I hope you're enjoying your holiday weekend. If you're in New York, come join me on Tuesday on the Upper West Side when I'll be talking to Joe Stiglitz about his new book. If you want a taste of what the book's about, check out Stiglitz's op-ed in the NYT this weekend.
Also, it's my birthday today! If you want to get me a present, just tell your friends about this newsletter, and get them to subscribe. And/or, send me buildings, especially if you have good horizontal photos of them I can use.
Illustration: Sarah Grillo/Axios
Anyone who thinks that the stock market is a level playing field obviously has no contact with reality.— Judge Jed Rakoff, ruling in United States v. Pinto-Thomaz this week
Laissez-faire capitalism works very well in theory. The government sets clearly-defined rules, within which corporations compete for profits. Companies win by providing the best products at the lowest price; investors win by allocating scarce capital where it can be put to best use; the country as a whole reaps the benefit. In an age of corruption anxiety, however, laissez-faire often means that companies themselves get to set the rules.
The big picture: When corporations capture their regulators, laissez-faire fails.
Driving the news: Corporations must not be allowed to influence bankruptcy proceedings without fully revealing their conflicts. But that's exactly what McKinsey is being accused of. Now, McKinsey itself has been given the job of drawing up new conflict-of-interest guidelines — guidelines that "could serve as a model for all bankruptcy practitioners". A spokeswoman for McKinsey told the WSJ that the firm is looking to address "ambiguities" in the existing rules.
Why it matters: Regulatory stakes are high, sometimes life-and-death. Ali Bahrami, for example, the top safety regulator at the FAA, got that job after previously urging the agency to allow Boeing to self-certify the safety of it jets. (Boeing is back in the news this weekend, with a report of safety lapses at its South Carolina Dreamliner factory.) More insidiously, corporate capture of the government apparatus reduces faith in all institutions.
Illustration: Sarah Grillo/Axios
One company is having a hard time capturing U.S. regulators: Facebook. It's the subject of federal criminal investigation in New York, and is reportedly facing a record multi-billion-dollar fine from the Federal Trade Commission for violating its users' privacy.
What we’re seeing: Facebook recently announced the departure of Erskine Bowles from its board of directors, noting that he has "served on the board since 2011". Bowles famously grilled Zuckerberg over how he allowed Russian interference in the 2016 U.S. presidential election.
The bottom line: Facebook faces no existential threat under the current administration. But if someone like Elizabeth Warren becomes the next president, that might change.
Illustration: Aïda Amer/Axios
Argentina looks like it's headed, once again, for the misery of economic chaos and sovereign default, writes Axios' Dion Rabouin. It has now reached the point at which, the formerly unthinkable now looks entirely probable: That Cristina Fernández de Kirchner could, once again, become president.
It wasn't meant to be this way. Argentine President Mauricio Macri came to office at the end of 2015 as a pragmatic businessman who was going to save Argentina's economy from the ravages of 12 years of Kirchnerist Peronism. (Cristina's two terms in office, between 2007 and 2015, came after her husband Nestor's tenure from 2003 to 2007.) Instead, as this year's presidential election approaches:
The central bank has raised interest as high as 65% in an attempt to fight inflation, but that has only served to push Argentina into recession. The central bank is now fixing the exchange-rate band, or instituting currency controls, while the government freezes prices on 60 food products until October.
What's next? "I truly believe that if Cristina wins, we're looking at defaults," said an investor who was not authorized to speak publicly about the issue. "Given the state of the economy, her election would just crash the market."
The bottom line: The more likely Cristina's re-election becomes, the more money leaves the country, and the further the currency and bond markets fall, making Macri look even worse. That, in turn, only serves to make another Kirchner presidency even more likely. It's hard to see what can break the downward spiral between now and the presidential election in October.
Photo by Kena Betancur/Getty Images
Eric Yuan helped shatter one of the weirdest corporate taboos on Thursday, becoming one of the first Chinese CEO of a major U.S. publicly-listed corporation. (Indian CEOs, by contrast, including Microsoft's Satya Nadella, Pepsi's Indra Nooyi, and Citi's Vikram Pandit, have been highly visible for years.)
Zoom raised $751 million in its IPO on Thursday, none of which might ever be needed. The company is profitable, and, partly for that reason, now trades at a valuation of $16 billion. (“The price is too high,’’ Yuan told Bloomberg.)
The big picture: Zoom, like Slack, is part of a new breed of enterprise software companies. The financial decision to start paying for the product is still made in the executive ranks, but it's invariably driven by bottom-up adoption of the free version by rank-and-file employees. If a sales team can say that half of a company is using the product already, just because they love it, it's a lot easier to close the deal.
Illustration: Rebecca Zisser/Axios
The biggest market you probably never think about is the money market. Zoltan Pozsar — formerly of the U.S. Treasury, now of Credit Suisse, and the acknowledged expert on the market — reckons that it's at least $7 trillion in size: a capital-markets iceberg all but invisible to investors who concentrate mostly on equities.
Why it matters: Money markets are liquidity; without them, the whole system seizes up. (As it did on December 31, 2018, for reasons Pozsar explains in the podcast.) They also determine how much risk is necessary for long-term investors to achieve a positive return.
The bottom line: Central banks rightly worry a lot about liquidity, especially now that post-crisis regulatory reforms have forced banks to minimize their balance sheets at the end of every year. It's hard to maintain sufficient levels of liquidity when the U.S. government is borrowing record amounts and the central bank is engaged in quantitative tightening, or QT. Which might explain why QT is now coming to an end.
Netflix CEO Reed Hastings once called his company a “rerun TV" company. Its transformation into an original content machine is impressive — and really expensive, writes Axios' Courtenay Brown.
Driving the news: Netflix expects it will burn a bigger-than-expected $3.5 billion this year. Hastings sees the epic cash burn as a good thing for the company; still, he has reassured investors that 2019 will mark be “peak” negative free cash flow for his company.
By the numbers: Judging by the stock's performance since Netflix went public in 2002, investors like Netflix whether the company is burning huge sums of cash or not.
Edward Gero, Thomas Keegan and Jonathan David Martin in Junk at Arena Stage. Photo by C. Stanley Photography
Financial plays are having a moment. "Shareholder Value" by Tom Attea recently finished a run in New York; "Junk", by Ayad Akhtar, is currently playing in Washington DC. Both of them take a skeptical view of high finance, and worry about its effects on everyday workers.
"The Lehman Trilogy", by Italian playwright Stefano Massini, is different. More poetic than prosaic, it charts 3 generations of Lehman brothers to tell the story of 4 generations of Lehman Brothers. I can personally attest that the Ben Power translation, as directed by Sam Mendes, is a triumph; the play has also received rave reviews across Europe after being translated into 11 different languages.
Illustration: Rebecca Zisser/Axios
We'll find out how much the economy decelerated in the first three months of 2019 on Friday, writes Courtenay.
Expect to hear a lot about Tesla this week. The company is hosting an "autonomy investor day" tomorrow. Two days later it will release quarterly results, where it's expected to swing back to a loss after two quarters of profitability.
More than 150 other companies are out with earnings this week — including Twitter and Snap on Tuesday, Facebook and Boeing on Wednesday, Amazon on Thursday and Deutsche Bank on Friday.
🎬 Avengers: Endgame opens on Friday; it has already set new ticketing records. (Presales alone guarantee it will set a new opening-night box office high in China.) If the 3-hour movie turns out to be the all-time blockbuster analysts are expecting, that will help not only Disney but also theatrical companies like AMC.
Photo: ERIC FEFERBERG/AFP/Getty Images
It's Easter Sunday, and the 13th-century Cathedral of Notre-Dame, on the Île de la Cité in Paris, remains one of the most magnificent and recognizable houses of worship in the world. The rose windows and rib vaulting have survived, the buttresses still fly; the biggest loss is likely to be the the ineffable smell of the ancient wood.
Elsewhere: SoFi has forced investors into its own proprietary mutual funds, even when doing so creates substantial taxable short-term capital gains. Same-sex borrowers are discriminated against in the mortgage market, despite being better risks. Money magazine is going out of print. The Brexit Party is popular. The rise of scooters.
Editor's note: The first story was corrected to show the location of Boeing's Dreamliner factor in South Carolina (not North Carolina) and the fourth story was corrected to show Eric Yuan is one of the first Chinese CEOs of a major U.S. publicly-listed corporation (not the first).