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| | August 26, 2016 | |
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| | Good morning.
Stocks are down around the world this morning, and market commentators say it is because investors are waiting to hear what Fed Chief Janet Yellen will have to say at the central bank's annual conference in Jackson Hole. I hate to be the spoiler, but she won't say anything new.
The market's excessive obsession with the Fed has deep roots. When the Federal Reserve Bank of Kansas City first gathered central bankers at the Jackson Lake Lodge in August of 1982, Paul Volcker was under public attack for adopting policies that had driven interest rates over 20%. Volcker's success in conquering inflation gave the Fed an aura of invincibility and respect that lasted through the end of the century, when journalist Bob Woodward penned his book about Alan Greenspan and titled it Maestro.
These days, though, no one calls Yellen "maestro" (or Greenspan, for that matter). Her efforts to be transparent about the Fed's policies have only left her looking indecisive, promising to raise interest rates and then failing to pull the trigger. The Wall Street Journal's John Hilsenrath this morning writes that years of missteps - including Greenspan's failure to forsee the 2008 crisis - have caused confidence in the central bank to plummet, with only 38% of Americans now saying they have faith in the Fed's leadership, down from the 70% in 2000.
That hasn't changed the exaggerated emphasis that many put on the Fed's decisions to make minor adjustments in an interest rate that no real people pay. In an extraordinary meeting yesterday, eleven top Fed officials held a "listening session" with more than 100 labor activists from a group called "Fed Up," who used catcalls to indicate their opposition to any suggestion of higher interest rates.
But as Paul Volcker showed three decades ago, monetary policy is best not left to plebiscite. And the one thing the economy could use more than anything else these days is a dose of confidence. It's a shame the Fed has lost any ability to provide it that.
More news below.
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| | Top News | |
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• EU Plans Google Shakedown in New Copyright Rules The European Union is planning to impose a levy on internet platforms such as Google for displaying third-party news, in a radical reform of its laws on copyright. Under the plans, according to the Financial Times, news publishers would receive "exclusive rights" to make their content available online, something that would force aggregators and other services to pay fees to hard-pressed old media outlets. The new rules would also affect video streaming sites such as DailyMotion, Vimeo and YouTube, who would likely have to pay more to artists. The draft proposals are still being discussed and the final version is expected in late September. Fortune • Presidential Nominee Tweets > CEO Chutzpah Mylan CEO Heather Bresch withstood all the brickbats that came her way as Mylan hiked the price of its anti-anaphylaxis treatment EpiPen 500% over the last eight years, confident that she was discharging her fiduciary duty to shareholders as well as highlighting inefficiencies in the U.S.'s drug pricing regime. But she beat a tactical retreat Thursday after Hillary Clinton's tweetstorm against Mylan, which carried the implicit threat of fresh regulation in the event of a Democratic victory in November. Mylan said it would triple to $300 the discount on EpiPen available to patients who use its 'savings card', effectively cutting the end price by half for some customers. But it's not a blanket price cut: Evercore ISI estimates it will cost barely $100 million—small beer compared to EpiPen's annual sales of over $1 billion. Mylan • Apple Patches Software Flaws After Vulnerability Exposure Apple rushed out a patch for three software flaws that, until Thurday, offered a way for hackers to install powerful spyware on iPhones, and turn them into secret tracking devices capable of taking pictures and recording data. Apple's move came after researchers reported this week about how unnamed hackers attempted to install the bug on the phone of a human rights activist in the UAE. The tailored spyware product was called "Pegasus," and developed by NSO Group, which specializes in making cyber weapons. It chiefly sells to government agencies for the purpose of tracking terrorists and other suspectd criminals. Fortune • WhatsApp Gives Facebook the Keys WhatsApp said it will start sharing its users' data with parent company Facebook, in what appears to be a landmark in the service's transition to a more aggressively-monetizing business model (specifically, a step closer to integrating business-to-consumer messaging into the service). WhatsApp is changing its privacy policy to allow Facebook access to users' phone numbers and analytics information, mobile operating system, device identifier and country code, amongst other things. Fortune's David Meyer notes that the changes stretch 'to the limit' the pro-privacy promises made by CEO Jan Koum at the time of the acquisition in 2014. WhatsApp insists the service will stay free of third-party banner ads and spam. Fortune
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| | Around the Water Cooler | |
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| | • Icahn Thought About Selling Herbalife Stake to Ackman Carl Icahn, whose support for Herbalife saw it through the most testing period of its conflict with Bill Ackman, has considered selling his 18% stake in the company to Ackman's Pershing Square, The Wall Street Journal reported. It's a bizarre twist in the four-year saga that appeared all-but over when Herbalife struck a wide-reaching $200 million settlement with the Federal Trade Commission about improving its sales practices. The FTC deal appeared to substantiate much of Ackman's arguments against the company but stopped short of calling it a pyramid scheme, as Ackman has done. According to the WSJ, Icahn has hired investment bank Jefferies to find a buyer for his stake, worth around $1 billion. Icahn would stand to make a large profit if he sold now. The WSJ didn't explain why Ackman would want to buy into a company that he still doesn't believe in. WSJ, subscription required • Lampert Digs Deep as Sears Goes Eight for Eight Hedge fund boss Eddie Lampert is stumping up another $300 million in debt financing for the floundering Main Street stalwart that is Sears. The news accompanied the announcement of another miserable quarter for both the namesake stores and its sister brand Kmart, with comparable sales down 7% and 3.3%, respectively. With retail sales and disposable incomes growing (albeit moderately), and with competitors like Wal-Mart and even Best Buy clocking big improvements in their online performances, it's hard to view the sales as anything other than evidence of Sears losing the race to survive in the new retail landscape. It has lost $8 billion in the past five years, and the second-quarter sales decline was the eighth in a row. The latest financing is part of a package that will let it raise another $200 million from other investors. Lampert's hedge fund, ESL Investments, had provided $125 million of a recent $500 million loan to fund Sears' transformation. Fortune • VW Settles With U.S. Dealers After 11 months of frustration and uncertainty, some 650 long-suffering U.S. car dealers settled with Volkswagen on compensation terms. The proposed agreement will allow dealers to sell some used cars back to VW at the prevailing retail market price. The settlement also includes a cash payout and compensation for past, present and future losses in the value of their franchises. VW didn't quantify the cost of the settlement. Separately, VW has given up trying to fix the 475,000 diesel cars with 2-liter engines in a way that U.S. regulators will accept, making a buyback the only practical solution for over three-quarters of the cars affected by the emissions scandal. VW has until Oct. 24 to develop a fix for larger, 3-liter vehicles. WSJ, subscription required • France to Rule on Burkini Row France's highest administrative court is set to rule on the legality of the ban on 'burkinis'—the full-length, hair-covering swimsuits popular with Muslim women—imposed at a number of resorts on the Cote d'Azur in a backlash against recent acts of Islamist terrorism. The Republic is torn between the urge to impose its secularist principles, and its traditional self-image as the inventor of personal freedom (© 1789, not generally acknowledged in the Anglo-Saxon world), a struggle encapsulated in Wednesday's viral images of gendarmes instructing a Muslim woman on a beach on what she may and may not wear. Serious as the matter is, it's not been without its lighter aspects. Watching the more colorful elements of the British and German press trying to work out which they loathe the most—Muslims, Women or The French—has been a source of intense if somewhat melancholy pleasure in these troubled times. Time
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