Capital investment: Nonresidential business investment has improved after being sluggish or negative over the last two years. Spending on equipment went up by 10.4 percent in the third quarter, the fastest pace in three years. But the type of investment is important. An increase will really only matter if it helps boost sluggish productivity.
GDP growth: Mr. Trump predicted tax cuts would turbocharge the economy to a 6 percent growth rate, compared to the 3.3 percent annualized expansion in the third quarter. The nonpartisan congressional Joint Committee on Taxation estimated an earlier Senate tax plan would add 0.8 percent to GDP over a decade. Mr. Trump’s estimate is unrealistic but a modest lift is expected. Still, the tax plan won’t pay for itself, as the White House contends, and may add $1.5 trillion to the deficit over 10 years. That trade-off may be this tax bill’s biggest legacy.
What the European legal case means for Uber.
Here’s a cheat sheet for today’s decision by the European Court of Justice:
• In being classified as a transport service instead of an online platform, Uber must comply with local rules that govern taxis.
• It doesn’t block Uber from operating in any countries where the company currently operates.
• But it doesn’t let Uber move forward with any so-called peer-to-peer services in which anyone with a driver’s license and a car can use its app to pick up customers.
More from Mark Scott of Politico:
The ruling is expected to set a precedent for how Uber will be allowed to operate across the E.U., including in a separate pending case at Europe’s highest court involving a complaint by a French taxi association against Uber. A decision in that case is expected sometime next year, and it will likely cement demands that the ride-booking company comply with Europe’s transport standards.
From the E.C.J.’s ruling:
A service that connects, by means of mobile telephone software, potential passengers with drivers offering individual urban transport on demand, where the provider of the service exerts control over the key conditions governing the supply of transport made within that context, in particular the price, does not constitute an information society service within the meaning of those provisions.
Can Uber appeal?
No. But here’s what a representative for the company said:
This ruling will not change things in most E.U. countries where we already operate under transportation law. However, millions of Europeans are still prevented from using apps like ours. As our new C.E.O. has said, it is appropriate to regulate services such as Uber and so we will continue the dialogue with cities across Europe
Where in Europe Uber doesn’t operate at all right now
The big questions
• Does this have any effect on Uber’s valuation? Unclear whether Uber’s $68.5 billion valuation would fall. A group led by SoftBank is already trying to buy shares from existing investors at $48 billion.
• What effect will this have on that tender offer? Unclear.
• What broader effect will this have on “gig economy” companies that say they don’t employ the professionals who use its service? (Unclear, though opponents will surely seize upon the ruling to fight against such nonstandard work arrangements.)
Extra credit: Robert Cyran of Breakingviews wrote yesterday, “Europe will be the eye of the tech storm in 2018.”
— Michael J. de la Merced
Uber has a C.O.O.
The company named Barney Harford, the former head of online travel site Orbitz, as its first chief operating officer.
When Dara Khosrowshahi took the helm of Uber in September, the former Expedia chief said he was leaning against hiring a C.O.O., according to Bloomberg.
Khosrowshahi’s first few months on the job convinced him that he had to take a different role than the one he played at Expedia. Uber required a CEO who was more a public face of the company. Khosrowshahi was meeting with regulators in London who had revoked Uber’s license when he had to work with the board of directors over a deal for SoftBank Group Corp. to invest in the company. Later, he visited Brazil to win over lawmakers there.
Mr. Harford is the second big hire of Mr. Khosrowshahi, who is putting his stamp on the company. In October, he appointed Tony West as chief legal officer. Mr. West had been general counsel at PepsiCo. Uber still needs to name a chief financial officer.
Mr. Harford is someone that Mr. Khosrowshahi is familiar with, having worked and competed with him over the past decade-plus.
• Mr. Harford was an executive at Expedia when Mr. Khosrowshahi became C.E.O. of the company in 2005.
• The pair then competed when Mr. Harford was named C.E.O. at Orbitz, one of Expedia’s main rivals, in 2009.
• In 2015, Mr. Harford sold Orbitz to Expedia for $1.6 billion.
• Mr. Harford has been an adviser at Uber since October.
Bill Gurley, a former Uber board member and an investor at the Silicon Valley venture capital firm Benchmark, praised the move.
How will FedEx use the cash it gets from the Republican tax overhaul?
Here’s what Alan Graf, FedEx’s chief financial officer, said on the company’s earnings call:
“If tax reform is enacted, we expect our uses of cash from tax savings would include, optimizing CapEx to capture the benefits of 100% expensing to further grow the business and create even more upward mobility for our team members.
“Funding our pension plans beyond our current forecast. Increasing the dividend as our board may approve. Continuing our stock repurchase program at our current modest levels, and investing in M&A where it makes sense.
“U.S. GDP could increase materially next year as a result of U.S. tax reform. If this occurs, we would likely increase capital expenditures and hiring to accommodate the additional volumes triggered from this incremental GDP growth.”
His comments break somewhat from the narrative that has developed around the Republican tax overhaul. Proponents of the bill argue that cutting the corporate tax rate to 21 percent from 35 percent will lead corporate America to invest more in their businesses and hire more workers. Critics counter that companies will spend their cash windfall on share buybacks and dividends, not on growing their businesses.
The latter argument gained more traction last month at The Wall Street Journal’s C.E.O. conference. During a discussion with Gary Cohn, President Trump’s chief economic adviser, a moderator asked the chief executives in attendance whether they planned to increase their capital expenditures if the G.O.P. plan was enacted. Only a smattering of hands went up.
“Why aren’t the other hands up?” Mr. Cohn asked.
Can Stitch Fix bounce back from its disappointing earnings report?
Shares of the online retailer are down 12 percent premarket after the company’s first earnings as a public company fell short of Wall Street’s hopes.
Stitch Fix reported earnings of $13.5 million, or 4 cents a share, on revenue of $295.6 million, using generally accepted accounting principles. Analysts had expected the company to report earnings of 3 cents a share on revenue of $295 million. But it was the decline in Stitch Fix’s margins that concerned investors.
From Lauren Thomas of CNBC:
While earnings and sales just slightly surpassed analysts’ expectations, gross margins were hampered by investments into new categories, falling nearly 3 percentage points. In the near term, Stitch Fix said it continues to expect profit margins to decline as those investments ramp up and it invests in new categories.
Stitch Fix’s stock had gained 65 percent since its initial public offering last month. Stitch Fix priced its initial public offering at $15 a share, valuing the company at about $1.5 billion.
Yikes: When Max Cherney of MarketWatch asked Stitch Fix for an adjusted earnings-per-share figure, a company representative told him to “do the math.” He did, and the simplest answer is 13 cents a share.
— Stephen Grocer
The tax bill is 1½ steps closer to becoming law.
With the Senate having passed the reconciled tax legislation, and the House set to pass the proposal again — because of a technical issue — the $1.5 billion overhaul of the country’s tax code is set to reach President Trump’s desk within days. (Read a recap of Republicans’ legislative efforts.)
Here’s what Hank Paulson, the former Treasury secretary, emailed us about the bill’s passing:
The Tax Cuts and Jobs Act will be a major breakthrough for America’s long-term competitiveness and prosperity. For decades, American workers have been paying the price for our archaic corporate tax system. The reforms in this bill will enable America’s companies, which are our job creators, to be better engines of growth and prosperity, and it will attract job-creating investment in the U.S. by foreign companies.
Mr. Trump quickly took to Twitter to boast about getting the tax bill through Congress and predict an economic boom in the wake of its passage.
What’s next: Republicans say they are looking as soon as next year to overhaul entitlements like Medicare, Medicaid and Social Security with the aim of limiting spending. And Democrats plan to make the bill a central plank of their 2018 election platform, citing its unpopularity with voters.
The tax flyaround
• House Speaker Paul Ryan writes in a WSJ op-ed, “This is about helping a middle class that has been squeezed by a tax code that is expensive, complicated and skewed toward special interests.” (WSJ)
• Private equity firms will take some hits under the tax bill, but overall support the legislation. (Axios)
• Senator Bob Corker, Republican of Tennessee, probably didn’t ask for a provision in the tax bill that would benefit him financially — but he still voted against his principles, David Leonhardt writes. (NYT)
• The tax break for graduate students’ tuition fee waivers may have been preserved, but Republicans are still likely to take aim at other higher education subsidies. (NYT)
• Have questions about the tax bill? Our NYT colleagues Ron Lieber and Patricia Cohen will try to answer them. (NYT)
Elsewhere in Washington
• Democrats won’t push for a vote this week on legislation to protect the young immigrants known as Dreamers, amid signs that the party doesn’t have enough votes to force the issue. But a compromise appears to be in the offing. (WaPo, Politico)
• A bipartisan group of senators on the Senate Banking Committee rejected the White House’s nomination of Scott Garrett, a former New Jersey congressman, to lead the Export-Import Bank. (NBC News)
• As more states run out of federal funding for the Children’s Health Insurance Program, parents are begging lawmakers to take action before their sons and daughters lose coverage. (NYT)
• The White House defended its judicial nomination process after three of its nominees withdrew their candidacies amid criticism. (Politico)
The latest in sexual misconduct news.
• It isn’t just the employees of famous men: Women on the factory floor of two Ford plants in Chicago say they have suffered harassment and groping for decades. (NYT)
• The “Today” show has consistently beaten its rival, “Good Morning America,” in viewer ratings since Matt Lauer was fired. (NYT)
• The House of Representatives paid $115,000 in taxpayer money to secretly settle three sexual harassment claims against lawmakers between 2008 and 2012. But the congressional Office of Compliance rejected a request by Senator Tim Kaine, Democrat of Virginia, to publish information about sexual harassment claims made against senators. (NYT, Axios)
• As awareness of sexual misconduct in the workplace is growing, the dearth of women in leadership positions — just 23 percent of C-suite positions at the top 1,000 American companies are held by female executives — is becoming more glaring. (Breakingviews)
What Bitcoin gives, it takes away just as quickly.
Within the past day alone, the digital currency has plummeted from $18,385 to $16,626. It’s a timely reminder that when one chooses to jump in on an investing trend/fad, nerves of steel are required.
But believers in Bitcoin think that the currency will bounce back. From Jeremy Herron, Randall Jensen and Eric Lam of Bloomberg:
“A short-term correction was definitely on the cards,” said Thomas Glucksmann, Hong Kong-based head of marketing at cryptocurrency exchange Gatecoin Ltd. “I think we’ll see some recovery by the end of the week. To be honest, I only see this as the short-term volatility we were all expecting to see anyway.”
The WSJ says that the mini-crash appears to have been prompted by Coinbase beginning trading the alternative digital currency Bitcoin Cash.
Yes, they’re probably each a billionaire: The Winklevoss twins are largely known to the public — thanks to “The Social Network” — as haughty, naïve aristocrats given their comeuppance by Mark Zuckerberg. But in real life, their early bet on Bitcoin appears to have paid off handsomely, with their holdings worth about $1.3 billion as of yesterday.
More from Nathaniel Popper of the NYT:
They have collected an additional $350 million or so of other virtual currencies, most of it in the Bitcoin alternative called Ethereum. The brothers are also majority owners of the virtual currency exchange they founded, Gemini, which most likely takes their joint holdings to a value well over $2 billion, or enough to make each of them a billionaire.
Clearly, there’s no bubble here: A former fruit juice company briefly saw its stock price soar more than 200 percent yesterday when it changed its name from “SkyPeople Fruit Juice” to “Future FinTech” — despite its business having nothing to do with Bitcoin.
HNA, meet Elliott Management.
HNA’s efforts to cut its enormous debt load has led to some unintended — and probably unwelcome — consequences. Namely, that one of its portfolio companies now counts a major activist investor among its shareholders.
How Elliott gained its stake in the duty-free retailer Dufry is pretty complicated, as Robert Smith of the FT explains:
Elliott was able to get hold of the stock because HNA recently took out a so-called “equity collar” facility, under which it lent a stake in the Swiss company to a bank in exchange for funding. This collar facility allows the Chinese company to remain a shareholder on paper even though it no longer directly holds the shares. But the bank that provided the collar sold the underlying Dufry stake to funds, including Elliott, to hedge its position, according to the people familiar with the matter.
The big question: Since HNA has taken out equity collars for other portfolio companies like Deutsche Bank, have activists jumped into those other holdings as well?
In other hedge fund news: The Mexican billionaire Carlos Slim Helú is planning to sell more than half of his 17 percent stake in The New York Times Company to other investors, including hedge funds, Bloomberg reported.
Life after Brexit begins to look clearer.
Britain will remain subject to European Union rules during its transition period, which will end on Dec. 31, 2020, said Michel Barnier, the chief negotiator for the E.U. The transition is intended to give businesses time to adapt to the departure from the bloc.
And investment banks in Britain would have to stick closely to E.U. rules on issues like bonus caps after Britain leaves the union, even as the European Commission insists that financial services will not be included in a Brexit trade deal.
Quote of the Day
“It’s almost like this sick perversion I have, catching thieves.”
— Mike Armstrong, a contractor in Memphis who moonlights as a vigilante protecting Amazon packages against “porch pirates” who pilfer them from customers’ homes.
The Speed Read
• “It’s becoming less and less sexy to be going to the United States.” The Canadian tech industry is aggressively courting foreign companies, with the help of immigration policies. (NYT)
• Elon Musk sent his telephone number to 16.7 million Twitter followers instead of to John Carmack, the chief technology officer at Oculus. Cue speculation that Mr. Musk is trying to recruit Mr. Carmack. (Bloomberg)
• Definers Public Affairs has pulled out of a federal contract to provide media-monitoring services to the Environmental Protection Agency after it was disclosed that a lawyer on its staff had been investigating E.P.A. employees critical of the Trump administration. (NYT)
• In Mr. Trump’s national security plan, intellectual property is king and deals will get a closer look. (NYT)
•Stitch Fix’s stock price plunged in aftermarket trading after the company reported earnings that were in line with expectations but which included a surge in ad spending. (Axios)
• Many Kushner buildings are mostly owned by others: The company owns less than 20 percent of half the buildings in which it has a state in New York City. (Bloomberg)
• An analyst at Nomura Instinet issued a rare downgrade of Apple’s stock, arguing that any surge in user growth is already baked into the share price — and, implicitly, betting that the iPhone maker won’t reach a $1 trillion market capitalization. (NYT)
• Journalists at Rolling Stone are “cautiously optimistic” about the prospect of being owned by Penske Media Corporation, according to Joe Pompeo. (Vanity Fair)
• Glencore and a group led by Apollo Global Management have been shortlisted to bid on the sale of Rio Tinto’s remaining coal mines, which could fetch more than $1.5 billion, according to people familiar with the matter. (Bloomberg)
• Michigan offered to let Amazon operate in Detroit with extensive tax breaks for three decades, among other incentives, while promising to create a $120 million program to meet the needs of its work force, according to documents laying out a bid for Amazon’s second headquarters. (Crain’s)
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