9.26.14: Fast, Furious and Dysfunctional
Today and Tomorrow in Business
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Fast and (Almost) Furious
U.S. gross domestic product grew in the spring months even faster than we thought. The economy expanded an annualized 4.6 percent in the second quarter, up from a previous estimate of 4.2 percent, for the fastest rate since 2011's final quarter. Much of the improvement is due to companies (finally) stepping up investment. Today's report also adds new evidence that health-care prices continue to grow slowly, writes Jason Furman, chairman of the White House Council of Economic Advisers.
Bill Gross, the larger-than-life founder of Pacific Investment Management Co. and whose Total Return bond fund was larger than some national economies, decamped to rival Janus Capital Group Inc. The departure comes amid a dispute about the firm's future, a securities investigation over allegedly false fund valuations and record cash withdrawals by investors. The WSJ reported that Gross was on the verge of being fired. Investors didn't wait around to assess the implications -- they just sold.
The Goldman Tapes
Speaking of dysfunctional, ProPublica's Jake Bernstein and WBEZ's "This American Life" co-published a must-read article, based on secret tape recordings by a fired bank examiner, revealing a troubling relationship between the U.S. Federal Reserve and Goldman Sachs Group. How much deference regulators give to large banks like Goldman is often the topic of cocktail-party chatter. Now we know the answer: Even an internal investigation found that "the New York Fed had become too risk-averse and deferential to the banks it supervised." Here at Bloomberg View, author Michael Lewis writes that "The Ray Rice video for the financial sector has arrived." A lengthy rejoinder from the Fed offers important legal context.
Tweet of the Day
Binyamin Appelbaum ‏@BCAppelbaum
Maybe bank regulators should have to wear video recorders too.
Patent Court Smackdown
And while we're on the topic of regulatory capture, Vox's Timothy B. Lee writes about the obscure but important U.S. Court of Appeals for the Federal Circuit, which hears all patent disputes. Over the years, the court made patent law increasingly favorable to patent holders, resulting in a rapid increase in the number of patents and a surge in patent litigation. But the U.S. Supreme Court lately has been rejecting the lower court's logic in an attempt to rein it in.
Wall Street Compensation
One of the enduring mysteries about Wall Street is why its employees are paid so much. Wall Street makes more money overall "because financial deregulation has let them rake in big rents, basically profits above and beyond what you'd expect," writes Matt O'Brien in Wonkblog. It also shares more of that largesse with its workers. Non-finance wages go up 0.15 percent for every 1 percent increase in rents, while fund managers and security dealers get 0.9 percent and 0.63 percent more, respectively.
Activist investor Starboard Value LP has taken a significant stake in Yahoo! Inc. and is now pushing the company to explore a combination with AOL Inc. Yahoo certainly has the cash: It just sold Alibaba Group Holding Ltd. shares for $6 billion, and still holds a stake worth about $36 billion. Starboard worries that Yahoo Chief Executive Officer Marissa Mayer has dissipated the company's cash with a string of unwise acquisitions.
BlackBerry Loses Less
The turnaround at BlackBerry Ltd. may be gaining momentum. Demand for the Passport, its new smartphone, outstripped supply this week and the company reported a $207 million second-quarter loss, smaller than estimated.
Boeing Loses Order
Boeing Co. lost a huge aircraft order valued at almost $5 billion from Air Berlin. The German carrier, struggling with losses and dwindling traffic, scrapped its planned purchase of 18 Boeing single-aisle 737s and 15 Dreamliners.
Nestle SA is revamping its vast organization to set up a new business-excellence division and expand its European operations zone. The Swiss food giant is looking to overcome sluggish growth in Europe and the U.S.
There Will Be Heat
Russia tentatively agreed to restore natural gas supplies to Ukraine. The deal, valid for this winter only, potentially ends a dispute that could have disrupted gas flows to Europe, which depends on Ukraine for about 15 percent of its supply. If approved by leaders of both countries, Ukraine will pay $3.1 billion by the end of 2014 for previously delivered gas. In turn, Russia will sell it at least 5 billion cubic meters of gas. The price matches what Russia's Gazprom had been demanding.
Fiat Chief Executive Officer Sergio Marchionne confirmed that the combined automaker will do an initial public offering of shares in New York on Oct. 13. Fiat is based in Turin, Italy; Chrysler in Auburn Hills, Michigan. But Fiat-Chrysler will be legally registered in the Netherlands with a London headquarters.
And Don't Forget
- Former U.S. Federal Reserve Chairman Ben Bernanke speaks on Sunday to National Association for Business Economics.
- Maurice Greenberg's lawsuit alleging the U.S.'s bailout of American International Group cheated him and other shareholders goes to trial in Washington on Monday.
Germany's Rocket Internet, a tech incubator, plans to start trading its shares on the Frankfurt Stock Exchange on Thursday. The company expects to be valued around $8 billion.
- European Central Bank meets Thursday. Most analysts don't expect it to launch a new form of quantitative easing involving government debt purchases.
- The Paris Motor Show, Europe's biggest auto-industry event, kicks off Thursday. New Mercedes, Volvo and Jaguar models are set to be unveiled.
- U.S. jobs report for September is released Friday.
Five Swedish scientists at the Karolinska Institute in Stockholm have confessed that they've been quoting Bob Dylan lyrics in research articles and are running a wager on who can squeeze the most in before retirement. One of the articles is called "Tangled up in blue: molecular cardiology in the post-molecular era."
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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