National

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

Closer

Axios Closer

Bob Iger’s shocking and messy return to lead Disney is one of the most high profile comeback stories in recent years.

Why it matters: Though the company’s stock shot up on the news, closing up 6.2% Monday, his success is far from certain.

“Those who are boomerangs might come back to bite, rather than benefit, the organization,” management professors from the University of North Carolina at Chapel Hill, UC Irvine and Marquette University have found. 

Reality check: Steve Jobs’ second stint as CEO of Apple along with Howard Schultz’s second spin at Starbucks are two of the most widely cited success stories.

But in general, returning CEOs and founders have led their companies to perform “significantly worse than other types of CEOs,” the researchers found. 

By the numbers: Xerox’s stock was down 60% after Paul Allaire took over for a year between 2000 and 2001.

Dell lost a third of its value when Michael Dell returned.

And because we’ve been talking about Enron again, let’s not forget about Ken Lay’s disastrous reprise. 

The intrigue: What may partially prompt former chief executives to come back is a personal attachment to the company they ran.

“[Iger] probably didn’t want to see his legacy go the way it was going,” Amy S. Hilliard, a professor with the University of Chicago Booth School of Business, tells Axios.

What to watch: Like other CEOs who were brought back, Iger is facing tough internal and macro conditions. He's facing high costs to build out the company's streaming infrastructure and content against a backdrop of slowing advertising spend and high inflation.

Chapek’s “sudden and unexpected departure,” which comes after his contract was recently renewed, “coincides with Disney confronting more significant operating challenges,” Goldman Sachs’ research team wrote this morning.

And because Chapek was largely sticking with the strategy "laid down by Iger that we have viewed as flawed from the outset ... we do not view Iger's return as necessarily a sign of better times to come," Cowen Research analysts wrote. 

Bob Iger back as Disney CEO, Chapek steps down

Bob Iger's success in second turn at Disney is far from guaranteed

Headshots of Bob Iger, Howard Schultz and Steve Jobs

Photo illustration: Annelise Capossela/Axios. Photos: Steven Ferdman, Amanda Edwards, Justin Sullivan/Getty Images 

Disney

Media Deals

Paramount's potential buyer list for Simon & Schuster is minuscule now that the proposed $2.2 billion merger with Penguin Random House is officially toast.

Why it matters: The antitrust ruling that tanked the deal sets a precedent for future dealmaking under the Biden administration — a precedent that, at least in the book publishing space, creates a major deterrent for any other bidder should they enter the ring.

Driving the news: Paramount on Monday filed an 8-K form with the Securities and Exchange Commission about the termination of the deal and noted that Simon & Schuster "does not fit strategically within Paramount's broader portfolio."

Penguin Random House said it "planned to appeal" the judge's October ruling, but must "accept Paramount's decision not to move forward."

Simon & Schuster CEO Jonathan Karp wrote to his staff Monday: "This news is still fresh, and at this point I have no specific information to impart about what will happen in the coming months. You may read or hear rumors and speculation about our future, but you can be assured that I will keep you informed as soon as there is pertinent news I can share."

What to watch: HarperCollins CEO Brian Murray had expressed continued interest in Simon & Schuster in his testimony during the trial, but he admitted to being "shocked" by the $2.2 billion price tag. 

French media conglomerate Vivendi previously had been eyeing the asset, too.

Paramount drops sale of Simon & Schuster to Penguin Random House

A judge previously ruled against the merger.

Illustration of books like dominoes being hit by a gavel. 

Media deals

The Supreme Court agreed Monday to hear a dispute between Jack Daniel's and a dog toy company that sells chewable "Bad Spaniels" whiskey bottles. 

Why it matters: The case carries implications for trademark law — and a number of companies, like Levi Strauss and the makers of Campbell Soup, have filed amicus briefs on the topic, AP notes. 

Driving the news: Jack Daniel's asked the Supreme Court to hear its case against the toy maker, claiming that the "poop-themed dog toys" could confound shoppers. 

"To be sure, everyone likes a good joke. But VIP’s profit-motivated 'joke' confuses consumers by taking advantage of Jack Daniel’s hard-earned goodwill," Lisa Blatt, the company's lead attorney, wrote in a court filing. 

"Providing near-blanket protection to humorous infringers in the Ninth Circuit undermines Congress’ goals, creates dis-uniformity, and rewards forum shopping," Blatt argued. 

The other side: The toy maker, however, contended that Jack Daniel's "lacks a sense of humor." 

"It is ironic that America’s leading distiller of whiskey both lacks a sense of humor and does not recognize when it — and everyone else — has had enough," lawyers for VIP Products wrote in their filing. 

"In the playful parodic tradition that has ranged over a half century [...] VIP put out a chewable dog toy."

"VIP has never sold whiskey or other comestibles, nor has it used 'Jack Daniel’s' in any way (humorously or not). It merely mimicked enough of the iconic bottle that people would get the joke," the filing said. 

The big picture: Jack Daniel's previously told VIP to stop selling its Bad Spaniels toys, but lost an appeal in court, AP reported. 

This isn't the first time the case has reached the country's highest court — last year, the justices declined to hear it, per the New York Post. 

Supreme Court will hear Jack Daniel's case against dog toy company

The case carries implications for trademark law.

Jack Daniels whiskey bottles are seen in a bar in Krakow, Poland on May 25, 2022

Photo: Jakub Porzycki/NurPhoto via Getty Images

Supreme Court

President Biden has made the COVID-19 crisis and a post-Trump return to national unity and traditional democratic ideals his top priorities. From vaccinations to stimulus to schools, Biden is seeking bipartisan compromise while showing a willingness to use executive authority and bare Democratic majorities in the U.S. House and Senate to implement his policies. Republican leaders are navigating deep party divisions over if and how to move beyond former President Trump.

Politics & Policy

Far-right conspiracy theorist Alex Jones won't be let back on Twitter, according to Elon Musk, despite the reinstatement of former President Donald Trump.

Driving the news: Musk's takeover of Twitter brought a host of changes and upheaval to the platform. On Friday, Musk tweeted, "What should Twitter do next?"

"No," Musk replied to a user who wrote back, "Bring back Alex Jones!!!!" 

In response to another Twitter user calling for Jones' reinstatement on Sunday, Musk replied, "My firstborn child died in my arms. I felt his last heartbeat. I have no mercy for anyone who would use the deaths of children for gain, politics or fame."

On Friday night Musk initiated a poll on his Twitter feed asking whether Trump should be reinstated. Trump's account was reinstated on Saturday following the poll's results where a slim majority wanted the former president back on the platform.

State of play: Jones responded to Musk's initial snub in a video posted to the conservative social media platform Rumble on Friday.

“Now, do I blame Elon Musk for this? No, ladies and gentlemen. And quite frankly, I don’t care if I get brought back to Twitter," Jones said.

"I care about any of these big tech platforms going back to free speech and back to where the Internet was four years ago, before this reign of surveillance and censorship. Because this isn’t just censorship. They’re surveilling everything you say in live time, not just on Twitter, but Google, Facebook, all of it in live time," Jones said.

The big picture: Trump was permanently suspended from Twitter days after the Jan. 6 Capitol riot, in what the social media platform said was a response to the "risk of further incitement of violence."

Jones was permanently suspended from the platform in 2018 for abusive behavior.

Jones, primarily through his website and radio show Infowars, for years falsely claimed the 2012 Sandy Hook school shooting was a hoax.

Elon Musk won't let Alex Jones back on Twitter

"Quite frankly, I don’t care if I get brought back to Twitter," Jones said in a post on Rumble.

Alex Jones speaks to the media outside Waterbury Superior Court during his trial on Sept. 21 in Waterbury, Connecticut. Photo: Joe Buglewicz/Getty Images

Twitter

Big Tech

Elon Musk

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Technology

Genesis Global Trading has been eerily silent after announcing last week that its crypto lending unit would halt services in light of FTX's collapse.

State of play: Five days have passed since its lending unit ceased withdrawals and new loan originations. And the lack of communication has opened the door to speculation about the health of the overall firm, as well as its parent Digital Currency Group and sister unit Grayscale Investments.

Threat level: If Genesis were dealing with insolvency concerns and were to file for bankruptcy, that would imperil Digital Currency Group.

It is only speculation. There has been no reporting to suggest this outcome.

Why it matters: Digital Currency Group, or DCG, founded by Barry Silbert in 2015, is among the largest crypto companies, sporting a valuation of $10 billion just last year.

It holds investments in some 165 companies, from public companies including Coinbase Global to well-known private shops Ripple and Ledger. 

In other words, a hurt DCG would have industrywide repercussions. 

Neither DCG nor Genesis responded to Axios' emailed queries.

Catch up quick: Genesis said on Nov. 16 that it expected to detail its plans this week.

In that announcement, it said it would "temporarily suspend" services, citing "unprecedented market turmoil" related to FTX's collapse that was driving customers to ask for withdrawals. 

The firm said the heightened withdrawal level exceeded what it was able to handle.

"We have hired the best advisors in the industry to explore all possible options," Genesis Trading tweeted then. "Next week, we will deliver a plan for the lending business."

The latest: As the market awaits that update, Crypto Twitter has been on edge. Folks are openly debating about the health of Genesis, DCG and its affiliated units. 

Some are watching for changes on the company website, with one observing that DCG had dissolved the team's "about page." 

Context: Genesis Global said it had roughly $175 million of digital assets stranded on FTX's platform. 

The firm's liquidity had already been hobbled by the collapse of Three Arrows Capital in June. 

Flashback: Genesis got a $140-million emergency equity infusion of liquidity from DCG, but that does not appear to be enough. 

Of note: Amid widespread concerns about solvency, Grayscale announced Friday it would not release a proof-of-reserves for its assets under management. Today, its custodian Coinbase showed what reserves were as of Sept. 30.

Meanwhile, the Grayscale Bitcoin Trust continues to trade at a massive discount of roughly 40% to the underlying bitcoin it holds. 

What we're watching: Any signs of more trouble brewing at DCG or its subsidiaries. 

Silence from Digital Currency Group's Genesis spooks crypto

As the market awaits an update this week, Crypto Twitter has been on edge.

Illustration of pixelated coins falling as dominos. 

Cryptocurrencies

Crypto

Axios Crypto

Crypto investment firm Multicoin Capital and the FTX family of companies were a match made on Solana, the super fast smart-contract blockchain that shot up in popularity in 2021.

Why it matters: Some Multicoin limited partners (LPs) take a different view. With FTX evaporating, Multicoin Capital's bets have taken a very bad turn. This is especially bad news for LPs due to make tax payments on sales the firm made in 2021.

Driving the news: Three LPs who asked to remain nameless explained to Axios that Multicoin closed out significant positions during the 2021 bull market. However, instead of returning at least part of these realized gains in cash to its backers, the company instead reinvested in Solana's native coin, SOL. 

Normally, LPs said, a sale would correspond with something like 40% disbursement to LPs to cover taxes. 

LPs are also frustrated that the firm's leadership seems to have brushed off concerns about a 90% drawdown. 

SOL has been hit especially hard by the FTX scandal.

What they're saying: Multicoin spokesperson John Robert Reed tells Axios, "We don't comment on performance." The company again declined to say more after a subsequent request for comment on the LP's claims around the tax-related disbursement.

Multicoin announced leading a $20 million round for the Solana blockchain in July 2019. Subsequently, SOL has been one of the wildest rides in the markets. 

When Solana went live in early 2020, its tokens traded for just under $1. The price peaked at $260 in Nov. 2021. As of the end of last year, SOL was Multicoin's biggest position.

Peer blockchains like Polkadot, Cardano and Avalanche all had their runs in 2021, but — in the end — SOL's market cap hit by far the highest highs, reaching $78 billion at one point. 

Details: Multicoin operates several funds. It has a hedge fund, which is the most liquid it offers. Then it has three venture funds which are subject to longer lockups (I, II and III). Two of the investors we spoke to were only in II. Another was in all the funds. 

Its first venture fund and its hedge fund had an extraordinary 2021.

Some of the tokens of companies it made big venture commitments to have performed much worse than the rest of the crypto market year to date. 

For example, assets like Helium's HNT, Eden Network's EDEN and Metaplex's MPLX are all down over 90%. Bitcoin, by comparison, is down 65%. 

In the weeds: Multicoin's ventures frequently dovetailed with those of FTX or its trading arm, Alameda. 

Alongside FTX, it backed a startup built on the remains of Facebook's Libra, a capital formation startup and an interoperability network. 

With Alameda, it backed Eden Network, a block explorer for Solana, the NFT platform Metaplex, and a stablecoin protocol. 

What we're watching: CNBC reported that 15% of Multicoin's assets under management were stuck on FTX after it shut down. 

Flashback: In 2021, Multicoin cofounder Kyle Samani drew side-eye from many in the industry when he tweeted, "Why does security have to be #1 priority? I value speed more tbh."

Quick take: The thing about trade-offs is that you never know when you'll be forced to make that trade. 

Be smart: No one said this would be easy. Polychain, a premiere crypto fund, was feted for hitting a billion dollar valuation, only to have questions swirl as its bets tanked amidst Crypto Winter.

By 2020, the limited partners who stuck it out were crowing again about wild gains.

Multicoin LPs are frustrated over its Solana bet

The crypto investment firm is feeling the effects of the FTX fallout.

Illustration of a sad face on a digital, pixelated coin

Crypto lender Celsius Network failed to keep track of its customers' digital assets, according to a report published Saturday ordered by the judge overseeing Celsius' Chapter 11 bankruptcy proceeding.

Why it matters: Thousands of Celsius customers and the digital assets they think rightfully belong to them hang in the balance, with folks shut off from their accounts since the platform's June halt.

Between the lines: Celsius had customers in accounts designated Earn, Custody, and Withhold.

Earn accounts generate yield, but because that product could have been in violation of securities law, Celsius launched Custody as a regulatory workaround, and Withhold accounts for customers who lived in states that Celsius couldn't legally offer Custody accounts.

But Custody accounts were only that by name, according to examiner Shoba Pillay's interim report. Assets were funneled from other parts of the company to address shortfalls in those accounts. And deposits for Withhold accounts were also commingled.

The big picture: The 300-plus page report further complicates the court's job of figuring out which digital assets belong to which customers and to Celsius' estate. 

Yes, but: The different customer groups in Earn, Custody, and Withhold accounts, represented by their respective lawyers, may disagree with the report's findings.

Context: Pillay was instructed to produce an interim report to address factual issues related to Custody and Withhold accounts that would help inform the judge presiding over bankruptcy proceedings on who gets what.

Pillay interviewed Celsius executives and used company documents including coin reports, reports from its Fireblocks workplace as well as wallet and asset-mapping documents. 

"Celsius’s actual movement of coins within its network differed from what its customers could see," Pillay said.

Between the lines: Celsius came up with Custody, launched in April, so that it could keep "assets on the platform" and bring in new users without running "afoul of regulators," according to Juwon Layiwola, a Celsius director. 

A securities regulator in the state of New Jersey, where the firm is headquartered, ordered Celsius to cease and desist from its Earn product in September 2021, accelerating the firm's timeline to launch products it didn't have the tech ready for.

Details: Technical limitations of the Custody offering (because it wasn't ready by launch) required manual reconciliation, processes for which were not established.

Oren Blonstein, Celsius’s former head of innovation and chief compliance officer, "did not know the basics of the manual reconciliation process," the report said.

"He had assumed it was automated, and agreed that the process was “not sufficiently robust."

Employees, according to the report, said they relied on their “innate sense of how liquid or illiquid the coins or assets were” when they considered whether to involve Treasury" to address periodic shortfalls in customer accounts. 

Meanwhile, when the Custody program launched on April 15, 2022, Celsius swept assets designated for it from the customer’s “bridge” wallet into Celsius’s main wallets.

Those were the same wallets into which deposits were made in the Earn program. 

Withhold customers believed assets held in Withhold were kept separate from assets held in Earn or elsewhere within Celsius, according to Pillay. 

Reality check: Celsius did not have terms of use for the Withhold accounts. 

Co-founder Nuke Goldstein said "he did not know about the existence of the Withhold accounts" until the Chapter 11 filings, and he was unfamiliar with any specifics about those accounts, according to the report.

Celsius previously used the Withhold designation to categorize certain digital assets transformed to the platform it couldn't legally accept such as Binance's BNB token. 

What we're watching: The fuller report due to be published soon that could touch on whether Celsius operated like a Ponzi. 

Celsius failed because it was technically incapable, report finds

Thousands of Celsius customers await whether they will recover their digital assets.

Illustration of a series of blocks that are connected to each other by lines moving around.

Executives may be talking about recession risks more on investor conference calls. But if you look at what they're actually doing, things look a little different.

Driving the news: The nation's biggest firms reported a record sum of capital expenditures (capex) — investments in buildings, new machinery or technology.

Why it matters: Restrained investment on the part of businesses is one way in which the Federal Reserve's aggressive interest rate hikes translate into slower economic activity. 

So far, that impact is not as prominent as one might expect. 

By the numbers: In the third quarter, S&P 500 companies spent $222 billion on capital investments, according to S&P Dow Jones Indices.

The firm calculated the figures from over 90% of firms that have reported corporate earnings so far. That means the final tally will almost certainly be higher. 

The energy sector, which is seeing profits boom on the back of higher prices, is ramping up spending the fastest, the Wall Street Journal reports.

Last quarter, companies reported $197 billion in capex; this time last year, it was $176 billion.

Of note: The figures aren't inflation-adjusted. Part of that record figure boils down to pricier materials and other higher costs. 

Yes, but: Corporate borrowing has slowed on the back of higher interest rates. Investment-grade bond issuance is at $75 billion so far this month, compared to this year's peak of $231 billion in March, according to Pitchbook LCD.

This suggests that while companies continue to invest at a brisk pace, they might not be borrowing as much to do so. Rather, they are relying on booming profits built up in recent years.

"We can debate whether or not we are going into a recession. But there is no recession in corporate earnings. Cash flow is still there," says Howard Silverblatt, an analyst at S&P Dow Jones Indices.

How it works: Higher rates of capital spending is a vote of confidence in the economy. 

When companies invest in new equipment, or break ground on new factories and manufacturing plants, they are betting healthy consumption will ensure those investments pay off.

When the current dynamics flip — that is, profits begin to shrink, the economy shows clear signs of slowing and consumer demand falters — economists expect businesses will pull back on investment.

"For now, we continue to see resilient [capital expenditure] trends. But as we head into 2023, the combination of high inflation, lingering supply chain issues, a higher cost of capital and elevated uncertainty will increasingly constrain investment in low-growth sectors," Gregory Daco, chief economist at EY-Parthenon, wrote in a note last week.

The intrigue: In surveys, CEO confidence has deteriorated, pointing to a softer outlook for hiring and business investment. But that mood hasn't yet translated into substantially lower rates of employment. It also hasn't yet resulted in big capex pullbacks. 

"There has been more resilience in the hard data than there has been in surveys," says Samuel Coffin, an economist at UBS. 

Equipment investment grew at an 11% annual rate last quarter — roughly in line with the pace in the first three months of the year. Spending on intellectual property, too, grew at a solid 7% annual rate. (Spending on structures, which shrank at a 15% annual rate, is the outlier.) 

What to watch: In the latest manufacturing PMI survey, one machinery firm sounded the alarm on equipment spending: "We have seen a general pullback in available capital budgets from our customers, and that is having a significant impact on our sales in the fourth quarter."

Business booms in the face of recession jitters

Executives may be talking about recession risks more, but what they're actually doing looks different.

Illustration of a pattern of dollar bills fading from left to right.

Economy

Pro Rata

Axios Pro Rata

Minutes before Elizabeth Holmes was sentenced to 11 years in prison, her attorney argued that a harsh punishment would deter tech innovation and investment. Judge Edward Davila would soon retort: "Failure is normal. But failure by fraud is not okay."

Why it matters: There's been lots of talk this month about investor due diligence, and the lack thereof, in the case of collapsed crypto exchange FTX. 

Some in crypto and VC have, in turn, criticized the media for lavishing praise on FTX and CEO Sam Bankman-Fried without doing our own verifications.

The big picture: Venture capital relies heavily on trust, in part to enable entrepreneurial speed, which makes such investments particularly vulnerable to abuse. In fact, it's quite remarkable that there haven't been more cons.

Investors in FTX, for example, didn't receive balance sheets as part of their quarterly financial reports. But they trusted Sam Bankman-Fried because the exchange was throwing off cash, and had raised around $2 billion for a supposedly unleveraged business with only around 50 employees. Plus, lots of startups don't provide balance sheets.

Years ago, VC firms like Spectrum Equity and Foundation Capital trusted that the audited financials of a startup called Canopy Financial were legit. They never thought to check if the KPMG letterhead had been forged.

Oak Investment Partners once trusted one of its partners who said that a portfolio company was raising new funding. They never thought he was wiring the money to his own accounts.

The bottom line: Major frauds — from Enron to Madoff to Theranos — are obvious in retrospect. As are the failings of those who could have, and should have, known better.

But the best con artists are the ones who identify the system’s frailties and then exploit them. And, as Judge Davila reminds us, ultimate blame always lies with the determined grifter.

Assigning blame when startups break bad

The best con artists are the ones who identify the system’s frailties and then exploit them.

Illustration of a lightbulb with a robber mask and cap.

Venture capital

After more than a month of early holiday sales, the official wave of Black Friday sales has arrived and continues throughout the week.

Why it matters: Retailers are banking on consumers showing up in stores and logging on to shop Black Friday sales and to clear excess inventory during the holiday season.

Driving the news: The National Retail Federation said in a news release that it estimates that 166.3 million people are planning to shop between Thanksgiving and Cyber Monday.

That's almost 8 million more people than last year and the highest estimate since the federation started tracking this data in 2017.

Meanwhile, the NRF projects holiday sales will grow between 6% and 8% compared with last year, or to between nearly $943 billion and $960 billion, Axios' Richard Collings reports.

Be smart: Emily Irwin, a senior director of advice with Wells Fargo’s Wealth & Investment Management, told Axios that shoppers should “prepare to shop” to maximize deals and minimize impulse buys.

Zoom out: COVID killed the traditional holiday shopping season and retailers no longer wait to clear out the Halloween leftovers before starting Black Friday-like deals.

Yes, but: This year, inflation also changed the season and pushed retailers to offer discounts earlier to help shoppers spread out purchases.

Flashback: The nation's largest retailers, including Best Buy, Walmart and Target, started keeping stores closed on Thanksgiving in 2020, a break from a decade of holding Black Friday sales on the holiday.

Amazon’s 48-hour Black Friday event starts on Thanksgiving and will feature “millions of deals at a variety of price points worldwide,” the company said in a news release.

Details: Deals will be available online, on its app and by asking, “Alexa, what are my deals?”

Amazon said it will have surprise deals “that will drop every 30 minutes during select periods throughout the two-day event.”

Walmart kicks off Black Friday deals joining Best Buy, Target, more

After a month of early holiday sales, the official wave of Black Friday sales has arrived.

Monday's economy & business stories