Red, white, and blue

MARKETS

• The Dow and S&P recovered slightly from an early morning sell-off. Markets reacted to ex-chief economic adviser Gary Cohn resigning from his post, which all but sealed the deal on steel and aluminum tariffs.
• European markets ended higher after a push from the auto sector.

ECONOMY

Trade Deficit FAQs

Talk about throwing gasoline on the fire for President Trump—the trade deficit between the U.S. and other countries ballooned to a nine-year high in January ($56.6 billion). The goods deficit with China skyrocketed 16.7% to $36 billion.

Numbers like these should only accelerate the administration’s push (i.e. tariffs) to close the gap.
And since we know you have questions about the trade deficit, let’s all get on the same page before that inevitable late-night trade debate at the bar.

High-level, what is a trade deficit? It’s when the amount of goods and services you import exceeds the amount you export.

Why is it so high? Americans consume a lot more foreign products than other countries buy from us. In a sense, this imbalance reflects how wealthy our country is. At the same time, as the dollar strengthens, U.S. exports become more expensive.

Why is it so high with China specifically? The cause of the $375 billion goods deficit is pretty clear: most of our belongings are “made in China”— the result of a steady, decades-long climb to the top of the consumer goods manufacturing food chain. Keep in mind, it got there in part by playing dirty, like devaluing its currency to make exports cheaper.

Is the trade deficit something we should be worried about? Ask 10 economists, and they’ll give you 20 different answers. But most experts don’t lose sleep over the deficit because trade balances are controlled by broad macroeconomic factors like exchange rates, levels of savings, and foreign investment (aka there aren’t many great tools via trade policy).

Tying it back to the steel and aluminum tariffs: Whether you’re worried about the trade deficit or not, you won’t find many economists, from the left-wing to the right, who view tariffs as the solution.

FOOD

Coca-Cola Gets Tipsy in Japan with Its First Alcoholic Product

Over the course of its 125-year history, Coca-Cola (-0.23%) has never developed an alcoholic product…until now.
The drink will only be available in Japan. But before you book your bachelor party in Tokyo, keep in mind it’ll take the form of “Chu-Hi,” a canned beverage with low alcohol content (3-8%). Even so, it should be popular. The Japanese market for canned ready-to-drink alcoholic drinks grew 9% last year.

But why Japan? And why now?

1. Japan’s beverage market is a hyperactive, beautiful mess that serves as a testing ground for companies. On average, Coca-Cola introduces 100 new products every year. This includes Coca-Cola Plus, a special edition that contains a lot of fiber (fine, we’ll just spell it out…it’s laxative Coke).
2. With soft drink sales slumping, Coca-Cola is ramping up innovation by diversifying products and entering new markets.

What we really want to know: Will alcoholic Coke ever wind up in the U.S.? “Never say never,” said CEO James Quincey.

TECH

“Will You Guys Give This Broadcom-Qualcomm Deal a Rest Already?”—You, Probably

But we won’t, because this unprecedented $117 billion tech deal continues to surprise.
The deal’s latest development? A commitment by Singapore-based Broadcom (-1.56%) to spend $1.5 billion on 5G technology if it acquires U.S.-based Qualcomm (+0.56%).

Which might reassure CFIUS—an agency that reviews foreign acquisitions over national security concerns. It’s investigating the deal as a potential threat to…wait for it…national security.

Here’s why: Qualcomm is an industry leader in 5G tech, competing with Chinese rivals like Huawei. But Broadcom has a history of cutting costs post-acquisition. Meaning, if it cuts 5G investment (which people fear it might), Huawei could pull ahead in a race the U.S. government deems critical to economic sustainability.

Why you should care: A lot of U.S. companies already manufacture in China—if it pulls ahead in technologies like 5G, IoT, and AI, it’ll be the one making and developing the tech powering the products you buy.

Bottom line: Broadcom could have perfectly good intentions—after all, it pledged to move its HQ to the U.S. before yesterday’s announcement. But as more foreign companies (especially Chinese companies) try to acquire U.S. counterparts, CFIUS’ “unprecedented” review could become more…precedented.

CRYPTO

Bitcoin Flops Below $10,000 as SEC Cracks Whip

The SEC continued its tirade on cryptocurrencies, requiring all crypto exchanges to be registered through the agency. And Bitcoin took the hint, diving below $10,000.

Remember: The SEC recently sent subpoenas to companies (like Overstock) preparing Initial Coin Offerings. Now, big U.S. exchanges like GDAX (operated by Coinbase) and Gemini (run by the Winklevoss twins) will have to answer the agency’s long list of regulatory questions, including: Who can trade on the platform? How are prices set on the platform? Are platform users treated equally?

It wasn’t all bad for crypto

Coinbase brought home a big win. It’ll introduce an index fund, wrapping Bitcoin, Bitcoin Cash, Ether, and Litecoin into one beautifully curated investment.

For the time being, the fund will only be available to U.S. accredited investors (i.e. probably not you). You might not even want in—the minimum investment is $10,000 with a 2% fee.

Bottom line: Both announcements point to a quickly maturing industry. A little hair on the crypto-chin, if you will.

WHAT ELSE IS HAPPENING

• Abercrombie & Fitch (+11.92%) reported strong earnings, but said it would close 60 more stores.
• Snap (+0.06%) is laying off ~100 engineers.
• Peter Thiel gave an interview to the NYT.
• Amazon (+0.48%) is offering Medicaid patients discounted Prime accounts.
• Magic Leap raised $461 million. Its total funding to date tops $2.3 billion.
• Reporting earnings today: Kroger, American Eagle, Burlington

BIGGER PICTURE

They say a picture is worth a thousand words….which is nice, because we definitely don’t have room for a thousand words. Instead, we’ll bring you a chart to highlight a bigger idea or trend.

Ready to purchase that new Amazon Echo? Google Assistant might have something to say about it. In a study that pitted the Assistant vs. Alexa, Google came out on top in all four categories (Travel, Retail, Finance, and Automotive), leading some to believe it might be the smartest smart assistant.

It makes sense when you think about it—Google has been collecting data well before Amazon was a blip on Bezos’ radar.

But at the end of the day, it might not matter:

* Because of its “early-mover” status, Amazon still controls 70% of the home-assistant market.
* Smart or not, Google Assistant isn’t integrated with Prime—one of the reasons users purchase an Echo.

Over time, we could see these roles converge. Amazon will focus on data aggregation for a smarter, chattier Alexa, while Google focuses on its shortcomings: turning “queriers” into “buyers.”

MENTAL STRETCH

Brain Teaser
The same 3-letter word has been taken out of each of the following words. The letters may not be adjacent, but they are in order. Can you figure it out?

_ _ R _ H
_ _ GO _
SU _ S _ S _
_ E _ GNE _

Breakroom Answers

Brain Teaser
BIT