Jul 30, 2020

News | Business | Economy | US Q 2: Second-quarter GDP plunged by worst-ever 32.9% amid virus-induced shutdown

Jeff Cox



The U.S. economy saw the biggest quarterly plunge in activity ever, though the plummet in the second quarter wasn’t as bad as feared.
Gross domestic product from April to June plunged 32.9% on an annualized basis, according to the Commerce Department’s first reading on the data released Thursday. Economists surveyed by Dow Jones had been looking for a drop of 34.7%.
Still, it was the worst drop ever, with the closest previously coming in mid-1921.
The report “just highlights how deep and dark the hole is that the economy cratered into in Q2,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s a very deep and dark hole and we’re coming out of it, but it’ going to take a long time to get out.”
The report comes amid a recession that began in February and pulled first-quarter growth down 5%. On a quarterly basis, the Q2 decline was 1.8%.
Sharp contractions in personal consumption, exports, inventories, investment and spending by state and local governments converged to bring down GDP, which is the combined tally of all goods and services produced during the period.
Personal consumption, which historically has accounted for about two-thirds of all activity in the U.S., subtracted 25% from the Q2 total, with services accounting for nearly all that drop.
Spending slid in health care and goods such as clothing and footwear. Inventory investment drops were led by motor vehicle dealers, while equipment spending and new family housing took hits when it came to investment.
Prices for domestic purchases, a key inflation indicator, fell 1.5% for the period, compared with a 1.4% increase in the first quarter when GDP fell 5%, The personal consumption expenditures price index dropped 1.9% after rising a tepid 1.3% in Q1. Excluding food and energy, the “core” PCE prices were off 1.1%.
However, personal income soared, thanks in large part to government transfer payments associated with the coronavorus pandemic. Current-dollar personal income rose more than six-fold to $1.39 trillion, while disposable personal income shot up 42.1% to $1.53 trillion.
Despite the rise, personal outlays tumbled by $1.57 trillion, due in large part to a drop in services spending.
Imports added 10% to the total, offsetting the 9.4% pull from exports.

Historical perspective

“Bottom line, the numbers of course are alarming but all self inflicted with about half the quarter reflecting almost full shutdown and the other half the slow reopening,” said Peter Boockvar, chief investment officer at the Bleakley Advisory Group. “That said, it does reflect the hole out of which we now need to climb out of as we rebound in Q3 and Q4.”
 Neither the Great Depression nor the Great Recession nor any of the more than three dozen economic slumps over the past two centuries have ever caused such a sharp drain over so short a period of time.
By comparison, the worst quarter during the financial crisis of 2008 was the 8.4% GDP drop in the fourth quarter of that year. The previous low-water mark was a 10% slide in the first quarter of 1958, while the worst in recorded history came in Q2 of 1921.
This particular tumble in activity owes to a different source than any of its predecessors: a government-induced shutdown aimed at combating a pandemic.
Workers across the country were told to stay home from any job not considered essential, resulting in a crushing halt that saw the unemployment rate peak at 14.7%, a post-Depression high. The National Bureau of Economic Research said the current recession actually started in February, a month before the pandemic declaration. First-quarter GDP fell 5%.
Also Thursday, the government reported that the number of Americans who filed new claims for unemployment benefits last week totaled 1.434 million. Although it was  roughly in line with expectations, it was the 19th straight week in which initial claims totaled at least 1 million and the second consecutive week in which initial claims rose after declining for 15 straight weeks.

Market Insider | Biggest Moves Premarket: Stocks making the biggest moves in the premarket: Procter & Gamble, Comcast, UPS, Cigna & more

Peter Schacknow



Take a look at some of the biggest movers in the premarket:

Procter & Gamble (PG) – The consumer products company earned $1.16 per share for its fiscal fourth quarter, 15 cents a share above estimates. Revenue came in above forecasts as well. Organic sales rose 6%, with particular strength in cleaning products boosted by pandemic-related concerns.
Comcast (CMCSA) – The NBCUniversal and CNBC parent reported quarterly earnings of 69 cents per share, 14 cents a share above estimates. Revenue topped consensus as well. Strength in the broadband business helped offset weakness in advertising sales.
United Parcel Service (UPS) – The delivery service reported quarterly profit of $2.13 per share, nearly double the $1.07 a share consensus estimate. Revenue exceeded forecasts as well. UPS benefited from a surge in residential volume due to the pandemic, among other factors, but is still withholding guidance due to economic uncertainty.
Cigna (CI) – Cigna earned $5.81 per share, beating the $5.15 a share consensus estimate. The health insurer's revenue was also above Wall Street projections. As with other health insurers, Cigna's results were boosted by a delay in surgeries and other medical procedures due to the pandemic.
Dunkin' Brands (DNKN) – The restaurant operator came in a penny a share above estimates, with quarterly earnings of 49 cents per share. Revenue came in above estimates as well. U.S. comparable-store sales fell at both Dunkin' and Baskin-Robbins, but both declines were smaller than analysts had anticipated.
Stanley Black & Decker (SWK) – The tool maker beat estimates by 37 cents a share, with quarterly profit of $1.60 per share. Revenue also beat forecasts. The company is continuing to withhold guidance amid pandemic-related economic uncertainty.
Generac (GNRC) – The generator maker earned $1.40 per share for the second quarter, well above the 89 cents a share consensus estimate. Revenue was also solidly above forecasts, helped by a surge in residential sales as consumers focused more on their homes during the pandemic.
Eli Lilly (LLY) – The drugmaker came in 33 cents a share above estimates, with quarterly earnings of $1.89 per share. Revenue fell short of Wall Street forecasts. Lilly's results were helped by strong demand for its Trulicity diabetes drug, and the company also raised its full-year forecast.
Yum Brands (YUM) – The operator of KFC, Pizza Hut and Taco Bell earned 82 cents per share for its latest quarter, beating the 54 cents a share consensus estimate. Revenue also exceeded estimates and same-store sales fell less than analysts had been anticipating, boosted by demand for comfort foods during lockdowns.
Kraft Heinz (KHC) – The food producer beat estimates by 15 cents a share, with quarterly profit of 80 cents per share. Revenue topped estimates as well. Organic net sales jumped 7.4%, helped by stay-at-home consumers buying more amid the Covid-19 pandemic.
Fitbit (FIT) – European antitrust regulators are set to open a full investigation of Google's proposed acquisition of the fitness device maker, according to people familiar with the matter who spoke to Reuters.
Qualcomm (QCOM) – Qualcomm reported quarterly earnings of 86 cents per share, 15 cents a share above estimates. The chip maker's revenue also exceeded Wall Street forecasts and the company gave an upbeat forecast on prospects for sales of its chips for 5G devices. Separately, it resolved a licensing dispute with China's Huawei and will receive a $1.8 billion payment during the fiscal fourth quarter.
PayPal (PYPL) – PayPal earned $1.07 per share for its latest quarter, beating consensus by 19 cents a share. The payment services company's revenue also came in above forecasts, driven by a jump in e-commerce transactions as well as new accounts.
Yum China (YUMC) – Yum China beat estimates by 9 cents a share, with quarterly profit of 35 cents per share. The restaurant operator's revenue was below forecasts as a resurgence in the coronavirus in China hurt sales.
ServiceNow (NOW) – ServiceNow reported quarterly earnings of $1.23 per share, 22 cents a share above estimates. The cloud software company's revenue was slightly above consensus, boosted by a 30% jump in subscription revenue.
O'Reilly Automotive (ORLY) – O'Reilly earned $7.10 per share for its latest quarter, well above the consensus estimate of $4.41 a share. The auto parts retailer's revenue came in above estimates as well, helped by consumers spending stimulus checks and unemployment benefits on fixing their cars ahead of the lifting of Covid-19 lockdown measures.
Anheuser-Busch InBev (BUD) – Anheuser-Busch's profit fell by 34% in the second quarter as beer volumes tumbled 17%, but the beer brewer said it saw a rebound In global beer sales in June.
Eastman Kodak (KODK) – Eastman Kodak remains on watch after soaring the past three sessions, now at $33.20 per share compared to last Friday's close of $2.10 a share. The rise followed news that the government was providing a $765 million loan for the company's production of pharmaceutical ingredients.
Archer Daniels Midland (ADM) – ADM reported quarterly profit of 85 cents per share, well above the 51 cents a share consensus estimate. The grain processor's revenue also beat Wall Street forecasts, benefiting from record crop exports as countries sought to secure stable food supplies during the pandemic.

DealBook: ‘This Is a New Phase’: Europe Shifts Tactics to Limit Tech’s Power

By Adam Satariano


Analysis | The Cybersecurity 202: Klobuchar is bullish Congress will deliver more election money for states


Joseph Marks


with Tonya Riley

Sen. Amy Klobuchar (D-Minn.) is confident Congress will deliver another surge of funding to help states run safe and secure elections in November despite opposition from many Republicans and a barrage of attacks on mail voting by President Trump.
The main driver, she says, will be state and local election officials of both parties convincing lawmakers and the public the money is necessary to manage massive increases in voting by mail and to buy protective equipment and other resources to ensure in-person voting doesn’t become a hotbed for spreading the coronavirus.  
No matter what party anyone belongs to, they understand we’re going to have a cataclysmic change in how people are going to vote this fall,” Klobuchar told me. “There are states that are changing from 3 percent to up to 60 percent vote by mail…People have figured that out.”
The last chance for any significant election funding boost before November’s contest is approaching quickly: a massive coronavirus relief measure that lawmakers are struggling to pass before millions of Americans are hit with a drop in unemployment benefits.
Republicans didn’t include any money for elections in their $1 trillion first draft of that bill. But Democrats are pushing hard to add funding in a compromise measure. And Sen. Roy Blunt (R-Mo.), chairman of the Senate Rules Committee, which oversees election issues, has acknowledged states may need more help for elections. Klobuchar is the top Democrat on that committee and has been working with Blunt on funding plans.
If the money doesn’t come through, Klobuchar said, she fears the sort of Election Day breakdowns that took place during primaries in Wisconsin, Georgia and the District of Columbia, where voters didn't receive mail ballots they requested, were stuck in long in-person voting lines and even risked contracting the coronavirus.
In Wisconsin, 71 people who voted in person on primary day or worked at polling places later tested positive for the virus, the state’s health department said.
My concern is that we’re going to have Wisconsin on steroids,” Klobuchar told me. “You’ll have so many more people voting than you did in the primaries…[and] you’re going to have people that get sick from voting.”

Klobuchar has led Senate Democrats in pushing for another $3.6 billion to protect elections during the pandemic. 

She declined to say how much election money she believes will emerge from negotiations but it’s unlikely to be nearly that high.
Republicans have repeatedly balked at Democratic efforts to increase federal spending to protect elections against digital threats from Russia and China and more recently to ensure safe voting during the pandemic. And during two other rounds of negotiations over cybersecurity money in the past two years, Republicans have always agreed to more funding at the last minute. In total they've delivered about $1.2 billion for election security and safety, including $400 million in the first coronavirus relief bill in March.
It's also unlikely the latest measure will include mandates that are in a Senate bill Klobuchar sponsored and a House-passed coronavirus relief bill that states must offer mail voting to all residents in future elections and provide early voting days.

Whatever money does reach states can be extremely useful before November, she said.

Mail voting is expected to rise significantly across the country, especially in about half of states that allow all residents to vote by mail without an excuse and about a dozen more that are allowing no-excuse mail voting during the pandemic.
Time’s running short for some of those states to buy some specialty equipment such as high-speed scanners and drop-off boxes for mail votes, according to a timeline prepared by the Election Reform Program at New York University's Brennan Center for Justice.
But there’s still plenty of time for election officials to buy vital materials that are in much broader supply, she said. And the money could help reimburse states that have drained their limited funds preparing for the pandemic and are now short in other areas.
“There are a lot of things that are pretty fundamental,” she said. “You can buy stamps in three months. You can buy envelopes. You can buy training for poll workers. You can buy [personal protective equipment] for poll workers.”

Klobuchar also thinks Trump’s persistent attacks on voting by mail are likely to backfire. 

The president has claimed without evidence that voting by mail will lead to widespread fraud, despite having voted by mail himself this year.
But that message is unlikely to resonate with the presidents’ opponents who are likely to take advantage of mail voting in record numbers, Klobuchar said.
“They won’t have an effect on Democrats and independent voters,” she said. “I suppose he might scare some of his own base from wanting to vote by mail. I don’t understand what he’s doing. Nor do [many] Republicans.”
In fact, a Washington Post analysis found possible voter fraud cases in states that vote primarily by mail accounted for just 0.0025 percent of ballots in 2016 and 2018  — or about one out of every 39,000. And primary turnout suggests Trump’s attacks on mail voting may already be dissuading Republicans from using the system.
Trump expanded his attacks yesterday, seemingly pointing to a New York primary contest that has been riddled with problems and delays to argue mail voting will cause confusion and chaos.  Voters returned about 403,000 mail ballots in that race compared with 23,000 in the 2016 primary and officials have struggled to process them.
Klobuchar, meanwhile, pointed to the same primary as evidence that states need more money to properly handle mail in ballots. New York has historically had a very low percentage of people voting by mail and lacks much of the infrastructure that helps mail voting go smoothly in states where it’s more common.
“We have the facts on our side,” she said.

The keys



A national security review of TikTok will land on Trump’s desk this week. 

The inquiry focuses on whether Byte Dance,  the Chinese company that owns TikTok, might use it to aid Bejing's spying or to spread Chinese propaganda, Katy Stech Ferek at the Wall Street Journal reports.  Sen. Marco Rubio (R-Fla.) requested the review in October. The president recently threatened to ban TikTok over similar concerns.
TikTok is trying to allay concerns by opening up its computer code for U.S. regulators and privacy experts to probe for anything improper, Tony Romm reports.

All House members can view classified intelligence warnings about "disinformation" targeting the 2020 election. 

The House Intelligence Committee voted to share the classified information with the entire chamber after first pushing for an FBI briefing for all members, Jeremy Herb, Zachary Cohen and Manu Raju at CNN report. Committee Chairman Adam B. Schiff  (D-Calif.) has also pushed for the intelligence community to share more information about election threats with the American public. “We must not have another presidential election marred by foreign interference when there was more we could do to prevent it, deter it and expose it to the American people,” he said.
The classified information may involve a congressional investigation into presumptive Democratic presidential nominee Joe Biden’s family involvement in Ukraine led by Sen. Ron Johnson (R-Wis.). Biden's campaign slammed Johnson last week for not addressing concerns he was being used in a foreign disinformation campaign. Johnson has said the investigation is proper and Democrats' concerns are misguided.

Zuckerberg said China has "absolutely" stolen technology from U.S. companies. Apple’s Tim Cook punted. 

The Facebook CEO was the only tech executive testifying before a House antitrust panel to give an unequivocal answer when Rep. Greg Steube (R-Fla.) asked if the CEOs believe the Chinese government steals technology from U.S. companies,
“Congressman, I think it's well documented that the Chinese government steals technology from American companies,” Zuckerberg responded.
The answer was consistent with Facebook's strategy to position itself as a U.S. alternative to Chinese technology at the hearing. The U.S. Trade Representative’s office has estimated that U.S. firms lose at least $200 billion annually to Chinese hackers.
Apple's Tim Cook was more evasive. He simply said Apple had not experienced any theft from China. A large portion of Apple’s hardware is manufactured in China. Google's Sundar Pichai also said his company had not experienced any theft from China but later corrected the record to note a 2009 cyberattack by Chinese actors aimed at stealing intellectual property and spying on accounts of Chinese dissidents.
Amazon's Jeff Bezos said that he had read reports of the behavior but was not aware of any cases involving Amazon. (Bezos owns The Washington Post.)

Cyber in-security



Hackers manipulated real news sites to plant anti-NATO propaganda.

In addition to hacking into vulnerable news sites, the group used spoofed emails to pose as journalists or local officials, researchers at the cybersecurity firm FireEye report. FireEye doesn't directly say who is behind the propaganda effort, but it says the “Ghostwriter” campaign  is pushing narratives aligned with Russian interests and appears to be tied to a broader effort to sow anti-Western sentiment in Eastern Europe.
“These stories are designed to undermine the alliance’s forward-deployed troops, portraying them as thieves and anti-Semites who hit kids with their vehicles and have carried covid-19 into the country,” John Hultquist, senior director of analysis at FireEye's Mandiant threat intelligence division, said in a statement.
“The method of hacking media sites to push fabricated narratives is a powerful one, and we suspect that we will see more of it, possibly before the upcoming elections,” he said.
More cybersecurity news:

Chat room


Here's a fact check on Trump's latest mail voting attack from Business Insider's Grace Panetta:
CNN's Marshall Cohen:

Daybook


  • The Senate Commerce Subcommittee on Security will hold a hearing to examine the China challenge and how to build resiliency and competitiveness today at 10 a.m.
  • The Senate Armed Services Committee will hold a hearing on the findings and recommendations of the Cyberspace Solarium Commission on August 4 at 2:30 p.m.

Secure log off


Members of Congress have tech gaffes too:

US Market | Futures Indicator: Dow futures drop more than 200 points as Big Tech stocks fall ahead of earnings

Fred Imbert



U.S. stock futures fell early Thursday as big technology shares declined ahead of their earnings reports after the bell.
Apple, Amazon, Alphabet and Facebook, representing nearly $5 trillion in market capitalization, are all set to report. All four shares were lower slightly in the premarket.
Dow Jones Industrial Average futures fell 240 points, or 0.9%. The move implied a loss of about 230 points at the open. S&P 500 futures lost 1%. Nasdaq-100 futures dropped 1.1%.
The Big Tech reports come after each stock has posted massive year-to-date gains. Facebook and Alphabet are both up more than 13% in 2020. Amazon has surged 64.2% in that time and Apple is up 29.5% this year.
"Another round of bullish tech surprises could be enough to jump-start the next leg higher in the post-crash rally," said Ken Berman of Gorilla Trades.
It will also be the busiest day of the current earnings season with tons of companies including Ford, UPS and Procter & Gamble also posting results.
P&G shares gained in the premarket after reporting stronger sales of cleaning products.  UPS soared 11% after reporting a second-quarter surge in home deliveries.
In economic news, the first reading on second-quarter gross domestic product is set for release at 8:30 a.m. ET along with the latest weekly jobless claims numbers.
The move lower in futures follows a session that saw major averages posting solid gains after the Federal Reserve pledged to maintain its current stimulative measures.
The Fed kept the overnight U.S. rate in a range between 0% and 0.25%. The central bank noted that while the economy has recovered slightly, activity and employment remain "well below their levels at the beginning of the year." Fed Chairman Jerome Powell added the central bank will keep an accommodative stance until the economy has "weathered" the effects of the coronavirus pandemic.
"Powell made it loud and clear that our economic recovery is dependent on how we progress in fighting the pandemic," said Mike Loewengart, managing director of investment strategy at E-Trade. "Although investors may not be deterred by the surge in virus cases, the stock market is less of a focus for the Fed than the economy—and while the two are related, they are far from the same."
Both the S&P 500 and Nasdaq Composite closed more than 1% higher on Thursday. The Dow climbed 160.29 points, or 0.6%.
The major averages were also boosted by gains in the big tech stocks such as Facebook, Amazon Alphabet and Apple. All four stocks ended the day up more than 1% even as their respective CEOs testified in front of Congress, addressing antitrust concerns.

News | Business | Car Industry | Volkswagen | Profit & Loss: Volkswagen posts $940 million first-half loss and cuts dividend as pandemic hammers sales

Elliot Smith




An automobile assembly line worker wears a protective face mask as Volkswagen AG (VW) restart production at their headquarter factory in Wolfsburg, Germany, on Monday, April 27, 2020. Volkswagen is restarting output at its Wolfsburg car plant, the worlds biggest, with a labor leaders warning that political fallout from the coronavirus pandemic could be more harmful than production disruptions.
An automobile assembly line worker wears a protective face mask as Volkswagen AG (VW) restart production at their headquarter factory in Wolfsburg, Germany, on Monday, April 27, 2020. Volkswagen is restarting output at its Wolfsburg car plant, the worlds biggest, with a labor leaders warning that political fallout from the coronavirus pandemic could be more harmful than production disruptions.
Bloomberg

Volkswagen has reported an operating loss of 800 million euros ($940 million) for the first half of 2020 and cut its dividend as the coronavirus pandemic hammered car sales.
This compares to a profit of 10 billion euros for the same period last year. Group sales fell by 23.2% while deliveries plunged 27.4% year-on-year, with the percentage gap to last year’s performance falling consistently since May as worldwide shutdowns caused demand to crater.
At its annual general meeting in September, the German automaker will now propose a dividend per ordinary share for the fiscal year 2019 of 4.80 euros, down from a previously announced 6.50 euros.
Although it warned that “challenges will also arise particularly from the increasing intensity of competition, volatile commodity and foreign exchange markets and more stringent emissions-related requirements,” Volkswagen said it still expects to be profitable for the full year.
Frank Witter, member of the Group Board of Management responsible for Finance and IT, said the first half was “one of the most challenging in the history of our company” due to the Covid-19 pandemic.
“At the same time, we introduced comprehensive measures aimed at reducing costs and securing liquidity early on, which enabled us to limit the impact of the pandemic on our business to a certain degree,” Witter said in a statement Thursday.
“Due to the positive trend exhibited in our business over the past few weeks and the introduction of numerous attractive models, we look cautiously optimistic to the second half of the year.”
Shares of Volkswagen are down 21.5% year-to-date.

News | Business | Central Banks | Lebanon: Controversy over seigniorage in Lebanon is a warning sign

John Plender 



The controversy over the Lebanese central bank’s decision to record seigniorage as an asset in its crisis-torn balance sheet is no parochial matter. Across the world, strange things are happening to this important source of income for central banks and finance ministries.
Described as the profit made from printing money, seigniorage arises because currency carries a zero nominal interest rate and commercial banks receive, at best, paltry interest on the reserves they hold at the central bank.
Seigniorage is a valuable asset, because issuing money and investing it in low-risk securities has always been a profitable business. Traditionally, central banks have treated the profits in accounting terms as an income stream rather than an asset. Yet putting a capital value on the discounted future income is not entirely outrageous. Indeed, it is odd that what is arguably any central bank’s most valuable asset does not appear on the balance sheet.
Provided that a central bank’s liabilities are not denominated in foreign currency and are not index-linked, the present value of seigniorage will always guarantee solvency. This is true even where, under conventional accounting, the central bank is lossmaking and showing a deficiency of assets against liabilities. Put another way, it can always print its way out of a solvency trap.
At the Banque du Liban, one snag is that seigniorage profits have been won at the cost of a catastrophic loss of confidence in the currency. Lebanon’s economic crisis has rocked the financial system, the government has defaulted on foreign debt and yield-hungry investors have turned tail and fled.
Steve Hanke of Johns Hopkins University, an authority on hyperinflation, estimates that inflation in Lebanon has been running at what he calls a sizzling 52.6 per cent per month. Since the monthly inflation rate has exceeded 50 per cent for 30 consecutive days, it now qualifies as a hyperinflation, he says.
A second snag is that the seigniorage asset that the bank has chosen to record on its balance sheet is completely illiquid. Finance ministries cannot cash in the value in a crisis by selling equity in the bank — too bad in the Lebanese case, where the government’s debt mountain stands at over 170 per cent of gross domestic product.
Another aspect of central bank profitability that entails an Alice in Wonderland approach to accounting is the biggest liability in the balance sheet, which is money. Yet to call this a liability risks what Winston Churchill called a “terminological inexactitude”. This lie is because, in a fiat system where the currency is not backed by gold or some other valuable asset, central bank money is irredeemable. While it is undoubtedly an asset of the holder, the holder cannot go to the central bank and demand that it pay up on its IOUs.
The significance of all this for the developed world concerns what is happening to the net present value of seigniorage more generally. For the big central banks, quantitative easing after the 2008 financial crisis caused seigniorage revenues to surge as they expanded their balance sheets. Meanwhile, the present value of the future income has soared because it is being discounted at ultra-low interest rates. The lower the rate, the higher the capital value.
Willem Buiter, former Citigroup global chief economist, has shown that with today’s levels of nominal and real interest rates, it is easy to arrive at infinite quantities for the net present value of future seigniorage.
This sounds like super-solvency, which would be very reassuring. But interest rates can go up as well as down, and one day they will. The climate of moral hazard surrounding the central banks’ unconventional measures since the financial crisis may receive encouragement.
Since 2008, the public sector and non-bank corporate sector’s borrowing has rocketed in the big economies. This underlines that the response to the financial crisis, and now the pandemic, continues the asymmetric monetary policy that has prevailed since the late 1980s. The US Federal Reserve has established a pattern of bailing out markets when they collapse, but failing to cap them when they fall prey to bubbles.
Meanwhile, through asset purchase programmes, central banks have joined in the search for yield that they themselves prompted, buying risky assets such as corporate bonds and, in the Bank of Japan’s case, even equities. We know they can print their way out of trouble. But a real risk is that what is left of their independence will be under threat when trouble next strikes, as it surely will.
john.plender@ft.com

News | Business | Tech | Giants Conference: Big Tech’s leaders squirm as documents reveal their power

Hannah Murphy, Dave Lee, Richard Waters, and Kadhim Shubber 



A six-hour video conference with four of the world’s biggest tech bosses was never going to match the drama of a real-life hearing before Congress, and that was before the technical glitches and delays on the line.
But there were plenty of uncomfortable moments for the heads of Amazon, Apple, Alphabet and Facebook, who were often unable to answer questions on a trove of newly unearthed internal documents that showed how the companies chased dominance and then sought to protect it.
Among the most damning revelations was a 2012 email in which Facebook’s Mark Zuckerberg acknowledged that he planned to acquire photo app Instagram in order to “neutralise” it. Additional records released by the House judiciary committee showed that Instagram’s founder feared at the time that Mr Zuckerberg would go into “destroy mode” if he declined the offer.
Committee members also landed blows on the other three executives, Amazon’s Jeff Bezos, Apple’s Tim Cook and Google’s Sundar Pichai, for a litany of bad behaviours, including trying to clone rivals or deny them services.
The hearing cast the leaders of 21st century corporate America as modern robber barons, and served as a one-shot opportunity for liberals to make their case that US antitrust law needs urgent change.
“This was a watershed moment. We’re not going back,” said Barry Lynn, director of the Open Markets Institute and a leading proponent of radical reform. One of his former staffers, Lina Khan, was a pivotal figure in the antitrust subcommittee’s investigation, and sat behind chairman David Cicilline during the hearing.
Jeff Bezos, the Amazon chief, was quizzed over the company’s acquisition of Quidsi
Jeff Bezos, the Amazon chief, was quizzed over the company’s acquisition of Quidsi © REUTERS
“A huge amount of information came out,” Mr Lynn added. “They put new information in the hands of the agencies. They laid a few traps.”
The committee has been investigating the market power of big tech for more than a year and is set to publish a final report that may inform new antitrust legislation.
In the nearer term, the hearing also provided glimpses into the sort of evidence and arguments that other investigations, by the Justice department, Federal Trade Commission and state attorneys-general, could pursue against Facebook and Google.
The hearing, delayed for an hour by the need to disinfect the room, saw the four executives appear virtually because of Covid-19. The lag in the connection created the awkward exchanges that are familiar to those working from home in 2020. At one point, as the founder of Amazon began speaking, the committee had to nudge him: “Mr Bezos, I believe you’re on mute.”
But such moments only briefly leavened a series of probing and precise questions from lawmakers, as Democrats sought to show how Big Tech intimidated smaller rivals.
Mr Zuckerberg was cast as an aggressive dealmaker who gave companies he viewed as a threat a simple offer: join us, or we will destroy you.
“Facebook is a case study, in my mind, of a monopoly power, because your company harvests and monetises our data, and then your company uses that data to spy on competitors and to copy, acquire and kill rivals,” Representative Pramila Jayapal told Mr Zuckerberg.
“You’ve used Facebook’s power to threaten smaller competitors and to ensure that you always get your way these tactics reinforce Facebook’s dominance”, she added.
A slide from the congressional hearing with an excerpt from Mark Zuckerberg’s comments about Instagram
A slide from the congressional hearing with an excerpt from Mark Zuckerberg’s comments about Instagram © House Judiciary Committee
The Facebook chief executive rejected the characterisations. And he argued that it was “far from obvious” that the company’s acquisitions, Instagram and WhatsApp, would later grow at the speed they did, citing similarly sized companies at the time that went on to fail.
To build its case against Amazon, the committee used previously unseen emails between Amazon executives detailing, in 2010, what appeared to be efforts to aggressively price out, and then buy up, a competitor — in this case, Quidsi, the owner of Diapers.com, which Amazon duly acquired.
“We need to match pricing on these guys no matter what the cost,” wrote executive Doug Herrington, according to the documents, which spelt out Amazon’s “plan to win” by putting huge price pressures on the smaller company.
Asked about the strategy, Mr Bezos said he didn’t remember. “This is going back in time I think maybe 10 or 11 years or so,” he said.
A slide with excerpts from an exchange between Amazon executives regarding Diapers.com
A slide with excerpts from an exchange between Amazon executives regarding Diapers.com © House Judiciary Committee
The hearing was the first time Mr Bezos had ever appeared before Congress. And the committee took the opportunity to confront the world’s richest man with what they described as the real-life effects of the business strategies that made his wealth.
Questioning how Amazon treats its more than 2m third-party sellers, congresswoman Lisa McBath, a Democrat from Georgia, played Mr Bezos an evocative clip of a bookseller who said they were suspended from the platform without explanation, shattering their livelihood.
“It does not at all to me seem like the right way to treat her,” Mr Bezos conceded after hearing the clip.
Addressing Google, Mr Cicilline, said documents unearthed in the investigation showed its executives warning that rivals with specialised search engines were becoming a “proliferating threat”, and also warning that some of these were getting “too much traffic”.
The company had responded by directing search traffic to its own services and turning itself into a “walled garden that keeps users on Google sites, even if Google doesn’t have the most relevant information”.
Mr Pichai, who was frequently cut off as he sought to parry the attacks, said the company had developed its services only with an eye to improving the customer experience.
In another set of internal emails published by the committee, Google executives were seen discussing a potential acquisition of YouTube starting in 2005, with one speculating it could cost $10-15m and another three months later saying it had made an informal approach to pay $200m. It ended up paying $1.65bn only months later — a price that Democratic committee members suggested showed the importance to Google of taking over a potential rival.
Another slide regarding how Google treats threats
Another slide regarding how Google treats threats © House Judiciary Committee
Despite Apple being the world’s largest company by market value, a notably relaxed Mr Cook was questioned the fewest times, and left the hearing less wounded than his peers.
Still, the committee released swaths of internal emails calling into question that all app developers are treated equally, as the company has long claimed. In 2017, Apple agreed to take only a 15 per cent cut — half its usual rate — for the Amazon Prime Video app while the company was accused of “fast tracking” other apps.
Republican members of the committee took the opportunity to strike blows on a range of issues beyond antitrust, including whether Beijing steals intellectual property from US companies. Messrs Cook, Pichai and Bezos all said they had no immediate first-hand knowledge of such theft, whereas Mr Zuckerberg called it “well documented”.
Other lines of questioning, such as whether the platforms stifle rightwing voices, prompted groans from Democrats — although Mr Cicilline did home in on Facebook for failing to remove toxic posts from its platform. “Facebook gets away with [not taking down harmful content] because you're the only game in town”, Mr Cicilline said.
At the close of the day, Mr Cicilline ended with a statement of intent that sought to mark the hearing as a pivot point. “These companies as exist today have monopoly power,” he declared. “Some need to be broken up, all need to be properly regulated and held accountable.”

Additional reporting by Patrick McGee in San Francisco

News | Business | Banking: Credit Suisse launches restructuring after trading profit boost

Owen Walker



Credit Suisse unveiled sweeping changes to its structure as the bank benefited from a surge in trading in the second quarter.
The revamp, which is designed to reduce costs and improve efficiencies, rolls back some of the changes brought in by previous chief executive Tidjane Thiam. It comes as his successor, Thomas Gottstein, sets about putting his mark on the business almost six months after taking on the role.
Announcing the changes, which solidified the group’s global investment banking operations and combined risk and compliance oversight, Mr Gottstein said: “These initiatives should also help to provide resilience in uncertain markets and deliver further upside when more positive economic conditions prevail.”
The group said it hoped to save SFr400m a year from the reshuffle by 2022.
The Swiss lender benefited from the resilience of its domestic market during the coronavirus pandemic. It reported pre-tax income of SFr1.6bn ($1.75bn) for the quarter, up 19 per cent on a year earlier. Its domestic wealth management business and global markets units provided the bulk of the group’s revenues, while its investment banking and capital markets division beat analyst expectations and returned to profit.
Credit Suisse booked SFr296m of provisions for bad loans in the second quarter, less than the SFr568m provisions in the first three months of the year.
Mr Gottstein said: “In a continued volatile market environment, we delivered a strong performance. Despite persistent challenges caused by Covid-19, our employees again showed outstanding commitment and dedication.”
As part of the restructuring, the group announced a new investment banking division combining its previous global markets, investment banking and capital markets, and Asia-Pacific markets business lines. The division will be led by Brian Chin, formerly head of global markets, while David Miller, who previously led IBCM, steps down from the executive board and will head the capital markets and advisory businesses within the investment bank.
Credit Suisse also combined its risk and compliance divisions, headed by former chief risk officer Lara Warner. Lydie Hudson, who had been chief compliance officer, stays on the executive board to lead a new sustainability, research and investment unit.
Mr Gottstein was named chief executive in February after his predecessor, Mr Thiam, was ousted following damaging revelations over two corporate spying operations.
Within weeks, Europe was gripped by the coronavirus pandemic, which forced Credit Suisse to book a sevenfold increase in reserves for bad loans in Mr Gottstein’s first quarterly results in April.
The Swiss lender has also been caught up in scandals at Luckin Coffee and Wirecard, having worked on deals for both, as well as holding an internal review over circular funding within its own supply chain finance funds linked to SoftBank and Greensill Capital.
The review led SoftBank to pull $500m from the Credit Suisse funds this month.
Last week, Credit Suisse’s Zurich rival UBS reported an 11 per cent drop in second-quarter profits as strong performance at its investment bank was offset by an additional $272m of loan loss provisions.

News | Business | UK Car Industry: UK car output slumps to lowest level since 1954

3-4 minutes - Source: BBC




Jaguar Land Rover car assembly line Image copyright Getty Images
The number of cars built in the UK over the past six months has slumped to the lowest since 1954, according to the industry's trade body.
A total of 381,357 cars were made the six months to June, down 42% on the period last year, said the Society of Motor Manufacturers and Traders (SMMT).
The coronavirus lockdown led to widespread closures and job losses.
But the SMMT warned more jobs were at stake amid fears of a "double whammy" with the addition of Brexit tariffs.
The trade body estimated that 11,349 jobs were lost in the past six months at carmakers and companies which supply them with parts and services.
Britain's major carmakers all suspended production earlier in the year in response to the lockdown, including Jaguar Land Rover, Honda and Nissan.
Car production fell by 48% in June compared to the same month a year ago, with 56,594 units made, as social distancing measures and weak demand across global markets continued to restrict output.
In June, manufacturing for car sales in the UK market was down by 63%, while exports were 45% lower.
Mike Hawes, SMMT chief executive, said: "These figures are yet more grim reading for the industry and its workforce, and reveal the difficulties all automotive businesses face as they try to restart while tackling sectoral challenges like no other.
"Recovery is difficult for all companies, but automotive is unique in facing immense technological shifts, business uncertainty and a fundamental change to trading conditions while dealing with coronavirus."
UK car output was forecast to hit two million in 2020, but deteriorating market conditions compounded by coronavirus are likely to cut that number by more than half, Mr Hawes said.

The SMMT called for urgency in talks to secure an EU trade deal, saying most car firms felt a lack of clarity was "severely hampering" preparations for the end of the transition period.
Mr Hawes said the long-term future of the motor industry now depended on securing a good trade deal, pointing out that the EU remained the biggest market for UK cars.
He said the industry was facing a "plethora" of issues, with the heavy investment needed to make vehicles more environmentally friendly adding to the uncertainties of Brexit and the recovery from Covid-19. Sales in September will be crucial in determining the future of the industry, he added.
Analysis by the SMMT, published alongside Thursday's output figures, suggests that without a positive trade agreement with the EU, and the industry falling back to trade on World Trade Organisation terms with 10% tariffs, annual output could stay around 800,000 to 2025.
The report added that significant questions remained about the nature of trading conditions from January, with uncertainty about customs procedures, regulation and damaging tariffs causing "real concern."

News | Business | Smartphone Companies: Samsung profits soar on work from home demand

3minutes - Source: BBC



Samsung Head of US Mobile Product Management Drew Blackard speaks at Samsung's Galaxy UNPACKED in February 2020. Image copyright Getty Images
Samsung Electronics has seen its earnings soar as sales were boosted by millions working and learning from home during the virus pandemic.
The world’s largest maker of smartphones said second quarter operating profits rose 23% compared to last year.
The results were helped by strong demand for computer chips, which pushed up prices on the global market.
Data centres have expanded capacity to support home working and schooling.
"The Memory Business saw robust demand for cloud applications related to remote working and online education as the impact from Covid-19 continued, while demand for mobile was relatively weak," the South Korean company said in a statement.
Other major memory chip makers, including rival Korean producer SK Hynix and US firm Micron Technology, have also been boosted by people staying at home and consuming internet-based services like video conferencing and movie streaming.
Last week, SK Hynix said its operating profit had tripled in the second quarter from a year ago as server operators ordered memory chips and prices rose.
In June, Micron Technology forecast higher-than-expected revenue this quarter due to strong demand for its chips that power notebooks and data centres.
"Many enterprises are moving their operations to the cloud, and the server computing segment is on the rise," Prachir Singh, a senior analyst at Counterpoint market research firm told the BBC.
Samsung, which is set to launch its new Galaxy Note and Galaxy Z Fold handsets, also predicted that the market for smartphones will improve in the coming months as well as seeing it becoming increasingly competitive.

New models

"The smartphone market is expected to witness intensifying competition amid a gradual recovery in demand in the second half of the year," it said.
Despite Covid-19 causing lower demand technology brands continue to release new handsets.
In April, Apple announced a new iPhone SE, reviving a mid-market model it had discontinued in 2018.
A week earlier OnePlus unveiled new models, while the previous month Huawei launched its flagship P40 range.
Meanwhile, Apple's iPhone 12 and the Google Pixel 5 and 4A are expected to be released later this year.
Samsung shares were a little higher in Seoul trading on Thursday and have gained around 10% this week.

News | Business | Banks | UK: Standard Chartered profits take coronavirus hit

3-4 minutes - Source: BBC




UK-based bank Standard Chartered has seen its profits slump. Image copyright Getty Images
UK-based bank Standard Chartered has seen its profits slump as it was hit by the impact of the coronavirus pandemic.
Underlying pre-tax profit fell 25% to $1.95bn (£1.5bn) for the first half of the year as economic weakness drove up the number of bad loans on its books.
The bank's outlook was also clouded by political unrest in Hong Kong, which is its largest market.
Both Standard Chartered and HSBC have faced criticism over their positions on China's actions in the city.
"Low interest rates and depressed oil prices continue to be headwinds and we expect new waves of Covid-19 related challenge in the coming quarters but I am confident that our resilience and client franchise will see us through," group chief executive Bill Winters said in a statement.
The bank also said it had increased the amount of money set aside to cover potential bad loans in the first six months to $1.57bn.
The Covid-19 pandemic is hitting businesses globally as governments around the world shut down their economies to slow the spread of the virus.
The results from Standard Chartered come days before rival lender HSBC publishes its own half-year figures.

Breaking with tradition

Last month, both banks broke with their traditional political neutrality as they gave their backing to China's new security laws for Hong Kong.
Standard Chartered and HSBC issued statements that said the legislation can help maintain long-term stability in the city.
However, that stance was criticised by a leading investor in the two banks.
David Cumming, the chief investment officer for equities at UK insurer Aviva, which holds around $1bn in shares of Standard Chartered and HSBC said: "If companies make political statements, they must accept the corporate social responsibilities that follow."
"Consequently, we expect both companies to confirm that they will also speak out publicly if there are any future abuses of democratic freedoms connected to the law," he added in a statement.
In today's earnings announcement Standard Chartered's group chairman José Viñals addressed the international tensions over China's policies in Hong Kong:
"We are convinced that more collaboration – not less – is the best way to find a sustainable equilibrium in these complex situations, but we do not expect an easy or quick resolution.
"We do believe, however, that Hong Kong will continue to play a key role as an international financial hub and we are fully committed to contributing to its continued success," he added.

Jul 29, 2020

Analysis | The Cybersecurity 202: The Trump administration's battle over mail-in voting heads to Congress


Joseph Marks


with Tonya Riley

Attorney General William P. Barr held fast to claims that a drastic expansion of mail voting in November could undermine the election amid an often combative hearing with House lawmakers.
But he provided no concrete evidence for his assertions there's a “high risk” mail-in voting will lead to massive fraud, which have been roundly dismissed by election security experts. He said “common sense” guides his concern that U.S. adversaries might flood the election with phony ballots submitted by mail, even though election officials say safeguards such as bar codes and signature verification prevent this. 
It was the first time a congressional committee scrutinized Barr's claims in person – and Democrats savaged him, contending that he and the president were spreading conspiracy theories and aiding U.S. enemies.
The FBI and our intelligence services have repeatedly warned that [U.S.] adversaries are actively trying to sow mistrust of our election system and by repeating disinformation about mail-in voting, you and the president are helping them,” said Rep. Mary Gay Scanlon (D-Pa.), vice chair of the committee.
Barr did break from the president, however, when asked if he believed the election will be rigged. “I have no reason to believe it will be,” Barr said.

The mail-voting fight is playing out amid a broader partisan battle over how to run the general election. 

Democrats have routinely pushed for a surge in funding to protect the elections from hacking by Russia and other adversaries and more recently to fund voting by mail, expanded early voting and safety measures to reduce the spread of the coronavirus at polling places. But they’ve faced stiff opposition from Republicans including Senate Majority Leader Mitch McConnell (R-Ky.). Some $400 million was allocated in the first coronavirus relief bill passed in March, which many states insist is not nearly enough to make the changes needed to help voters cast their ballots safely in a pandemic.
A $3 trillion coronavirus relief bill passed by the Democratic-controlled House committed another $3.6 billion for elections – while a $1 trillion bill released by Senate Republicans this week contained no money at all. Republicans have also balked at Democratic efforts to impose new mandates on states including that all voters who want to cast mail ballots in future elections can do so.

Complicating the argument: Barr acknowledged during the hearing that he has voted by mail himself. 

But he insisted mail voting concerns don’t apply when a smaller number of people who aren’t able to make it to the polls in person vote that way.
“I’ve made very clear I’m not talking about accommodations to people who have to be out of state or have some particular inability to go and vote,” he said. “What I’m talking about is the wholesale conversion of an election to by mail voting.”
That explanation echoes President Trump, who has repeatedly attacked mail voting even though he also voted by mail this year.
But the explanation bears little resemblance to the way states actually run their mail-voting programs. Both Virginia, where Barr voted by mail, and Florida, where Trump voted by mail, have long allowed any resident to vote that way without providing any excuse. The only difference this year will be that many more residents will choose to vote by mail because they fear contracting the coronavirus if they vote in person.
There are no states that have announced plans to convert entirely to mail voting during the general election. Even the five states that ran elections almost entirely by mail before the pandemic — Washington, Oregon, Colorado, Utah and Hawaii — offer in-person voting options to people who can’t vote by mail because of disabilities that make it impractical or people who are homeless or don’t have a steady address.
Lawmakers were quick to seize on the contradiction. Sen. Amy Klobuchar (D-Minn.), who is a sponsor of the Senate’s main effort to expand mail voting:
More than a dozen other Trump allies have also voted by mail, including Vice President Pence, Education Secretary Betsy DeVos, White House press secretary Kayleigh McEnany, adviser and daughter Ivanka Trump and first lady Melania Trump.

Trump has been pushing his party further in the fight over mail voting than many want to go. 

Many Republican state election officials, for example, are eager to expand voting by mail during the pandemic despite Trump’s criticisms and urging constituents to vote that way.
Trump has also bucked convention by refusing to pledge that he won’t accept dirt from other nations on his political opponents. All the Democratic presidential candidates including presumptive nominee Joe Biden made that pledge last year.
When Rep. David N. Cicilline (D-R.I.) asked Barr during the hearing if it would be appropriate for a president to “solicit or accept foreign interference in an election,” Barr first replied, “It depends on what kind of assistance.”
When Cicilline repeated the question, Barr backed down. “No, it’s not appropriate,” he said.

The keys



Russian operatives are using three English-language websites to spread coronavirus misinformation.

The trio of websites published about 150 articles between late May and early July exploiting the pandemic in the West, U.S. government officials told Eric Tucker at the Associated Press. Some coronavirus-related headlines sought to falsely suggest that Russia was helping the United States fight the pandemic while others stoked tensions with China.
The sites also capitalized on civil unrest in U.S. cities and perpetuated a conspiracy theory about Joe Biden's dealings with Ukraine.
Officials did not say whether the effort was related to the November election. Officials identified two Russians as leading InfoRos, the agency behind the disinformation sites. They formerly served in Russia’s military intelligence agency, the GRU, which conducted operations to sow chaos during the 2016 U.S. elections.

Senate Republicans included funding to fight foreign hackers going after coronavirus vaccine research in their relief bill.

The package includes more than $50 million for the Department of Homeland Security's cybersecurity agency to combat foreign attacks against vaccine development, the Hill reports
The United States recently put out a warning that Russian hackers were targeting companies developing a vaccine and previously warned about Chinese hackers targeting such research. DHS received $9.1 million in the last package to address a rise in coronavirus-related cyberattacks.
Meanwhile, a group of 12 Senate Democrats and one independent wrote to Senate leadership yesterday urging them to include legislation that would put guardrails protecting data collected for covid-19 from being used for nonpublic health reasons. They argue that a failure to build public trust in data collection efforts will undermine the government's coronavirus response.
Congress is rushing to get a new relief bill out the door before many provisions expire on Aug. 1.

Rite Aid quietly rolled out a facial recognition system with Chinese ties to hundreds of U.S. stores. 

Records suggest that the company DeepCam relied on help from a Chinese company to build out its technology and for funding, Jeffrey Dastin at Reuters reports.
The technology was deployed in largely lower-income and nonwhite neighborhoods. Rite Aid discontinued the program after questions from Reuters.
Reuters found no evidence that DeepCam shared the facial images of U.S. customers with the Chinese government or companies in Beijing. But the connection poses a troubling possibility that China could have exploited the company for access to U.S. data, some security experts say.
The Chinese Communist Party’s buildup of its Orwellian surveillance state is alarming, and China’s efforts to export its surveillance state to collect data in America would be an unacceptable, serious threat,” Sen. Marco Rubio (R-Fla.) said in a statement.
Both the Chinese government and DeepCam's co-founder called the suspicions about their technology unfounded.

Global Cyberspace



Beijing hackers allegedly penetrated Vatican computers before Chinese talks with the Catholic church.

The attacks began in May as the Vatican and Beijing were preparing for talks to renew a 2018 deal that eased relations, Reuters reports.
The attacks targeted both the Vatican itself and the Catholic diocese of Hong Kong, according to the cybersecurity firm Recorded Future.
More global news:

Cyber insecurity



Security flaws left OKCupid users' personal information vulnerable to hackers.

Hackers could have accessed personal addresses and private messages of millions of the dating site's users, researchers at Check Point found.
There's no evidence any users were affected by the flaw and OKCupid fixed the vulnerability within 48 hours after Check Point researchers alerted the company.

Personal customer information is the most commonly breached data – and the most costly.

Breaches caused by nation-state actors were the costliest for companies to recover from, said a new report on industry financial losses from breaches IBM found. While just 13 percent of malicious breaches were believed to be carried out by nation-state hackers, the presumed average costs of the attacks was $200,000 higher than financially motivated hacks.
More news in hacks and breaches:

Chat room


Former DHS cybersecurity official Phil Reitinger and former intelligence community lawyer Susan Hennessey bat around the possibility of making DHS's cybersecurity division an independent agency:

Daybook


  • The House Judiciary will hold a hearing on online platforms and market power with testimony from the CEOs of Amazon, Apple, Facebook and Google today at noon.
  • The Brookings Institute will host an event on "Reorienting national security for the AI era" on Wednesday at 2:30 p.m.
  • The Senate Commerce Subcommittee on Security will hold a hearing to examine the China challenge and how to build resiliency and competitiveness on Thursday at 10 a.m.
  • The Senate Armed Services Committee will hold a hearing on the findings and recommendations of the Cyberspace Solarium Commission on August 4 at 2:30 p.m.

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