What next for Los Angeles?
Angelenos can’t catch a break. Dangerous winds are expected to bear down on Southern California, putting homes and businesses from Ventura to San Diego County on high alert even as wildfires still rage around Los Angeles.
The cost of rebuilding once the fires are finally out is sure to be enormous. But officials will face huge pressure on where to prioritize spending to get the economy back on its feet. Gov. Gavin Newsom has signed an executive order to speed up reconstruction of homes and safeguard against price gouging.
But hard questions remain about the future of more ambitious endeavors. For example, will the city be able to meet its obligation to host the 2028 Summer Olympics? Or next year’s World Cup events?
Hosting the Olympics is more costly. LA28, the private organizing group behind the Games, has set a budget of roughly $7 billion. Taxpayers would be on the hook for any cost overruns. That kind of obligation has prompted some, including the conservative commentator Charlie Kirk, to call on Los Angeles to bow out now.
The Games have a history of being an economic drag on the host city. But last year’s organizers, Paris, reversed that trend with a roughly $28 million budget surplus. And the hugely successful 1984 Olympics in Los Angeles is still seen as an economic model.
But dangers abound. International Olympic Committee rules stipulate that host cities must be able to accommodate the influx of global athletes and fans. The University of California campus, the planned venue for the Olympic Village, is not far from the Pacific Palisades fire. Neither is another prospective venue, the Riviera Country Club, which is set to host the golf competition.
If the city is not ready, it could forfeit the Games. “They could go back to Paris,” Mark Dyreson, a professor at Penn State, suggested to The New York Post. Another Olympics historian thought it was more likely that the events were shifted elsewhere in the region.
Newsom says such talk is premature. The Democrat, who has come under serious pressure for the state’s handling of the crisis, told NBC News on Sunday that the city could rebuild and still host the Games. “We are already organizing a Marshall Plan, and we already have a team reimagining L.A. 2.0.,” he said.
HERE’S WHAT’S HAPPENING
President Biden delays enforcing an order blocking Nippon Steel’s deal for U.S. Steel. The move sets June 18 — the expiration date for the acquisition — as the date the president’s order becomes effective, giving courts time to review a legal challenge by the two companies.
Steve Bannon escalates a feud against Elon Musk. Bannon, the longtime Trump ally, told the Italian daily Corriere della Sera over the weekend that he believed that the tech mogul was “a truly evil guy, a very bad guy” and that he would do anything to deny the Tesla chief full access to the White House. The comments underscore a growing rift between Musk and more traditional right-wing Trump supporters as they clash on issues including visas for skilled workers.
Jeff Bezos’ Blue Origin scrubs a highly anticipated rocket launch. The company postponed sending its New Glenn rocket into orbit on Monday, after several delays, citing an unspecified “vehicle subsystem issue.” There’s a lot on the line for Blue Origin: The New Glenn is the company’s latest effort at catching up to Elon Musk’s SpaceX in the space race, but Bezos’ start-up didn’t want to risk a mishap.
Ackman’s latest plan to build a new Berkshire Hathaway
Bill Ackman cannot be accused of thinking small. His latest big deal shows why.
The billionaire hedge fund manager said on Monday that his Pershing Square would bid to buy the roughly 62 percent of Howard Hughes Holdings, a real estate company, that it doesn’t own for $85 a share. But the bigger news is that if a deal is reached, Ackman wants to turn Howard Hughes into a publicly traded vehicle for buying other companies — and turn himself into a Warren Buffett-esque investor.
“With apologies to Mr. Buffett, HHH would become a modern-day Berkshire Hathaway,” Ackman wrote in a public letter to Howard Hughes shareholders. Here’s how it would work:
-
Pershing Square Holdco, the parent company of Ackman’s hedge fund, would create a new subsidiary to buy and hold Howard Hughes, whose assets include office buildings and planned communities. Pershing plans to own the real estate business “forever.”
-
Ackman believes that Howard Hughes will soon begin generating “substantial excess cash resources.” That money, coupled with Pershing’s ability to scout out profitable investments, could then be used to buy entire companies and other assets, much as Berkshire Hathaway uses the enormous stockpile of cash from its insurance arms to do deals.
Ackman sees the deal as setting up Pershing’s next era. He shot to fame and riches as a prominent activist investor, and minted billions more with profitable bets on hedging against the pandemic and inflation.
Since then, he has focused on raising what he calls “permanent capital” via a closed-end fund that trades on the London Stock Exchange. Last year, he tried but then called off plans to raise an even bigger fund in New York, which he had hoped to use to make the kinds of big bets that Buffett has made.
One question: What does Ackman see in Howard Hughes? He orchestrated its creation via a spinoff from the bankrupt real estate giant General Growth Properties 15 years ago.
But Howard Hughes’s stock has been hugely volatile since then, and has fallen 10 percent over the past 12 months alone amid choppy financial performance. Unusually, Ackman said he didn’t plan to change the company’s management or business plans.
What kind of economy is Trump inheriting?
By many measures, the economy looks strong. But the Trump trade rally seems to be on shaky ground.
A sell-off in stocks and bonds has some investors worried about whether the Fed might halt its rate-cutting, and whether higher borrowing costs would weigh on Donald Trump’s economic agenda.
The latest: The S&P 500 is down more than 4 percent from its post-Election Day high, and the futures market points to another rough open on Monday. The dollar is soaring again, as is oil.
What could this mean for Trump’s plans? The president-elect has inherited a red-hot economy, as Friday’s blockbuster jobs report showed. But that could put his administration in a bind: Can it make good on its promise to cut taxes and impose tariffs on trading partners to juice growth, or will it have to focus on keeping resurgent inflation at bay?
Watch this week’s data. Fed officials will closely follow the Consumer Price Index report on Wednesday and retail sales stats on Thursday for clues on inflation and how that might affect the interest rates outlook.
Separately, market watchers are nervously watching the yield on 10-year Treasury bonds, which influence rates for mortgages and other consumer loans. They have been rising in recent months even as the Fed has cut its benchmark rate. (Yields are just below 4.8 percent on Monday.) It’s an uncommon occurrence that could sap demand for more loans.
Traders and Wall Street are continuing to dial back the odds for future cuts: The futures market this morning sees just one cut this year, while economists at RBC Capital Markets now see none.
Can corporate profits reverse the gloom? Expectations are fairly high for earnings season. Solid results, especially from Big Tech, have propelled the bull market over the past two years. But with growing economic uncertainty, some on Wall Street have begun to recalibrate their forecasts.
RBC Capital Markets’ worst-case prediction is that corporate profit growth has peaked. Lori Calvasina, the bank’s head of U.S. equity strategy, wrote to clients this morning that the S&P 500 could end the year around 6,200 — about 6 percent below its base-case target.
On deck: JPMorgan Chase, Goldman Sachs, Wells Fargo and BlackRock report full-year results on Wednesday. Morgan Stanley and Bank of America go on Thursday.
Chart of the day
— China’s trade surplus hit a record high last year, soaring to nearly $1 trillion according to official data published this morning, as manufacturers rushed to ship goods before President-elect Donald Trump takes office next week. But the data also revealed that imports of factory goods slowed sharply, showing the effects of a consumer slowdown in China and Beijing’s push to bolster domestic production of goods.
The U.S. sides with Musk on an OpenAI argument
As OpenAI prepares for a charm offensive in Washington this month, federal regulators have sided with Elon Musk in some of his legal attacks against the artificial intelligence giant.
In a court filing on Friday, the Justice Department and the Federal Trade Commission wrote that they supported Musk’s legal arguments about whether OpenAI and Microsoft sharing some directors, including the billionaire venture capitalist Reid Hoffman, violated antitrust laws.
While they didn’t take a formal position on the overall fight, the move suggests how antitrust enforcement interpretations begun under President Biden might continue in the Trump administration.
The TL;DR: Musk has waged war against OpenAI, which he helped found, and its efforts to shed its nonprofit status. (OpenAI has denied Musk’s arguments and says that he wants to impair a competitor to his own company xAI.)
In November, Musk added new claims about Hoffman and Dee Templeton, a Microsoft vice president, to his lawsuit. The illegality of that situation — known as interlocking board roles — persisted even after they stepped down from their board positions, he claimed.
The Justice Department and the F.T.C. backed Musk’s legal interpretation, arguing that having a director resign “is not sufficient, on its own, to moot a claim.”
Regulators have been focused on interlocking directorates for several years. The Justice Department has forced the resignations of executives at Warner Bros. Discovery, Pinterest and elsewhere over the issue. But it has rarely, if ever, filed a statement of interest on interlocking boards, because these issues essentially never end up going to court.
The filing may also hint at potentially major further scrutiny. In a footnote, the Justice Department and the F.T.C. question whether Microsoft and OpenAI’s relationship consisted as “an unregulated merger,” and took no position on the observation — “at this time.”
Consider the politics at play. The filing provides a point of alignment between Musk and the F.T.C. despite clashes between the two under the agency’s departing chair, Lina Khan. (Interestingly, Hoffman, a Democratic megadonor, publicly pressed for Khan’s ouster during the presidential campaign.)
The filing raises questions about how the F.T.C. will tackle antitrust under Andrew Ferguson, President-elect Donald Trump’s choice to lead the regulator.
THE SPEED READ
Deals
-
Deal-making and regulation will be top of mind (along with security) at JPMorgan Chase’s annual health care industry conference in San Francisco this week. (Bloomberg)
-
“Why one of Europe’s largest pension funds sold its entire $585 million stake in Tesla” (Business Insider)
Politics and policy
-
In Trump cabinet nomination news: Scott Bessent, President-elect Donald Trump’s pick for Treasury secretary, said he would sell assets to avoid conflicts of interest; and here’s how Senator Marco Rubio’s attack on Tesla could complicate his chances of becoming secretary of state. (NYT, WaPo)
-
Rohit Chopra, the departing director of the Consumer Financial Protection Bureau, warned that the boom in artificial intelligence could lead to more intrusive surveillance. (“Washington A.I. Network with Tammy Haddad”)
Best of the rest
-
Power demand from artificial intelligence companies is helping to drive up the cost of uranium. (FT)
-
“Warren Buffett Prepares His Middle Child for the Job of a Lifetime” (WSJ)
We’d like your feedback! Please email thoughts and suggestions to [email protected].
The post Talk Turns to ‘L.A. 2.0’ appeared first on New York Times.
