on tourism, the Chinese government did warn its citizens in early June about traveling to the U.S. (cited risks include “harassment” from law enforcement and shootings and robberies).
The depreciation of China’s yuan relative to the dollar has also made a U.S. visit far more expensive. Many would-be Chinese tourists are opting to buy luxury items closer to home.
Zoom out: While the U.S. is looking to boost visitors, other hotspots around the globe are gasping for air. New Zealand approved a tax on most international tourists, Louvre employees staged a walkout in May to protest overcrowding, and Amsterdam is banning guided tours of its Red Light District starting January 1.
INVESTING
SoftBank's Got a Thing for Leverage
Whatever work/life balance SoftBank employees had until now is probably going out the window. The WSJ reports the Japanese conglomerate will lend up to $20 billion to its employees to buy stakes in Vision Fund 2, the potentially colossal sequel to its first venture fund.
Why this is not normal:
- While employees managing a fund are supposed to have some “skin in the game,” the typical employee contribution is less than 5% of total funds raised, per the FT.
- SoftBank CEO Masayoshi Son wants to raise at least $108 billion for VF2. So allowing employees to borrow and invest nearly one-fifth of that amount led some tech writers to react with a “Good gracious, WHAT?”
Masa’s line of thinking: Our bets from the first Vision Fund on DoorDash and Slack made a killing in Q2. By increasing our own stake in VF2, we can better hold ourselves accountable and profit from the successful investments. Also, if this works everybody’s heads will explode.
INTERNATIONAL
Contingency Planning, Brexit Style
We’ve been writing for years that of all possible Brexit scenarios, businesses fear a “no deal” situation the most. Now, leaked government documents obtained by the Sunday Times show why.
If the U.K. leaves the EU without a deal on Oct. 31, say the documents, the country could face…
- Shortages of fresh food, medicine, and fuel
- Disruptions at ports for several months
- The closure of two oil refineries
- Social unrest and the restoration of a “hard border” with Ireland
- An influx of filmmakers shooting zombie flicks
Michael Gove, the minister leading no-deal preparations, said the docs were out of date but conceded that leaving the EU without a deal would cause "bumps in the road." Industry groups say there are only so many bumps small businesses can absorb.
Looking ahead...new prime minister Boris Johnson said he’s going to take the U.K. out of the EU by Halloween, deal or no deal.
IPO
Happy 15th B-Day, Google IPO
On this day 15 years ago, an exciting internet search company went public in an unusual, auction-style format.
Set the scene: The Red Sox had just traded Nomar Garciaparra to the Cubs, the world met Ron Burgundy for the first time in July, and eBay, worth $49 billion, was the world’s most valuable internet company.
We all know what happened to Google/Alphabet's stock price next.
We dusted off Google's OG SEC filing for any interesting nuggets of info. Here are a few...
- Motto: “Don’t be evil.”
- Competitors: “Currently, we consider our primary competitors to be Microsoft and Yahoo.”
- Privacy: “People have raised privacy concerns relating to the ability of our recently announced Gmail email service to match relevant ads to the content of email messages...Publicity regarding such concerns could harm our brand.”
- Valuation: Worth roughly $23 billion, Google went public at a valuation lower than Snap's (~$24 billion) when it IPO'd in 2017.
CALENDAR
The Week Ahead
We only get to say this once every year: This Thursday, Wyoming will become the center of the economic universe.
Monday: Earnings (Estee Lauder, Baidu); e-commerce retail sales; Bill Clinton turns 73; National Aviation Day
Tuesday: Earnings (Home Depot, Medtronic, TJX, Kohl’s, Urban Outfitters)
Wednesday: Existing home sales; FOMC minutes; earnings (RBC, Lowe’s, Target, Nordstrom)
Thursday: Jackson Hole Economic Symposium begins; earnings (Salesforce, Intuit, VMware, Gap, Dick’s); jobless claims; loosen up your molars for National Tooth Fairy Day
Friday: New home sales
WHAT ELSE IS BREWING
- California has tied a record with 113 straight months of job growth.
- Good Boys became the first R-rated comedy to top the North American box office in the last three years.
- A Novartis exec sold nearly $1 million worth of shares less than three weeks before a data manipulation scandal was made public.
- Respawn, the developer of Fortnite rival Apex Legends, apologized for its new in-game “loot boxes.”
- Protests continued in Hong Kong despite heavy rain.
BREAKROOM
Greater Than or Less Than: National Aviation Day Edition
- Number of engines on a Boeing 747 // Number of engines on a Boeing 787
- Passenger traffic at Chicago O’Hare in 2018 // Passenger traffic at Hartsfield-Jackson Atlanta International Airport in 2018
- Southwest Airlines market cap // JetBlue market cap
- The all-time distance record for a paper airplane flight // Length of an NFL football field
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Breakroom Answers
Greater Than or Less Than
1. Greater than. The 747 has four engines (two on each wing), but the 787 has two overall.
2. Less than. Atlanta was the world’s busiest airport in 2018.
3. Greater than. Southwest ($26.8 billion) has JetBlue ($5.5 billion) beat.
4. Less than. The longest paper airplane flight was over 226 feet long (watch here), but a football field is 360 feet long.
