A pandemic hypothesis raises the economic stakes
The U.S. Energy Department’s conclusion that an accidental lab leak in China probably caused the coronavirus pandemic, disclosed over the weekend, could have wide-ranging consequences at home and abroad.
U.S. intelligence agencies haven’t reached a consensus about the origins of the virus, and the Energy Department’s finding threatens to cause partisan bickering. It could also further roil U.S.-Chinese relations at a time of heightened tensions between the superpowers.
New evidence changed the Energy Department’s conclusion, officials said on Sunday, leading the agency to identify the Wuhan Institute of Virology as the likely source of the coronavirus. (What that evidence was is unclear, but it likely came from the department’s network of national laboratories.) Previously, the department was undecided on how the pandemic began. It’s worth noting that no agency believes the coronavirus was a bioengineered weapon, and some officials say the Energy Department’s conclusion was made with “low confidence,” The Times reports.
The finding runs counter to what many American agencies believe, with some saying there’s not enough evidence to form a firm viewpoint and others laying blame on natural transmissions, probably from a market in Wuhan. (One exception: the F.B.I., which has also pointed to the Wuhan lab as the likely source of the pandemic.)
What will this mean for U.S.-China relations? Beijing has long pushed back against the lab-leak hypothesis as a lie with no scientific basis, and it rejected the latest claims. A representative for the Foreign Ministry said that the U.S. should stop “defaming China” by raising the theory. It’s uncertain whether Beijing will take further steps as punishment for the move.
It’s also unclear if other American intelligence agencies will back up the Energy Department’s conclusion — none have changed their opinions in the wake of the announcement — and whether that would spur the U.S. and its allies to retaliate against China.
U.S.-China relations are already at a low, with the Biden administration having highly restricted the export of advanced chip-making technology and the two countries increasingly squaring off over Taiwan and the war in Ukraine. Further fighting would likely lead to even more economic consequences for the two countries — and for those American companies continuing to expand in China (which are already poised to face congressional scrutiny).
HERE’S WHAT’S HAPPENING
Britain nears a new post-Brexit deal over Northern Ireland. Prime Minister Rishi Sunak is expected to reach an accord as soon as Monday with his E.U. counterpart, Ursula von der Leyen of the European Commission, over trading rules for the region. That would resolve one of Brexit’s thorniest issues, but Sunak still faces a tough task in selling a deal to lawmakers in his Conservative Party.
Market losses pile up for Gautam Adani. In the month since the short seller Hindenberg Research accused the Indian tycoon and his companies of stock manipulation and fraud, the combined market value of the group’s stocks and bonds fell by more than $145 billion, The Financial Times calculated. Shares in his flagship firm, Adani Enterprises, fell again on Monday as investors’ doubts lingered.
Pfizer is said to be in talks to buy a $30 billion biotech company. The drug maker is interested in acquiring Seagen, which specializes in cancer treatments and had previously held sales talks with Merck, according to The Wall Street Journal. But no deal is certain, and any transaction would be closely scrutinized by antitrust regulators.
Bidders for Manchester United are reportedly urged to raise their offers. Proposals by a Qatari sheikh and the British billionaire Jim Ratcliffe are unlikely to convince the soccer club’s majority owners, the Glazer family, to sell, according to The Financial Times. The Glazers are also weighing minority investments for Manchester United — or may decide against selling.
The ever-shrinking Twitter
Since taking over Twitter, Elon Musk has taken a scythe to the social network’s employee roll, in an increasingly severe campaign to slash costs. (He hasn’t stopped there; he also halted rent payments for some of the company’s office properties.) But after laying off nearly two-thirds of workers in the fall, Mr. Musk said he was done.
That’s not the case: Twitter laid off at least 200 employees over the weekend, raising further questions about how much is left to cut from the increasingly skinny company — and what the ongoing bloodletting suggests about its financial health.
Saturday’s cuts were about 10 percent of Twitter’s current employee base, hitting product managers, data scientists and engineers who worked on machine learning and site reliability. Workers, as before, often found out they had been laid off when they unexpectedly discovered that their access to company services had been cut.
Even one of Mr. Musk’s most public loyalists wasn’t spared. Esther Crawford, who led efforts to develop the Twitter Blue subscription service — and who memorably tweeted a photo of herself sleeping on her office floor to demonstrate her hard work — was among those laid off.
She had become one of the highest-profile survivors of Twitter’s old guard, drawing criticism from some current and former employees for what they said was her opportunistic embracing of Mr. Musk’s “hardcore” vision.
What does all this suggest about the state of Twitter? Its revenue is down sharply, as many advertisers have suspended campaigns over concerns about reduced content moderation and layoffs among sales representatives. And Mr. Musk’s efforts to drastically increase subscription revenue haven’t yielded much yet, with reportedly just a tiny fraction of overall users paying for Twitter Blue.
Though Mr. Musk said earlier this month that Twitter was “trending to break-even,” it’s unclear whether more job cuts, including in divisions aimed at keeping the social network up and running, will help the company’s long-term prospects (and its ability to service its nearly $13 billion in debt).
Inflation worries ding the markets
The U.S. economy may yet avert a hard landing, but Wall Street is increasingly bracing for rocky times ahead.
Last week was the worst for stocks so far in 2023. The S&P 500 fell 2.7 percent, and the tech-heavy Nasdaq slid 3.3 percent, as more market analysts predicted that the Fed would adopt a more hawkish policy to cool off inflation.
Alarm bells sounded on Friday after the Personal Consumption Expenditures price index, a data point closely monitored by the Fed, showed inflation running hotter than expected. Some economists now see Fed officials leaning toward a half-percentage-point increase when they next set interest rates at a meeting on March 21 and 22. Mickey Levy of Berenberg Capital Markets wrote in an investor note that officials will signal “that rates will need to remain higher for longer.”
Fears of persistently high inflation have triggered a sell-off in stocks and bonds. The S&P 500 gained nearly 6.2 percent last month, good for its best January performance since 2019. It has since lost nearly half those gains so far in February. According to Deutsche Bank, bonds, as measured by Bloomberg’s Global Aggregate bond index, are on pace for their worst monthly performance of the 21st century; January had been the best.
Buffett goes to the mat to defend buybacks
Weighing in at 4,455 words, Warren Buffett’s latest annual letter to Berkshire Hathaway shareholders, published this weekend, was his shortest since the Carter administration. But Mr. Buffett still found room to weigh in on several topics, including Berkshire’s business performance, which led to a record operating profit but also huge investment losses on paper.
Most notably, Mr. Buffett took a veiled though sharply worded jab at fellow Democrats on a financial maneuver he has defended for years: stock repurchases.
Buybacks have become a political target for Democrats, who have argued that they divert corporate money to Wall Street when it could fund employee pay raises or new investments.
A 1 percent tax on stock repurchases was included in the Inflation Reduction Act passed last summer, and was meant to deter the practice; still, it did little to stop Apple, Exxon Mobil and scores of other businesses from continuing to use them. Earlier this month, President Biden called on the tax to be quadrupled in his State of the Union address.
But Mr. Buffett offered a ringing defense. Buybacks — which he explained, in Buffett-esque fashion, by talking about a hypothetical local car dealership — benefit all investors, he said. For ongoing Berkshire investors, buybacks mean their interest in the company’s various businesses goes up. (Berkshire itself didn’t spend that much on buybacks, relatively speaking: it paid about $7.9 billion for 1.2 percent of its outstanding stock.)
Similarly, buybacks at Apple and American Express gave Berkshire shareholders more exposure to those businesses without having to spend a dime.
Then Mr. Buffett got punchy, writing:
When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to C.E.O.s, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).
“I hate to quote him at all, but I do so to dissuade responses that this is a ‘cancel culture’ decision.”
— Chris Quinn, editor of The Cleveland Plain Dealer, on the paper’s decision to stop publishing the “Dilbert” comic strip after its creator, Scott Adams, made a series of racist comments on YouTube last week. Hundreds of other newspapers around the country have also dropped the strip.
The week ahead
Earnings, trade shows and plenty of economic data are on this week’s calendar. Here’s what to follow:
Monday: Tech executives are descending on MWC Barcelona, billed as the world’s largest trade show of its kind, to hype up their latest gadgets as global demand for mobile phones and PCs slumps. Workday, Zoom and Occidental Petroleum report.
Tuesday: Oil traders flock to London for International Energy Week, the first time the industry event has been held since the pandemic. Also, the Conference Board will report consumer confidence data for February. On the earnings front, Target, Bayer, Norwegian Cruise Line and AMC Entertainment are among those reporting.
Wednesday: Salesforce, Lowe’s, and the cloud data company Snowflake report results.
Thursday: Inflation data from Japan and the eurozone is set to be published. Earnings: Costco, Merck, AB InBev and Dell.
THE SPEED READ
Deals
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Union Pacific’s C.E.O., Lance Fritz, will reportedly step down after the hedge fund Soroban Capital called for his ouster. (WSJ)
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Peter Clare, a senior executive of Carlyle’s private equity business, will retire in April; Sandra Horbach and Brian Bernasek will become the firm’s co-heads of Americas corporate private equity. (Carlyle)
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China Renaissance Holdings said its C.E.O., who vanished weeks ago, was “cooperating” in a government investigation, though it gave no specifics. (NYT)
Policy
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“Conservatives Have a New Rallying Cry: Down With E.S.G.” (WSJ)
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How the obscure “Henderson test” could weaken a major free-speech legal protection afforded to Big Tech companies. (CNBC)
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In his new book, “The Courage to Be Free,” Gov. Ron DeSantis of Florida presents a template for governing based on an expansive vision of executive power. (NYT)
Best of the rest
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