August 2, 2020

empowering you with insights and information from the edge of today’s headlines

Finance

Kodak filed for bankruptcy protection in 2012 following its short-sighted moves in dealing with the growth in digital photography. This week the company received a life line from the administration in the form of a $765M collateralized loan to launch Kodak Pharmaceuticals. While we agree with the notion that the US should reduce its dependence on foreign production of ingredients, and we support creating new jobs in an otherwise (literally) bankrupt company, we have some questions.

We are unsure what assets Kodak is actually putting up as collateral against this massive loan. We’d like to know why Kodak (which had made photographic chemicals in the past) was transcripted into pharmaceutical production — a sector in which it had never entered. (Maybe the motivation is to compete with Japan’s Fujifilm who has a thriving pharmaceutical business.) The CEO and several other executives were also awarded massive option packages just days prior to the announcement, making them instant multi-millionaires. Kodak also forgot to embargo the press release around the announcement causing some interesting trades pre-market and pre-announcement.

Kodak’s shares soared by 2000% and became a favorite for Robinhood traders. One of the first drugs Kodak is working on: hydroxychloroquine.

 Airlines make a pivot: While passenger traffic dropped by 96% in April 2020, airlines have been shifting to cargo. Some have even been strapping boxes into empty seats and overhead bins to make up for the loss of passengers. International providers have been partnering with logistics firms to transport medical supplies, and some have even converted their planes to hold more cargo — Lufthansa calls these planes “preighters.” United Airlines saw its total revenue decline by 87% in the quarter ending this June, while cargo revenue was up 36%. Don’t be surprised if that empty middle seat is actually occupied by a box the next time you fly.

Throwing the USPS a life/death line: Last week the US Treasury department agreed to give the USPS an emergency $10B loan in exchange for data on its private sector contracts. The Postal Service contracts are usually protected under confidentiality rules, but the administration will receive the details of its most lucrative contracts with providers such as Amazon, FedEx and UPS. (The USPS usually performs the last mile delivery for these shippers in hard to reach areas.) While this contract should keep the USPS solvent for another year, it also takes it one step closer to privatization or further disruption.

Technology

Last week, the big four tech CEOs sat down on Zoom to face the the US Congress. Luckily, they testified on Wednesday, as they all released on earnings on Thursday. Hard to claim hardship or lack of market power when all four reported better than expected earnings (with a combined revenue of over $205B last quarter) the same week that GDP dropped 33%. Facebook’s ad revenue was hardly dented from the advertiser boycott, and Amazon reported $10B more in sales than expected.

While the US Congress attempted to slap Facebook on the wrist for buying up its competitors, the White House apparently wants to hand them even more market power. Trump has been toying with the idea of banning TikTok, which has pushed many creators to Instagram. He also claims to not want to allow another US company to buy TikTok’s US assets, so talks between Microsoft and the video-sharing platform have stalled. While we are not sure if the potential ban is for privacy violations or because of the failed Tulsa rally or Sarah Cooper’s success, personally we’d fear the wrath of online teenagers.

China Snippets

China and the US have been haggling over trade, the coronavirus, intellectual property and contested waters. While we can’t claim that the US has been acting perfectly or responsibly, China has been up to some antics in quite a few instances.

• Hacking the Vatican: China and the Vatican have been negotiating the Church’s status within the country as the CCP cracks down on religious groups. The two had an agreement as of 2018, but were set to renegotiate this September. A state-sponsored group, however, infiltrated the Vatican’s mission in Hong Kong, and tensions continue to increase following accusations that the Vatican is supporting pro-democracy protesters in the region.

• Endangered species: A fleet of 260 Chinese-flagged fishing vessels has been hanging around the Galapagos Islands. Ecuador has been patrolling their waters, as Chinese ships have been caught red-handed in the past, stealing protected marine species. Ecuador aims to created a regional task force to surveil the waters and protect its eco-system.

• Recycling: Three years ago, China declared that it would no longer accept foreign trash for its huge recycling programs. Many nations had been sending scrap metal and paper to China as a means of recycling. The imported scraps became raw materials for many of China’s industrial manufacturing plants. With the new governmental restrictions, however, many of China’s factories are out of luck when it comes to cheap raw materials, and several have either shut down or are petitioning the government to reclassify scraps.

• Hong Kong trade: Prior to the new national security law, Hong Kong held a unique trading status, and sensitive materials (like semiconductor chips) could be easily exported to Hong Kong from the US. With the imposition of the new laws and fears over potential sanctions, Chinese firms have been shopping, and gobbling up supply through Hong Kong. Re-exports through Hong Kong of computer chips jumped by 21% in June. With the trade war, we’ve seen both imports and exports to China move through a new maze of trading partners, hoping to beat sanctions either through “trade partner laundering” to beat new laws.

• Hong Kong election: Hong Kong has announced a 1-year delay to their elections which were expected in September, due to Covid. Opposition politicians, who have been protesting for the past few years, were also barred from even running in the upcoming elections. And without a note of irony, the White House condemned the move.

• Genetic Surveillance: Beijing is sending medical professionals to Hong Kong for mass DNA testing. The government has not stated whether this is related to Covid or overall surveillance.

Strange but True

Grab some swag: Feeling like you missed your chance to attend a music festival on a remote, Caribbean island? Having fun endlessly scrolling e-commerce sites looking for more cozy clothes to buy? Why not do both? The US Marshals are selling swag from the fraudulent Fyre Festival, including t-shirts, caps and hoodies. The auction starts this week, and bids begin at $10. (The 2017 Fyre Festival was supposed to be a luxury music festival, but went down in flames due to colossally poor planning. Watch the Netflix documentary for a great take.) The proceeds of the sales of the confiscated goods will go to paying back the defrauded investors.

However, if you want to buy some strange swag, but support a different arm of the US government (that is in dire straights), you can also purchase US Postal Service gifts (our favorite is the US mail carrier dog costume, but we are partial to dogs and Halloween).

Space Movie: We are huge supporters of space exploration and space travel (as you may have noticed). But even we were shocked to learn that Tom Cruise, his Mission Impossible director and Universal Studios have partnered up with SpaceX to film a movie in space; yes, actual outer space. If you’ve ever seen pictures of the International Space Station, the views are amazing, but the interior seems a little tight for a movie crew. While the script has yet to be written, Universal committed $200M to produce the film. Cruise is already back shooting Mission Impossible 7, and we know that he insists on doing most of his own stunts (he even had to get special permission from the Navy for a flying scene in the Top Gun sequel). We hope the film is not just an excuse for Cruise to be a space tourist, but we’ll happily pay to watch Maverick pilot his own rocket.

Feeling the need to Scream: Iceland has a new tourism campaign: Let It Out. You can record your screams and send them to the vast open spaces of Iceland. The website will even walk you through the best technique to achieve Scream Therapy. We prefer Iceland’s method to that of Japan (who kindly request that you “scream inside your heart” while attending amusement parks so as not to spread Covid).

Space Force: One last piece of Space trivia. The US Space Force has inspired a lot of humorous pushback: when its logo was unveiled, there were a lot of comparisons to Star Trek; when its uniforms were revealed, many questioned why astronauts would need camouflage. But this one takes the cake (or the carrot): the US Space Force has its own horse, named Ghost. Ghost, however, will not be flying or used for animal testing. The Space Force trains at Vandenberg Air Force, which is located in California and contains both hills and beaches, so Ghost and his teammates patrol the base enforcing mostly fish and wildlife regulations. Personally, we’d like to see Ghost on a space walk carrying Tom Cruise, but that is a script for another story.

— Lauren Eve Cantor

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