Russian Meddling in the 2018 Midterm Elections

News about Russian meddling in the 2016 presidential elections is now common knowledge, however, the actors remain obscure. The Internet Research Agency (IRA) was first known for spreading propaganda online, including Twitter, to give the illusion of a robust pro-Kremlin supporter base. The people working for this agency are essentially internet trolls, whose job consists of spreading false information and amplifying favored narratives, such as anti-Obama sentiment. The IRA began focusing on U.S. politics through fake social media accounts in 2014 to further deepen the division between the opposing parties, which reached at least 146 million people according to Facebook.

On the eve of the 2018 U.S. midterm elections, Facebook removed 115 accounts, between Facebook and Instagram, because of a tip from U.S. enforcement stating that the accounts were possibly linked to foreign entities, like the IRA. Days later, a site alleging to represent the IRA claimed it ran the network of fake accounts attempting to meddle in the elections. This revelation highlighted a foreign actor’s continued eagerness to shape U.S. politics through social media, likely fueled by similar success in the 2016 election. Appropriately, Facebook’s head of cybersecurity policy, Nathaniel Gleicher, stated, “this is a timely reminder that these bad actors won’t give up.”

While the recent revelations of midterm meddling are unsettling, this does not mean there weren’t security improvements since 2016 directed at combating such troll accounts. Since 2016, Facebook has made conserving the integrity of elections around the world a top priority. Its campus in Menlo Park, California set up a “war room” to monitor election manipulation tactics, including disinformation, voter suppression, and other security challenges. Facebook has also hired more people and improved its automated systems that monitor posts and tightened its rules on who can purchase political ads.

While it is necessary and crucial that agencies like Facebook, the platform used by such foreign actors, increase their security measures to prevent the spread of false toxic narratives, it is equally important that users of social media, and the internet at large, be attentive. As social media users and consumers of broader internet messaging, we need to remain vigilant about what we consume and, more so, what we accept as truth. Steps to become more mindful in our engagements with the internet are simple: always source check, consider underlying reasons for the post, look into the author, carefully examine the article, etc. This implores all of us to be critical consumers of information and make decisions for ourselves as opposed to following the recommendations that seem initially reliable.

Russian Meddling in the 2018 Midterm Elections

Goldman Sachs Frying the Smaller Fish

Goldman Sachs, one of the dominant players in mega-M&A deals, recently hosted a dinner over the summer with executives of approximately twenty private equity firms. Rather than wooing buyout industry titans that the bank normally advises, such as The Blackstone Group or KKR & Co. Inc., Goldman Sachs invited firms that focus on middle market transactions. These acquisitions range from $500 million to $3 billion in size, a far cry from the goliath deals that Goldman Sachs has used to cement its investment banking empire.

Spearheaded by John Waldron, its COO, mangers of the investment banking division review clientele to identify neglected industries that the bank can fan out to encompass. The executives seek to hire senior bankers in industries where the firm lacks a presence, extending regional offices to exert a bigger impact on local businesses. Initial inquiries reveal that Goldman Sachs has lists with about 10-15% more companies on them than those currently on the bank’s roster.

The initiative is part of a targeted strategy to drum up additional clients and business. The bank plans to offer middle market companies a host of services: raising finance, selling stock to the public, or helping the companies sell themselves to larger competitors. The action in this segment of the market is rising, as smaller companies form an ever-larger portion of takeover targets. Goldman Sachs has noticed the trend, facilitating 187 deals this year, with 47% worth $1 billion or less, up from 39% the previous year.

Part of the change in strategy comes with the new change in power structure within the firm. Goldman Sachs’ new CEO, David Solomon, hopes to remove the bank’s reliance on volatile trading revenue. Goldman Sachs aims to hit a projected $5 billion in revenue by 2020.

This is revealing of a bigger trend within the industry. While revenue and trading took a dive after the financial crisis of 2008, both are now actively growing. 2018 has been one of the most active years in terms of hiring among senior ranks. The power structure was revamped not only at Goldman Sachs, but in a number of other high-ranking bulge-bracket banks, including Bank of America, Merrill Lynch, Citigroup, and the like. Additionally, global M&A activities have reached a new high. Amidst the flurry of transactions, the middle market now looks ripe for increased activity.

Goldman Sachs Frying the Smaller Fish

Uber Seeks Permission to Relaunch Self-Driving Tests in Pennsylvania

Uber has asked Pennsylvania regulators for permission to resume testing of its self-driving cars, the company announced November 2. Uber’s self-driving car ambitions were seemingly dashed when one of its test vehicles crashed in Tempe, Arizona this March, tragically killing a pedestrian. There have been concerns about the driver, who may have been watching The Voice while driving and may face charges. The crash put the spotlight on Uber’s software, however, as it recognized the pedestrian but failed to react in time. Uber ended self-driving tests in Arizona after the governor banned them and temporarily suspended all testing on public roads pending an NTSB investigation, including terminating its operations in Pittsburgh. Ever since Uber and Carnegie Mellon announced a partnership—to some criticism—Pennsylvania had been ground zero for its self-driving efforts.

Testing on public roads is critical for self-driving cars. Self-driving cars are machine learning technologies, meaning that they teach themselves from data, so increasing miles driven on public roads is paramount—according to one RAND study, possibly 8 billion miles of real-world testing are needed. Uber’s autonomous vehicles division has a long history of technological struggle, and is widely reported to be far behind its peers with only 13 miles per intervention—lower than its peers by a factor of 100. Overall, though, most crashes in self-driving tests are caused by humans; Google famously went without a crash for years. Human error is a contributing factor in over 90% of traffic deaths, leading some to calculate that self-driving cars could save 300,000 lives per decade. With Waymo and Tesla leading in miles logged, Uber is hardly ahead of Cruise.

Regulations are key for testing. Testing on public roads requires state approval from individual Departments for Motor Vehicles, and all self-driving cars interact with several federal regulators via the Department of Transportation. The government has produced several voluntary guidelines, including the DOT’s Automated Vehicles 3.0 guidelines. U.S. Secretary of Transportation Elaine Chao has directed the NHTSA to consider permitting cars without steering wheels. California and Arizona are the main testing grounds for autonomous vehicles, and there has been a regulatory race to permit self-driving tests, with both states recently announcing that fully self-driving cars will be permitted on their roads. Some other states, like Florida, have also been aggressively permissive; others, like New York, just recently permitted drivers to take their hands off the wheel while self-parking, which has been commercially available since 2003. States also compete on disclosures, with California requiring a safety disclosure and Arizona requiring none at all. Uber will likely be under close scrutiny as it cautiously restarts its efforts.

Former CEO Travis Kalanick called self-driving “existential” for Uber, as labor is the company’s most significant cost. Though the NHTSA Tempe report is expected early next year, Pittsburgh’s regulators expressed confidence in Uber’s new controls. Uber’s first self-driving car was a Volvo XC90, launched in 2016 in Pittsburgh.

Uber Seeks Permission to Relaunch Self-Driving Tests in Pennsylvania

Good News is Good News for Berkshire Hathaway Shareholders

Following a great year for Berkshire Hathaway, the investment conglomerate bought back nearly $1 billion of its own stock in the third quarter of this year. Previously a critic of share repurchases, Chairman Warren Buffett and his board removed limits at a board meeting in July that prohibited share repurchases — opening the door for a big boost to shareholder earnings.

Over the past year, Berkshire Hathaway’s net income jumped from $4.1 to $18.5 billion. Available cash followed suit, soaring from $25.5 billion to $36.5 billion at the end of September. Shares are up more than 4%. Apple, the most valuable stock Berkshire owns (an investment totaling $57.6 billion), naturally played a big part in Berkshire’s portfolio earnings. Cash flow from Duracell, Geico, and BNSF Railway did not hurt either. It also goes without saying that the new U.S. tax code gave an enormous boost to massive corporations like Berkshire, whose effective tax rate is down from 27.2% in 2017 to 19.2% this year.

The last time Berkshire did a share repurchase was in December 2012, when it bought back nearly $1.3 billion worth of stock, mostly from one longtime shareholder. This time, the overall consensus is that a share repurchase is a net/net win for shareholders and Berkshire. While fewer shares mean higher earnings per share for investors, this share repurchase also indicates that Berkshire’s stock is as good an investment as any that the company could buy in the market. As put by Valuewalk, the decision signals that Berkshire is “one of the best investment opportunities available on the market.” With an average share price of $312,806.74 per A share and $207.09 per B share, Berkshire remains one of the most exclusive and profitable investments around.

Warren Buffet is known for his belief that investments are a better way to increase shareholder value than buybacks or dividends. Berkshire’s previous buyback policy allowed share repurchases only if the stock price was below 120% of book value. While the decision to eliminate this restriction represents a shift in how Buffet gives value to his shareholders, many critics believe that cash could be better spent on capital expenses or wages. Nevertheless, Buffett remains a catalyst for trends in the broader market: Predictably, stock repurchases by S&P 500 companies hit a record high in the second quarter of this year.

One thing is for certain: Warren Buffet knows investment opportunities. Any decision to repurchase shares indicates that the Chairman is less than impressed with other investment options in the market. This may be a signal to companies to align themselves more with attractive options like Apple…if they didn’t know that already.

Good News is Good News

Does Immunity Outweigh Accountability for International Finance Organizations?

A dispute over immunity for the International Finance Corporation (IFC) made its way to the Supreme Court in late October, after a power plant in India (financed in part by funds from the IFC) caused environmental harm to a group of farmers and fishermen living near it. Under the International Organizations Act of 1945, international organizations headquartered in the United States like the IFC have immunity from all forms of judicial process in the U.S. similar to that enjoyed by foreign governments.

Concerns over this particular suit include whether U.S. law gives absolute immunity to the IFC, the private lending arm of the World Bank, and whether allowing this type of suit to proceed would open the floodgates to more lawsuits. Supporters of the IFC highlight that it often loans money where private capital will not go, such as in developing countries. Due to the fact that commercial activity is the organization’s sole purpose, some worry that placing blame when others have failed to meet standards will hamper their ability to promote sustainable private sector investment in the developing world.

Beyond the obvious question of whether the IFC should have complete immunity, an underlying question remains about whether this immunity diminishes intentional accountability. If these types of organizations are meant to help reduce poverty and promote economic development, a chief precaution might include protecting vulnerable communities and the environment. Moreover, if an organization, one with immense influence over a project given its financial backing, is briefed and knows about the plausibility of harmful impacts, it may follow that one should minimize such impact or compensate those harmed.

What happens when we give certain organizations the opportunity to be above law? What is the social value of the privilege of immunity and does it depend critically on the extent to which its existence encourages these organizations to fulfill their missions? How can international organizations stay true to their mission while ensuring projects they fund meet environmental and social standards? The answers to these questions, undoubtedly complex and multifaceted, lie in a reconsideration of the balancing of these values against the pursuit of justice through legal accountability.

Does Immunity Outweigh Accountability for International Finance Organizations?

Voters in Three States Embrace Fossil Fuel Use

Washington, Colorado, and Arizona recently rejected initiatives that would have limited the use of fossil fuels. In Washington, voters rejected what would have been the nation’s first tax on carbon emissions. In Colorado, 57 percent of voters said “no” to a proposal that would have prohibited drilling close to densely populated or environmentally vulnerable sites. In Arizona, voters rejected a proposal that would have required electricity providers to use renewable energy to meet half of their needs by 2030.

Ultimately, activists could not convince voters to “go green” at the cost of higher energy prices. Scientists and environmental advocates projected that Washington’s initiative would have substantially decreased greenhouse gas emissions in the state. Voters who supported Colorado’s initiative believed it was necessary to reduce potential health risks from nearby oil drilling sites. Those who supported Arizona’s initiative hoped that a shift to cleaner energy sources would both improve public health as well as create green jobs in the state. On the other hand, the proposals’ opponents feared that they would result in higher energy prices and fewer jobs.

The voters’ decision should not be surprising. Although environmentalists were able to garner significant support, their opponents had large oil and gas industries at their backs. They were able to raise a fund several times larger than that of the initiatives’ supporters. In Washington, the Clean Air, Clean Energy coalition was able to raise more than $15 million to advocate for the carbon fee. However, the Western States Petroleum Association poured more than $31 million into the opposition. Similarly, Colorado Rising for Health and Safety raised about $1 million, but the industry-backed group Protect Colorado raised roughly $38 million to defeat the measure.

Behind the scenes, it is money that matters. Large oil industries were able to invest more into winning the ballot fight. However, environmentalists were able to push back hard — the vote was relatively close in all three states. Who will win in the end is still unclear. But, industry support — and spending — will surely be crucial to the outcome.

Voters in Three States Embrace Fossil Fuel Use

What Caused General Electric’s Third Quarter $22.8 Billion Loss?

General Electric Company (GE) released its third quarter results on October 30, showing a loss of $22.8 billion where $21 billion was attributed to a goodwill write-down of its power division. The company plans to restructure its power unit to help recover.

Companies are required to test their goodwill for impairment at least annually. GE tests its goodwill for impairment each year at the end of the third quarter and uses data as of July 1 of that year. According to its 10Q, fair values for each of its reporting units exceeded the carrying values except for the Power Generation and Grid Solutions reporting units within their power segment. Most goodwill in the power segment was recognized because of the Alstom acquisition, which contributed an astonishing $15.8 billion to goodwill.

GE closed the Alstom acquisition in November 2015 as it was eager to enhance its position as the most competitive infrastructure company with a financial service business. As part of its closing conditions, GE made promises to the French Government, one of which was to add 1,000 jobs by the end of 2018.

GE unwittingly touted to its investors that the deal was struck at an opportune moment. It entered the natural gas power market only to face increased competition from renewable energy and cheaper oil and gas prices. GE made these matters worse when it ramped up production in an already waning market, which created a backlog of inventory. This misjudgment severely affected cash flows, and GE was forced to lay off 12,000 people from its power business in December 2017, none of whom were in France due to the deal GE struck with the French Government.

The combination of a challenging market and poor management already impaired the expected returns from the Alstom deal. The commitment with the French Government further exacerbated this since GE could not alter its cost structure to mitigate its expected loss of income. These conditions resulted in the downward revision of future projected earnings on the Alstom deal, which was the primary cause of the $21 billion Goodwill write-down of GE’s power division.

What Caused General Electrics Third Quarter Loss

Fox Poised to Repurchase Regional Sports Networks

Fox and Disney agreed to a $71.3 billion merger in July. Fox was eager to divest parts of the company that had shed earnings in light of online streaming, while Disney hoped to strengthen an upcoming streaming service intended to rival Hulu and Netflix.

Ultimately, Disney defeated Comcast’s $65 billion all-cash offer with a $71.3 billion bid. Fox thereby sold Disney the rights to Fox’s movie studios, television productions, regional sports networks, and international businesses, including Star and Europe-based Sky.

Consequently, Fox parted with a massive amount of the original company and retained only a post-merger organizational structure of “New Fox.” New Fox will have a myopic focus on live sports entertainment and news in hopes of resistance to a changing media landscape.

In spite of near-unanimous shareholder approval, the Department of Justice concluded that Disney must divest itself of Fox’s twenty-two regional sports networks. The Department feared that consumers would be hurt by the deal, as Fox and Disney had previously competed for viewership of regional sports programming. Without such competition, cable prices could climb to consumers’ detriment. As a result, Disney must now find potential acquirers of the twenty-two regional sports networks.

Interestingly, Fox is among the potential acquirers. The company’s executives have discussed the possibility of buying back the networks. Fox was willing to sell the networks as part of the merger with Disney because their value had significantly declined. Millions of consumers had cut their cable cords, and cable companies had increasingly treated regional sports networks as “add-ons.” Nevertheless, Fox was able to sell these networks at a premium when Comcast sparked a bidding war with Disney. Therefore, Fox may be able to buy back the networks for less than the amount paid by Disney.

The potential addition of the regional sports networks seemingly fits New Fox’s refined focus on sports and news. And, of course, Fox’s buyback of the regional sports networks will likely result in substantial tax benefits related to tax-deductible amortization.

Fox Poised to Repurchase Regional Sports Networks

Silicon Valley’s Tainted Cash

Saudi Arabian journalist and political dissident Jamal Khashoggi was likely murdered by his own government. The Saudi government has more or less admitted its involvement in Khashoggi’s death. In response, many startups have declined to attend a major investment summit in Saudi Arabia. However, some startups have continued to accept money from an investment fund backed by Saudi Arabia’s sovereign wealth.

Is Saudi money tainted cash? Is it wrong for Silicon Valley to receive this money?

Saudi money is not tainted in the way something like conflict diamonds might be. The country’s wealth is the product of legitimate oil exports. But, the revenue from the petroleum trade no doubt supports the Saudi regime. A reasonable argument can be made that doing business with the Saudi regime is akin to condoning its evil conduct.

The human rights violations of the Saudis, however, did not start yesterday. If reports are to be believed, the Saudi government routinely targets dissidents and murders LGBT people. Thus, there is little moral distinction between Silicon Valley taking Saudi cash and Americans consuming Saudi oil.

One might argue that Jamal Khashoggi’s cold-blooded murder was particularly egregious compared to the garden-variety human rights violations that occur in Saudi Arabia. Even then, it is not clear whether there is a moral difference between a Saudi monarch sanctioning the killing of its dissident journalist and an American president ordering a drone strike against an American citizen abroad without due process (not to mention the collateral damage).

Whether Silicon Valley should accept tainted cash is not a question of right or wrong. This point is beyond debate. The real question is this: Are we willing to hold ourselves to the same moral standard?

Silicon Valley’s Tainted Cash

Under Armour: Long Stemming Issues Rise to the Surface

Under Armour (UA) has come under attack due to a recent report alleging a hostile work environment for women. The report, conducted through dozens of interviews with current and former employees, exposed UA officials for charging strip club visits and gambling excursions onto company credit cards. Further, the report found many women felt demeaned in the workplace. In response to the report, UA emailed employees in February to advise them that UA would no longer reimburse adult entertainment or gambling. However, there was no mention that they were not allowed to attend such events with perspective clients.

This is not the first time that the company has been under public scrutiny. Just last year, UA CEO, Kevin Plank, notoriously joined President Trump’s American Manufacturing Council (AMC) and stated that Trump was “a real asset for the country.” Plank’s open support of Trump caused a backlash on social media, as many consumers felt UA had become aligned with the same xenophobic, racist, and fear mongering rhetoric that helped propel Trump to the Presidency. While Plank quickly tried to distance himself from the political Pandora’s box which he had opened, he refused to name Trump when Plank denounced of the Charlottesville White Supremacy rally. Though, Plank later dropped out of the AMC without comment. Many saw Plank’s actions as particularly egregious considering he only changed his tune after strong public outcry. This public pushback included a biting tweet from UA’s own most profitable athlete, Stephen Curry, and an online boycott.

While UA claims that the company culture has begun its overhaul already, it seems as though much more is needed and the damage has already been done. Analysts are predicting that the company will face long term negative effects as the report was just one among other practices which women found demeaning. As the #MeToo movement continues to swell across the country, and consumers become more aware of the political leanings of the manufacturers of their favorite products, UA may face an increased backlash compared to what it may have experienced in years past. Further, a major company’s stance regarding hotly debated topics amongst consumers can pay major dividends, as seen with NIKE’s stock increase post Kaepernick gamble. It remains to be seen what will happen to companies, like UA, that make a major mistake.

Under Armour- Long Stemming Issues Rise to the Surface