Please don't come

MARKETS

  • Bonds: The inverted yield curve got even curvier yesterday. That won’t do much to calm recession fears.
  • Consumers: They’re not worried about the yield curve. Consumers' assessment on current conditions is at a nearly 19-year high.

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TOBACCO

Big Tobacco Wants to Be Cool and Vape, Too

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After 11 years apart, Altria (-3.99%) and Philip Morris International (PMI) are weighing an all-stock merger of equals that would create a $200 billion-plus tobacco, e-cig, and everything-in-between giant.

PMI (-7.76%) served as Altria's international unit until it was spun off in 2008, leaving Altria to focus primarily on the U.S. market (the two share the same portfolio of cigarettes, including Marlboro). But a decade of efforts by regulators and health officials to curb smoking + the meteoric rise of e-cigarettes and vaping has taken its toll. Now, the companies are considering a reunion.

Together at last

After some awkward small talk at their favorite diner, Altria decided to tell PMI what it’s been up to these last few years.

  • Last December, Altria invested $1.8 billion in Canadian cannabis producer Cronos Group for a 45% stake. On the same day, it said it would discontinue several e-cig brands.
  • Here's why: Later that month, Altria paid $12.8 billion to acquire a 35% stake in Juul, the leading U.S. e-cigarette manufacturer that's become popular among middle schoolers and, subsequently, concerned lawmakers.

PMI, meanwhile, has sunk billions into developing IQOS—a cigarette alternative that doesn't burn tobacco—as it shifts to "a smoke-free future." It's already selling the device in 48 international markets.

  • PMI has stayed away from cannabis, and its CEO has criticized Juul's contributions to the underage vaping epidemic. So no word yet on whether the kids will get along.

Those synergies tho

  • Altria's expanded Juul across the U.S., but Juul's international footprint has lagged. PMI has the foreign connections that could come in handy, CNBC says.
  • In turn, Altria could help PMI sell IQOS in the U.S. The device received FDA approval this spring and, under a standing partnership, Altria will license IQOS for the U.S. market.

Zoom out: As all of you going back to school know, smoking's out, vaping and weed are in. Altria and PMI are trying to get ahead in markets that are expected to be worth tens of billions in the next few years. TBD whether the deal will actually happen, though.

+ While we're here: North Carolina is suing eight e-cigarette companies for illegally marketing vaping products to underage users. It already filed a lawsuit against Juul.

BIZ LAW

Good Luck Steering out of This One, Levandowski

On Tuesday, federal prosecutors charged Anthony Levandowski, a prominent self-driving technology developer, with 33 counts of trade secret theft. It's the latest twist in the biggest Silicon Valley scandal since Evan Spiegel was caught sending an Instagram story.

If convicted, Levandowski could face up to 10 years and a $250k fine for every charge.

What happened

Levandowski's accused of downloading proprietary self-driving tech files before leaving Google in 2016. He joined Uber several months later when it bought Otto, his self-driving truck startup. Waymo, Google's self-driving division, thought, "hmmm that tech looks awfully familiar" and sued Uber.

  • In 2017, Uber settled with Waymo, promised to never use the secret tech, and handed over almost $245 million in stock.

Levandowski wasn't a defendant in that case, but the judge handed allegations of trade secret theft to prosecutors. You know how that ended.

A Silicon Valley archetype

Levandowski's an innovator who pushed self-driving technology years ahead. But besides staring down criminal charges, he's also got his quirks. In 2015, Levandowski founded the "Way of the Future" church to "develop and promote the realization of a Godhead based on artificial intelligence."

ECONOMY

What Everyone's Talking About: Japanification

Some of you are heading to Japan for the Rugby World Cup and 2020 Olympics. We're visiting to better understand what's going on with the global economy.

Starting in the early 1990s, Japan suffered from low growth, low inflation, and low interest rates. In response, the Bank of Japan pursued unorthodox monetary policy, but it couldn't restart the economic engine. It was like feeding a vending machine that never gave anything back.

Some economists, including former Treasury Secretary Larry Summers, see shades of "Japanification" happening right now in Europe...and maybe even the U.S.
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Here's one example: Globally, more than $16 trillion worth of bonds, over 30% of the total, trade at below-zero yields, the FT reminds us. (Yes, a sub-zero yield means you are paying someone to hold onto your money.)

Bottom line: The prospect of Japanification spreading to other countries is all the rage in the central banker Slack channel. It means their traditional tools for stimulating the economy might not work this time around.

FILM

Netflix vs. Theater Industry: Take 2

Netflix has departed from tradition once again after failing to reach an agreement with exhibitors for a wide theatrical release of Martin Scorsese's The Irishman. The streamer will release the gangster epic in select indie theaters starting Nov. 1 before it hits your Netflix homepage Nov. 27.

Theater owners think this is a bunch of raging bull. They're used to operating under an "exclusivity window," which gives them a three-month grace period to show films before the movies are released on other platforms.

Zoom out: Netflix has turned Hollywood into a casino as it moves aggressively into the film industry. Last year, it released the critically acclaimed Roma in theaters for around three weeks before making it available to subscribers. Some industry watchers said Roma could have won Best Picture if Netflix had been a goodfella and gave theaters more time to show the film.

Mark your calendars, gangs of NY: The Irishman's global release will take place at the New York Film Festival Sept. 27.

RETAIL

Costco to Customers: "Please Don't Come"

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Costco opened, then promptly closed, its first location in China yesterday after it became overcrowded with customers. The line to enter the parking lot stretched up to three hours—we wouldn't even wait that long for taquito samples.

In a text message alert to customers, Costco wrote, "To provide you with better shopping experience, Costco will suspend business in the afternoon. Please don't come."

Zoom out: The pictures above were tweeted by the prominent editor-in-chief of the Global Times, a newspaper controlled by China's Communist Party. As you can tell, he described the store's opening through the lens of the U.S.-China rift.

WHAT ELSE IS BREWING

  • Peloton made its IPO documents public on Tuesday, highlighting widening losses but reminding us that it "sells happiness."
  • BP (+0.83%) is selling its remaining Alaska oil assets to Hilcorp Alaska for $5.6 billion. BP has been operating in Alaska for 60 years.
  • Papa John's (+9.54%) Papa John is pleased about the company's decision to replace CEO Steve Ritchie with Rob Lynch, a former Arby's executive.
  • Purdue Pharma wants to settle more than 2,000 pending lawsuits over its role in the opioid crisis for $10–$12 billion, a move that could bankrupt the company.
  • Ball Corp.'s (+0.33%) on a quest to give beer pong a sustainable facelift with aluminum cups.

BREAKROOM

Guess the Logo
Speaking of brand, what is the correct Microsoft logo?
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