TheChek News Flow

President Trump on Tuesday night called for Congress to take back the massive $2.3 trillion stimulus — and increase the check to Americans from $600 to $2,000.

“It really is a disgrace,” Trump said in a video posted to Twitter. “It’s called the COVID relief bill, but it has almost nothing to do with COVID.”

Trump went on to list the millions of dollars included in the 5,593-page package, including cash for two National Mall museums, $10 million for “gender programs” in Pakistan and $2.5 million for “internet freedom.”

Trump said the American people got the “bare minimum” from the bill even though “it was China’s fault.”

“I am asking Congress to amend this bill and increase the ridiculously low $600 to $2,000 or $4,000 for a couple,” he said.

The president added that the next administration may have to deal with the package, but added that “maybe that administration will be me, and we will get it done.”

Most of the president’s spending complaints were from the $1.4 trillion bill to fund government agencies through September and other bills packaged together with the $900 billion pandemic stimulus passed on Monday.

The relief package was brokered by party leaders and the White House after months of deadlock and many details are seemingly unrelated to the pandemic.

It sped through the House and Senate in hours on Monday, with some lawmakers expressing concern about passing such a large bill without much time to review it.

The Senate cleared the package by a 92-6 vote after the House approved it by a 359-53 vote.

Trump did not threaten to veto the package in Tuesday’s video. However, should he choose to take that step, those vote totals would be enough to override a veto.

Shortly after Trump released the 4-minute clip, House Speaker Nancy Pelosi responded to the president’s request for larger checks for Americans, saying “Let’s do it!”

“Republicans repeatedly refused to say what amount the President wanted for direct checks,” the Democratic leader tweeted. “At last, the President has agreed to $2,000 — Democrats are ready to bring this to the Floor this week by unanimous consent. Let’s do it!”

Elon Musk Says He Once Approached Apple CEO About Buying Tesla

Apple’s Tim Cook didn’t take the meeting, the electric-vehicle maker’s chief says in a tweet

Tesla Inc.’s TSLA -1.46% effort to bring out its Model 3 brought the electric car company near collapse in 2018. Now Chief Executive Elon Musk has divulged a new twist: He says he contacted his Apple Inc. AAPL 2.85% counterpart, Tim Cook, to save his company.

“During the darkest days of the Model 3 program, I reached out to Tim Cook to discuss the possibility of Apple acquiring Tesla (for 1/10 of our current value),” Mr. Musk said in a tweet Tuesday. But the Apple CEO, he said, “refused to take the meeting.”

Mr. Musk revealed the latest detail as he questioned the seriousness of Apple’s plans to bring out an electric car of its own, amid a new report the company is pushing for 2024 production.

On Twitter, Mr. Musk called the report “strange, if true.”

Tesla has built a brand for itself as a Silicon Valley auto maker offering high-tech cars with promises of fully self-driving technology on the near horizon. The specter of a driverless, electric car made by tech giant Apple could prove the kind of fierce competition that traditional auto makers, such as General Motors Co. and Volkswagen AG, have yet to muster.

Apple has been making plans to begin production of an electric car as soon as 2024, a person familiar with the effort said. Reuters earlier reported the new timeline.

The Apple project is being headed up by Doug Field, a longtime Apple executive who left the company for about five years to work at Tesla, where he oversaw the development of the Model 3. He left in 2018 and returned to Apple, where he began work on the car project.

Apple declined to comment.

Mr. Musk on Tuesday didn’t specify exactly when he approached Mr. Cook.

Launched in 2017, the Model 3 proved harder to build than Mr. Musk expected. Costly delays mounted before Tesla eventually worked through production and delivery snags in 2018, when it posted profitable quarters in the second half of that year. It continued to struggle the early part of the following year, however.

In August 2018, Mr. Musk shocked investors with the idea of taking the electric-car maker private in what would have been the biggest buyout in history. Mr. Musk at the time wrote on Twitter: “Am considering taking Tesla private at $420. Funding secured.” The deal didn’t happen, and the tweet spurred a Securities and Exchange Commission probe and legal battles with the regulator.

As Mr. Musk tried to make a deal work to take Tesla private, his advisers sought funding from several places, including Volkswagen. He eventually scuttled his effort.

By the third quarter of 2019, Tesla had turned the corner and kicked off a string of quarterly profits, exciting investors who have sent the company’s shares soaring and made the company the most valuable auto maker in the world with a value of more than $600 billion. It was added to the S&P 500 index, a key benchmark, on Monday.

Excitement around the company has allowed Tesla to raise billions of dollars for what Mr. Musk has described as his war chest.

Mr. Musk didn’t respond to questions about his latest tweet.

The Model 3 wasn’t Tesla’s first troubled car introduction—all vehicles up to that point had been painful. The company’s first vehicle, the Roadster sports car, almost led to the company’s collapse in 2008 and the Model S large sedan in 2012 was also troublesome. During that period, Mr. Musk turned to Google about a potential deal, people familiar with the situation have said.

When sales of the Model S kicked in during the first quarter of 2013, Mr. Musk was able to post the company’s first quarterly profit and he quickly raised more money amid the excitement about the company’s future.

Mr. Musk’s success with Tesla has spurred investor enthusiasm in electric cars and other advanced driving technologies. It is also leading to more competition for Tesla. Traditional car-making rivals are ramping up their electric vehicle efforts. And rivals working on self-driving car technology, such as Waymo LLC, a unit of Google’s parent Alphabet Inc., also are securing funds to ramp up their activities. Amazon.com Inc. in June said it was buying autonomous car-developer Zoox.

Talk of an Apple-Tesla tie-up has often circulated around Silicon Valley. During a 2015 shareholder meeting, Mr. Cook sidestepped shareholders pushing for a deal. “Quite frankly, I’d like to see you guys buy Tesla,” one investor told Mr. Cook during the meeting—a sentiment met with laughter and applause.

Apple typically has eschewed big acquisitions. It bought Beats Electronics LLC for $3 billion in 2014, though has never done a transaction near the scale of what Tesla would have cost.

The car-making business is notorious for its high costs. Apple, though, has ample financial muscle. The company had around $192 billion in cash and marketable securities on hand at the end of its latest financial year that closed in September.

Since his earliest days as CEO, Mr. Musk has turned to Apple for key hires and inspiration, from store designs to a large, flat-screen, touch panel in the Model S.

As Apple became more interested in cars, a war for talent ensued. Mr. Musk complained to Bloomberg Businessweek in a 2015 article that Apple was trying to poach his engineers with offers of $250,000 signing bonuses and 60% salary increases. He later lamented to German newspaper Handelsblatt that Apple hired those who couldn’t handle working at Tesla. “We always jokingly call Apple the ‘Tesla Graveyard,’ ” he was quoted saying in 2015.

Still, it has been clear that Apple has been in Mr. Musk’s sights. That year, he also told investors that he saw a path for Tesla by 2025 to be as valuable as Apple was at the time, which then was $700 billion.

The government is increasingly using the app to monitor and suppress dissenting views

China’s do-everything app, WeChat, has become one of the most powerful tools in Beijing’s arsenal for monitoring the public, censoring speech and punishing people who voice discontent with the government.

Authorities are increasingly using the app from Tencent Holdings Ltd. to justify arrests or issue threats, say dissidents, consumers and security researchers.

Wang Shengsheng, a labor and women’s rights lawyer, said authorities were monitoring her WeChat and text messages earlier this year so they could gather evidence to thwart her legal career.

Local public security and party discipline officials in her hometown also tracked down her father as part of their efforts to tarnish her reputation, she said.

“People always say that all of your communications on WeChat are out in the open. I never fully grasped what that meant until the recent incident,” she said. “Now I’m terrified.”

A spokesman for Tencent declined to comment. The Cyber Administration of China and China’s Ministry of Public Security didn’t respond to requests for comment.

Released in 2011, WeChat and its domestic sister app, Weixin, now have, according to Tencent, more than 1.2 billion monthly active users worldwide, the majority in China, where its pervasiveness extends beyond any app used in the U.S. In addition to messaging, Chinese consumers use it to share photos, pay utility bills, hail taxis, get news, book doctors' appointments and use government services.

Its dominance in Chinese society has become more entrenched this year due to remote working and learning during the coronavirus pandemic. Companies and schools have flocked to WeChat Work, a communication tool for businesses that is integrated with the WeChat app. In the first quarter this year, governments, businesses and individuals used WeChat QR codes more than 140 billion times, according to Tencent. A WeChat QR code is used to make payments and also when logging onto different devices and accounts.

The Chinese government also tapped Tencent and Alibaba Group Holding Ltd. to design health-rating systems that make up one of the main contact-tracing tools to contain the spread of the coronavirus. The health codes embedded within WeChat and Alipay, operated by Alibaba affiliate Ant Group Co., have become essential passes in China for entering residences, office buildings and accessing public transportation.

But that utility has come with a cost. WeChat was one of the primary venues where government censors tried to restrict information during the outbreak in Wuhan.

In addition to taking down content that was deemed sensitive, users say WeChat routinely blocks accounts for discussing issues ranging from the pandemic to human rights abuses in the Xinjiang region. After users’ accounts are blocked, police will often question them.

“I was shocked and befuddled,” a Chinese student studying in Australia, who declined to be named, said of his reaction when his account was blocked earlier this year for posting comments critical of the government’s handling of the outbreak in Wuhan.

Although he was able to set up a new account with a different mobile number within a few days, he lost access permanently to tens of thousands of chat messages with his family, friends and scores of professional contacts.

“It puts me in a very awkward situation because having your WeChat blocked means telling others you have dissenting political views, which is frowned upon when you are looking for a job,” he said.

One Beijing-based user who didn’t want to be named said he was taken in for questioning several days after his WeChat account was blocked for criticizing China’s foreign policy. During the two-hour interrogation, police officers held printouts of his WeChat chat logs and read out parts that were critical of the Chinese leadership. He was released after signing a pledge that he wouldn’t criticize the government again.

The problem for many users is that the app has so thoroughly permeated everyday life that shutting it off would be like giving up water or air.

“There are many functions in WeChat that we just can’t live without,” said Zhang Qingfang, a Beijing-based human-rights lawyer, adding that his WeChat communications have also come under surveillance.

Disturbed by their overdependence on the app, several users started a campaign earlier this year called “Free From WeChat,” in which they called on peers to migrate to other platforms—like Telegram—that are believed to be free of Chinese government interference. They published a manifesto on the Chinese language blogging site Matters.news, referring to themselves as “digital immigrants” who wanted to escape China’s internet firewall.

After members of the group had convinced a few hundred users to join Telegram, state security officials began calling them and their families in for questioning. Those involved say they ended the campaign in March and told authorities they had no political motives, but security officials have continued to question and monitor them.

China’s internet firewall has long blocked foreign sites and messaging apps, including Google, WhatsApp, Telegram and Facebook, but these can be accessed via virtual private networks, or VPNs. Signal, another messaging app, is available to users of Apple Inc.’s iOS, but not Android users.

The hassle of setting up a VPN keeps most people from using the sites and apps, which means that those who try to migrate to more secure apps can have trouble convincing others to join them.

“Some of my friends and clients switch to Signal or FaceTime for sensitive conversations. Still, for the majority of people, they don’t think it’s absolutely necessary to get over the firewall for daily communications,” said Mr. Zhang.

But disenchantment with WeChat appears to have grown over the past year, as more evidence emerged that authorities were increasingly relying on WeChat to control speech and surveil dissidents.

Downloads of Telegram and Signal in China iOS stores have been growing steadily over the past few years, according to app tracker Apptopia, though they still have only a fraction of WeChat’s user base. Both apps provide end-to-end encryption that prevents any third-party access to communications between the sender and the receiver.

“I’ve been calling on my friends in mainland China to switch to Telegram for the last few years,” said a university professor in Hong Kong. “A lot of them used to think using a VPN service to get over the firewall was such a bother. Now more and more of them don’t mind this bother.”

WeChat uses client-to-server encryption, which grants Tencent full access to data between senders and recipients, as opposed to end-to-end encryption, said Fergus Ryan, an analyst at the Australian Strategic Policy Institute, a nonpartisan think tank created by the Australian government.

“Chatting over WeChat is like writing a letter to your contact [and] giving it to WeChat to transport in a securely locked opaque box, which they take back to their office,” he said. Then they “open up the box, read your letter and modify/redact as they see fit, then put it in another secure, opaque-colored locked box and transport to your contact.”

The Trump administration has cited WeChat’s access to user information and censorship as reasons to ban it from the U.S., along with short-video app TikTok. Both bans have been challenged in American courts and haven’t taken effect.

Censorship during the Wuhan coronavirus outbreak became so strict that even content from Chinese state-owned media was occasionally taken down, a phenomenon that researchers attributed to internet companies overcompensating to avoid running afoul of rules governing speech that are often unclear.

“The primary mechanism here is not the law, but rather fear,” said David Bandurski, co-director of The University of Hong Kong’s China Media Project. “Companies must abide by regulations and propaganda guidelines imposed by the leadership in order to protect their business interests.”

Write to Jing Yang at Jing.Yang@wsj.com

Corrections & Amplifications

WeChat and its domestic sister app Weixin have more than 1.2 billion monthly active users worldwide, according to Tencent. An earlier version of this article incorrectly said the number is for China. (Corrected on Dec. 22.)

Former campaign adviser George Papadopoulos, former Reps. Chris Collins and Duncan Hunter among the pardoned

President Trump on Tuesday granted 15 pardons and five commutations to individuals including a former campaign adviser whose activities set off the Russia investigation, three former congressmen and several former military contractors convicted of wartime killing of Iraqi civilians.

The list was the first in a wave of pardons the president is expected to announce in his final weeks in office. Mr. Trump has discussed with advisers the prospect of pardoning several individuals involved in the Russia investigation, as well as members of his family and his personal attorney, Rudy Giuliani.

Among those he pardoned on Tuesday was George Papadopoulos, his former campaign adviser whose bar-side comments to an Australian diplomat helped trigger what would become Robert Mueller’s Russia investigation.

He also granted clemency to former New York Rep. Chris Collins, former California Rep. Duncan Hunter and former Texas Rep. Steve Stockman, all Republicans. Mr. Collins pleaded guilty last year to conspiracy to commit securities fraud and lying to law-enforcement officials, while Mr. Hunter pleaded guilty to one count of campaign-finance violations. Mr. Stockman was sentenced to 10 years in prison in 2018 for misuse of charitable funds. Messrs. Collins and Hunter received pardons, while Mr. Stockman’s sentence was commuted.

The White House said the pardons for Messrs. Collins and Hunter had been requested by many members of Congress.

Mr. Trump also pardoned four military contractors accused of killing more than a dozen Iraqi civilians in a 2007 incident in a Baghdad traffic circle at the height of the Iraq war, an international incident that badly strained U.S.-Iraq relations. Paul Slough, Evan Liberty and Dustin Heard were convicted in 2014 of manslaughter, while a fourth contractor, Nicholas Slatten, was found guilty of murder in a 2018 trial.

All four at the time worked for Blackwater USA, a private firm that was contracted to offer support for U.S. military personnel in Iraq and elsewhere. The company at the time was owned by Trump ally Erik Prince. Mr. Prince’s sister Betsy DeVos currently serves as Mr. Trump’s secretary of education.

In a statement released by the White House, press secretary Kayleigh McEnany said Mr. Papadopoulos had been charged with a “process-related crime” and that his pardon “helps correct the wrong that Mueller’s team inflicted on so many people.”

Democratic lawmakers criticized the president’s pardon announcement. “Trump is doling out pardons, not on the basis of repentance, restitution or the interests of justice, but to reward his friends and political allies, to protect those who lie to cover up for him, to shelter those guilty of killing civilians, and to undermine an investigation that uncovered massive wrongdoing,” said House Intelligence Committee chairman Adam Schiff (D., Calif.).

Mr. Trump also pardoned Alex van der Zwaan, a lawyer who in 2018 admitted to lying to federal investigators in the Russia probe about his contact with a Trump campaign aide.

In the first case brought by Mr. Mueller, Mr. Papadopoulos pleaded guilty to lying to Federal Bureau of Investigation agents about his interactions with an “overseas professor,” later identified as Joseph Mifsud, who allegedly told him Russians had “thousands of emails” worth of “dirt” on then-Democratic presidential candidate Hillary Clinton.

That April 2016 meeting ultimately led the FBI to start an investigation in July 2016 into Russia’s efforts to interfere in the presidential election and any links between those efforts and the Trump campaign.

Mr. Papadopoulos in a book last year said he didn’t actually lie to investigators—contradicting what he told a federal judge under oath a year earlier after pleading guilty—and said he realized he “misspoke” and that “the ‘lie’ I was charged with…certainly wasn’t intentional.”

Mr. Papadopoulos was sentenced to two weeks in prison in September 2018.

The president also pardoned two former Border Patrol agents, Ignacio Ramos and Jose Compean, who were convicted in the shooting of a suspected drug smuggler and accused of lying about the shooting and trying to cover it up. The men were accused at trial of picking up spent shell casings as part of an effort to conceal the incident. During the trial, Mr. Compean testified that he didn’t report the shooting because he didn’t think he would be believed. Mr. Ramos testified that he “messed up” in not reporting the incident.

Both former agents served roughly two years before their sentences were commuted in January 2009 by then-President George W. Bush.

Other pardon recipients included Philip Lyman, a Utah legislator who was sentenced to 10 days in prison after he protested the closure of a canyon to ATV riders; Otis Gordon, who since his conviction for possession of controlled substances has become a pastor; and Weldon Angelos, who was sentenced to 55 years in prison in 2002 for selling marijuana and carrying a handgun while doing so. Mr. Angelos was released after 13 years and is a criminal-justice-reform advocate.

Mr. Trump also commuted five sentences, including in three cases that were supported by Pam Bondi, the former Florida attorney general who defended the president during his Senate impeachment trial.

More pardons are expected from the president before he leaves office.

In November, Mr. Trump pardoned his former national security adviser, Michael Flynn, who had pleaded guilty to lying to the FBI. Mr. Flynn had cooperated in Mr. Mueller’s inquiry into Russian interference in the 2016 election and any links to the Trump campaign. Democrats said the president’s decision to pardon Mr. Flynn amounted to corruption and abuse of power.

Other presidents have made controversial pardon choices, often waiting until right before leaving office. Then-President Clinton pardoned fugitive commodities trader Marc Rich, whose ex-wife was a major donor to the Democratic Party and Mr. Clinton’s presidential library, on his last day in office. President Obama commuted the sentence of Chelsea Manning, convicted on charges related to passing classified documents to WikiLeaks, just days before leaving the White House.

Internet giants part of motorsport’s digital future, says outgoing F1 chief Chase Carey

Formula One is in “active” talks with US internet giant Amazon over streaming deals to screen its Grand Prix races, as the world’s most valuable motorsports series seeks a digital future beyond television broadcasting.

Chase Carey, F1’s outgoing chief executive, told the Financial Times that he had held “substantive discussions . . . [with] Amazon and all the global digital platforms” over conducting new screening deals, adding: “They’re [an] incredibly important potential partner and an opportunity for us to expand and grow our business.”

The discussions come as F1 seeks to expand its audience, targeting younger fans who are increasingly switching to watching sport online rather than on traditional TV networks.

Amazon declined to comment on Mr Carey’s remarks, but has been among the most aggressive of the internet giants in bidding for live sports rights around the world.

The company has secured rights to stream National Football League matches in the US, is among the broadcasters of the English Premier League in the UK, and earlier this month said it wanted to secure deals to screen big cricket matches in India. These moves are designed to tie sports viewers to its Prime subscription services. 

F1 is also under pressure to unlock new revenues after coronavirus-induced losses in 2020. The group incurred operating losses of $363m in the first nine months of the year, because of lower fees from race promoters and a hit to corporate hospitality without fans in attendance.

Liberty Media, the US group that acquired the sport for $8bn four years ago, was forced to inject $1.4bn of cash into F1 in April, furloughed half its workforce and agreed salary cuts with executives to weather the pandemic.

However, Amazon and other big internet companies have been reluctant to offer the sort of money that broadcasters have previously paid for the rights to show F1. The racing series’ biggest broadcast deal with Comcast-owned Sky in the UK is worth $250m a year in an arrangement that runs until 2024. 

This year, F1 has negotiated or renewed TV rights deals in Canada, France, Germany, Italy, Spain and the Nordics, while it is also in the process of finalising a deal in Brazil. Broadcast deals represent about a third of overall F1 revenues.

Mr Carey, who will remain as F1’s chairman while handing over the CEO role in January to Stefano Domenicali, head of luxury carmaker Lamborghini, said switching to screening deals with online groups will be an “incremental” process. F1, he said, was concerned about alienating fans “who probably are not quite accustomed to watching their major favourite sporting events on a digital platform”. 

Mr Carey, 67, a confidant to media tycoon Rupert Murdoch and a Fox Corporation board member, also pointed out that F1’s traditional broadcast partners were investing heavily in so-called over-the-top streaming services. This includes Sky in the UK, and Disney, owner of ESPN sports channels, which screens F1 in the US.

Expanding F1’s digital footprint has been one of Mr Carey’s priorities, which include launching an online subscription channel of its own, growth in “esports” or competitive video gaming, and Netflix’s Drive to Survive documentary series about the sport. 

Mehul Kapadia, chief operating officer of the Motorsport Network, said these online efforts had already helped to attract younger audiences by allowing fans to go behind the scenes in the sport.

“Now people want a 24/7 experience,” he said. “[The question is] how can you make your fans feel like they’re in the driver’s seat? That’s how the potential of the sport can be unlocked more.”

The mystique of Chagall’s windows

Pompidou-Metz launches an exhibition of optimistic work by the artist, who set out to reinvigorate ‘exhausted humanity’

Stand ready for the big five technology convulsions reshaping markets

Investors must position portfolios for the innovations that will transform the global economy

The global economy appears to have entered a period of convulsive changes, some exceptionally good and others devastating, that could shape financial markets for years to come.

In Ark’s view, any company not investing aggressively in one or more of five major platforms of innovation will lose its way. In harm’s way are companies that have engineered their financial results to satisfy the short-term demands of short-sighted investors.

Those that have leveraged their balance sheets to buy back shares and pay dividends are at particular risk as they will have less balance sheet flexibility to invest in response to the technological shift.

Seeded during the tech and telecom bubble more than 20 years ago, the five main platforms of innovation that we think will transform the global economy are: DNA sequencing, robotics, energy storage, artificial intelligence, and blockchain technology. These involve 14 technologies including gene therapies, 3D printing, cloud computing, big data analytics, and cryptocurrencies.

Importantly, they cut across economic sectors, posing problems for research efforts that are short term, siloed, and highly specialised. In our experience, most research departments of banks and fund managers are structured in that way, creating inefficiencies to be exploited as “convergences” create the new world order.

We think sectors most at risk of disintermediation are energy, industrials, consumer discretionary, communications services, healthcare, and financial services.

As autonomous transport evolves, for example, autos, rails, and airlines are likely to capitulate to the convergence of robotics, energy storage, and artificial intelligence. Combined, these forces will collapse the cost structure of transport. Traditional healthcare is also likely to give way to the convergence of next generation DNA sequencing, artificial intelligence, and gene therapies.

Meanwhile, in traditional financial services, the middlemen that dominate today’s financial ecosystem face disintermediation thanks to application programming interfaces (APIs), social platforms and blockchain technology that will enable the convergence of business and consumer marketplaces.

The convulsions will throw company forecasts for a loop, particularly in the developed world, which is saddled with mature infrastructure.

Broadly defined, the sectors at risk of disintermediation account for more than half of the S&P 500. Though at small bases today, we believe most innovation platforms are entering dramatic growth trajectories thanks to lower costs and higher productivity.

For example, we forecast that in response to the 28 per cent cost decline in lithium-ion batteries for every cumulative doubling in units produced globally, prices will continue to fall, “turbocharging” electric vehicle sales.

According to our estimates, EV sales will increase 20-fold globally during the next five years, from an estimated 2m and about 2.5 per cent of the market this year to 40m and about 45 per cent in 2025. Even if you think this ambitious, the direction of travel appears clear. It is one reason why Ark is a shareholder in Tesla.

The bad news is that the more expensive petrol-powered cars that dominate the market today will lose almost half of their sales base. Moreover, if transport goes autonomous, as we believe it will, the auto market will continue to shrink as the capacity utilisation per car increases. 

More broadly, if our forecasts for the five innovation platform are near the mark, there will be an economic impact. Both growth in the value of goods and inflation are likely to surprise on the low side of expectations as market share shifts to the poorly measured digital world and as the “good” deflation associated with technology takes hold.

We believe the winners will win in a big way but losers, particularly those that have levered balance sheets to satisfy certain stakeholders, will unwind. While risk-free interest rates are likely to remain low, spreads between companies on debt costs could widen dramatically as disruptive innovation — the likes of which we have not seen since the telephone, electricity, and the automobile burst on the scene in the Roaring Twenties — causes dislocation.

So, investors beware. Innovation appears to be evolving at such a rapid pace that traditional equity benchmarks are being populated increasingly by so-called value traps — stocks that are “cheap” for a reason. Critical to investment success will be moving to the right side of change.

US corporate debt: in too deep

When the coronavirus pandemic struck the US in early March and unleashed turmoil on global markets, the Federal Reserve quickly stepped in to support the economy.

Its historic decision to buy corporate debt, including investment-grade bonds and exchange traded funds that own riskier junk credit, gave struggling companies a lifeline. But with businesses borrowing a total of $2.5tn from the bond market in 2020, the question now is whether the Fed’s help has turned into life support.

The debt binge has seen leverage — aka the ratio that measures debt compared with earnings — skyrocket to its highest level for investment grade-rated companies, according to data from Bank of America.

The problem is that some of these companies may not be able to pay back what they owe. So-called zombie companies — meaning their interest payments have topped profits for three years running — are nearing a historic peak, data from Leuthold Group show.

While the red-hot debt market has helped them keep the lights on, there is concern that future profits may not fully cover the new financial burden. Nevertheless, market players are betting on a rally in debt prices next year because they expect continued support from the Fed.

The Fed backstop has naturally raised the issue of moral hazard, similar to how the central bank’s intervention in the past has. It’s a point policymakers will have to contend with in the years after the crisis: have they conditioned investors to expect the Fed to step in any time there is turmoil?

Hedge fund billionaire Daniel Loeb briefly addressed the issue in his first-quarter letter to investors, where he criticised the Fed for its willingness to buy riskier assets, arguing that investors such as private equity groups, which are notorious for piling debt on companies, would ultimately be the beneficiaries.

“The Fed has created an expectation of a bailout,” said Alex Veroude, chief investment officer at Insight Investment, adding that it, “almost doesn’t matter” what other indicators of debt or leverage show. 

It’s important to remember that the Fed was widely applauded for moving quickly, arguably averting an even greater crisis. But the concern now is whether its assistance has left businesses comatose on the central bank’s life support.

Any tips for warding off the corporate undead?

The Seven Years’ War: Vodafone versus Elliott in Germany

The telecoms group and activist hedge fund have finally settled the terms of a 2013 takeover

Seven years later, Vodafone and Elliott give up the fight

For seven years, European telecoms operator Vodafone and activist hedge fund Elliott Management have duelled in Germany over the terms of a 2013 takeover. On Tuesday, the two sides finally settled hostilities. 

Was this seven-year war worth it?

First, the background. The stand-off centred on Vodafone’s €7.7bn acquisition of Kabel Deutschland, a deal that would help the mobile-focused group move into broader telecoms services and compete with the likes of Deutsche Telekom and Telefónica.

Minority shareholders, including Elliott, which amassed about a 14 per cent stake, argued that the €87 per share offer for Kabel Deutschland undervalued the company. The US fund refused to accept the offer. 

Vodafone was still able to take effective control of Kabel Deutschland by securing 76.8 per cent of shares, thanks to the peculiarities of German takeover law. But it failed to cross the 90 per cent threshold that would have allowed it to squeeze out investors who didn’t back the offer. 

The same German rules also protect minority investors who don’t accept the offer, which Elliott and the other holdouts seized upon. And so began a multiyear lawsuit between Vodafone and Kabel Deutschland investors over whether the acquisition was fairly priced. 

Finally, a German court ruled last year that the Vodafone offer was adequate, but minority shareholders appealed against the decision, triggering a new round of court cases that was set to last for years to come. 

That was until Tuesday. Vodafone has made an offer to pay remaining investors €103 per share, or up to €2.1bn in total. In return, it has received undertakings from investors, including Elliott, which will take Vodafone’s stake in Kabel Deutschland up to 93.8 per cent. 

Vodafone explained the logic of settling with the minorities by saying that, among other things, it reduces the group’s exposure to ongoing legal proceedings. It will also be able to stop paying the holdouts annual dividends of €3.17, something it has done for six years.

That means holdouts accepting the latest Vodafone offer will receive €103 in addition to the €19 they have already received in dividends over the years. That compares favourably to the initial €87 per share offer, even accounting for the duration of the investment. Reuters Breakingviews had a crack at crunching the numbers on the trade. 

The length of the battle does mean that Franck Tuil, an Elliott portfolio manager who was best known for putting on these sorts of trades in Germany, wasn’t around to see the payday arrive for his group. Tuil left the company earlier this year after almost two decades.