Retail workers are being displaced in droves - Axios
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Retail workers are being displaced in droves

After a steep rise following the financial crisis, U.S. retail jobs have been plummeting since the start of the year.

Why this matters: The likely irreversible plunge in these relatively low-wage jobs — $18-an-hour employment for teens, adults, immigrants and senior citizens for generations — primarily affects the working class people whose shrinking opportunities have underpinned populist politics in the U.S. and abroad. And the jobs being created in their stead, in online warehouses for companies like Amazon, are too few to soak up those displaced.

Data: Bureau of Labor Statistics; Chart: Lazaro Gamio / Axios

Our thought bubble: Until now, retail workers — unlike the car-making and coal-mining industries — have made little political splash. Look for that to change.

The numbers: U.S. retail jobs (mainly cashiers and sales people) plummeted by about 60,000 in the first three months of the year, to about 15.85 million, according to preliminary data from the Bureau of Labor Statistics.

Reality check: That decline is more than the 53,000 people employed in all aspects of coal mining, including executives and administrative staff, an industry on which President Trump has been fixated.

What they're saying: "The backdrop is that there have been significant layoffs in major retail including department stores," said Mark Muro, of the Brookings Institution. "The department store platform seems to be falling apart."

Why now? The dramatic consumer rush to online shopping. This is reflected in a rise in the number of jobs in Amazon-type jobs, which pay more — an average of about $25 an hour, according to the BLS. But Amazon and the other online merchandizers are rapidly automating, so the number of jobs rose only by 9,300 in the first three months of the year, to about 555,700.

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Next up at the White House: "Energy Week"

Evan Vucci / AP

It's "energy week" at the White House, the latest of the administration's themed messaging weeks. Axios' Ben Geman helps me sketch how it will unfold:

  • Tomorrow, Trump will highlight India's multibillion-dollar purchases of U.S. natural gas. Axios' Amy Harder says it's a "a striking contrast to Obama who emphasized climate change and renewable energy when meeting with India — a critical player in the energy and climate debate because of its expected growth in energy use."
  • On Wednesday, Trump and Energy Secretary Rick Perry will meet in the White House Roosevelt Room with governors, tribal officials and others.
  • The big showcase comes Thursday when Trump will make a speech at the Energy Department, with other Cabinet officials, top aides, and industry workers and officials coming along.
  • Expanding liquefied natural gas will be a theme, so will the overall message of making the U.S. "energy dominant," the White House official said. Trump will soon be traveling to Poland, which received its first LNG imports from America earlier this month.
Ben's quick take: "Trump-world's frequent use of 'dominant' creates a rationale for easing rules and making more lands and waters available for drilling. They need a big word, because U.S. oil and natural gas production already surged under Obama, reaching records in gas and near-records in oil."
  • Modi visit: India's Prime Minister Narendra Modi visits the White House tomorrow. On a call Friday, a senior White House official previewed a significant defense-related announcement. Per Reuters' reporting, we expect Trump will announce plans to supply India with 22 unarmed drones "in a deal worth more than $2 billion." New Delhi views the deal as a test of the strength of U.S.-India defense ties. Trump will also host Modi for dinner at the White House — the first foreign dignitary to get that treatment.
  • Healthcare: Trump will keep calling Senators, trying to rally them behind McConnell's bill. A White House official tells me Vice President Pence "is hosting a listening session with victims of Obamacare" tomorrow.
  • Immigration: Per the official, "the administration is backing the House's push on two key immigration bills this week: Kate's Law and the 'No Sanctuaries for Criminals Act.' July 1 will be the 2nd anniversary of Kate's tragic murder" by an illegal immigrant.
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Behind the scenes with Trump's point men on tax reform

Andrew Harnik / AP

Here's what Trump's two point men on tax reform - Gary Cohn and Steven Mnuchin - have been telling business representatives and special interests in their closed-door meetings, per sources in the rooms:

  • Timing: Goal is to have an agreed upon House-Senate-White House tax reform proposal by early September for when members return from summer recess. They would then use September, October, November to push through tax reform.
  • Key question: They're posing the same question to special interest groups: "If we can get the corporate rate into the teens, what are you willing to give up?" Translation: They're trying to use the lure of a 15% corporate tax rate as the way to ween special interests off of their special deductions within the tax code.
  • Revenue neutrality: Both Cohn and Mnuchin still say they're committed to tax reform being revenue neutral — i.e. not adding to deficits. That's important because lots of conservatives support tax cuts that aren't paid for. "At one point with Cohn, he kind of said, 'I wish we didn't have to do revenue neutrality,'" said a source who's spoken to him recently. "I don't think they've given up on it though. I think they're committed."
  • Carve outs: Cohn and Mnuchin have realized that the only way they're going to get a tax bill through Congress is by making special "carve out" exceptions — to allow certain politically-powerful industries to continue to deduct their interest. Keep an eye on real-estate, infrastructure, and small businesses. The downside: once you start carving all these industries out, your trillion dollar pay-for suddenly becomes much smaller.
  • Deductions: The only deductions they're committed to keeping are for charitable giving, retirement and mortgage deductions. They're determined to remove state and local income tax deductions. They've also got a line to sell this controversial decision to blue state Republicans (whose constituents make the most of these deductions.) The sell: we're going to increase the standard deduction for individuals' income tax, so even if they lose their state and local, the vast majority of Americans won't have higher taxes.
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The Kremlin's man in Washington is returning to Moscow

Kislyak (R) with Donald Trump and Sergey Lavrov (Russian Foreign Ministry Photo via AP)

Sergey Kislyak has served as Russia's ambassador to the U.S. for nearly a decade, but it is only in recent months that he became a household name for...

  • Discussing sanctions with Michael Flynn in conversations that ultimately got Flynn fired as National Security Advisor
  • Having undisclosed contacts with Jeff Sessions and Jared Kushner during the campaign and transition.
Now, Kislyak is being replaced as ambassador, and recalled to Moscow rather than being moved to the United Nations in New York as previously anticipated, "three individuals familiar with the decision" told Buzzfeed News. The reason, per a U.S.-based diplomat?
"He could use some time away."
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The challenge to big tech in the AI war

Last week, we profiled the heavyweights whose gigantic data troves and colossal spending make them the players to beat in the war to dominate the next generation of tech — in artificial intelligence, virtual and augmented reality, to name a few. But some venture capitalists are betting on scrappy startups with a long-shot potential to upset the incumbents' plans.

Data: Securities and Exchange Commission; the companies; Chart: Chris Canipe / Axios
  • The giants start with an advantage: Google, Facebook, Amazon, Apple and Microsoft, not to mention China's Alibaba, Baidu and Tencent, are investing in these future technologies like they are countries (see chart below). But outsized victory does not go only to the best technology: An ingenious business model can be a tremendous equalizer.
  • Think Bill Gates and Marc Benioff: Gates convinced consumers to pay for software; and Salesforce's Benioff persuaded companies to trust their critical data to his servers. The economics of software "came out of hard-fought battles by people who figure out how to use the economic characteristics of software to their advantage," says James Cham, of Bloomberg Beta, the VC firm.

Why we don't yet know who will win: R&D spending is an important indicator of investment in unproven technology. So is the troves of data used to train the software models that power artificial intelligence, and in turn generate more data as they learn to recognize faces, learn languages and predict our next moves.

  • But cash and data aren't necessarily definitive: We don't know how effectively the incumbents are doling out their spending in future technologies.
  • And small and large companies behave differently: Big companies tend to bolt new products to existing platforms, while smaller ones can create an entirely new platform that can unseat the established players, says Silicon Valley lawyer Gary Reback, of Carr Farrell.
  • The big companies themselves push back: They say the market is open, pointing to high level of VC investment in startups working on AI.

The Gates and Benioff examples are instructive. "The innovation of these business models are taken for granted because we get distracted by technical wizardry," Cham tells Axios. There are spaces that "might be ripe for unsettling." He went on:

"So we need to find new companies that aren't just building great software, or executing against newer technical architectures. Instead, we are looking for startups that are answering questions that big companies can't deal with. I'm looking for the next fierce founder who deeply understands the technical aspects of AI, while being economically savvy enough to create a new way of doing business."

This threat is not lost on the big guys: Understanding that they could be upended by a startup with the next big idea, they are acquiring startups with unique expertise. In May, Google launched a VC unit to invest in AI, its first effort dedicated to a specific technology.

And VCs may be helping only so much: Startups are aggressively going after markets like AI — and investors are pouring money into them, as Axios reported last week. But Reback says they are having a harder time getting second-round investment as they mature. "That's poison to us because that's where the growth comes from," he said. "If smaller companies can't get funding and can't challenge these guys, they just won't be able to seed the market."

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Why Wall Street still needs human traders

A rush into algorithmic trading is setting up a concentration of faith in computerized investment, a trend that could backfire in intensified volatility and lowered returns.

What's going on: By 2025, Wall Street firms are expected to shed 10% of their work force — 230,000 jobs — as they embrace intelligent algorithms, trading that relies on crunching mountains of data and sometimes anticipating the actions of human traders (see chart, below), according to the financial consultancy Opimas.

Data: Opimas; Chart: Andrew Witherspoon / Axios

  • Such trading is soaring: Quantitative hedge funds, or quants, doubled their share of U.S. stock trades to 27% from 2013 to 2016, and are now just under the 29% carried out by individual investors, the WSJ reports.
  • The leading edge of this movement uses machine learning, programs that write their own algorithms for use in trading. Humans continue to play a role in all of these trades.
  • But results can tend to decay: Programs inadvertently converge on the same strategies, engaging in algorithmic group think. When that happens, returns fall.

These trends are visible in other data: A recent J.P. Morgan analysis showed that 60% of all equity assets are now owned by passive investors (think index and exchange-traded funds) or quantitative funds, double the less than 30% that they held 10 years ago.

Why to worry: There is evidence that as more and more algorithms are employed to find inefficiencies in the market, their tendency to arrive at similar conclusions puts the market at risk of dangerous swings in asset prices.

  • Humans strike back: Though the returns for traditional Wall Street methods like the analysis of corporate fundamentals and economic trends are falling, asset managers are finding ways to adapt. Big hedge funds like SAC Capital and Tudor Investment have been hiring algorithmic trading experts, while startups like financial-data platform Elsen are offering services that help smaller money managers do traditional data crunching more efficiently and take advantage of machine learning technology to supplement their insights.
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Heart disease genes may boost reproductive success

Associated Press

Coronary heart disease has likely plagued and killed humans for thousands of years and is still one of the leading causes of death worldwide in the 21st century. Big question: why hasn't evolution weeded out the genes that cause this common, deadly condition in the human heart system?

It seems we might need those genes for something else that the human species considers an even more urgent, primal need – raising lots of children. Researchers found that the same genetic variations that contribute to plaque buildup in arteries, which cause coronary heart disease, also contribute to greater male and female reproductive success.

What it means: Basically, the human species has made an evolutionary trade off over time – better chances for reproduction even though those same genetic changes also lead to potentially fatal disease complications later in life. Parents pass on the genetic variations that help with reproduction to their children before suffering from advanced complications like coronary heart disease.

How they did it: Researchers compared genetic information from two large databases (1000 Genomes and the International HapMap3) to lifetime reproductive data from the Framingham Heart Study and identified more recent evolutionary genetic variations that are linked to heart disease. They then matched them to genetic variations contributing to greater reproductive success.

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Sunday shows roundup: 'threading the needle' on health care

Screengrab via ABC

Sen. Susan Collins said Sunday on ABC's "This Week" that "threading the needle" on health care so that moderates like her and conservative holdouts like Rand Paul would both vote "yes" will be "extremely difficult":
Her concerns: That the Senate bill would have "more impact on the Medicaid program even than the House bill," and would eliminate federal funding for Planned Parenthood.
Paul's position (also on "This Week"): He said the current proposal isn't a repeal of Obamacare, but he'd compromise and vote for an 80% repeal if leadership would work with him.

Other health care highlights from the Sunday shows

Sen. Ron Johnson, another conservative holdout, on NBC's Meet the Press: "There's no way we should be voting on this next week. No way."

Sen. Bill Cassidy, on CBS' Face the Nation: "Right now I am undecided... there are a couple things I'm concerned about... but if those can be addressed I will [vote yes]."

Tom Price, HHS Secretary, on CNN's "State of the Union": "The plan that we would put in place would not allow individuals to fall through the cracks, we would not pull the rug out from anybody, we would not have individuals lose coverage that they want for themselves and their families."
John Kasich, Ohio Gov, on State of the Union: Well, I don't think the bill's adequate now. And unless it gets fixed, I would, look, I'm against it."
Kellyanne Conway, on "This Week": "We also heard the House bill was never going to pass. We heard this guy can never get elected. We're very confident that the Senate bill will get through."
On $800b in Medicaid savings, "These are not cuts to Medicaid."
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Momentum slowing for giant music festivals

Zach Cordner / Invision / AP

A culture of super festivals took over the live music scene, but promoters are starting to think smaller, tailoring offerings to specific audiences, per the L.A. Times' Gerrick Kennedy and August Brown:

  • "[S]ome promoters are reassessing the demand for — and their ability to execute — new mega-events on the scale of Coachella."
  • "Over the last 15 years, the festival economy has grown dramatically; according to a 2015 Nielsen Music survey, 32 million people attend at least one music festival in the U.S. each year (nearly half are [millennials]).... Promoters remain eager to tap into that growth with new events, but there are signs of over-saturation."
  • Why it matters: "On average, those who attend a festival spend more on live concerts, digital music and streaming subscriptions than the general population."
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Trump may not be the electoral disaster Dems hoped for

AP

Besides the fact that Republicans historically have been more reliable midterm voters, Democrats may have another problem in 2018: Trump isn't the disaster for his party that so many had assumed.

An L.A. Times front-pager by Cathleen Decker points to Dems' string of special-election losses this year:

"Trump is so distinctive a politician that it's hard to persuade voters that other Republican candidates are carbon copies of the president. Trump's outsized persona makes even those Republicans who share his views seem more moderate, an important attribute to swing voters."

  • Why it matters: "[V]oters' complicated views of Trump may give Republicans more running room than his popularity figures suggest. The votes cast by individual Republican incumbents [like healthcare in the Senate this week] may be more important to their survival than any linkage with the president."

P.S. Dan Balz "The Sunday Take" column on WashPost p A2, "After Ossoff's loss, do Democrats have a message?": "Right now, the one discernible message is opposition to President Trump. ... What's needed is a message that attracts voters beyond the blue-state base of the party."

"Fault lines and fissures exist between the ascendant progressive wing at the grass roots and those Democrats who remain more business-friendly. ... Trump might not succeed in draining the swamp, but he has tapped into sentiments about Washington that Democrats ignore at their peril."

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Health bill fakery: drafters left room to accommodate holdouts

J. Scott Applewhite / AP

There's a bit of fakery going on with the Senate healthcare bill that's due for a vote this week.

You might ask a barista to "leave room" for a splash of cream. Well, it turns out the drafters of the Senate bill have left room to accommodate holdout senators. So they can make high-profile demands (some unrelated to healthcare), then go home and claim victory: "I know it has all these problems, but I used my muscle to make it so much better."

This'll be fun to watch, because there are more holdouts than there is room. At least 10 Republican senators have expressed reservations, and the White House and GOP leaders can only lose two. That's why our handicappers have suddenly gone from "more likely than not" to "coin flip."

Trump hinted he may play hardball, tweeting yesterday: "I cannot imagine that these very fine Republican Senators would allow the American people to suffer a broken ObamaCare any longer!"

The state of play:

  • Kickback Watch: After Axios AM reported yesterday that Sen. Dean Heller (R-Nev.) may get some assurances on the Yucca Mountain nuclear dump in return for his vote, "Pod Save America" co-host Tommy Vietor tweeted: "If @SenDeanHeller tries to negotiate big concessions for Nevada don't forget Ben Nelson and the 'Cornhusker Kickback.'"
  • Lingo: DD Media president David Di Martino, an alumnus of former Sen. Ben Nelson, emails: "The new Cornhusker Kickback is the Desert Dole-out."
  • What else is on the menu? Sources tell us a Medicaid working group — including Sens. Rob Portman of Ohio, Shelly Moore Capito of West Virginia and Cory Gardner of Colorado — has asked for more than $40 billion over 10 years for opioid programs, up from $2 billion in the current bill.
  • The truth: They won't get that much, but there's definitely room — the amount depends on the Congressional Budget Office score, because the Senate has to match deficit reduction in the House bill.
  • Look for: historic levels of amendments, with a vote-a-rama ("a marathon of rapid-fire votes") that could extend into Saturdaymorning.
  • A top Hill source, on the giveaway to come: "I don't think there's much that can be accommodated in the base text. Vote-a-rama is another story. You can't stop senators from offering. And if it's something that can meet [the parliamentarian's] tests and get the rest of their conference, I'm sure we'll be taking a look."