The state of the economy
President Biden led his first State of the Union address yesterday with a promise to make Vladimir Putin pay for invading Ukraine and praise for the Ukrainian resistance. When he turned to domestic issues, a fair amount of his hour-long speech focused on business and the economy.
Biden said fighting inflation was his “top priority,” and made eye-catching proposals. The president said he would encourage competition and ease supply-chain snarls that have led to rising prices (more on that below). He promised to crack down on shipping companies that had taken advantage of the pandemic to raise prices. He said he would launch an investigation into fraud stemming from pandemic relief measures. And on drug prices, he appeared to embrace the contentious idea of price controls, for example with a call to “cap the cost” of insulin at $35 a month.
But talking down inflation isn’t easy. “Wonder if he connected convincingly on inflation? Felt like a driveby,” tweeted the Democratic strategist David Axelrod. And recent actions to stem the rise in oil prices, like releasing oil from strategic reserves, have had little effect, with prices jumping again today.
Biden extolled a resurgence of manufacturing, saying that the Rust Belt deserved a new name. Intel’s C.E.O., Pat Gelsinger, attended the speech and got a shout-out as the president cited the company’s $20 billion plan to build semiconductor factories in Ohio. Biden also praised Ford and G.M. for devoting a combined $18 billion toward making electric vehicles in the U.S. While the American manufacturing sector has added 400,000 workers in the past year, jobs in the sector, which accounts for around 8 percent of the work force, are still down from pre-pandemic levels.
Adam Posen, the president of the Peterson Institute of International Economics, said that Biden pandered to “macho manufacturing fetishes” and ignored the majority of workers outside heavy industry.
Biden’s speech highlighted some of his divisions with the business community. After the speech, Elon Musk tweeted that Tesla — unmentioned in the address — had created 50,000 U.S. jobs and invested more in electric-vehicle tech than G.M. and Ford combined; the exchange underscored Biden’s focus on automakers with unionized workforces. The president also invited the Facebook whistleblower Frances Haugen to attend and thanked her in the speech, signaling that his administration will continue clamping down on tech giants.
Read more coverage of the speech, including five key takeaways, what Republicans said in their response, what a top progressive lawmaker said in her response, and two topics that Biden didn’t mention.
HERE’S WHAT’S HAPPENING
Biden has a new coronavirus response plan. In his State of the Union, he announced “test to treat”: Americans can get tested for Covid at a pharmacy, and if they are positive, receive free antiviral pills on the spot.
The star witness in the 1MDB trial admits he “lied a lot.” Under cross-examination, Tim Leissner, a former Goldman Sachs executive who is key to the government’s case against his ex-colleague Roger Ng, acknowledged lying to the authorities and romantic partners. That included presenting a fake divorce decree to his now-estranged fiancée.
Hong Kong’s pandemic restrictions alarm its business community. Bankers and investors there are increasingly asking employers to relocate to avoid the tightening travel restrictions. Hong Kong’s leaders, worried about an exodus of businesses, urged residents not to panic.
Major League Baseball cancels opening day games amid a labor dispute. The failure of owners and the players’ union to reach a new collective bargaining agreement led to the first games canceled or postponed because of a work stoppage since 1994.
The beleaguered cargo ship bearing 4,000 luxury cars finally sinks. After burning for two weeks, the Felicity Ace, which carried Porsches, Bentleys and Lamborghinis, sank yesterday off the Azores.
The latest on the Russia-Ukraine war
The Fed’s ‘nightmare scenario’
The global economic effects from Russia’s invasion of Ukraine are clouding what seemed to be a clear plan for the Fed to raise interest rates. Jay Powell, the Fed chair, is testifying in the House today as part of his semiannual check-in with lawmakers.
The soaring price of energy and other commodities could make already high inflation worse, a case for raising rates aggressively. But this could slow the economy as geopolitical turmoil, reductions in government stimulus and ongoing supply chain issues sap growth. These fears are reflected in the bond markets, where long-term interest rates have fallen to their lowest level of the year, with traders revising down their forecasts for Fed rate increases. (A half-point rise this month once looked a near certainty, but now seems unlikely.) In short, the markets suggest that the Fed has less room to raise interest rates without causing a recession.
“The Fed is facing a nightmare scenario,” Diane Swonk, the chief economist at Grant Thornton, told DealBook. While it needs to raise rates to stop inflation, it also doesn’t want to disrupt the markets, she said: “The Fed is going to have to be more cautious in how they move.”
Meet the financier who wants to run New York State
Democrats believe they will keep New York State’s governorship in November, given how blue the state has been for years. But a Republican financier is betting that he can spoil those plans. (Yes, the Mike Bloomberg comparison has been raised.)
Harry Wilson announced his candidacy only last week. He began his career at firms like Goldman Sachs, Blackstone and the hedge fund Silver Point Capital as a distressed-debt investor. He then joined the Obama administration’s auto task force, helping overhaul G.M. He later founded the Maeva Group, a corporate turnaround firm. This is his pitch:
Wilson will highlight his experience in “leading turnarounds of complicated organizations,” he told DealBook. His campaign slogan is “Turn around New York.”
He came close to ending Republicans’ decades-long losing streak for statewide offices in 2010, when he narrowly lost the election for New York State’s comptroller. “I’m the only candidate in 20 years to come close,” he said.
His outsider status is an asset in an age of populism. That said, unlike other G.O.P. candidates for governor, he hasn’t exactly embraced Donald Trump: When asked if he supports the former president, Wilson said, “I’m a Harry Wilson Republican.”
Wilson faces steep hurdles, not least that he isn’t New York Republicans’ official nominee. At yesterday’s convention, the party confirmed Representative Lee Zeldin, a Long Island congressman. Wilson must now collect thousands of petition signatures from Republicans across the state to qualify for the G.O.P. ballot in time for the June 28 primary. (Wilson said that was “absolutely” his intention; his willingness to spend millions on his campaign will help.)
A divergence on divestment from Russia
Exxon Mobil said yesterday that it would end its involvement in a large oil and natural gas project in Russia, joining Western oil companies like BP and Shell in acting after Russia invaded Ukraine.
The Russia-Ukraine War and the Global Economy
While the pressure on multinational companies to divest builds, some question whether the sales are a punishment or a gift to Russia. With sanctions isolating the Russian economy, the most likely buyers of these assets are Russians. The financial hit that foreign companies will take could be seen as a boon for local buyers.
Simon Johnson, a professor at the M.I.T. Sloan School of Management and the former chief economist of the I.M.F., said that selling assets in Russia was still the right call, because it wasn’t just capital that the moves would withdraw.
“For big projects in the energy sector there is a lot of know-how involved from the side of the Western companies,” Johnson told DealBook. “Foreign companies are pulling out the expertise, along with the market access and funding that they provide.”
But Luke Patey, a senior researcher at the Danish Institute of International Studies who studied the impact of sanctions on Sudan, said that what happened there was not an encouraging precedent.
Western oil companies left Sudan in the early 2000s, he said, under pressure from activists, but they were quickly replaced with Chinese, Malaysian and Indian national oil companies. The Sudanese oil industry continued to expand, and the Sudanese government’s abuses continued.
Patey sees a similar pattern playing out in Russia. Businesses run by U.S. or European firms could be turned over to Russian or Chinese operators. “Western companies can be key investors and offer vital technology and expertise, but that doesn’t mean Moscow can’t muddle through,” he said. “In some ways, it is a conscience-clearing exercise of Western investors that ultimately doesn’t necessarily have a major impact on its target.”
What do you think? What effect will divestments have on Russia? Let us know at email@example.com. Include your name and location and we may feature your response in a future newsletter.
THE SPEED READ
BlackRock will let shareholders in 40 percent of its index equity assets vote their own holdings in corporate elections, a potentially big move for proxy battles. (CNBC)
The W.N.B.A.’s recent fund-raising effort reportedly created tension among the league’s owners over valuation. (Sports Illustrated)
Seritage, the real estate investment trust that emerged from Sears’s bankruptcy, is considering a sale; its chairman, Eddie Lampert, will step down. (Bloomberg)
Scrutiny of federal judges’ financial conflicts is spreading to appeals courts. (WSJ)
President Biden’s infrastructure czar, Mitch Landrieu, is facing disagreements among governors over how to use $1 trillion in federal infrastructure funds. (NYT)
“Inside Sonos’ Decision to Sue Google — and How It Won” (Verge)
Best of the rest
Ken Griffin unwinds by playing “Call of Duty” while he exercises. (Bloomberg)
“Millions for Crypto Start-Ups, No Real Names Necessary” (NYT)
Zain Nadella, the son of Microsoft’s C.E.O., Satya Nadella, died on Monday at age 26. Born with cerebral palsy, he inspired Microsoft to make its products more accessible. (WSJ)
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