Steeling the show

MARKETS

• President Trump’s comments on tariffs were enough to send the markets into a fit (more on that below).
• Treasury yields fell after the president’s announcement signaled a possible trade war.

ECONOMY

President Trump Gives Tariffs the Green Light

Every so often, we’re reminded that changes in international trade policies can disrupt the global marketplace.

Yesterday was one of those times, when President Trump announced he’ll institute tariffs for steel and aluminum imports (25% and 10%, respectively) to a group of grinning metals industry reps.

Fulfilling a campaign promise? Check.

The thinking behind the decision

President Trump argues other countries take advantage of the U.S. with lopsided trade agreements. Especially China, whose trade surplus with the U.S. ran a record $375 billion in 2017.

So how do you reduce this deficit? Well, in a president’s toolbox—right next to the nuclear codes and the comped Netflix subscription—is the power to institute tariffs (aka taxes on imports) that can help boost domestic manufacturers.

And U.S. steel and aluminum producers feel like they could use a boost. Since 2000, employment in primary metals manufacturing (steel, copper, aluminum) has plunged 38%. At the same time, China’s steel output jumped 560%, and it now dominates global production in both steel and aluminum.

But many experts believe tariffs aren’t the answer
Just take a look at the market. Equities tanked following the president’s remarks…well, besides U.S. steel stocks.

Here’s why: If we learned one thing in high school physics (impressive, thank you), it’s that every action has an equal and opposite reaction. You can expect China to retaliate by curbing imports of U.S. agricultural products, which could put a dent in the U.S. farming industry.

And remember, industries that use steel in production—like auto manufacturing and construction—employ 10x more Americans than steel manufacturers (4.1 million vs. 385,000). They won’t be happy to pay higher prices.

Zoom out: Courtesy of New York Fed President William Dudley: “Raising trade barriers would risk setting off a trade war, which could damage economic growth prospects around the world.”

STARTUP

DoorDash Enters the Fast Lane, Raises $535 Million in Funding

Food delivery startup DoorDash got a fresh set of wheels thanks to SoftBank’s Vision Fund, which led a massive $535 million funding round. Now with a valuation of $1.4 billion, DoorDash has officially entered unicorn status.

So what caught Masayoshi’s eye? Between partnerships with 90% of America’s top restaurants (think: Wendy’s, IHOP, The Cheesecake Factory) and plans to expand from 600 to 1,600 cities, DoorDash is working with some serious horsepower.

Now here’s what’s caught our eye: SoftBank is also a key investor in Uber, and UberEats is in direct competition with DoorDash. Which means SoftBank reps could serve on the boards of both companies. Do we smell a potential acquisition down the road?

Maybe, but maybe not. SoftBank could be taking the same approach it took with the ride-hailing industry: invest in anything and everything…eventually something will stick. And with only 5% of takeout orders placed online, there’s room to race for DoorDash and its (many) competitors.

Bonus: We had the pleasure of chatting with Tony a few months ago about how he grew DoorDash into what is now a $1.4 billion company. We won’t call it the “Morning Brew bump” but wouldn’t be surprised if Masa Son was a Brew reader…

MEDIA

WPP Signals Red Flag for Traditional Ad Agencies

Calling all Don Drapers: after reporting earnings, advertising conglomerate WPP (-8.38%) is in serious trouble. Scratch that, the whole traditional advertising industry is in serious trouble.

As evidence, we present you WPP’s latest earnings:

* Organic net sales fell 0.9% in 2017—much worse than what analysts expected even after WPP revised forecasts three times.
* The company is already expecting no revenue growth in 2018.

And other legacy agencies like Publicis and Omnicom know the feeling. Facebook and Google have overtaken 60% of the digital ad space, pressuring traditional newspaper and TV ad agencies to reinvent themselves.

Which might be tough: These are global conglomerates with a ton of moving parts, including hundreds of thousands of employees and hundreds of subsidiaries. It’s up to the CEOs to consolidate and revamp…yesterday.

Publicis has done a good job, introducing “The Power of One” offensive to unite operating groups. But WPP doesn’t seem to be plugging holes fast enough.

CRYPTO

SEC’s Crypto Probe Sends Overstock’s Stock Falling

Overstock.com (-4.39%) and cryptocurrency…two things we haven’t mentioned in a while. But both came to our attention after the WSJ highlighted an SEC probe into the mysterious world of Initial Coin Offerings (ICOs).

Overstock, one of many companies subpoenaed by the SEC, was asked to release information about its tZero ICO—a fundraising effort for its alternative blockchain-based securities trading network (think NASDAQ 2.0). For now, the SEC is just calling it a check-up.

Zoom out: Because things in crypto-land are just heating up.

ICOs have raised $1.7 billion so far this year, on track to pass last year’s $6.5 billion.
An MIT report estimates that up to $317 million from ICOs has gone to scams.
Hedge funds and private investors receive special treatment to buy tokens at discounted rates. Some immediately flip them for large profits.
Bottom line: ICOs look like they have some momentum, which is why the SEC is cracking down. That’s healthy—more regulation typically weeds out the bad actors.

WHAT ELSE IS HAPPENING

• Equifax (-1.41%) revealed 2.4 million more Americans were affected in last year’s data breach.
• Kroger (+1.25%) is following Dick’s and Walmart’s lead, raising the minimum age to purchase a gun to 21 at its Fred Meyer locations.
• Looks like the Weinstein Company reached a $500 million deal with Maria Contreras-Sweet after all.
• Twitter (+1.19%) would like to take a closer look at how its network impacts users.
• Reporting earnings today: J.C. Penney, JD.com

TAKING INVENTORY

Outspoken hedge fund manager Bill Ackman has almost completely exited his famous (or infamous) $1 billion short against Herbalife yesterday. Buying in around $27, Ackman boldly claimed that the company—which he considered an illegal multi-level marketing scheme—would watch its stock tumble to $0. Since then? Herbalife shares have climbed to $91.

For years the bet took center stage on Wall Street, featuring a cut-throat debate between Ackman and fellow icon Carl Icahn. The rivalry even made it to the big screen in the documentary, Betting on Zero.

Spoiler: Ackman lost, and he lost BIG. But not all shorts end up this way. Here are some famous investors whose short bets have paid off:

1 John Paulson
Bet against subprime mortgages in 2007, netting his hedge fund $15 billion. Also famous for this is Michael Burry, whose story is highlighted in The Big Short.

2 George Soros
Shorted the pound and “broke” the Bank of England in 1992, making himself $1 billion.

3 Jesse Livermore
Called the 1907 and the 1929 crashes. In today’s dollars, Livermore profited around $1.2 billion on the bets.

4 Paul Tudor Jones
Called Black Monday in 1987. Jones came away with $100 million after the Dow dropped 22%.

WATER COOLER

Stat

27 million—The number of life insurance policies bought by Americans in 2016. How many were purchased in 1965, when there were 130 million fewer people living in the country? 27 million. Turns out, there’s no easy answer to explain the decline of life insurance.

MENTAL STRETCH

TRIVIA
Which consumer goods giant is the world’s largest advertiser?

(Answer at bottom of newsletter)

Breakroom Answers

Trivia
P&G