TheChek News Flow

Barrons weekend summary: positive feature on CVS, LH, TDOC

Germany is tightening rules to make it harder for non-European companies to buy stakes in German firms without its approval, signaling growing concern in Berlin about China’s push to acquire key technology and know-how.

China’s aggressive plans to purchase assets around the world has forced a series of countries to take steps to screen the investments, many times blocking them. The European Union has recently agreed to establish a common framework to tackle the issue. In the U.S., Congress has moved to strengthen the vetting procedures for transactions involving homegrown technology.

Despite that, U.S. national security officials have warned Beijing continues to exploit U.S. technology to develop its own economy, heightening tension between the two countries currently spatting over trade.

In Germany, growing concerns are forcing the government to tighten acquisition rules set only a year ago.

Germany’s cabinet is set to approve Wednesday rules stating that any non-European foreign company planning to buy more than 10% of a German company involved in defense, technology or media will see its deal probed by German authorities, according to people familiar with the plan.

Since 2017, the threshold has been 25%, which has applied to strategically important companies if the investment puts public order or safety at risk.

Germany hasn’t directly mentioned China as the target of the regulations, but it recently blocked two deals by the Asian powerhouse. In one case, it had to involve its state-owned bank since the stake in question was below the 25% threshold that would give the government blocking power.

In July, Germany’s KfW bank acquired a 20% stake in German transmission system operator 50Hertz Transmission GmbH’s holding company to fend off efforts by State Grid Corporation of China. It cited “national security grounds” for the move.

It has also blocked the sale of machine-tool company Leifeld Metal Spinning AG to a Chinese investor saying it risked “public order and safety.”

Other European countries have also prevented Chinese purchases this year. In February, the French government halted the sale of Toulouse airport to a Chinese consortium.

Chinese officials have called on the EU not to discriminate against foreign investments and uphold global rules. But EU officials say China itself fails to open its own market for foreigners.

As part of its efforts to ease tensions with the U.S., China is preparing a new program that would give foreign companies more access to the Chinese market. Its extent and effectiveness, however, is still unclear.

The once rising star now poses one of the greatest threats to the bank in its history after pleading guilty to fraud

When Goldman Sachs partners — past and present — met to celebrate its 150th birthday this month, the mood was subdued. The crowd of 370 included famous Goldman alumni such as former US Treasury secretary Hank Paulson, one-time New Jersey governor Jon Corzine and the ex-Trump adviser Gary Cohn, all of whom turned out to mark the end of Lloyd Blankfein’s 12 years as chief executive of the bank.

But there was a notable absentee. Tim Leissner, once a star banker who brought in tens of millions of dollars in revenue at his peak, was not among the guests as they sipped their drinks in the Conrad hotel near Goldman’s Manhattan headquarters. Once praised by executives as an example to emulate, Mr Leissner has become a pariah inside the bank, after pleading guilty to bribery, conspiracy and money laundering charges in connection with a vast fraud at Malaysia’s state development fund.

He now poses one of the biggest-ever threats to Goldman’s reputation.

Roy Smith, a former partner and now a professor at New York University, says the fraud at 1Malaysia Development Berhad, or 1MDB, ranks among the biggest crises the bank has faced. “It could conceivably have a much larger price tag on it [than other scandals] because these things escalate over time,” he says.

It is not the first time the bank has been embroiled in crisis. In the 1990s, it faced widespread criticism for its role in the collapse of Robert Maxwell’s media empire. And in 2010 it was fined $500m— then a record for Wall Street — for misleading investors over Abacus, a mortgage-backed security that it sold in the run-up to the financial crash.

But as the full scale of the Malaysian scandal has become apparent, Goldman is under increasing scrutiny over its role in underwriting $6.5bn of bond offerings for 1MDB in 2012 and 2013, a service for which it reaped a hefty $600m in fees and trading gains. After the money was raised, $2.7bn was allegedly siphoned off by the Malaysian financier Jho Low, who is accused of masterminding the fraud, to pay for a lavish lifestyle and to bribe Malaysian officials. The cash allegedly ended up in Van Gogh paintings, Beverly Hills mansions and even financed the Wolf of Wall Street movie — itself a tale of financial excess.

Current and former partners express incomprehension that the firm has been plunged into such a huge crisis by three deals in an obscure market. Questions are being asked openly about who knew what about Mr Leissner’s operations and why Goldman’s extensive compliance operation failed to prevent it.

The bank has attempted to distance itself from the alleged fraud, but those efforts were dealt a severe blow in November when as part of his guilty plea Mr Leissner said that concealing things from compliance staff was “very much in line” with the culture of the bank. Mr Leissner and his lawyers did not respond to a request for comment.

His former deputy, Roger Ng, has also been charged in the US, as has Mr Low. Mr Ng, who is fighting a US extradition request, also faces charges in Malaysia which he has denied. Najib Razak, Malaysia’s former prime minister, is accused of receiving $681m of the funds in his bank account and is facing almost 40 separate charges of fraud, corruption, money laundering and “criminal breach of trust”, which he denies.

As the scandal has gathered pace, investors have dumped shares in Goldman, wiping more than $8.5bn off its market value in the past month. The bank is now under investigation by the US Department of Justice and faces a messy lawsuit brought by Abu Dhabi, which was a guarantor of two of the bonds . Malaysia’s attorney-general hasfiled criminal charges against Goldman, Mr Leissner and Mr Ng seeking fines of more than $3bn. The country’s finance minister on Friday said that the bill to Goldman should be closer to $7.5bn .

US federal prosecutors investigating the 1MDB case identified the environment at Goldman’s Asian operation as a factor in the fraud. “[The] business culture . . . was highly focused on consummating deals, at times prioritising this goal ahead of the proper operation of its compliance functions,” the DoJ wrote in criminal charges against Mr Low.

Chris Kotowski, an analyst at the investment bank Oppenheimer, describes the fraud as “shocking in scale and audacity”. But he also asks how it could have happened “between 2012 and 2014, when banks were paying tens of billions of crisis-related penalties and should have been on high alert. It obviously reflects poorly on Goldman . . . reputationally it is a disaster.”

Goldman has insisted it had no knowledge that Mr Leissner was party to the alleged conspiracy to misappropriate 40 per cent of the proceeds from the bond offerings, or that Mr Low was acting as a middle man to grease the wheels of the deal. But those claims have been undermined in recent weeks by the revelation that Mr Blankfein met Mr Low on two occasions in 2009 and 2012.

This was despite a decision by Goldman’s private bank in 2010 to reject Mr Low as a client because they could not “validate the source of his wealth”.

Mr Low, whose whereabouts remain unknown, has maintained his innocence. In a statement responding to the US indictment, a spokesperson said the 1MDB bond offerings were “undertaken openly and lawfully between experienced, well-regulated financial institutions and government entities”.

The bond offerings were always controversial, due to the high amount Goldman earned from the fundraising and the fact that it acted as a sole bookrunner on such a large deal. The long-term damage to Goldman’s franchise is hard to quantify. Executives say that so far it has been limited to Singapore and Malaysia. But the head of a rival investment bank argues that Goldman “won’t be as aggressive and as cute as it used to be . . . it will lose its edge”.

Analysts suggest that if the allegations are proved the bank could face fines of as much as $2.5bn over the scandal. Malaysia had already asked the bank to repay the $600m it earned from the deal even before the attorney-general called for the $3bn fine. The size of any penalty will depend in part on whether the bank’s lawyers can convince prosecutors that Mr Leissner was a rogue employee, rather than the product of an organisation where the deal mattered above all else.

The scandal could also raise uncomfortable questions about the oversight by some Goldman executives of its Asia operations. Dan Dees, the bank’s co-head of investment banking globally, was a senior executive in the region and Mr Leissner’s boss when all three 1MDB deals were completed. Stephen Scherr, Goldman’s recently-appointed chief financial officer, was global head of the bank’s financing group in New York from 2008 to 2014.

After trawling through emails and documents the bank found no wrongdoing by any employees beyond Mr Leissner and Mr Ng, according to a person familiar with the internal investigation.

The story of how Goldman ended up at the centre of such an outlandish fraud can be traced back 20 years to when the bank hired Mr Leissner, a new vice-president with a CV that boasted stints at JPMorgan and Lehman Brothers. Colleagues recall a bright, energetic banker, firmly rooted in his middle-class upbringing in Germany, where his father had a senior job at Volkswagen.

As he worked his way up through the ranks, he gravitated towards Malaysia. In 2006, he advised MMC Corporation, a conglomerate, on one of the country’s biggest-ever takeovers, a deal that became his calling card in the region.

But as his reputation grew, other financiers started to question his modus operandi. One rival recalls working with Goldman as a joint bookrunner on the initial public offering of a large Malaysian company. After the orders were placed, Mr Leissner tried to falsely claim credit for business that other banks had won. “I challenged him, but he still swore blind that he’d brought [the order] in,” the rival said.

Former colleagues say they became wary of Mr Leissner after he gained a reputation as a womaniser, despite being married to a Goldman co-worker.

Many took the view that this conduct was a personal matter, but others were unnerved that the relationships often appeared to have a business link. In one instance, Mr Leissner was accused of having an affair with an executive at a Malaysian company the bank was advising. When confronted about the potential conflict of interest he denied the liaison, according to people familiar with the matter.

He also had a brief affair with Anis Jamaludin, the daughter of a powerful Malaysian politician, Tan Sri Jamaluddin Jarjis, who died in a helicopter crash in 2015. Mr Leissner arranged an internship for her at Goldman in 2010, despite unease among some of his colleagues.

Ms Jamaludin has since told friends that she believes Mr Leissner instigated the relationship to curry favour with Malaysia’s political elite. “She feels rotten that the only reason he showed interest was to get close to her father,” says one friend. In 2013, he married Kimora Lee Simmons, the American model and designer, earning the pair appearances in the tabloid press.

Mr Leissner arrived at Goldman Sachs’ Asian unit in 1998, a year that has gone down in company legend after a raucous off-site meeting at the Dusit Thani, a luxury hotel in Phuket, Thailand. After a day of PowerPoint presentations, a group of bankers decamped to the poolside bar. As the night drew on, the merriment tipped into impropriety after some male partners went skinny dipping with junior female colleagues.

A handful of scandalised attendees complained to head office in New York. After Mr Paulson, then a senior Goldman executive, found out about the incident, he was furious, according to people who recalled the episode. The banker who was held responsible was disciplined but kept his job.

It is unclear whether the guest list included Mr Leissner. But several former employees say the episode was illustrative of the freewheeling environment at the bank’s Asian operation.

Some recounted other instances of misconduct. One former banker says that in the late 1990s, a superior handed him a “wad of cash” and told him to give it to reporters in Indonesia to secure positive press coverage for a client. Several others say Mr Leissner and some of his colleagues would entertain clients at disreputable bars, where they would be served by semi-naked waitresses.

After the Phuket incident, a contingent of senior American bankers — known internally as “culture carriers” — were dispatched to instil a more buttoned-up way of doing business in the region. “After that, there were no more parties in exotic locations,” recalls one former employee. “All we got were interminable lectures about money laundering and compliance.”

Mr Leissner rose swiftly at Goldman. By 2002 he was made a managing director in the region and in 2006 he joined the elite group of 500 or so partners. The elevation earned him one of the highest pay packets at the bank, ranging from $5m to $7m a year in his prime. “If you get promoted that fast, as a participating partner the pressure is very high . . . you need to keep performing at that level,” says one contemporary.

Another former colleague recalls how Mr Leissner’s star soared after the 2008 crash. “Post-financial crisis, most of the guys that were considered rainmakers . . . didn’t really exist any more,” he says. “They didn’t have the deep set of client relationships to really make things happen like Tim did.”

This person argues that Mr Leissner’s status as someone who “brought in a lot of business” earned him a “certain amount of latitude” in his dealings with clients, and could have earned him less scrutiny over 1MDB. Two of Mr Leissner’s former managers deny the claim and say he faced the same hurdles to get his deals through as any other banker.

One former partner says he believes Mr Leissner “will [try to] take down as many senior people as he can” because he is embittered at being portrayed as a “rogue banker” when Goldman’s extensive procedures and compliance committees signed off on the transactions.

But a key part of Goldman’s defence against allegations of institutional failure will be that there were no “red flags” to mark the banker out as risky before the 1MDB case was uncovered.

Goldman will insist to the DoJ that its compliance practices were strong, an assertion supported by several rival bankers in Asia at the time. “Sometimes they were overly conservative,” says one, although that begs the question of why the alleged fraud went unnoticed.

Mr Blankfein did not mention the 1MDB scandal to the assembled partners at the Conrad hotel party. But David Solomon , his successor as chief executive, did. He told former partners who had seen almost 34 per cent wiped off the value of their shares this year that one person “who was intent upon it” could do a lot of damage. “We will learn from this experience,” he added.

One idea is to here in the United States:charge producers for the CO2 they emit, then pay the cash to citizens

We stand on the threshold of a once-in-a-century change in a market sector worth $10tn annually, or more than 10 per cent of global gross domestic product. And as the French street protests of recent weeks have shown, this shift will impact everyone and shape the economy, the environment, international security and 21st century geopolitics.

We are, of course, talking about energy. The icons of modernity — from high-speed mobility via planes, trains and automobiles, lighting and air conditioning, modern medical devices and smartphones — all are fuelled by access to affordable and reliable power.

Three paradigm shifts are already shaking up the global energy landscape: the expansion of the natural gas supply due to fracking of shale formations; the electrification of transportation via lithium-ion batteries; and carbon-free electricity generation from wind and solar.

All three are economically competitive today because they have benefited from decades of research and development. With room for further cost reductions, they are also becoming disruptive, undermining the value of trillions of dollars invested in traditional assets, such as coal and even clean nuclear plants. And, if used judiciously, all three could significantly reduce greenhouse gas emissions.

Despite the progress, fossil fuels still comprise 80 per cent of global energy use. The science is clear that this is causing global warming. Since the beginning of the industrial revolution, the global average temperature rise is slightly more than 1C. But averages are misleading. The true impact on human lives is manifested in the moments and places where the impact has been extreme: heatwaves, droughts and excessive rainfall. It is not a question of if, but when this will reach our neighbourhoods, causing flooding, forest fires and air pollution that threaten our wellbeing.

If 1C has done so much, imagine the impact of a rise double that size. To stay below 2C, we can emit only about 800bn more tonnes of carbon dioxide. The global annual emission rate is roughly 40bn, leaving us just 20 years. Thereafter, emissions must total zero. What can be done?

First we need research and development to create cost-effective low-carbon solutions. These could include electricity storage that is much cheaper than present day batteries; small modular nuclear reactors that are competitive because they cost half as much as today’s reactors; refrigeration and air conditioning that do not cause global warning; zero net energy buildings that are no more expensive than ordinary construction; cutting the carbon impact of both agriculture and the production of steel, concrete and chemicals.

We also must capture carbon dioxide emissions and sequester them deep underground or use them to make plastics or even fuels.

The R&D that produced the three energy game-changers of today makes us optimistic that we can grasp these enormous opportunities. The response to the French gilets jaunes protests against fuel duty increases (and similar movements elsewhere) should be clear.

Most people will support an energy transition if society produces attractive and affordable technological options so that citizens are not economically damaged in the process.

Stanford University recently gathered leaders from energy businesses, academia, government and non-profit organisations to discuss how to find those kinds of solutions. They concluded that research is necessary but not sufficient. We have a billion tonne-scale problem, and we are seeking affordable billion tonne-scale solutions. That requires trillions of dollars in investment, which in turn depends on long-term, predictable policy signals from governments.

One idea that is gaining traction in the US is to charge energy producers $40 per tonne of carbon dioxide emitted. Such a fee would prompt companies to invest in low-carbon technologies and raise about $200bn annually at current emission rates.

But it would also increase energy prices, so we cannot stop there. Instead, we should return that $200bn as a transparent carbon dividend so that every US citizen would receive a $600 cheque every year, or $50 per month — reducing their costs. A household could potentially earn about $200 per month. Those who are generally more frugal could actually come out ahead.

The combination of R&D investment and reliable government policies would go a long way to inspiring innovation centres all over the world, much as early US government support seeded Silicon Valley. World business leaders and the heads of the G20 largest economies must seize this opportunity for responsible growth. Time is running out.

Word to the wise: Don’t catch a falling knife when profits are still tanking.

The market often extrapolates the recent past and pays higher valuations when growth rates are accelerating. But the reverse is also true; earnings multiples contract as forecasts are falling.

That has become a big problem for chip stocks and the technology sector broadly as companies brace for a downturn. Last week brought new worries, including Micron Technology ’s (ticker: MU) downbeat forecast and a worrisome new tech spending survey from Goldman Sachs.

In its report released on Tuesday, Goldman concluded, “Spending intentions weaken significantly.” Goldman’s information-technology spending index, which measures purchase intent of 100 corporate technology buyers, fell to 66.5 in December from 80 in June. It’s the lowest reading in four years, according to the firm.

Budget plans for hardware and networking equipment were especially subpar, as nearly 40% of the chief information officer respondents said that server spending will fall over the next year. That’s bad news for chip and technology vendors, who have been benefiting from a surge in server spending.

Hours after Goldman’s report came out, Micron seemed to confirm the findings. The company issued earnings guidance for the February quarter nearly 30% below what Wall Street had been expecting and said business trends are worsening. Micron is the second-largest maker of the memory chips found in almost all computing devices.

“Since the start of this fiscal second quarter, the weakening demand trend has continued and our near-term visibility is limited,” Micron CEO Sanjay Mehrotra said on the company’s earnings call.

Micron said inventory issues in the data-center and graphics-card markets could last for two quarters, and smartphone industry demand was deteriorating, particularly at the high end.

Perhaps the best signal that Micron is serious about a downturn is its reduction in spending on chip-making equipment. The company lowered its fiscal-2019 capital-expenditure guidance by $1.25 billion, to a range of $9 billion to $9.5 billion.

The outlook from Micron drove some to believe that the semiconductor downturn may be far from over.

“Weakness in demand will last multiple quarters,” Susquehanna chip analyst Mehdi Hosseini told Barron’s in a phone interview on Thursday. “We are hoping—emphasize the word hoping—for a rebound in the second half of 2019.”

All bets are off, Hosseini warned, if the global economy enters a recession.

In October, this column warned that a series of sluggish semiconductor reports foreshadowed weakness for the stock market and the economy, using guidance from a few veteran investors. Their predictions proved prescient. Since then, the Nasdaq Composite index has fallen by 12%, and the S&P 500 is off by 9%.

With last week’s latest developments, I checked in with the same experts to get their views on what’s next.

Fred Hickey, editor of High Tech Strategist and a bearish voice in my October column, is now more convinced that the global economy will fade.

“The chip downturn is still in its early stages,” he wrote in an email last week. “The global economy is heading into a recession, likely to begin in 2019.”

Though Hickey said the chip sector could temporarily rally because of oversold technical conditions, he added that semiconductor stocks would fall again.

In similar fashion, Morgan Creek Capital’s founder and chief investment officer, Mark Yusko, is increasingly negative on the global economy and doubts there will be a snapback in the chip business anytime soon.

“The broad-based weakness in the semiconductor sector is a huge warning sign that global economic growth is slowing,” he wrote to Barron’s in an email. “There likely needs to be some meaningful contraction of production capacity to bring semiconductor markets back into equilibrium, and this will take time, so it is likely we will see continued pain in this sector over the next few quarters.”

Outside of the tech world, there are other indications that the global slowdown may have already begun.

FedEx (FDX) stock plunged 12% on Wednesday, a day after it significantly lowered its earnings guidance and pointed to deterioration in both Europe and Asia.

Most likely, the technology sector is only a couple of months into a downturn that could last multiple quarters. So how can investors find the positive inflection point when it comes?

First, pay little heed to those on Wall Street who focus on stale numbers of past financial performance, which is like looking in the rearview mirror instead of through the windshield.

For example, the earnings-per-share consensus for Micron’s current quarter peaked during the summer at $2.93 before falling to $2.39, heading into this week’s earnings report. That was still way off from the $1.75 implied by Micron’s latest guidance. Not very helpful.

Instead, investors should focus on product pricing to time the eventual upturn. That’s a better look at real-time demand. Before companies like Nvidia (NVDA) and Micron stunned Wall Street with disappointing forecasts, prices for their graphics cards and memory chips at major electronics retailers were plummeting. Those price points are still falling on a daily basis.

Before heading back into tech, investors would be wise to wait on a rebound in that pricing. We’ll be watching the numbers for you.

Two European tobacco stocks, British American Tobacco , makers of Lucky Strike, Kool, and Newport cigarettes, and Philip Morris Internationa l, best known for its Marlboro brand, offer some stability for whipsawed investors.

After being beaten up for most of this year, the shares of both British American (ticker: BTI) and Philip Morris (PM) are substantially undervalued, generally less volatile than the overall market, and yield huge dividends.

“We believe that the most recent pullback in [British American] is excessive, and the current share price offers risk-tolerant investors a favorable entry point,” says a recent analysis from Argus Research, which sees the price potentially hitting $60, up more than 87% from $32.04 recently. The share price drop was triggered in part by a possible ban of menthol cigarettes and flavored electronic cigarettes in the U.S.

Shares of Swiss-based Philip Morris (PM) were similarly bashed, at least partially on recent worries over the company’s loss of market share in e-cigarettes. Still, research firm CFRA sees the stock potentially hitting $92 over the next year, up 33% from a recent $69.

This year has been bad for British American and Philip Morris investors. Year to date, the stocks shed more than 50% and 30%, respectively. That compares with 8% for the S&P 500 over the same period. All figures exclude dividends. Yet that plunge makes them inexpensive. British American trades at a forward price/earnings ratio of 8.1, versus 16.2 in 2017, while Philip Morris trades at 13.1, versus 20 last year, according to Morningstar. The companies are projected to have dividend yields of 8.5% and 6.6%, respectively.

Their appeal goes beyond low valuation. Both have betas less than one, which means their stock prices typically move less than the overall market. Despite the recent downdraft in prices, Philip Morris’s beta is close to zero, while British American’s is 0.7. That lack of correlation with the broader market helps reduce the overall risk within a portfolio.

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Both companies are consistently profitable, well managed, and shareholder focused. Gross margins at British American have remained above 70% consistently over the last reported decade, while Philip Morris carved out gross profits above 60% over the same period. That compares with 35% on-average over the last year for the S&P 500, according to the latest data from CSI Market. “We expect to exceed our high single-figure adjusted-diluted earnings-per-share growth at constant rates of exchange,” British American CEO Nicandro Durante said earlier this month. In other words, expect EPS to grow between 5% and 9.9% when adjusted for currency movements.

British American and Philip Morris are both heavily engaged in new technology initiatives. The former says it is “on track” to hit 900 million pounds ($1.1 billion) in revenue this year from tobacco-heated products and its Vapour e-cigarette. Philip Morris says it is “committed to transform its business and encourage all men and women who would otherwise continue smoking to replace cigarettes with better alternatives as soon as possible.”

The health risks of smoking, as well as efforts by governments around the world to curb the practice, present challenges to both companies. The efforts to introduce heated tobacco or so-called vaping products may not offset falling cigarette sales. Plus, the brands, which remain powerful, may not appeal to younger consumers as much as they did in the past. That said, these low valuations, high dividends, and fat profit margins make these firms worth a bet.

Weekend Papers Summary

* NY TIMES (Saturday): The U.S. government shut down on Saturday for the third time in two years of unified Republican rule in Washington, and it will stop work at nine federal departments and several agencies, affecting hundreds of thousands of employees; With the departure of Defense secretary James Mattis, Donald Trump will likely assemble a team of advisors who will not tell him what he cannot do, and will embrace his “America first” doctrine; related story says Trump’s disregard for friendly nations in Europe and Asia could fundamentally diminish America’s global clout; The Supreme Court refused to allow the Trump administration to immediately enforce a new policy of denying asylum to immigrants who illegally cross the Mexican border; “Technology companies are dragging stocks into an ominous territory that the market hasn’t seen in nearly a decade: a severe decline known as a bear market”; + AMZN: Story says the company’s dominance in e-commerce is never more pronounced than in the weeks before Christmas, where its obsession with getting goods to customers on time sets it apart from rivals; (Sunday): The government shutdown is set to continue for days, with the Senate adjourning until next Thursday and Democrats saying they won’t accede to Donald Trump’s demand for $5B for a border wall; related story says that “At the midpoint of his term, the president has grown more sure of his own judgment and more isolated from anyone else’s than at any point since he took office”; Sunday Business: Lead story reports on Epic Systems, a healthcare services provider with $2.7B in annual revenue, “one of the nation’s biggest tech companies, and almost certainly the quirkiest.”

* WSJ (Weekend): “Technology and other fast-growing companies tumbled, extending a painful stock-market rout that shaved about 400 points off the Dow industrials Friday and pulled the Nasdaq Composite into bear-market territory”; Climate change is changing the fishing industry as warmer water temperatures drive the catch northward, forcing crews to retool boats and rework their businesses; This U.S. economy had a mixed year: consumer confidence was high and households spent robustly, but manufacturers pulled back amid shifts in the global economy; A Russian operation that allegedly sought to influence Americans through social media also sought to persuade business owners to buy into a marketing campaign and turn over private information; The presidential primary field could be the largest in more than 40 years as several Democrats, some more known than others, consider potential bids for the White House; Aid organizations are warning that Trump’s decision to withdraw troops from Syria could put humanitarian relief for about 1.6 million people at risk; Flights resumed at Gatwick airport on Friday after a shutdown because of drone sightings, which caused a full-day closure of the crucial air hub on Thursday; “China will boost efforts to arrest an economic downturn while easing off its push to restrain debt, in a shift that could help Beijing withstand short-term shocks from the trade conflict with Washington, but add to longer-term risks”; + GS: Chief David Solomon issued a strong defense of the firm, which is facing strong criticism for its role in the Malaysian 1MDB scandal, and said its culture of compliance remains strong; Intelligent Investor column profiles Paul Samuelson, the “godfather of the index fund,” who believed that beating the market is hard, but not impossible; + DAL, UAL, AAL: Among airlines changing their boarding processes as demand for overhead baggage space increases, offering early boarding for high-paying fares and frequent fliers, or charging regular fliers extra for it; + PSA, CUBE, LSI, EXR: Shares of the four largest self-storage owners have quadrupled or better since bottoming out in 2009, but investors worry the industry has attracted so much investment that space may be outpacing consumer demand; H.O.T.S.: ULTA’s superior business model and celebrity cosmetics line should help it thrive amid changing consumer tastes; Saudi Arabia is adding to output cuts announced at the recent OPEC meeting with the publication of a specific oil quota; CPB should have delayed hiring former Pinnacle Foods chief Mark Clouse after criticism from CAG, which acquired the brand earlier this year.

* FT (Weekend): The Malaysian government said GS should pay $7.5B in reparations related to its business with the scandal-plagued 1MDB sovereign investment fund, a sum that goes far beyond bond fees and insurance volumes; China denied U.S. and British allegations that it has been involved in the theft of western commercial secrets through a state-run cybercrime enterprise, and demanded a stop to such “slander”; Belgium faces months of minority government after the country’s king accepted the resignation of prime minister Charles Michel, who will remain in “caretaker” capacity; Investors have been piling into computer-driven hedge funds in recent years, seeking to leverage big data and artificial intelligence, but events in 2018 have tested their resolve; Lex Column: The shutdown of London’s Gatwick airport by drones highlights a moral flaw intrinsic to the devices: their pilots can endanger lives without risking their own; Regardless of what GS ends up paying in the 1MDB scandal, the final costs will be heavy; Network advantage is the key ingredient in the tie-up between Takeaway.com and Delivery Hero, which are combining German operations; Comment: Chinese president Xi Jinping has created a cult-like atmosphere around himself, undermining the reforms made by his predecessor Deng Xiaoping, who laid the groundwork for modern China, says Gideon Rachman, p. 9.

* NY POST (Saturday): Supreme Court justice Ruth Bader Ginsberg had surgery Friday to remove two malignant growths from a lung, her third bout with cancer since 1993; +/- GS: In a private memo to staff, chief David Solomon told employees not to believe everything they read about the 1MDB affair, and defended the bank’s policies; + MDP: Publishing giant finalized the $150M sale of Fortune magazine, which it owned following its acquisition of Time Inc., to Thai business tycoon Chatchaval Jiaravanon; (Sunday): New York state has some of the highest cellphone taxes in the nation, with a typical household with four phones paying $100 per month for taxable wireless services.