TheChek News Flow

Elon Musk warned he would rather build AI products outside of Tesla Inc. if he doesn’t achieve 25% voting control, suggesting the billionaire wants a bigger stake in the world’s most valuable electric vehicle maker.

Musk, Tesla’s single largest shareholder with more than 12% of the company, was responding to a social media post questioning why he would need another large compensation package to stay motivated. He said the reason no new plan has been put in place is because the company is still awaiting a verdict in a shareholder suit against an earlier $55 billion package — an unprecedented amount at the time.

Musk argued in a post on X that the car company is a collection of a dozen startups. He called for a comparison between Tesla and General Motors Corp., traditionally one of the auto industry’s global leaders. Tesla, for example, is developing the Optimus robot, and last month posted a video showing improvements it’s made to the humanoid prototype.

The automaker is also investing more than $1 billion into its Dojo supercomputer project, which will train the machine-learning models behind the EV maker’s self-driving systems and which analysts have estimated could add $500 billion to Tesla’s value.

At Tesla’s inaugural AI Day in 2021, Musk said he wanted to show that the company is more than just an electric carmaker, but is “arguably the leader in real-world AI.”

What we really know about the global economy

From demography to technology, we must pay attention to the forces that will certainly shape our future

What is going to happen to the world economy? We will never know the answer to this question. In one decade after another, something big and largely unexpected has occurred: the great inflation and oil shocks in the 1970s, the disinflation of the early 1980s, the fall of the Soviet Union and the rise of China in the 1990s, the financial crises in the high-income economies in the 2000s and the pandemic, post-pandemic inflation and wars in Ukraine and the Middle East in the 2020s. We live in a world of conceivable and obviously consequential risks. Some — war among nuclear great powers — could be devastating. The difficulty is that low-probability, high-impact events are nearly impossible to forecast.

Yet we also know of some big features of our global economy that are not really uncertain. These must also stay in our minds. Here are five of them.

The first is demography. The people who will be adults two decades hence have all been born. The people who will be over 60 years old four decades from now are already adults. Mortality could jump, perhaps because of a terrible pandemic or a world war. But, barring such a catastrophe, we have a good idea of who will be living decades from now.

Several features of our demography are quite clear. One is that fertility rates — the number of children born per woman — have been falling just about everywhere. In many countries, notably China, fertility rates are far below replacement levels. Meanwhile, the highest fertility rates are in Sub-Saharan Africa. As a result, its share in global population might jump by 10 percentage points by 2060. (See charts.)

These demographic changes are the result of rising longevity, the transformation in the economic, social and political roles of women, urbanisation, the high costs of parenthood, improvements in contraception and changes in how people judge what is worthwhile in their lives. Only huge shocks could conceivably change any of this.

A second feature is climate change. Maybe current trends will be turned around in time. But emissions of greenhouse gases have barely stabilised, while the world continues to get hotter as stocks of these gases in the atmosphere continue to rise. It is a good bet that it will continue to do so for a long time. If so, temperatures are sure to rise by far more than 1.5C above pre-industrial levels, which, we have been told, is the upper limit of reasonable safety. We will have to work harder to mitigate emissions. But we will also have to invest heavily in adaptation.

A third feature is technological advance. Progress in renewable energy, especially the declining cost of solar energy, is one example. Advances in life sciences are another. But, in our age, the revolution in information and communications technologies is the centre of such progress. In The Rise and Fall of American Growth, Robert Gordon of Northwestern University has persuasively argued that the breadth and depth of technological transformation has slowed, almost inevitably, since the second industrial revolution of the late 19th and early 20th centuries. Transport technology, for example, has changed rather little in half a century.

Nevertheless, the transformation in information processing and communication has been astounding. In 1965, Gordon Moore, who went on to found Intel, argued that “with unit cost falling as the number of components per circuit rises, by 1975 economics may dictate squeezing as many as 65,000 components on a single silicon chip”. That was right. But astoundingly, Moore’s eponymous law continues to be true almost half a century later. In 2021, the number of such components was 58.2bn. This permits marvels of data processing. Moreover, 60 per cent of the world’s population used the internet in 2020. Further transformation of how we live and work must follow from this. The development and use of artificial intelligence is the latest example.

A fourth feature is the spread of knowhow across the world. The developing regions of the world that have proved most adept at absorbing, using and furthering such knowledge are in east, south-east and south Asia, which contain roughly half of the world’s population. Developing Asia also continues to be the world’s fastest-growing region. Given the ability — and the opportunity — to catch up, it is a safe bet that this will continue. The centre of gravity of the world economy will continue to shift in the direction of these regions. That will inevitably create political shifts. Indeed, it already has. China’s rapid economic rise is the big geopolitical fact of our era. In the long term, India’s rise is likely to have large global consequences, too.

A fifth feature is growth itself. According to the updated work of the late Angus Maddison, as well as the IMF, the world economy has grown in every year since 1950, except 2009 and 2020. Growth is an inherent feature of our economy. The World Bank’s recent Global Economic Prospects notes that what looms ahead in 2024 is “a wretched milestone: the weakest global growth performance of any half-decade since the 1990s, with people in one out of every four developing economies poorer than they were before the pandemic”. Nevertheless, even in this shock-affected period, the world economy has grown, even if unequally across countries and people, and unevenly over time. We are not moving into an era of global economic stagnation.

It is easy to be overwhelmed by short-term shocks. But the urgent must not be allowed to overwhelm our awareness of the important. In the background, the big forces described above will reshape our world. While improving our capacity to respond to shocks, we must pay them very careful attention.

Growth stocks and emerging markets to be biggest winners from falling borrowing costs, Bank of America survey shows

Big investors are turning to riskier assets such as emerging markets and high-growth companies as their confidence increases that global interest rates are set to tumble without a sharp economic downturn, according to a closely watched survey.

Only 17 per cent of the fund managers polled by Bank of America expect a so-called hard landing — which typically implies a recession — for global growth, the smallest proportion in 19 months.

The growing faith in a “soft landing” for the global economy, in which central banks succeed in bringing inflation under control without sparking a downturn, comes after large economies — most notably the US — outperformed expectations despite the effects of high interest rates.

The overwhelming majority of investors now believe borrowing costs are set to fall, with 91 per cent of respondents saying short-term interest rates will be lower in 12 months’ time.

“Investors have never been as bullish on short-term rates as in January 2024,” BofA analysts wrote, adding that “growth optimism over the past month has coincided with rising global equity prices”.

The combination of falling rates and a benign economic outlook has led fund managers surveyed by BofA in January, who collectively manage $669bn in assets, to favour riskier assets.

A quarter of fund managers said that stocks with long-term growth prospects such as biotech and renewable energy companies would be the biggest beneficiaries of US federal reserve rate cuts, making them the most popular choice. Value stocks, such as banks and real estate companies, were chosen by just under a fifth of investors, while a similar proportion picked emerging market equities.

Long-term US government debt dwindled in popularity compared with December’s survey following a big rally over the past month.

Managers retained their overweight position in US equities, while remaining underweight UK and eurozone stocks. Small-cap stocks are expected to outperform large caps for the first time since June 2021.

Meanwhile global investors’ pessimism on the Chinese economy deepened, with net growth expectations turning negative and dropping to levels last seen in May 2022.

Short positions in Chinese equities were seen as the second most “crowded” trade after long positions in the “magnificent seven” megacap tech stocks that dominate US equity markets.

Investors also said they were most concerned about the US shadow banking sector as the source of a systemic crisis, replacing a Chinese property crash as the number one risk, echoing recent warnings from regulators.

Geopolitics once again took the top spot as the biggest tail risk to markets, amid concerns about an escalation to conflict in the Middle East, US-China tensions and volatility in a year in which half the world’s population will vote.

French shipping group’s plan to find new areas of revenue thwarted by North American routes setback

French shipping group CMA CGM and carrier Air France-KLM are scrapping an air cargo partnership after struggling to get US approval to operate North American routes and deliver on the project’s promise in the wake of pandemic lockdowns.

The companies said on Tuesday they would end a tie-up announced barely two years ago at the end of March, citing regulatory constraints, and that each would go back to operating their own cargo aeroplane fleets while still trying to co-operate on some routes.

One of the biggest hurdles had been the partnership’s difficulty in getting antitrust approval to operate in and out of the US, killing off one of their biggest markets, two people familiar with the matter said.

“A constrained regulatory environment on some important markets did not allow us to co-operate in an optimal fashion,” the companies said.

The original 10-year deal, which was partly motivated by CMA CGM branching into new avenues on the back of Covid-19 era windfall profits, was coupled with a direct investment by the shipping group into the Franco-Dutch airline group. CMA CGM will keep its 9 per cent stake in Air France, but a lock-up on those shares will end in February 2025 and no longer be partly extendable until 2028.

The Marseille-based transport group, the world’s third biggest container shipping company, will also give up its seat on the board of Air France-KLM. The airline group also counts the French and Dutch governments as big shareholders, and had welcomed CMA CGM as it looked to turn the page from Covid-19-related bailouts and raise fresh capital.

The collapse of the partnership comes after CMA CGM’s rivals such as Maersk and MSC also branched into air cargo in recent years.

The companies were lured by surging demand when pandemic lockdowns in 2020 grounded aeroplanes that also carried goods on passenger flights. This in turn exhausted capacity on maritime routes and sent customers searching for speedier transport solutions.

Recent Houthi attacks on container ships in the Red Sea have begun to push up air freight rates and shown fresh pockets of demand for such services.

But prior to this, the expected air cargo boom was damped by a return to pre-Covid traffic levels on passenger flights, adding extra capacity and competition, which weighed on freight rates. In the first nine months of 2023, Air France-KLM’s cargo revenues were down 31 per cent on the previous year.

The US antitrust issue was complicated by the Dutch government’s attempts to cut flights at Amsterdam’s Schiphol airport on environmental grounds, a plan it abandoned at the end of last year but which had also irked US airlines such as Jet Blue, which had risked getting no slots.

That had added to the struggle to obtain competition approval, one of the people familiar with the matter said.

Flush with cash after the pandemic, a boom that is now waning as shipping rates come down from the lockdown-era surge, CMA CGM began its air cargo push by buying six planes and has six more on order, which it intended to contribute to the partnership.

The shipping group will still use the aircraft, but trying to break into the industry on its own has its challenges too, a third person familiar with CMA CGM’s business said.

Under its original attempts, some potential clients were hard to entice because CMA CGM was proposing its services to logistics companies it was also competing with through its own divisions such as CEVA.

Gapping down
In reaction to earnings/guidance:

Other news:

Analyst comments:

Gapping up
In reaction to earnings/guidance:

Other news:

Analyst comments:

Burger King-owner Restaurant Brands International will acquire Carrols Restaurant Group for about $1 billion in cash.

Toronto-based RBI said it would pay $9.55 per share for Carrols, the largest Burger King franchisee in the U.S.

Carrols operates over 1,000 Burger King restaurants and owns and operates 60 Popeyes restaurants.

RBI said plans to “significantly accelerate Carrols’ current rate of remodels” over the next five years, investing about $500 million in capital from Carrols’ operating cash flow to remodel about 600 restaurants.

RBI said the purchase price represented a 23% premium on Carrols’ 30-day volume weighted average price as of Jan. 12 and a 13.4% premium on the Jan. 12 closing price.

The deal will be financed with cash on hand and is expected to be completed in the second quarter.

RBI expects the acquisition to be neutral to adjusted earnings per share, while net leverage will increase minimally.

Premier hails ‘steady’ economic progress in Davos speech but calls on world to address ‘trust deficit’ among nations

China’s economy grew an “estimated” 5.2 per cent last year, beating the official target, the country’s number two leader Premier Li Qiang said in Davos, as he sought to allay concerns over its recovery from the Covid pandemic. 

In a speech at the World Economic Forum, Li also urged the world to address what he described as a “trust deficit” among nations and, in a veiled dig at the US, said “multilateralism” did not mean that only a few countries could set the rules.

Li said China’s growth rate last year — a rise from the figure of 3 per cent in 2022 when the country was hit by widespread Covid lockdowns — was achieved without resorting to “massive stimulus” and the economy was making “steady progress”.

“We did not seek short-term growth while accumulating long-term risks, rather we focused on strengthening the internal drivers,” he said. “Just as a healthy person often has a strong immune system, the Chinese economy can handle ups and downs in its performance. The overall trend of long-term growth will not change.”

Beijing’s 2023 growth target of 5 per cent was China’s lowest in decades. The economy’s emergence from Covid has been hampered by a deep property slowdown, falling exports and a lack of investor confidence, forcing the government to step in with stimulus measures, though it has stopped short of the “bazooka” fiscal packages it has deployed in past crises.

The 5.2 per cent growth figure, which economists say was flattered by a low base effect in 2022, was in line with a Reuters poll of analysts. Economists expect the government to again set this year’s official growth target at 5 per cent, a goal they say will be more challenging because of the overhang of the property market and deflationary pressures.

But Li told the audience that China’s economy was similar to “hiking in the Alps”.

“Our European friends told me that to fully appreciate the majestic beauty of the Alps one has to zoom out and look from afar,” he said. “As I see it, it is the same way as the Chinese economy, one has to broaden the vision and take a panoramic view to . . . truly grasp where it is now and where it is going.”

Li’s announcement of the GDP figure surprised economists, who had been preparing for the official release of the data on Wednesday by the National Bureau of Statistics.

“China used to be a place where you’d know when this sort of thing would be published, but that has changed radically,” said Alicia García-Herrero, chief Asia-Pacific economist at Natixis, who described the decision to announce the figure early as “bewildering”.

Li said the return on foreign direct investment in China was about 9 per cent and the country remained open to international business.

“Choosing the Chinese market is not a risk, but an opportunity. So we embrace investments across businesses of all countries with open arms,” he said.

On multilateralism, he said China believed in the UN Charter, which recognises the sovereignty of all nations. But many European countries have criticised Beijing for not condemning Russia’s invasion of Ukraine.

Li used his speech to instead make a veiled attack on what China sees as US-led hegemony.

“The question is, what is true multilateralism?” he said. “Who will set the rules? What are the rules? If the rules are set by certain or a few countries, then we have to put quotation marks on the multilateralism because it will still be unilateralism in nature.”

Li also urged greater co-ordination between countries on macroeconomic policies, a reference to efforts by the US and its allies to reduce the reliance of their supply chains on China.

Ursula von der Leyen, president of the European Commission, who spoke after Li, responded: “We want to tell our Chinese friends, we do not want to decouple but we need to de-risk our supply chains in some ways.”

Von der Leyen said China was preparing export controls on three metals used in semiconductor production — germanium, gallium and graphite — and that this “was not trust-building”.

“So we are in intense discussions on that point”, she said. “We have to be very frank and very open . . . it is always better to address problems so that we can solve them.”