Sparkly

MARKETS

• Bonds: The yield on the benchmark 10-year Treasury note rose the most since the day after President Trump was elected in 2016. Yields rise as prices fall—and this autumn has seen a lot of that.
• Trade: The U.S. and China appear poised to roll back some tariffs as part of a "phase one" trade deal.

ENVIRONMENT

Climate Changes Everything

Investors are increasingly worried their financial interests will get crushed under the weight of a collapsing glacier.

Yesterday, lawyers for Exxon Mobil and New York State wrapped up their closing arguments in a closely watched trial over whether the company misled investors about the risks of climate change on its business.

The allegations: Exxon knowingly downplayed the cost of future climate change regulations in disclosures to shareholders. This caused investors to lose anywhere from $476 million to $1.6 billion, per New York’s AG.

The response: “The case is almost a joke,” Exxon’s lawyer Theodore Wells said, arguing that all of the numbers Exxon disclosed were appropriate. Last week, Rex Tillerson, the former secretary of state and former Exxon CEO, defended the company in testimony.

• FYI, Exxon’s official position on climate change: “We believe that climate change risks warrant action.”
• It supports the Paris climate accord, which the U.S. formally began withdrawing from this week.

Zoom out: The case shows that companies, especially ones in the business of fossil fuels, are under heightened pressure from investors to adequately prepare for and disclose the risks of climate change to their bottom lines.

But that’s not so easy

Maybe the U.S. central bank can help. Today, the San Francisco Fed is holding its first-ever conference on the economics of climate change. Questions that need to be answered:

• How do you quantify the economic costs of climate change?
• How will climate change affect financial asset prices?
• What are the implications for monetary, supervisory, and trade policy?

So basically it shouldn’t take longer than a half hour.

Bottom line: We’re in uncharted territory. The Fed’s responsibility is to stabilize prices and hit max employment—not keep carbon dioxide levels below 450 ppm. But as we’re seeing with Exxon, climate change is already impacting companies and markets. The Fed can’t just sit this one out.

FOOD

Kalanick’s New Funds Are Sweet and Saudi

Uber’s ex-CEO Travis Kalanick disrupted food delivery in 2014 when he launched Uber Eats. He’s going even deeper with his new venture, CloudKitchens, which received a $400 million infusion in January from Saudi Arabia’s Public Investment Fund, the WSJ reported. It could be valued at about $5 billion.

• This marks the fund’s first known investment in the Bay Area since Saudi operatives murdered journalist Jamal Khashoggi in Oct. 2018.

CloudKitchens is a “ghost kitchen” operator. It takes advantage of tax incentives and cheap property to buy real estate, then builds kitchens for delivery-focused restaurants.

• Thousands of restaurants are experimenting with virtual kitchens, from delivery-exclusive operations to traditional sit-down spots.
• Competition includes Kitchen United (backed by Alphabet’s venture arm) and Reef Technology (valued at more than $1 billion after a December SoftBank investment).

Kalanick’s been secretive. Employees are reportedly banned from listing their employer on LinkedIn. And as an LLC, holding company City Storage Systems is able to avoid the spotlight.

Zoom out: Kalanick stirred up trouble at Uber, but his name still carries weight. And his company has lent the entire ghost kitchen industry more credibility.

BEVERAGE

Coca-Cola’s Aha Moment

Next March, Coca-Cola is launching a seltzer brand called “Aha,” which as long as it doesn’t autocorrect to "haha" could become a major player in the sparkling water sector. Aha is Coke’s first major North American brand launch in over a decade...

...which tells you the company has found something #trending. Two of the eight Aha flavors will contain caffeine, but none will contain sugar or calories.

Zoom out: Sparkling water sales are just a fraction of carbonated soft drink sales—$2.5 billion to $26.7 billion in the last 12 months, per Nielsen data cited by the WaPo. But they’re growing fast.

• Coke’s existing sparkling water business increased sales 27% in 2018, according to the company, but was overshadowed by competitors.

Speaking of competitors...Aha’s launch is more bad news for seltzer brand La Croix, the tallest kid on the middle school basketball team before everyone had a growth spurt. Shares of its parent, National Beverage, fell nearly 9% yesterday and are down ~45% this year.

+ Pop quiz: If Aha is Coke’s first major North American brand launch in over a decade, what was the last? Answer at bottom.

TRAVEL

Did Someone Say Vacation?

On Monday, we mentioned that travel and leisure earnings can serve as indicators for economic health. Now that they’re in…consumer spending is still bolstering the economy, but not all companies are benefitting.

The bookers

Expedia and TripAdvisor badly whiffed on quarterly expectations Wednesday. Yesterday, Expedia shares dropped 27% and TripAdvisor’s stock fell 22%.

What’s going on: The companies are struggling to get to the top of Google search, forcing them to shell out more on paid advertising.

• TripAdvisor CEO Stephen Kaufer acknowledged his company needs to be less reliant on the internet search gods.
• Don’t forget...Google has its own travel offerings to plug and a home-field advantage.

Others are cruisin’

Disney reported 8% annual growth in its parks and experiences segment, up from 7% growth last quarter. Helps when you launch a Star Wars theme park. And Norwegian Cruise Line reported a solid quarter despite the impacts of Hurricane Dorian.

Big picture: Some middlemen are struggling, but other travel and leisure companies are doing just fine.

QUIZ

Ok, Quizzer

Self-partnered, not single. Can’t stop refreshing social media. We didn't mean it, United. It’s the Brew’s Weekly News Quiz.

1. Tech donors spent well over $1 million on which city's elections held Tuesday?

2. Fill in the blank: The U.S. Labor Department reported that ______ fell for the first time in almost four years.

3. What is the name of the $500 billion city-of-the-future that Saudi Arabia plans to build?

1. Xana
2. Neom
3. Giantia
4. Monstropolis

4. Are there more or less than 50,000 diamonds encrusted on Coronet’s gold toilet on display in Shanghai?

5. “We are very, very, very different from WeWork.” Who said this at NYT’s DealBook conference?

Answers: 1. Seattle 2. Worker productivity 3. Neom 4. Less than (there are 40,815) 5. Uber CEO Dara Khosrowshahi

WHAT ELSE IS BREWING

• Michael Bloomberg is "actively preparing" to run for president as a Democrat, the NYT reports.
• Gap’s CEO Art Peck stepped down and the company cut its forecast for the year. Shares fell more than 7% after hours.
• Juul said it’ll stop selling mint-flavored nicotine pods in the U.S.
• Sears has secured $250 million in financing from lenders, but it will close 96 more stores.
• Canopy Growth, a top marijuana producer in Canada, announced a joint venture with Drake, a top dad move producer in Canada.

FRIDAY PUZZLE

Think of two words, one starting with O, the other starting with R. Both end with ING, and they have the same number of letters. In one sense the words are synonyms and in another sense they're antonyms. What are the words?

Breakroom Answers

Source: NPR

Pop quiz answer: Gold Peak tea