Situational awareness: United Technologies wants to merge with Raytheon. Microsoft is, as of the close of trade on Friday, the only company in the world worth more than $1 trillion. The 5% tariff on all Mexican imports is not going to happen. And Chrysler parent FCA is not going to merge with Renault after all. Thanks to everybody who replied last week to point out that Chevrolet is a GM brand, not a Chrysler brand. Keep those emails coming!
Illustration: Sarah Grillo/Axios
“I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I said.”— Former Fed chair Alan Greenspan
Jay Powell doesn't know what he's going to do with interest rates. He probably hasn't made up his mind about what he's going to do at the next meeting, which starts on June 18, and he certainly doesn't know what he's going to do on July 31 or September 18 or October 30.
The uncertainty is deliberate on the part of the Fed. Depending on how you look at it, it's either a relatively new development or rather old-fashioned.
After the crisis, the role of the Fed was clear: to rescue the economy and prevent it from imploding. Today, policymakers need to decide whether they should cut rates as a form of recession insurance, and whether they should frame any rate cut as a one-off or as the first of a series. They need to determine how much attention to pay to markets, which will throw a tantrum if the expected rate cuts don't materialize — and also how much attention to pay to politics, in a world where Fed policy has become politicized to an unprecedented degree.
The bottom line: We're not going to go back to the world of the early 1990s, when the Fed wouldn't even say what level of Fed funds it was targeting. But in an uncertain world, expect Powell to continue to embrace constructive ambiguity.
The drop in bond yields has meant a similar drop in mortgage rates. The average 30-year mortgage is now 3.82%, which means there are millions of Americans who could save real money by refinancing their mortgage.
Illustration: Aïda Amer/Axios
One set of retailers is doing a great job of bucking the retailpocalypse trend: famous people. A few examples:
What we're seeing: If you want your retail store to be swarmed, it helps to be a YouTube influencer. A pop-up shop for David Dobrik's hoodie-centric Clickbait brand attracted 10,000 fans in a single weekend.
Why now? Because reaching and influencing consumers through social media is extremely expensive — unless you're a celebrity with "organic social" reach.
The bottom line: Abercrombie & Fitch is closing flagship stores because they do a dreadful job of driving online sales. Meanwhile, the reverse syndrome — online influencers driving in-store sales — is only getting started. After you add in direct sales from Instagram, being famous has never been more lucrative.
Illustration: Sarah Grillo/Axios
This ain't no tall order, this is nothin' to me/Difficult takes a day, impossible takes a week/I do this in my sleep/I sold kilos of coke, I'm guessin' I can sell CD's/I'm not a businessman; I'm a business, man!— Jay-Z
Jay-Z is a billionaire, according to what Forbes characterizes as a conservative accounting of the recording artist's fortune. Separately, the magazine estimates that his wife Beyoncé is worth another $400 million.
Jay-Z helped to reinvent high-end Champagne. Armand de Brignac Champagne once belonged in the domain of wine snobs, but when it became known as Ace of Spades, it became a true Giffen good: an ostentatious wealth-signaling mechanism where desirability — and demand — increases with price. Ace of Spades is far more popular at $750 a bottle than it was when it was called Cattier and cost $60.
How it works: In a nightclub, no one cares about the difference between the Vallée de la Marne and the Côte des Blancs. What matters is swagger, glamor and instantly recognizable branding. If you can create that, you effectively own a license to print money.
"Secrets of Sand Hill Road" is the new book from Andreessen Horowitz venture capitalist Scott Kupor, blurbed by former Google CEO Eric Schmidt as being "the definitive book on navigating VC."
What they’re saying: Kupor walks his reader through a typical term sheet where a group of VCs is taking a 20% stake in a startup company for $10 million. The lead investor, with about a 10% stake, will control a majority of the preferred stock. Pretty standard "protective provisions," explains Kupor, mean that the VC investor will "get to vote on" new classes of stock, "have a say in" certain corporate actions and recapitalizations, and "be able to weigh in on" changes to the employee option pool.
My thought bubble: Investing in common stock is certainly risky. In a worst-case scenario, the founders could just liquidate the company immediately, take 80% of the $10 million for themselves, and give just $2 million back to the VCs. But VC is a risky business. If VCs don't have a basic level of trust in founders, they shouldn't be backing those businesses in the first place.
Illustration: Sarah Grillo/Axios
Chewy is going public this week, carrying a valuation of about $7 billion, roughly twice what the company sold for in 2017. It too has a special class of shares. Its largest shareholder, BC Partners, will control 98.8% of the votes after the offering is over.
The bottom line: Chewy's parent, PetSmart, has more than $8 billion of debt and is under enormous pressure to pay it down. It's therefore reasonable to expect large future sales of Chewy stock. What's less clear is how Chewy can continue to invest in growth without raising substantial debt of its own. Per Chewy's revised S-1, the company has already lined up a $300 million credit line.
Illustration: Rebecca Zisser/Axios
A slew of Chinese economic data comes out this week, writes Axios' Courtenay Brown, including trade data tomorrow and retail sales on Friday. Economists will be looking for signs of trade war impact and general weakening of the country’s economy.
In the U.K., the election process to narrow down the many candidates vying to replace Theresa May begins on Thursday. Conservative lawmakers will vote on candidates, who are required to win 5% of votes to advance to a second ballot.
In the U.S., more jobs data is coming tomorrow: The JOLTS survey will shed some insight on just how much demand there is for workers in a tight labor market.
Photo: Tigerman McCurry Architects
Stanley Tigerman died this week at the age of 88. Described by the Chicago Tribune as "the most influential Chicago architect of his generation," Tigerman spent his career thinking, talking and writing about the ways that architecture can improve the world.