Bloomberg-Quicktake-Issue-9.Pdf

This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC Bloomberg Issue 9 July — December 2018

SPECIAL SECTION DISRUPTION’S FALLOUT

Hard-to-explain topics, explained simply

Trade War ��p20 Saudi Arabia’s Shift ��p32 Why Women Earn Less ��p55 Inside Volatility ��p22 The Recycling Crisis ��p46 Sports Betting �� p57

$800b Market value of Bitcoin and other cryptocurrencies in January 2018 QuickTake

$1t Size of Norwegian fund considering fossil-fuel divestment

34 Countries taxing sweetened beverages to reduce sugar 38t consumption Number of microbes, mostly beneficial, living in the human gut Issue 9 Issue

July — December 20

1/2 105m Share of world’s recyclable 2021 83% Square feet of U.S. retail space paper and plastic once Expected first delivery of China’s C919 jet Vladimir Putin’s average

18 shuttered in 2017, a record exported to China challenging Boeing and Airbus approval rating since 2015

BZ9_Quicktakes_Covers.indd 1 6/8/18 11:59 AM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

BZ9_Quicktakes01_disruption.indd 2 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

BZ9_Quicktakes01_disruption.indd 1 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

We hope you enjoyenjoy thisthis editionedition ofof QuickTake QuickTake magazine asmagazine. a benefit You of areyour receiving Bloomberg this Businessweek as a benefit subsof beingcription. a Bloomberg Terminal customer who enrolled in home delivery of all Bloomberg print Remembermagazines.Get to take to advantage the of yourpoint other valuable subscriptionof the benefits, news.including: As a valued terminal customer, you have access to● several Unlimited Bloomberg access Media benefits● Bloomberg including to BusinessweekFirst Word on the Bloomberg sto Terminalries and Businessweek Talks— FREEmobile home delivers delivery 40 laser-targeted, of actionableBloomberg Markets and on Bloomberg.comsubject areas, curated by experts who know Monthly subscriber-only Businessweekwhat you need — andmagazines what you don’t. as well as unlimited webcasts connecting you accessChoose to yourBloomberg.com channel and focus on the content through sectors, companies, and topics that matter. with our editors and experts BBG .Because the point of the news is you. for in-depth conversations On-Terminal at FIRST Learn more at bloomberg.com/first-word about what matters most in global business

● The Bloomberg ● Subscriber-only Businessweek app newsletters featuring featuring new, must-read curated summaries of content every day key developments in the global news cycle

BZ9_Quicktakes01_disruption.indd 2 6/8/18 12:30 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Editor’s Letter

In a knowledge economy where ideas and information matter, conveying understanding has become more important than ever. Sometimes what’s needed is an Get to the point explainer, rather than a standard news story. It’s in this light that I introduce the ninth edition of QuickTake magazine. In succinct, authoritative guides, of the news. Q&As and graphics, QuickTakes provide a fun-to-read entry point for current and complex issues. You can use them to get smart fast on financial trends, global affairs First Word on the Bloomberg Terminal and and public policy puzzles. mobile delivers 40 laser-targeted, actionable A library of more than 350 QuickTakes can be found subject areas, curated by experts who know what you need — and what you don’t. on the Bloomberg Terminal at QUICK ; individual stories can be found on the web. These are living articles, Choose your channel and focus on the revised and updated as events unfold, with links to videos sectors, companies, and topics that matter. Because the point of the news is you. and more resources for curious readers. I hope you’ll find the time with QuickTakes well spent. On-Terminal at FIRST Learn more at bloomberg.com/first-word

John Micklethwait Editor-in-Chief Bloomberg July 2018

BZ9_Quicktakes01_disruption.indd 3 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

BZ9_Quicktakes01_disruption.indd 4 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Contents July — December 2018

Managing Editor Cyberwarfare Leah Harrison Singer

By Jordan Robertson and Editors Graphics Editors Laurence Arnold Laurence Arnold Samuel Dodge Lisa Beyer David Ingold The dogs of war are now digital. Grant Clark Dave Merrill Nations have turned to cyberwarfare Anne Cronin Alex Tribou to attack everything from weapons Paula Dwyer Hayley Warren systems to power grids. p31 John O’Neil Chloe Whiteaker

Copy Editors Photo Director William Elstrom Clinton Cargill Nicholas Mullan Brennen Wysong Contributing Photo Editor Creative Director Jane Yeomans Chris Nosenzo Disruption’s Fallout Energy & Environment Production Contributing Susan Fingerhut The Amazon Economy p8 Buzzwords p44 Art Directors Kenneth Machlin- Retail Apocalypse p9 OPEC Fights Back p45 Shawn Hasto Lockwood Crypto’s Many Questions p10 Divesting Fossil Fuels p46 Saxton Randolph The Touch-Screen Generation p12 Russia’s Grip on Gas p47 Cover/Contents Facebook’s Stumbles p14 The Recycling Crisis p48 Illustration Net Neutrality p15 Carbon Capture p50 Matthew Hollister Earthquake Readiness p51

To contact the editor responsible for QuickTakes Leah Harrison Singer Economy & Finance [email protected] Health & Society +44-20-3525-2936 Buzzwords p18 Trade War p20 Buzzwords p54 Soft Landing p21 Why Women Earn Less p55 Find Bloomberg QuickTakes Volatility p22 China’s Two-Child Policy p56 ● On the Bloomberg Terminal at Short Selling p24 Sports Betting p57 QUICK Sexual Harassment on Wall Street p25 Americans and Their Guns p58 ● On the web, along with QuickTake Where Brexit Hurts Most p26 The Human Microbiome p59 videos, at bloomberg.com China’s Jet Challenge p27 Sugar p60

World Affairs

Buzzwords p30 Saudi Arabia’s Shift p32 Yemen’s Crisis p34 The Future of Jihad p35 Vladimir Putin p36 Europe’s East-West Rift p37 South Africa’s Chance p38 Wave Election p40 Venezuela’s Collapse p41

BZ9_Quicktakes01_disruption.indd 5 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Chapter 1 DISRUPTION’S FALLOUT

BZ9_Quicktakes01_disruption.indd 6 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

p8 How Amazon is scaring businesses from banks to grocery stores

p9 U.S. malls are quiet, even though times are good

p10 The big question about Bitcoin is still, “What is it?”

BZ9_Quicktakes01_disruption.indd 7 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

The Amazon Economy By Shira Ovide

If you order office supplies for your company, buy groceries for dinner, download a movie, lock the doors with a smartphone app, ask your smart speaker for tomorrow’s weather forecast and lay your head on a new hypoallergenic pillow, there’s a chance you’ll be doing it all through a single company: Amazon.com Inc. The company that started out selling books online in 1995 is now serving consumers, and frightening businesses, in a vast array of sectors. With superior technological know-how and a tolerance for paper-thin profit margins, the world’s biggest online retailer may prove to be the world’s biggest disruptor.

What’s Amazon disrupting now? making it the second-largest private shopping experience. So has Amazon’s Take a deep breath. It’s taking aim employer in the U.S. behind Walmart fast door-to-door shipping, “free” to at financial services, health care, Inc. Jeff Bezos, Amazon’s founder and the more than 100 million members physical retail stores, groceries, chief executive officer, is now the world’s who this year will pay $119 to belong to fashion, corporate data storage, digital richest person. its Prime shopping club. The company assistants, robots, gadgets for every is profitable now but for many years room in the home and package handling What’s Amazon’s secret? tolerated losses or meager profits while by land, sea, air and drone. In just five The scope of its online megamall, with it pushed into new markets. Amazon years, Amazon Studios has become items numbering in the hundreds of also has popularized a form of cloud a significant force in entertainment. millions — many costing less than what computing that has wreaked havoc on Overall the company employs more than traditional merchants charge — has sellers of computer equipment and 560,000 full- and part-time workers, changed consumer expectations of the software to businesses.

When Amazon announces an expansion or new business, rivals and investors tend to panic �Dorothy Gambrell Intraday drop in share price ▼ Industry One-day loss of market value United Natural Foods -20% ● Automotive ● Food $100m $500m $1b ● Health ● Industrial distribution & package delivery ● Real estate Supervalu ● Retail & apparel ● Tech ● Financial & security Kroger Sprouts Farmers Market

Shutterfly Target Express Scripts Alkermes Blue Apron TrueCar LogMeIn -10% Best Buy Costco Cigna Lowe’s Rite Aid

Just Eat Walmart Wayfair UnitedHealth AutoZone Walgreens

Advance CVS Health Auto Parts Ocado Netflix Kellogg UPS Amex Cigna Costco 0

6/9/16 11/17/16 1/23/17 6/16/17 10/5/17 1/30/18 Expands grocery Prime video Reported Whole Foods Package Health care business into U.K. expands expansion of purchase delivery test joint venture auto parts sales

▲ Company milestones BLOOMBERG SOURCE: GRAPHIC (BANKRUPTCIES) BLOOMBERG (CLOSINGS); RESEARCH ESTATE REAL PNC AND TEAM RESEARCH ICSC SOURCES: GRAPHIC

BZ9_Quicktakes01_disruption.indd 8 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Retail Apocalypse By Matt Townsend, Jenny Surane and Christopher Cannon

Internet sales aren’t a new threat to brick-and-mortar stores. E-commerce has grown steadily in the U.S. from just over 3 percent of all retail sales in 2008 to about 9 percent in 2017. Yet the pace of American store closings jumped sharply last year: 9,108 were shuttered and just 4,881 opened. The so-called retail apocalypse intensified despite a growing economy, So who’s worried? shrinking unemployment and sky-high consumer confidence. Investors and executives in almost every industry worry about being “Amazoned.” Repeatedly over the last few years, Why are so many stores closing? Trouble in Store announcements or rumors of Amazon’s Even as online sales were expanding, U.S. store openings and closings, excluding interest in a new business line have the U.S. furiously added malls and grocery and restaurants resulted in a sell-off of stocks in related stores. In many regions, store growth Cumulative store closings companies. The day Amazon announced outpaced consumer spending. Several Cumulative store openings 25k it was buying the Whole Foods Market large retailers were also acquired by Inc. supermarket chain in 2017, other private equity investors, who loaded grocers, packaged-food companies and them up with debt. 12.5k restaurants that might be in Amazon’s way shed about $50 billion in collective Is it getting worse? stock market value. (Many recovered There’s more shakeout to come. As 0 after a brief panic.) more big retailers, such as Toys “R” Us, Q1 2013 Q4 2017 go bust, and mall “anchor tenants” like How dominant is Amazon? Macy’s and J.C. Penney close stores, It accounts for about 44 percent of U.S. the amount of new empty retail space Why did store closings spike in 2017? online sales, which hit $453 billion in is set to surpass the record 105 million Until then, struggling retailers were 2017. But looking through a wider lens, square feet shuttered in 2017. Fewer mall helped by low interest rates, as the U.S. Amazon accounts for less than 2 percent shoppers can drive smaller stores out Federal Reserve pumped money into the of what American consumers spend at of business, fueling predictions that a economy after the 2008 financial crisis. stores, restaurants and websites annually. quarter of all American malls could shut The Fed is now raising rates, so loans Its U.S. sales are one-third the size of by 2024. The U.S. has about 24 square cost more. Even profitable retailers are Walmart’s. And two-thirds of Amazon’s feet of shopping space per person, much finding it tough to make debt payments. sales come from the U.S., even after the more than any other developed nation. company made a big push into Germany, How many jobs have been lost? Japan and the U.K. What’s online shopping’s role? The total number of retail workers It’s certainly been devastating for many peaked at 15.9 million in January 2017; What do Amazon’s critics say? retailers, especially bookstores. But by year-end the number had fallen by U.S. President Donald Trump has said social factors have also taken a toll. 52,000. That 0.3 percent drop occurred the company doesn’t compensate the As more workers are allowed to wear as the total number of employed U.S. Postal Service enough for package casual clothes to the office, overall Americans grew 1.3 percent. Empty delivery. He and other critics also spending on apparel has fallen. And stores can spread a sense of blight, have said Amazon puts mom-and-pop twenty-somethings want to lay out more displace low-income workers and retailers out of business and doesn’t pay for experiences and less for things. erode a community’s tax base. its fair share of taxes. Amazon’s contract with the Postal Service is confidential but the service is legally prohibited from Big Stores Go Bust charging shippers less than its delivery Retail bankruptcies for companies with assets Toys “R” Us $12b costs. Still, one analyst calculated in 2015 over $100 million $6.6b that the company was paying about $2 a Circuit City The Sports package, or about half the commercial $3.4b Authority rate. While Amazon has displaced many $1.4b $6b Borders small retailers, the company says it also $1b RadioShack helps small businesses by providing $1.2b a marketplace used by 300 million customers. Amazon says it pays taxes 0

GRAPHIC SOURCE: BLOOMBERG SOURCE: GRAPHIC (BANKRUPTCIES) BLOOMBERG (CLOSINGS); RESEARCH ESTATE REAL PNC AND TEAM RESEARCH ICSC SOURCES: GRAPHIC where required. 2007 2017

BZ9_Quicktakes01_disruption.indd 9 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Crypto’s Many Questions By Sam Mamudi, Olga Kharif and Matthew Leising

Five years after Bitcoin broke into the public consciousness, investors and regulators around the world are still grappling with the same questions: What exactly is it? Why all the excitement? Should I buy it? If anything, the questions have multiplied as alternatives such as Ethereum, Ripple’s XRP and Bitcoin Cash have attracted cult-like communities of followers and billions of dollars. Are these so-called cryptocurrencies the future of money? Here’s a guide for those feeling at sea in these turbulent digital waters.

Are cryptocurrencies a real thing? the dollar or the euro. The hallmark of anonymous online ledger that records Let’s just say they’re worth a fair a reliable currency is that it provides the calculations miners perform to amount, even after some pretty huge a stable store of value. You wouldn’t verify transactions without the need price swings. In one of the wildest want to spend Bitcoin on groceries for a central authority. investment manias in history, the today if you thought its value might soar total market value of all traded tomorrow, or take your salary in Bitcoin Why are so many people down cryptocurrencies exploded late last if you thought it might plunge. on Bitcoin? year to peak at about $800 billion in You mean, why did legendary investor January by one count; the only publicly So what is it? Warren Buffett call it “rat poison traded companies in that vicinity were Born out of the bitterness that followed squared”? There’s a long list of reasons: Apple, Microsoft and Google’s parent, the 2008 financial crisis, Bitcoin and its Besides the massive price swings, Alphabet. Four months later, though, the imitators aren’t bills or coins printed Bitcoin and other cryptocurrencies have value of crypto-assets had plunged by or policed by a government or bank. been connected with scams, money about two-thirds, as regulators began to They’re electronic assets created laundering, tax evasion, cyberthefts, crack down and fear of big losses began and monitored by a community of exchange outages, excessive speculation to replace fear of missing out. users acting in a decentralized way, and more. Risks like these may have following protocols set down by the been easier for regulators to overlook Is Bitcoin money? person or persons who dreamed them when Bitcoin and its peers sat on the far In a way, yes, though it’s not necessarily up. The “crypto” in the name refers fringes of finance, but they are moving a useful form of it. It’s possible to buy to the encryption techniques used by ever closer to the mainstream. The or sell some things with Bitcoin but so-called Bitcoin miners. And all the stakes are much higher now that mom-

very few people do. Extreme volatility new currencies revolve around what’s and-pop investors and Wall Street banks is perhaps the biggest argument against seen as Bitcoin’s real innovation — alike are piling in. treating cryptocurrencies as you would blockchain, a publicly visible, largely Is it time for a closer look? A wide range of regulators are trying to Bitcoin’s Little Brothers get a handle on cryptocurrencies. Turns Each currency’s share of the crypto market, as of May 31, 2018 out there’s little agreement about what they fundamentally are: currencies, Bitcoin 39% commodities, securities or something Ethereum 17% entirely new. Thus you’ll see them called Ripple (XRP) 7.2% crypto-assets, digital tokens, coins or Bitcoin Cash 5.2% just “crypto.” EOS 3.3% At the start of 2017, Bitcoin accounted Litecoin 2.0% for over 80 percent How are crypto-assets like Cardano 1.8% of crypto market cap; commodities? Stellar 1.7% by mid-2018 that had fallen to less than half The vision behind Bitcoin laid out IOTA 1.5% in a 2008 pseudonymous manifesto TRON 1.2% promised that no more than 21 million NEO 1.0% will ever be created. That means it’s Monero 0.8% sometimes compared with scarce Tether 0.8% commodities such as gold, whose value Dash 0.8% Of 1,644 coins tracked by is determined solely by what people NEM 0.7% CoinMarketCap.com, 23 are willing to pay for it. Crypto-assets VeChain 0.5% were valued at more than have become popular in places where Binance Coin 0.5% $1 billion at mid-year and 581 were valued at less hyperinflation erodes the buying power Ethereum Classic 0.5% than $1 million of the local currency (think Zimbabwe), Bytecoin 0.4% or where sanctions block purchases Qtum 0.4% GRAPHIC: MAP AS OF MARCH 26, 2018, BASED ON REGULATION OF EXCHANGES, TOLERANCE OF ICOS, ALLOWANCE OF CRYPTO PAYMENTS, CRYPTO OF ALLOWANCE ICOS, OF TOLERANCE EXCHANGES, OF REGULATION ON BASED 2018, 26, MARCH OF AS MAP GRAPHIC: (think Venezuela and North Korea). COINMARKETCAP.COM SOURCE: 2018; 31, MAY OF AS CAPITALIZATION MARKET TOTAL OF SHARE GRAPHIC: PRICE) BITCOIN AND (MAP BLOOMBERG SOURCE: REGULATORS; FROM WARNINGS AND LEGISLATION PLANNED MONEY, CONVENTIONAL TO CONVERSION

BZ9_Quicktakes01_disruption.indd 10 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Getting a Handle on Crypto Regulation varies widely, with many legal grey areas Lighter regulation Tighter regulation

Germany

U.S. Russia Russia U.K. The SEC has been Canada Law proposed to scrutinizing ICOs and France prohibit payments with cryptocurrency hedge digital assets and limit U.S. Japan funds China exchange into rubles South Korea India Nigeria Taiwan China Central bank governor Hong Kong Outlawed exchanges hinted that regulation Philippines and ICOs, blocked may be needed after Nigeria Thailand overseas trading and trading surged last year Kenya Singapore cut power to Bitcoin Brazil Indonesia miners Zimbabwe Australia South Africa

How are they like securities? How can I buy Bitcoin? associated with these transactions. But There’s an argument that some crypto- There are a bunch of ways, all with Goldman Sachs Group Inc. planned to assets have the same characteristics as different risks. Individuals can buy begin trading Bitcoin futures on behalf stocks, such as a share of ownership in a crypto-assets directly from online of customers. And everybody in finance common endeavor and the expectation exchanges that will trade them for is at least dabbling in blockchain, which of making a profit from work done by regular currencies like the dollar, the is seen as an innovative way to handle a company. Much of the focus is on euro or the yen. Most of the exchanges transactions that could potentially new coins or tokens offered by startups will offer to hold the asset for you in a upend a wide range of industries. through so-called initial coin offerings, digital “wallet,” although an alarming or ICOs. While they take different forms, number of exchanges have been hacked. Why are there so many digital coins? ICOs let companies bypass the venture- You can also hold the asset for yourself, There are thousands of Bitcoin rivals, capital process by selling coins instead in a digital wallet or in so-called cold and it’s not clear how many of them are of shares. In some cases, the founders storage: for instance, a thumb drive going to prove either legal or useful. say coin buyers are prepaying to use a disconnected from the internet. Since Some were developed to overcome what service that the company will build. In December 2017, investors can place a their creators saw as flaws in Bitcoin,

the U.S., the Securities and Exchange wager on Bitcoin — betting it will either such as slow transaction times or high Commission has opened a broad probe rise or fall — without having to own it fees. Die-hard fans of these newer into whether entities running ICOs are directly, via futures contracts traded on currencies think they’ll eventually violating its rules by offering what are two big U.S. exchanges. overtake their bigger cousin. The largest really securities. China has banned ICOs rival is Ethereum, which has a total entirely. That didn’t stop them from What’s Wall Street’s approach? market value half the size of Bitcoin. raising more than $9 billion worldwide Until recently, it mostly kept its These so-called alt-coins are certainly through the first five months of 2018. distance. Now there’s lots of interest getting more attention: By mid-2018 they if not yet much action. Lenders accounted for more than half of all the How are regulators clamping down? including JPMorgan, Bank of America money in crypto-assets, compared with Their approaches have run the gamut, and Citigroup have barred customers less than a fifth at the start of 2017. from an exchange-licensing regime in from using their credit cards to buy Japan to a largely hands-off system in cryptocurrencies to avoid the risk Who are the crypto true believers? Switzerland, though the anonymous and Here’s a short list of enthusiasts: borderless nature of many digital coins Teenagers and hackers drawn by a makes them tough to control. China, One Wild Ride disdain for authority and the libertarian once the world’s most active Bitcoin Bitcoin soared to $19,511 on Dec. 18, 2017 aspirations behind Bitcoin’s creation. market, banned crypto-asset exchanges Technology geeks who believe they’re in 2017 and blocked access to overseas $20k disrupting the marketplace and getting trading platforms. The crackdown came in early on the next chapter in the during government campaigns to stop history of money. Financial firms and money from leaving the country and to central banks that think something reduce financial risk. Most countries, $10k important will come out of all this even notably the U.S., have not yet formulated if Bitcoin withers. And there are also a comprehensive regulatory strategy. plenty of investors who aren’t true But U.S. prosecutors are investigating believers but who expect to find one to whether traders have been manipulating 0 sell their holdings to if crypto prices

GRAPHIC: SHARE OF TOTAL MARKET CAPITALIZATION AS OF MAY 31, 2018; SOURCE: COINMARKETCAP.COM COINMARKETCAP.COM SOURCE: 2018; 31, MAY OF AS CAPITALIZATION MARKET TOTAL OF SHARE GRAPHIC: PAYMENTS, CRYPTO OF ALLOWANCE ICOS, OF TOLERANCE EXCHANGES, OF REGULATION ON BASED 2018, 26, MARCH OF AS MAP GRAPHIC: PRICE) BITCOIN AND (MAP BLOOMBERG SOURCE: REGULATORS; FROM WARNINGS AND LEGISLATION PLANNED MONEY, CONVENTIONAL TO CONVERSION the price of digital currencies. 5/31/17 5/31/18 soar again.

BZ9_Quicktakes01_disruption.indd 11 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

The Touch-Screen Generation By Giles Turner

Ever since Socrates complained about the written word ruining memories, people have been wringing their hands over the potential harms of technological innovation. At least Socrates never had to worry about his Snapstreaks. Now researchers say social media could be making more teens depressed, and there’s plenty of parental panic about the attention-sapping effects of the smartphone age.

Is technology disrupting childhood? from the Oxford Internet Institute and Aren’t there age restrictions? Absolutely. Today’s smartphone-wielding Cardiff University analyzed data from Since most sites just ask registrants to teens and preteens are glued to their 120,000 15-year-olds and concluded that, click a box to verify they’re of age, the devices and posting on social media up to a certain point, teenagers’ well- limits are rather easy to circumvent. even as they deal with the traditional being actually rose as their connectivity On Facebook, Instagram, Snapchat and adolescent stew of self-identity, peer increased. While too much screen time Twitter, users generally have to be at pressure and hormones. They’re can have a negative effect, the research least 13 years old to create an account. figuring it out in front of an audience of showed other factors, such as eating Some countries have stricter rules: The hundreds, if not thousands, of “friends” breakfast and getting enough sleep, were minimum age for a Google account is 14 commenting in real time on what they more important. That tipping point was in South Korea and 16 in the Netherlands. do and — via Snapchat and Instagram — reached at about 2 hours of smartphone how they look. Snapstreak, a Snapchat use on weekdays. One big problem Who’s raising concerns? feature that congratulates users for with all the existing research is how fast Certainly many parents just want to consistently messaging their friends, has smartphones took off and social media throw the phone in the rubbish bin and been criticized for being addictive by developed, making in-depth and timely make kids go play outside. A collection England’s children’s commissioner. An studies difficult. Snapchat was founded of pediatric and mental health experts online survey by the U.K.’s Safer Internet only in 2011. are lobbying Facebook to discontinue Centre of 1,500 8-to-17 year olds in 2017 Messenger Kids, a version of its revealed that 1 in 8 had shared a selfie in Messenger app for children 6 to 12, the last hour. Even some Silicon Valley Time Spent Online saying young kids are “not old enough executives say they want their offspring Share of teenagers 13 to 17 who reported using to navigate the complexities of online raised low-tech. the internet at each frequency in a 2015 study relationships.” Another group of former employees from Google, Facebook Once a week Less than VU/REDUX ZUILI/AGENCE GUILLAUME PHOTO: What does the research show? 1% once a week and elsewhere created the Center for Among the data points from various 2% Humane Technology to raise alarms Several times surveys: The average age for getting a a week about the vulnerabilities caused by first smartphone in the U.S. is about 5% addictive products. 10, and half of British and American kids have social media accounts by age About Almost Are the tech giants listening? 12. About a quarter of teens say they once a day constantly They’re at least trying to appear to be. In 12% 24% are online “almost constantly.” In a January, two of Apple’s big shareholders 2015 study, about 1 in 10 girls in the — activist investor Jana Partners LLC U.K. reported using social networking and the California State Teachers’ sites for more than three hours on a Retirement System — urged the company Several normal school day — and those that times a day to address a “growing societal unease” did were more likely to have a higher 56% with smartphone use and worries it difficulties score, a measure of mental could hurt children. In June, Apple said health. A study led by Jean Twenge, the next version of its mobile operating a psychologist at San Diego State system includes new features for parents. University, found that U.S. teens who Google is adding more parental controls spend more time online are less happy Teenage Tipping Point on its YouTube Kids app after reports than those who pursue other activities. A separate 2017 study of 120,000 15-year-olds that it hosted inappropriate videos. The In other research, Twenge posited that in the U.K. identified the point at which weekday moves may not be enough. In the U.K., use of technology began to hurt well-being. social media is contributing to a rise in Results on weekends were higher. Health Secretary Jeremy Hunt threatened teen depression. in April to regulate Google, Twitter, Video-game play Smartphone use Snapchat and other companies, saying Is there a contrary view? their failure to prevent underage use One obvious problem in blaming social 1h40m 1h57m left parents with an “invidious choice” media for miserable young people is the Watching videos Computer use — giving in to children too young to use supposition that there has ever been a their platforms or isolating them from

halcyon time for teenagers. Researchers 3h41m 4h17m their peers. POINT) UNIVERSITY (TIPPING CARDIFF INSTITUTE, INTERNET OXFORD ; SPENT) (TIME CENTER RESEARCH PEW SOURCES: GRAPHICS

BZ9_Quicktakes01_disruption.indd 12 6/8/18 1:05 PM GRAPHICS SOURCES: PEW RESEARCH CENTER (TIME SPENT) ; OXFORD INTERNET INSTITUTE, CARDIFF UNIVERSITY (TIPPING POINT) PHOTO: GUILLAUME ZUILI/AGENCE VU/REDUX This documentisbeingprovidedfortheexclusiveuseofO'MALLEYAVANTatSAOSCAPITALLLC BZ9_Quicktakes01_disruption.indd 13 6/8/18 1:05PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Facebook’s Stumbles By Sarah Frier

Apology tours. Threats of regulation. Hostile questions from lawmakers in the U.S. and Europe. Facebook Inc. and co-founder Mark Zuckerberg have been in the hot seat lately, facing a backlash against the company’s growing influence across the globe. The anger extends to other tech companies, like Alphabet Inc.’s Google and Twitter Inc., that share elements of the social-media giant’s business model. There’s no shortage of ideas about what Facebook and the others should do. There’s no consensus, either.

Why are so many people mad what users can say and read, and to what Eventually, the company says, artificial at Facebook? extent they can use the data on their intelligence programs will be able to spot There have always been concerns users to target advertising — the key to problems in real time around the globe. about privacy and harmful content. their massive earnings. But anger has grown since revelations What do critics say? about how Facebook’s algorithms What can be done about this? For the first time, lawmakers are starting amplified misinformation during the As far as data goes, the European Union’s to point to Facebook as a monopoly- 2016 presidential race, helping Russia new General Data Protection Regulation, like power, with unprecedented control run a campaign to divide U.S. society. or GDPR, asserts that users own their over human communication. Civil In April, Zuckerberg had to testify in own data and sets strict rules for what libertarians don’t like the idea of social- Congress after reports that the U.K. companies can and can’t do with it. On media companies intervening to block political consultancy that helped elect content, the U.S. has a new federal law speech, whether on their own or in Donald Trump, Cambridge Analytica, that holds websites liable for knowingly response to regulations. Interest groups had obtained personal information on facilitating crimes such as sex trafficking. tracking GDPR are already pinpointing up to 87 million Facebook users. In June, Members of Congress from both parties ways in which Facebook and Google may lawmakers in the U.S. demanded further have discussed rules for digital political not be in compliance. answers about partnerships between the ads that would require disclosure of their company and device makers, including sponsors, as is now the case for print or What does all this mean for Huawei, a Chinese company seen by broadcast ads. Germany has adopted, the businesses? the U.S. as a security threat, that may and other European countries are Facebook’s stock dipped after the have allowed them to improperly access considering, laws that make social-media Cambridge Analytica revelation, but it broad user data too. companies liable if they don’t quickly quickly rebounded. Advertisers worry remove hate speech or fake news. that the new regulations and debate Why is all that a big deal? could end up strengthening Facebook Facebook has been caught off guard What does Facebook say? and Google. If the companies keep a repeatedly about how its policies could Even as Zuckerberg says Facebook is tighter hold on all the information they be exploited. It was unprepared for how open to regulation, the company is get from users, that makes advertisers misconduct on the site, with its 2 billion trying hard to show that successful more dependent on the social networks users (not counting those of other apps self-regulation can make new laws for reaching potential customers. More the company owns, like Instagram and unnecessary. Facebook is hiring broadly, if countries turn to Facebook WhatsApp), can cause damage in the thousands of people to improve its and Google for solutions to problems real world. And not just in the U.S.: content moderation. But it doesn’t have like fake news or civil strife, that could Fake news spreading on Facebook has enough moderators in all the different cement their status as gatekeepers for spurred outbreaks of violence against languages its users communicate in. a society’s information flow. minorities in Sri Lanka, Myanmar and elsewhere, raising questions about the platform model of Facebook, Google, Growing Privacy Concerns Twitter and other companies. In surveys, Americans were asked how concerned they were about privacy using each service

What’s the issue with platforms? Very concerned Somewhat concerned Not too concerned Not concerned at all They position themselves as neutral conduits for people to share Facebook 2011 information. But they also shape what Facebook 2018 users see by promoting certain kinds of content. Now, as they try to clean up Google 2011 their sites, there’s disagreement about Google 2018

how much power they should have over 0 100% GALLUP SOURCE: 2-8; APRIL ADULTS 1,509 WITH POLL CONDUCTED 2018 GRAPHIC: COMMISSION COMMUNICATIONS FEDERAL U.S. SOURCE: SECOND; PER MEGABITS 25 OF BENCHMARK SPEED DOWNLOAD FCC THE MEETS “HIGH-QUALITY” GRAPHIC:

BZ9_Quicktakes01_disruption.indd 14 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Net Neutrality By Gerry Smith and Todd Shields

The internet is a global network, a set of values and a giant moneymaking opportunity. In the U.S., figuring out how those go together has led to years of public policy conflict, fought under the banner of “net neutrality.” It’s a slogan that broadly means everything on the internet should be equally accessible. Another way to put it is that those who control the network shouldn’t get to use that power to favor some kinds of content over others. In such general terms, net neutrality has become the kind of consensus notion that even the big companies dominating internet services say they agree with. But they also spent years fighting rules put in place to enforce it. The administration of President Donald Trump has come down on their side, opening the door, critics warn, to an internet curated by big business.

The Situation costs by charging consumers rather Access to High-Speed Internet The U.S. Federal Communications than producers of websites. Customers U.S. population with access to fixed internet Commission has scrapped net neutrality would pay based on the speed of their allowing for high-quality voice, data and video rules enacted in 2015. The regulations internet connections and would be able Total U.S. had barred firms such as cable giant to access all material available online Urban areas Comcast Corp. and wireless carrier AT&T at the same delivery rate, or whatever Rural areas Inc. from either blocking any content pace the larger network supports at any 100% or singling out any offering for quicker given moment. Net neutrality means or slower delivery. Internet service the website for your cousin’s Kickstarter providers applauded the FCC’s reversal campaign is on an equal footing with and many said that they didn’t plan to that of any Fortune 500 company. It 50% discriminate among types of content, means that movies on a startup channel though there are now no specific rules stream can’t be impeded to run slower forbidding that. The FCC did leave in than those on Netflix. The FCC adopted place a provision requiring companies Wu’s ideas in 2005, but its subsequent 0 to disclose any disparate treatment. enforcement attempts were blocked by 2012 2013 2014 2015 2016 Supporters of the old rules are pushing courts, which said the agency lacked to resurrect them at the state level and the requisite regulatory authority. The are challenging the FCC’s about-face 2015 rules fixed that by applying to the bandwidth hogs like movie streaming in Congress. Ditching the rules was internet the same legal authority that and esports channels — to offset the unpopular with voters, and Trump’s underpins regulation of public utilities, huge costs of expanding networks to political opponents hope to exploit that such as water or electricity. Those rules convey their data. Under the new rules, in congressional elections in November. have now been overturned. service providers will still be policed for Elsewhere in the world, net neutrality anticompetitive behavior, by the Federal regulations are spreading. In 2015, the The Argument Trade Commission. Pai’s critics say he’s European Union introduced measures Trump’s FCC chairman, Ajit Pai, says cleared the way for providers to create requiring that internet companies the previous “last-century, utility-style” fast and slow lanes for the internet, with handle all traffic equally. India’s 2016 rules are the opposite of the “light touch” only the biggest websites able to afford rules prevent service providers from regulation the internet needs. Advocates first class and costs eventually passed charging different rates for different of minimal oversight argue that it will on to consumers. They warn that the types of content. encourage more internet providers companies will become gatekeepers of to enter the market, driving down the information highway, free to block The Background prices for consumers. The providers sites for not paying up or for political The term “network neutrality” was themselves have long said they should reasons. People on both sides of the coined in 2002 by Tim Wu, a law be able to charge websites — especially debate say that their position is better professor and author. He argued that for the roughly 30 percent of America’s no entity should be able to decide rural residents who don’t have any access what kind of material was and wasn’t to high-speed internet. Advocates of the permitted on the internet. Wu also new rules say internet providers can recognized the expense of maintaining expand faster if websites effectively share the cables, utility poles and cell towers the costs. Opponents argue that providers necessary to channel the internet to will increasingly focus on urban areas, our computers, phones and other since content providers are more likely devices. He proposed that internet to pay for access to high-density, higher-

GRAPHIC: 2018 POLL CONDUCTED WITH 1,509 ADULTS APRIL 2-8; SOURCE: GALLUP SOURCE: 2-8; APRIL ADULTS 1,509 WITH POLL CONDUCTED 2018 GRAPHIC: COMMISSION COMMUNICATIONS FEDERAL U.S. SOURCE: SECOND; PER MEGABITS 25 OF BENCHMARK SPEED DOWNLOAD FCC THE MEETS “HIGH-QUALITY” GRAPHIC: providers be allowed to recoup their 2002Year the term “net neutrality” was coined profit markets.

BZ9_Quicktakes01_disruption.indd 15 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Chapter 2 ECONOMY & FINANCE

BZ9_Quicktakes02_biz_world.indd 16 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

p20 Has Trump triggered a trade war?

p21 Central banks once again dream of soft landings

p22 Like roller coasters, volatility’s ups and downs can be frightening

BZ9_Quicktakes02_biz_world.indd 17 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

The language of economics and finance is constantly shifting. Buzzwords Here’s your guide to the lingo. RISK

By Annie Massa Sometimes markets are described as “risk on” or “risk off.” Both terms are shorthands There are casinos that welcome everyone, using its own money to buy what investors to describe a swing in global market by the busload. Then there are casinos want to sell, and selling what they want sentiment. When investors are optimistic for high rollers only. In financial markets, to buy. Dark pools account for about 15 about the outlook for the economy, or feel stock exchanges are the first kind. Ping percent of U.S. stock-market trading, while that markets are mispricing the outlook, pools are the second. And like anything ping pools handle less than 2.5 percent. they will bid up the price of riskier assets. else with a velvet rope, they’re generating The VIP investors who use ping pools By Enda Curran That’s “risk on.” When fresh data or intense interest among those left outside. can benefit from better prices and avoid alarming news creates uncertainty about Ping pools are alternative stock-trading paying exchange fees, while enjoying the the future, they tend to sell off risky venues, mostly run by large electronic- kind of privacy found in dark trading. The mere mention of a “Minsky moment” assets in a hurry and buy assets seen as trading firms. Like dark pools — the private For the pool operators, trading only with — a sudden crash of markets and economies safe havens, ones that are usually less exchanges inside some of Wall Street’s investors they know reduces risk, and thus that are hooked on debt — is enough to vulnerable to a weakening outlook or biggest banks that let big investors swap costs. The ping pool name? It comes from send shudders through policy makers. deteriorating investor confidence. large blocks of stock in secret — ping pools brokers “pinging” pool operators with an The name stems from the work of Hyman offer more privacy than well-known public order from a big customer. The pools are Minsky, a U.S. economist who explored exchanges. But dark pools bring orders also turning up in a slightly different form how excessive borrowing fuels financial together from many different investors. in Europe, as “systematic internalizers,” instability. Record debt levels and sky- By contrast, the company operating a a setup that allows banks to use their own high financial market valuations have Wealth Management ping pool handles the transactions itself, capital to trade with clients. kept Minsky’s model prominent, drawing warnings from the International Monetary Products Fund and others. Janet Yellen, the former chair of the U.S. Federal Reserve, once described his work as “required reading.” MACHINE Minsky theorized that financial panics happen after a prolonged period of economic prosperity that has encouraged WMP doesn’t sound as alarming as TNT, but there are reasons LEARNING investors to take on excessive risk. At that regulators worry that China’s so-called wealth management point, Minsky wrote, there’s an increase products might blow up someday. The value of those assets tripled By Nishant Kumar in “speculative and Ponzi finance.” When in four years to more than $4.5 trillion, most of which existed off a destabilizing event occurs, investors banks’ balance sheets. A recent crackdown slowed their growth are forced to sell assets to raise money to but hasn’t ended anxiety over what’s seen as the riskiest part of A growing number of hedge funds are tests is about 90 percent. A quant unit of repay loans. That in turn sends markets China’s mountain of private debt. Many investors think WMPs putting money behind the idea that a Man Group Plc needed three years of work into a spiral amid a demand for cash. are guaranteed, which they’re not. Sold by banks, WMPs have subset of artificial intelligence called to gain enough confidence in a machine- One often-cited example came in 1998, emerged as a key tool for lenders to attract funds. Investors are machine learning could provide a way learning strategy to devote client money following the bursting of asset bubbles in lured by yields that have ranged between 3 percent and 5 percent, to get back on top after a string of rocky to it. If you let the programs roam too Asia, when Russia defaulted on its domestic compared with 1.5 percent for one-year bank deposits. The WMPs years for the sector. All AI programs freely through the world of data, they can debt. (It was during that crisis that the invest in everything from bonds to property and can be exposed apply rules known as algorithms to data. find meaningless patterns, such as the term “Minsky moment” was coined.) to struggling industries like mining. What are the risks? For one Machine learning programs search for S&P 500 Index rising or falling in lockstep The global financial crisis of 2007-08 is thing, banks could face the equivalent of a run if investors turn patterns in more data than even the with something clearly unconnected, considered another Minsky moment, since cold on the products, which mostly have terms of six months most sleep-deprived junior analyst could like the homicide rate in England. But it was caused by the implosion of the U.S. or less. Banks use WMPs to sidestep lending restrictions and examine. Then they test those hypotheses when quants complicate their models, subprime mortgage market, where risks capital requirements. WMPs are increasingly investing in each against even more data and alter their a problem called overfitting, they can had mounted without regulators noticing. other, meaning one soured product could infect others. Financial algorithms based on the results. As it also flop. Machine learning has yet to Worries now focus on planned interest regulators have banded together to draft rules for WMPs and other turns out, finding patterns isn’t that hard deliver Earth-shaking returns. And when rate increases by central banks that have asset-management products that aim to make it clear that there — but finding ones that work reliably in volatility returned to markets with a bang provided ultra-easy money since the is no implicit government guarantee on any product, despite a the real world is. One quantitative analyst, in February 2018, quant funds had their crash and on possible hidden risks in the history of Chinese bailouts. Tighter controls slowed growth in total or quant, estimates the failure rate in live worst month since at least 2008. mountain of opaque private debt in China. assets in WMPs to 1.7 percent in 2017, from 24 percent in 2016.

BZ9_Quicktakes02_biz_world.indd 18 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

The language of economics and finance is constantly shifting. Here’s your guide to the lingo. RISK ON,

By Michael P. Regan

Sometimes markets are described as “risk That’s “risk off.” Stocks are the most and emerging-market currencies. When on” or “risk off.” Both terms are shorthands obvious risk-on asset, especially those markets turn risk off, you can usually to describe a swing in global market with higher prices relative to their profits expect U.S. Treasuries, German bunds and sentiment. When investors are optimistic or in industries that are more dependent gold to outperform. Among currencies, about the outlook for the economy, or feel on economic growth. The shares of the yen tends to rally as investors unwind that markets are mispricing the outlook, companies with slower-growing, but “carry trades” in which they borrowed they will bid up the price of riskier assets. stable, profits and dividends like utilities the Japanese currency at a low interest By Enda Curran That’s “risk on.” When fresh data or will often outperform other stocks during rate to buy higher-yielding assets in other alarming news creates uncertainty about periods of risk off, though they may markets. Big gains in products tied to the future, they tend to sell off risky not necessarily gain in a sharp enough equity volatility indexes like the Cboe The mere mention of a “Minsky moment” assets in a hurry and buy assets seen as market drop. For bond investors, lower- Volatility Index (VIX) are a sure sign of — a sudden crash of markets and economies safe havens, ones that are usually less rated but higher-yielding corporate and a risk-off market as investors bid up the that are hooked on debt — is enough to vulnerable to a weakening outlook or sovereign issues are considered risk-on price of options that protect against send shudders through policy makers. deteriorating investor confidence. assets. So are industrial metals like copper further losses in stocks. The name stems from the work of Hyman Minsky, a U.S. economist who explored how excessive borrowing fuels financial instability. Record debt levels and sky- high financial market valuations have Wealth Management kept Minsky’s model prominent, drawing warnings from the International Monetary Products Fund and others. Janet Yellen, the former SECURED OVERNIGHT FINANCING RATE chair of the U.S. Federal Reserve, once described his work as “required reading.” By Jun Luo and Laurence Arnold By Alexandra Harris Minsky theorized that financial panics happen after a prolonged period of economic prosperity that has encouraged WMP doesn’t sound as alarming as TNT, but there are reasons What will interest rates be on new mortgages, student loans or investors to take on excessive risk. At that regulators worry that China’s so-called wealth management derivatives? For decades, they were tied to a benchmark called point, Minsky wrote, there’s an increase products might blow up someday. The value of those assets tripled Libor, the London interbank offered rate. Then it was discovered in “speculative and Ponzi finance.” When in four years to more than $4.5 trillion, most of which existed off that bankers were fiddling with Libor to help their traders make a destabilizing event occurs, investors banks’ balance sheets. A recent crackdown slowed their growth money. At least in the U.S., Libor may be giving way to SOFR, a new are forced to sell assets to raise money to but hasn’t ended anxiety over what’s seen as the riskiest part of measure that stands for Secured Overnight Financing Rate. It was repay loans. That in turn sends markets China’s mountain of private debt. Many investors think WMPs introduced in April by the Federal Reserve Bank of New York. into a spiral amid a demand for cash. are guaranteed, which they’re not. Sold by banks, WMPs have SOFR is designed to address Libor’s biggest weakness: It’s largely a One often-cited example came in 1998, emerged as a key tool for lenders to attract funds. Investors are fiction. Libor is derived from a daily survey of about 20 large banks following the bursting of asset bubbles in lured by yields that have ranged between 3 percent and 5 percent, that estimate how much it would cost to borrow from each other Asia, when Russia defaulted on its domestic compared with 1.5 percent for one-year bank deposits. The WMPs without putting up collateral. Because fewer banks make such debt. (It was during that crisis that the invest in everything from bonds to property and can be exposed unsecured loans, Libor became easy to rig. The manipulation that term “Minsky moment” was coined.) to struggling industries like mining. What are the risks? For one resulted led to billions of dollars in fines paid by U.S. and European The global financial crisis of 2007-08 is thing, banks could face the equivalent of a run if investors turn lenders. That’s one reason SOFR is based instead on repurchase considered another Minsky moment, since cold on the products, which mostly have terms of six months agreements, or repos, overnight loans in which banks briefly it was caused by the implosion of the U.S. or less. Banks use WMPs to sidestep lending restrictions and swap Treasury bonds they hold for cash. The volume of trading subprime mortgage market, where risks capital requirements. WMPs are increasingly investing in each underpinning SOFR is significantly larger than for Libor: In 2017, had mounted without regulators noticing. other, meaning one soured product could infect others. Financial it regularly exceeded $700 billion daily, versus an estimated Worries now focus on planned interest regulators have banded together to draft rules for WMPs and other $500 million daily for three-month dollar Libor. Other countries rate increases by central banks that have asset-management products that aim to make it clear that there are developing their own post-Libor benchmarks, also based on provided ultra-easy money since the is no implicit government guarantee on any product, despite a overnight lending, with names like Saron (Switzerland), Sonia crash and on possible hidden risks in the history of Chinese bailouts. Tighter controls slowed growth in total (U.K.) and TONA ( Japan). The big question? Whether the market mountain of opaque private debt in China. assets in WMPs to 1.7 percent in 2017, from 24 percent in 2016. will actually use them. For all its flaws, Libor at least is familiar.

BZ9_Quicktakes02_biz_world.indd 19 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Trade War By Andrew Mayeda and Bryce Baschuk

After months of threats, U.S. President Donald Trump on June 1 imposed tariffs on steel and aluminum imports from Canada, Mexico and the European Union. They countered with planned tariffs of their own, putting the world on the edge of an all-out trade war. The metals levies, which act like a tax on imports, had already taken effect for most of the rest of the world, and Trump planned still more tariffs on $50 billion worth of products from China in retaliation for what he called decades of theft of American know-how. Trump has said “trade wars are good and easy to win.” Yet many U.S. business leaders and economists have opposed the Trump tariffs for fear the U.S. could be the biggest loser in the end.

How did this start? invite similar claims by other nations, were lost as a result, including about In early 2018, Trump ordered up levies has stoked fears of an all-out conflict. 13,000 in raw steel-making, by one of 25 percent on imports of steel and Singling China out for retaliation and estimate. Workers’ wages fell economy- 10 percent on aluminum in an effort to demanding concessions in unrelated wide, investors saw lower returns on protect U.S. manufacturers and jobs trade agreements are new elements of capital and gross domestic product from a worldwide glut of low-priced this conflict that are also raising concerns. declined slightly, the U.S. International exports. At first, he exempted certain Trade Commission reported. countries from his blows on a case-by- Why did Trump invite this fight? case basis, leading to confusion about He campaigned on a promise to reduce Are tariffs the only weapon in how much of his offensive was real and the U.S. trade deficit, which he has trade wars? how much was posturing. But when the characterized as a sign of economic No, there are many others. Clamping EU, Mexico and Canada wouldn’t agree and political weakness. Trump said the down on Chinese investments in the to his terms to remain exempted, Trump gap, which is the difference between U.S., which Trump has also done, is moved ahead. imports and exports, had ballooned one example. Intentionally weakening because of bad trade deals struck by one’s currency is another. One big Is it a trade war then? previous presidents. Soon after taking worry for the U.S. is that China, the Trump’s tariffs and the tit-for-tat office, he demanded talks to rewrite the U.S.’s biggest creditor, could scale retaliation — imposed and threatened — North American Free Trade Agreement back its purchases of U.S. government meet the traditional definition of a trade and ended the U.S.’s involvement in debt. Countries through the years war, in which countries slap import the 12-nation Trans-Pacific Partnership, have used other means to protect restrictions on each other in an attempt steps that appealed to his base of voters homegrown companies, a policy known to harm the other’s trade. In practice, in depressed manufacturing regions. By as mercantilism. Some practices are protectionist skirmishes involving a few the end of 2017, the U.S. trade deficit had blatant, such as imposing quotas on tariffs or exchanges of threats haven’t risen to $568 billion, up from $505 billion imports and subsidizing domestic usually become full-blown trade wars. in 2016. industries to give them a leg up in This time, Trump’s invoking of national international trade, which Trump has security to justify tariffs, which could What happened in previous accused China of doing. Other tactics trade wars? are less public, such as imposing One of the most notorious examples unusual product specifications, lengthy China’s Trade Dominance is the Smoot-Hawley Act passed by inspections of goods at entry ports and Share of total world exports Congress in 1930 and which is often intricate licensing requirements. China blamed for deepening the Great Japan Depression. The law hiked U.S. tariffs Why is free trade so unpopular U.S. by an average of 20 percent, initially these days? Germany 40% to protect American farmers but then Not long ago, free trade was widely seen broadened as other industries lobbied as the world’s economic engine. Many for protections. As countries reacted countries opened borders, reduced 30% by imposing barriers of their own and tariffs and lifted quotas in pursuit of devaluing their currencies — a step that better living standards. Trade’s allure curbs imports by making them more diminished, however, once companies 20% expensive in local terms — global trade in rich countries shipped plants fell off a cliff. and jobs offshore to lower costs and increase profits. Trade’s social and 10% Who wins in trade wars? economic effects, including the collapse No one, if history is any guide. When of manufacturing towns in the U.S. President George W. Bush raised steel industrial heartland, are often more 0 tariffs in 2002 in a bid to save jobs by visible than its benefits, which can also GRAPHIC SOURCE: INTERNATIONAL MONETARY FUND MONETARY INTERNATIONAL SOURCE: GRAPHIC ENERGY; AND FOOD MINUS EXPENDITURES CONSUMPTION PERSONAL IN CHANGE THE IS INFLATION CORE GRAPHIC: 01/1981 07/2017 reducing imports, about 200,000 jobs be unevenly distributed. (UNEMPLOYMENT) STATISTICS LABOR OF BUREAU INFLATION), AND (GDP DEPARTMENT COMMERCE HIKES), (RATE RESERVE FEDERAL U.S. SOURCES:

BZ9_Quicktakes02_biz_world.indd 20 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Soft Landing By Rich Miller

It’s mid-2018, and U.S. unemployment is at rock-bottom levels, wages are rising and consumers are brimming with confidence. What could go wrong? Plenty, if the Federal Reserve missteps, as central banks often do in such heady times. The reason is that inflation, which has been unusually quiescent, could come surging back if the tight labor market overheats, causing wages and prices to spiral upward. The Fed hopes to avoid that by raising interest rates, but the economy could shrink if it tightens credit too much. The ideal is what economists call a soft landing. Achieving this much-desired and often elusive condition can be more art than science.

What’s a soft landing? Alan Greenspan’s Soft Landing after undershooting it for much of It means slowing the economy enough to The former U.S. Federal Reserve chairman cooled the past six years. The worry is that prevent it from overheating, but not so an overheated economy in 1994-95 without inflation will continue accelerating if triggering a recession much as to trigger a recession, in which the economy keeps powering ahead and available workers become even output falls for two consecutive quarters. The Fed doubled short-term interest rates ... It takes a combination of smart policy- scarcer. To prevent a wage-price spiral, making — using the lever of short-term Federal funds 6% the Fed would have to jack up interest interest rates to affect inflation, jobs rate hikes rates to levels that could cause the and economic growth — and luck. Mark 5% economy to contract. Some economists Zandi, the chief economist of Moody’s think central bankers in the past have Analytics, likens it to “landing in the fog 4% overreacted to inflation signs, depriving on an aircraft carrier that’s in the middle workers of the wage gains they’d make of choppy seas.” 3% in a tight labor market. 1993 1994 1995 Has the Fed ever accomplished this? Is a wage-price spiral the Fed’s only Only once, in 1994 and 1995, under then- concern? Chairman Alan Greenspan. He viewed ... which slowed U.S. growth ... No, some officials also worry that low inflation of about 2.5 percent as too high, interest rates risk pumping up asset Change in inflation- 5% so he doubled short-term interest rates adjusted GDP prices to bubble levels. That’s what to 6 percent and succeeded in slowing happened in the middle of the last 4% economic growth without killing it off. decade when housing prices rose too But that triggered a steep run-up in long- high — with disastrous results. This time 3% term interest rates. Heavy borrowers the worry is over stocks and bonds, and were hit especially hard. Mexico was especially risky corporate bonds. 2% compelled to seek a bailout from the U.S. and the International Monetary Fund. 1993 1994 1995 What’s the Fed’s strategy? Gradually edge up interest rates to keep Can the Fed do it again? asset prices from rising too high and Theoretically, yes. But the job market ... and caused inflation to fall ... unemployment from falling too low. back then wasn’t especially tight, Change in core inflation* 3.0% After raising interest rates three times in giving the Fed some time to prevent 2017, policy makers have nudged them the economy from overheating. 2.6% up more this year and have plans for Unemployment of 3.8 percent (as additional increases through 2020. of May) is already below what many 2.2% economists say is its long-run sustainable Are other central banks seeking rate. So achieving a soft landing would 1.8% soft landings? mean slowing growth and edging up 1993 1994 1995 The European Central Bank is unemployment, too. But as former New contemplating ending a program of York Fed President William Dudley has asset purchases — more than three years after the Fed ended its bond noted, the economy “has always ended ... while unemployment leveled off up in a full-blown recession” whenever buying. Inflation in the euro zone is still joblessness has risen by more than Unemployment rate 8% well below the ECB’s goal, making any 0.3 percentage point. talk of overheating premature. This is 7% even truer for Japan. After almost two So why doesn’t the Fed leave decades of declining prices and stagnant well-enough alone? 6% growth, Japan’s economy has improved In a word, inflation. It’s not a big markedly over the past two years. problem, having hit the central 5% But the Bank of Japan is still pursuing

GRAPHIC SOURCE: INTERNATIONAL MONETARY FUND MONETARY INTERNATIONAL SOURCE: GRAPHIC ENERGY; AND FOOD MINUS EXPENDITURES CONSUMPTION PERSONAL IN CHANGE THE IS INFLATION CORE GRAPHIC: (UNEMPLOYMENT) STATISTICS LABOR OF BUREAU INFLATION), AND (GDP DEPARTMENT COMMERCE HIKES), (RATE RESERVE FEDERAL U.S. SOURCES: bank’s 2 percent target in March, 1993 1994 1995 stimulative measures.

BZ9_Quicktakes02_biz_world.indd 21 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Volatility By Joanna Ossinger and Cecile Vannucci

Mom-and-pop investors fear it. Traders by and large love it, and normally miss it when it’s gone. Volatility was absent from the financial markets for an unusually long time before rushing back. It’s once again on everyone’s radar screen, and likely to stay that way for a while. Volatility not only affects investments; investing in volatility has become something of a cottage industry.

What is volatility? What’s typical volatility for stocks? big trades at crucial moments were Basically, the up-and-down movement of The long-term average for the VIX is intended to nudge the settlement price a market. Downward moves tend to get about 19.3, with its lowest levels being up or down. Cboe, which maintains that more attention and be more associated in the 8-10 range. Its intraday record allegations of manipulation are “without with volatility, as they also tend to fuel high is 89.53, set on Oct. 24, 2008, at the merit,” said it’s working to improve the concern about what’s coming next. height of the global financial crisis. After settlement process. spending most of 2017 around 10, the How is it measured? VIX spiked to 38 on Feb. 5 before falling Are there other volatility gauges? The most prominent tracker is the back to just below its average. Yes. They exist for indexes such as the Cboe Volatility Index, or VIX, a U.S. Russell 2000, the Euro Stoxx 50 and stock-volatility index that compiles How do people invest in the VIX? India’s Nifty 50. The Merrill Option data on current trading to provide a They can’t invest directly in the VIX, Volatility Estimate looks at implied market estimate of future volatility. which is just a number, but can make volatility of one-month U.S. Treasury It’s sometimes referred to as the “fear bets on which way the VIX will go bond options. The JPMorgan Global FX gauge” because it tends to rise when by using futures, options or VIX- Volatility Index keeps track of currency stocks go down. based exchange-traded products. The swings. There’s even volatility of volatility emergence of a whole crop of products — the Cboe VVIX measures the expected How does the VIX capture fear? tied to the VIX has led to questions about volatility of the 30-day forward price of By looking at how much traders are whether VIX trading is itself influencing the VIX. paying for options on the S&P 500 index. the index or market volatility as a whole. An option is a contract that gives the Questions have also been raised about Is trading volatility like trading stocks? holder the right (but not the obligation) whether some trades are meant to They have similarities, including the to buy or sell securities at set prices manipulate its level. ability to go short or long. “Short when the underlying asset reaches set volatility” is a bet that volatility will levels. Traders often use options and Can the VIX be gamed? continue to go down, or at least stay other derivatives as insurance policies VIX futures contracts are paid off at very low levels. “Long volatility” is against market fluctuations or to bet according to the prices at which market the opposite, a bet that volatility will on the moves themselves. The more an makers are trading S&P 500 options increase. With the VIX falling for a third option costs, the larger the move needed at a set time every Wednesday. The year in 2017, shorting volatility became to generate a return that will make it VIX has had some big moves on days very popular: A Bank of America Corp. pay off. So option prices reflect, among on which lots of futures are settled, survey in early January found that the other things, the size of the swings — the raising concern among academics and strategy had become the most crowded volatility — traders expect. some market participants that some trade in the markets.

How’d that work out? Long Nap, Rudely Awakened In February, volatility jumped when The VIX, the most-watched measure of volatility, hit a record low in 2017 before bouncing back uncertainty over the impact of rising 80 Treasury yields hit the stock market, helping to drive wild swings in U.S. shares. Volatility had been unusually Cboe Volatility Index (VIX) 60 low for an unusually long period of time, and many people were betting on that staying the same. Some of them 40 weren’t paying enough attention to the GEA/REUTERS ALBERT PHOTO: risks, or didn’t hedge their bets to the extent they might have needed to. In 20 addition, some securities, such as VIX- VIX historical based exchange-traded notes, ran into average 19.3 trouble because their designs weren’t 0 conducive to surviving a big market

7/2008 5/2018 turn like that. CBOE SOURCE: GRAPHIC

BZ9_Quicktakes02_biz_world.indd 22 6/8/18 12:37 PM GRAPHIC SOURCE: CBOE PHOTO: ALBERT GEA/REUTERS This documentisbeingprovidedfortheexclusiveuseofO'MALLEYAVANTatSAOSCAPITALLLC BZ9_Quicktakes02_biz_world.indd 23 6/8/18 12:37PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Short Selling By Benjamin Robertson

If you buy low and sell high, chances are you’ll be richer and everybody will be happy. Sell low after borrowing high and you may be rich, but odds are quite a few people will be anything but pleased. That’s the short seller’s predicament, and why investors who bet that stocks will drop get threatened with everything from temporary restrictions to serious jail time, particularly during times of market turmoil. Shorts, as they’re known, say they’re keeping markets and companies honest. Critics say their practices can blur into market manipulation. Regulators are keeping a wary eye on them.

The Situation shorting railroad operator Union Pacific The Argument Short sellers borrow shares, sell them, shortly before the 1906 San Francisco Critics say short sellers can transform buy them back at a lower price and earthquake. The collapse of Enron downturns into full-blown panics. profit from the difference — unless Corp. in 2001 marked a notable scalp They also point to the ability of shorts the stock rises. The biggest headlines for shorts including Jim Chanos, who to hoodwink investors by spreading these days are being made by so-called had been among the first to question false rumors before exiting a trade, a activist shorts, even though they account its accounting. Starting in 2011, Muddy technique known as “short and distort.” for only a small slice of short selling. Waters’ Carson Block raised the profile Defenders say the potential for abuse Most shorting is done by hedge funds of the new breed of activist shorts by shouldn’t discredit all shorts any more and institutional investors to cushion taking aim at under-the-radar Chinese than “pump and dump” schemes their investments against falling stock companies listed in North America, disgrace all investors who whip up prices or to bet that shares have risen including the now bankrupt Sino-Forest interest in a stock to push it higher and too high. Activists, on the other hand, Corp. The practice can be perilous: then sell it. Short sellers say they are research companies to find targets Block said he stopped shorting Chinese skeptics who alert investors to bouts of that they allege have dodgy business companies for a time because “tattooed market euphoria, identifying mispricing or accounting practices, spread the gangsters” came looking for him. Short or deception that analysts, auditors word (sometimes anonymously) and, selling remains legal in most stock and investors overlook. The name of if all goes as planned, watch the stock markets, unlike so-called naked short Chanos’s firm is Kynikos — a Greek term slump. Although activist shorts have selling — shorting without having first from which the English word “cynic” was been calling out companies for decades, borrowed the shares. When markets derived. Often vilified as market outlaws, their numbers have swelled thanks to go bad, governments and regulators investors betting against the housing the rise of social media as a platform for sometimes impose restrictions in an market were portrayed as the good guys disseminating theories and analysis. In effort to help stem the slide. The U.S. in the 2015 film “The Big Short.” Shorts 2017, shorts began campaigns against 186 targeted short selling during the Great have some backing from researchers: companies globally, versus 130 in 2013, Depression and joined the likes of the One paper found that the practice according to Activist Insight Ltd. The U.K., Germany and Japan in limiting discourages the manipulation of earnings campaigns have spread geographically, short selling or banning it during the reports, while another showed that too, with shorts turning their attention financial crisis that erupted in 2008. shorts made more accurate predictions to Australia, Japan, Singapore and South China’s regulator blamed “malicious” of the share performance of U.S.-listed Africa. Some predict Europe will be the short selling in part for a stock market Chinese companies than stock analysts next frontier. Many authorities dislike crash in 2015, placing limits on the did. A third concluded that activist shorts the practice — the former head of the practice as well as arresting traders. were usually “factually right.” New York Stock Exchange has described short selling as “icky and un-American.” Notable Short-Selling Campaigns The Background Activists make money when negative information they publish drives down a share price; Dutch traders were shorting as long if it goes up, they lose ago as the 1600s, including during the tulip bubble. Napoleon labeled Target Short seller Primary allegation Stock change short sellers of government securities Enron (2000) Kynikos Associates/Jim Chanos Misleading accounting Fell to near zero “treasonous.” Short selling stocks — as Lehman (2008) Greenlight Capital/David Einhorn Misleading accounting Fell to near zero opposed to, say, tulips — is particularly Sino-Forest (2011) Muddy Waters/Carson Block Major business fraud Fell to near zero challenging because equity markets Herbalife (2012) Pershing/Bill Ackman Pyramid scheme Rose 163% have a long-term track record of moving Lumber Liq. (2013) Kase Capital/Whitney Tilson Unsafe materials Fell 79% up rather than down. Still, it can be Valeant Pharma. (2015) Citron Research/Andrew Left Accounting fraud Fell 82% done. Jesse Livermore, known as the China Huishan (2016) Muddy Waters/Carson Block Misleading accounting Fell 85% Steinhoff (2017) Viceroy Research/Fraser Perring Accounting fraud Fell 92% “King of the Bears,” made a fortune BLOOMBERG SOURCE: 2018; 31, MAY THROUGH CHANGES PRICE STOCK GRAPHIC:

BZ9_Quicktakes02_biz_world.indd 24 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Sexual Harassment on Wall Street By Max Abelson

Since movie mogul Harvey Weinstein was accused of sexual harassment and assault in late 2017, powerful men have been pushed out of jobs in the media, the arts, politics and the restaurant business after they were accused of egregious behavior. Something is different on Wall Street, where companies have seemed practically immune. Why hasn’t #MeToo seriously hit finance?

Is harassment less prevalent in often than not are men. Women made So you think you know what sexual finance? up about 29 percent of senior managers harassment is? Some executives have made that case. in financial services in the U.S. in 2015 Since the late 1970s, U.S. courts have ruled that They’ve said the industry cleaned out — the same as in 2007, according to a unwelcome sexual advances in the workplace constitute discrimination on the basis of sex. bad behavior more than a decade ago government study. No woman has ever Successive cases have refined the law, which after a string of high-profile lawsuits run a major Wall Street bank. typically forms the basis of employer policies. revealed that women were enduring True or false? �Christie Smythe harassment at top companies. As a How is culture an issue? result of those cases, which cost banks The women interviewed said their A harasser must be in a superior role millions of dollars in legal settlements, companies prize discretion, expect to the harassed. Wall Street widely adopted anti- sacrifice, fixate on reputation and are ● False Peers can harass, for example, by harassment training earlier than many built on relationships. Some of them choosing whether to collaborate with a colleague based on his or her other industries. Spokesmen for the said they worried that pointing fingers receptivity to advances. biggest U.S. banks have said the work would permanently alienate bosses, environment for women has improved colleagues and even rivals. Researchers — that their policies both foster respect have argued that in male-dominated It’s not harassment if an employee and make it easier for employees to organizations, ambitious women may voluntarily participated in sexual acts. lodge complaints. tolerate sexual harassment in an effort ● False The issue is whether sexual to fit in and gain access to the highest advances were unwelcome. Is that true? status group. Insiders in the industry say that the problem of sexual harassment didn’t go Hasn’t anyone complained? To prove a case, it’s not necessary to away. In a letter to industry regulators, Yes, but such cases in the finance show economic or tangible injury. three U.S. senators said the paucity industry rarely attract public attention. ● True It’s sufficient to show that harassment of public revelations in finance was That’s because many complainants created a hostile work environment. the result of forces that “discourage are barred from speaking openly by speaking out.” Bloomberg interviews confidentiality clauses they signed with current and former Wall Street as a condition of employment. A single use of vulgar language, or women support that perspective. The Wall Street was an early adopter of putting an arm around a colleague, women, who asked not to be identified, mandatory arbitration agreements, can constitute harassment. said they were grabbed, kissed out of which require employees to settle job- ● False Courts look for behavior that is sufficiently severe or pervasive the blue, humiliated and propositioned related complaints through closed- enough to alter the conditions by colleagues and bosses, or witnessed door arbitration, where the parties are of employment. others being treated that way. Most of usually required to keep the outcome those harassed, and women quoted secret. Employees give up the right to elsewhere, said they’d stayed quiet sue in open court, where cases might costly than trials, they result in fewer about what they’d endured because of receive attention from the media and wins and smaller monetary awards for financial and cultural factors. the public. employees. Another complaint is that an arbitrator’s decision generally is What’s money got to do with it? Has the #MeToo movement inspired not open to appeal. In response to the People in finance — women no less than any changes? #MeToo movement, Congress began men — tend to be drawn to the industry It’s focused criticism on mandatory considering a bipartisan proposal by money, and complaining about a arbitration. Supporters of the process barring mandatory arbitration in colleague can jeopardize a lucrative say some complainants appreciate sexual-harassment cases. The attorneys career. Much of Wall Street pay is in the the confidentiality. But a number of general of every U.S. state collectively form of bonuses, doled out at the almost studies have concluded that though urged the nation’s lawmakers to take

GRAPHIC: STOCK PRICE CHANGES THROUGH MAY 31, 2018; SOURCE: BLOOMBERG SOURCE: 2018; 31, MAY THROUGH CHANGES PRICE STOCK GRAPHIC: complete discretion of bosses who more the procedures are speedier and less such action.

BZ9_Quicktakes02_biz_world.indd 25 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Where Brexit Hurts Most By Emma Ross-Thomas

Two years after Britain voted to leave the European Union, the task of untangling itself from its neighbors is proving fiendishly complex. Former World Trade Organization chief Pascal Lamy says it’s like taking an “egg out of an omelette.” Brexit, as the pullout has become known, is bringing risks to people and businesses that could get caught on the wrong side of a newly erected border. Deep disagreement among the British themselves on the best approach is complicating the process. With the U.K. set to exit the 28-nation bloc in March 2019, there are still more questions than answers about what Brexit will mean.

Cross-border supply chains violence or renew questions about after the split. Britain wants a system Brexit means the U.K. must potentially a united Ireland. There’s no obvious based on “mutual recognition” of rules give up one of the greatest benefits of solution. that would enable London-based staff to being in the EU: the ability to buy and continue to sell stocks, bonds and other sell stuff with the 27 other members as The fight for the City financial products to customers across if they were all one country. Leaving the To ensure they’ll be able to keep serving the bloc. The EU instead proposed a so-called single market could cripple EU customers, firms in Britain’s financial system based on so-called equivalence, cross-border supply chains that have industry, known collectively as the in which the bloc would grant selective built up over decades. Cars assembled City of London, have been setting up access to certain lines of business on a in the U.K., for example, are only about subsidiaries elsewhere in the region and case-by-case basis. Even that would be 40 percent British-made on average, and moving employees to cities including revocable. parts can cross borders many times in Frankfurt, Paris and Dublin. They aren’t the process. The EU is the destination for taking any chances, since they don’t Citizens’ rights about half of U.K. exports. know what kind of access they’ll get The two sides agreed in December 2017 on a deal that would protect the rights Customs checks of more than 3 million EU citizens now One way to keep some of those trade London’s Banker Exodus living in the U.K. and about a million benefits would be to stay in a customs Destination cities for bankers uprooted by Brexit, British citizens residing in the bloc. It union with the EU. That means the U.K. based on Bloomberg reports basically allows them to stay where they would adopt the same set of tariffs as are and continue to enjoy pensions and the EU for outside countries and avoid access to health care where they live. new customs checks. But it would also But the agreement is subject to a final prevent the U.K. from striking its own JPMorgan Chase divorce deal being reached, so affected trade agreements with the likes of China, citizens are still in a state of limbo. India and the U.S., a freedom that’s What immigration policy will look like critical for many pro-Brexit campaigners. in the future is still up for negotiation, In any case, the timeline for the Brexit Destination although the U.K. has said repeatedly talks means that negotiations on the not yet that it will halt the policy of “free details for future U.K.-EU trade won’t known movement” that allowed an unlimited 8,000 take place until after exit day. So Deutsche Bank employees number of EU citizens to settle in importers and exporters will probably Britain. be allowed to operate under the old rules until at least 2020. Could Brexit be reversed? Polls don’t offer much evidence that The Irish border UBS Britons have changed their mind. But After Brexit, the U.K.’s new land border there are plenty of campaigners trying with the bloc will run through the island to reverse Brexit. Their big opportunity of Ireland. At the moment the divider is Goldman Sachs will be when the negotiated divorce an invisible line between the Republic Frankfurt deal comes to the U.K. Parliament for of Ireland (which will remain part of the HSBC 3,050 approval, which is expected to happen EU) and Northern Ireland (a region that’s in the fall. Anti-Brexit lawmakers might part of the U.K.). Both sides have pledged Societe Generale try to muster a majority to reject the not to let a policed frontier emerge, Bank of America deal or force the government to put it fearful that any physical signs of a border Morgan Stanley Paris to a second referendum. Failing that, — even cameras operating on some sort Citigroup 1,780 they may try to adjust the terms or of seamless, technologically controlled Nomura send negotiators back to the table for

boundary — could reignite sectarian Barclays Dublin 150 another go. BLOOMBERG SOURCE: 2018; 31, MAY OF AS FIGURES GRAPHIC: BLOOMBERG SOURCE: GRAPHIC

BZ9_Quicktakes02_biz_world.indd 26 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

China’s Jet Challenge By Bloomberg News

Massive, low-grade manufacturing has raised much of China out of poverty. Can high-tech wizardry lift its economy to the skies? China is on a mission to upgrade its factories, a vision that includes the long-held goal of producing passenger aircraft. It’s a market that two companies — Airbus SE and Boeing Co. — have dominated for decades, and one that the Chinese state manufacturer Comac intends to shake up in three years or so with its C919 jet. There’s plenty of business to go around, with China on course to become the No. 1 market for airplanes and passengers. So should the industry heavyweights of Europe and North America be worried? And how prepared are travelers, both at home and abroad, to embrace “Made in China” aircraft?

The Situation executives say the C919 will “definitely” founder William Boeing built its first After at least two postponements, the get there faster, with China Eastern plane in 1916 in Seattle, had developed C919 successfully completed its maiden Airlines Corp. due to take its first delivery a stranglehold on passenger jet sales by test flight in May 2017. Within a year, around 2021. In other plans, Comac has the time Airbus — a 1960s amalgamation Comac, or Commercial Aircraft Corp. of formed an alliance with Russia’s United of European aerospace bodies — began China Ltd., had orders and commitments Aircraft Corp. to design and manufacture taking significant market share in the from 28 mostly Chinese buyers for 815 a twin-aisle jet capable of flying from 1980s and 1990s. The pair now more or airplanes. Chinese authorities are now Beijing to New York. less split the business, accounting for seeking agreements on the plane’s 97.4 percent of the global market for airworthiness with U.S. and European The Background single-aisle jets alone in 2017. They also regulators to open the way for flights and China’s early bids to develop passenger roughly divide equally the market in sales outside China. The C919 is a 158- to jets flopped. There was the Y-10, which China, where passenger aircraft sales 168-seat, single-aisle jet and is built mostly took decades to go from initial design will total more than $1 trillion between with customized versions of parts from to its first test flights in the 1980s. But now and 2035, according to Boeing. In other manufacturers, such as the engine government interest then waned as terms of passengers, China is forecast to from CFM International Inc., a Franco- business with the West opened up. Then overtake the U.S. as the largest air travel U.S. venture. Whatever its impact on there was the MD-82, a joint venture market as soon as 2022. Boeing and Airbus, a C919 ready for the that collapsed after Boeing acquired market would be a boon for Comac’s web China’s partner, McDonnell Douglas, The Argument of international suppliers, from General in 1997. President Xi Jinping’s plan for Getting into the major league with Electric Co. to Honeywell International a more sophisticated manufacturing Airbus and Boeing may be a few decades Inc. Still, full-scale production is several sector, known as “Made in China 2025,” away, as airlines typically prefer planes years away and can hardly be assured. brought renewed impetus, since that with proven track records for reliability Comac’s initial foray into the aviation strategy hinges on advanced industries and safety. There’s more to it, too, than market — a 90-seat jet called the ARJ21 — such as aerospace. (China’s first aircraft building reliable aircraft: Comac will took eight years to go from first flight to carrier was launched shortly before have to compete with the industry giants commercial operation in 2016. Comac the C919’s test flight.) Boeing, whose on after-sales service for repairs and maintenance. Acceptance in Europe and the U.S. will be a challenge, analysts Western Partners for a Made-in-China Plane say, as even Chinese consumers soured Some of the foreign suppliers contributing to the new Comac C919 single-aisle passenger jet on domestically manufactured high- speed trains after 40 people died in an Parker Aerospace Liebherr- UTC Honeywell Flight control Aerospace Lighting, fire Flight control accident in 2011. Critics also argue that actuation, Landing gear protection, systems, wheels, Comac is replicating outdated versions hydraulics, fuel emergency power brakes, auxiliary of jets, rather than creating state-of-the- systems systems power units and navigation systems art aircraft. Other industry watchers say the C919 is not intended to become the best-selling single-aisle aircraft, but General Electric rather a stepping stone for Comac to Eaton Onboard Hydraulic and maintenance build something better with indigenous fuel conveyance and flight data technology. Either way, a China-based recording system company — backed by the government — is well-placed to take significant business CFM FACC Arconic International Cockpit, cabin Fuselage skin, from the established manufacturers, at Engines interior, kitchens, forgings and least at home. restrooms extrusions

GRAPHIC: FIGURES AS OF MAY 31, 2018; SOURCE: BLOOMBERG SOURCE: 2018; 31, MAY OF AS FIGURES GRAPHIC: BLOOMBERG SOURCE: GRAPHIC Dong Lyu contributed to this article.

BZ9_Quicktakes02_biz_world.indd 27 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Chapter 3 WORLD AFFAIRS

BZ9_Quicktakes02_biz_world.indd 28 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

p31 Cyberwarfare, the new kind of conflict no one is ready for

p32 Movies! Women driving! Signs of change in Saudi Arabia

p37 How populism’s poster child is rattling Europe

BZ9_Quicktakes02_biz_world.indd 29 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

A globalized world is a big place to follow. Buzzwords Here’s how to understand the shorthand on international affairs. Dreamers & SPECIAL DACA COUNSEL By Erik Larson and Andrew Harris

By Laurence Arnold and In the U.S. immigration debate, Dreamers them to work legally. The offer applied only David Voreacos and DACA refer to people brought to the to those who had been brought to the U.S. U.S. as children without documentation. before 2007 and, at the time of application, The Dreamers name comes from the were older than 15, had a high school From the moment Robert Mueller was Development, Relief and Education for diploma or equivalent and had no criminal named as a special counsel to examine Alien Minors Act — DREAM Act, for short — record. When the program began, about Russia’s interference in the 2016 U.S. a bipartisan bill that would have created a 1.3 million immigrants were eligible and election and any possible role involving path to permanent residency or citizenship about 800,000 enrolled. Most have little President Donald Trump’s campaign, for many of them. After it was blocked by connection to their previous countries. he’s been the center of global attention. conservatives, President Barack Obama President Donald Trump, who campaigned Less well-known: exactly what’s so special in 2012 announced a program he called on a promise to end DACA, issued an order about Mueller’s position — and whether Deferred Action for Childhood Arrivals, to phase out permits in March 2018 unless Trump can fire him. A special counsel is a or DACA, that allowed some Dreamers to Congress acted. A string of immigration lawyer from outside of government named apply for renewable, two-year permits that proposals then failed in the Senate. But by the U.S. attorney general to take over protect them from deportation and allow federal judges blocked Trump’s order. an investigation that poses a conflict of interest for the Justice Department. Usually, a counsel reports to the attorney general. But in this case, Mueller answers to the deputy attorney general, Rod Rosenstein, who made the decision in May 2017 to give the case to a special counsel and chose Mueller, a former FBI director. Rosenstein’s boss, Attorney General Jeff Sessions, who’d been a Trump campaign adviser, had recused himself from overseeing the By Eleni Chrepa and Slav Okov probe. In his order appointing Mueller, Rosenstein gave him a broad mandate, instructing him to investigate “any links It’s a dispute that goes back more than Security Council, alleging theft of and/or coordination between the Russian seven decades — and, in a sense, over historic and cultural identity. It says the government and individuals associated 2,500 years. Greece and a neighbor to name Macedonia should refer only to its with the campaign,” as well as — and this is the north aren’t fighting over territory northern region, which was Alexander key — “any matters that arose or may arise or where the border should be. The row the Great’s stronghold in ancient times. directly from the investigation.” Trump has is about what constitutes “Macedonia,” Still, in 1993, the new country joined the called Mueller’s investigation a “disgrace,” the name taken by a small country UN under the provisional name Former but the 1999 rule that created the current that was born out of the breakup of Yugoslav Republic of Macedonia. Now it version of the position vested the power Yugoslavia. The roots of the conflict go wants to join the North Atlantic Treaty to fire a counsel in the Justice Department back to World War II. The southernmost Organization and the European Union. official supervising the investigation — in of six Yugoslav republics, the “People’s Greece vetoed the republic’s accession this case, Rosenstein. Under that rule, a Republic of Macedonia” was cultivated to NATO in 2008 and later halted the dismissal would have to be on a finding under federal leader Josip Broz Tito. start of EU negotiations. The two sides of “misconduct, dereliction of duty, That was seen by the U.S. as a possible resumed UN-mediated talks at the end of incapacity, conflict of interest” or “other front for aggression toward Greece. The 2017 after a new government took office good cause.” Rosenstein has said that he dispute then simmered for decades until in the republic, replacing one led by a sees no such reason to dismiss Mueller. Yugoslavia disintegrated. In 1991 the nationalist party. Greece opposes the A bipartisan bill to protect Mueller was southern region declared independence use of the Macedonia name without the introduced in the Senate, but Majority as the Republic of Macedonia. Greece addition of a qualifier such as “Northern,” Leader Mitch McConnell said he would

lodged a protest at the United Nations “New” or “Upper.” block a vote. INCIDENTS, THREATENING LESS REPORT TO REQUIRED LONGER NO WERE AGENCIES 2016, IN BEGINNING 30; SEPT. ENDING YEARS FISCAL FOR FIGURES GRAPHIC: RESPECTIVELY; 35,277 AND 30,899 WERE 2017 AND 2016 FISCAL FOR FIGURES ACCESS; AT ATTEMPTS FAILED AND SCANS AS SUCH OFFICE ACCOUNTABILITY GOVERNMENT U.S. SOURCE:

BZ9_Quicktakes02_biz_world.indd 30 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

A globalized world is a big place to follow. Here’s how to understand the shorthand on international affairs. Cyberwarfare By Jordan Robertson and Laurence Arnold

A March 2018 alert from U.S. security agencies warned of a new kind of attack. Agents of Russia’s government, it said, had targeted “government entities and multiple U.S. critical infrastructure sectors,” including energy, water and aviation. Russia, and the U.S. itself, are among the world’s practitioners of cyberwarfare, or state-sponsored invasions of computer networks and the myriad activities they guide. In the months after the alert, there were no official reports of attacks. Then again, it’s hard to know when and where cyberwarfare occurs, and who’s fighting. By Laurence Arnold and David Voreacos What is cyberwarfare? Target: U.S. Agencies to much larger schemes. North Korean It’s an attack on computer systems that Information-security incidents reported by hackers are suspected of being behind From the moment Robert Mueller was has the backing of one nation (or, by government agencies to the U.S. Computer the theft of $60 million from Taiwan’s Emergency Readiness Team named as a special counsel to examine some definitions, a transnational group Far Eastern International Bank in Russia’s interference in the 2016 U.S. like a terrorist organization) with the 80k October 2017. election and any possible role involving intent of hurting another nation, on a President Donald Trump’s campaign, scale that might spur military retaliation. Aren’t attacks on civilians supposed he’s been the center of global attention. to be off-limits? Less well-known: exactly what’s so special What forms can it take? Armies firing bullets and bombs are about Mueller’s position — and whether Any of the common methods of cyber 40k guided by rules of war that date back Trump can fire him. A special counsel is a misconduct, including infecting a centuries and are meant to reduce lawyer from outside of government named computer system with a virus or other civilian suffering. Terrorist attacks, by by the U.S. attorney general to take over malware, freezing its contents and design, are intended to kill and scare an investigation that poses a conflict of demanding payment with ransomware, civilians. Cyberwarfare sits somewhere interest for the Justice Department. Usually, disabling it with a flood of messages 0 in the middle. In 2013 a think tank a counsel reports to the attorney general. in a denial of service attack or hacking 2006 2015 affiliated with the North Atlantic But in this case, Mueller answers to the data for the purpose of espionage. (U.S. Treaty Organization published a 282- deputy attorney general, Rod Rosenstein, concerns about Chinese telecom giants page manual that attempts to apply who made the decision in May 2017 to give ZTE Corp. and Huawei Technologies Co. plants; or the blinding of radar and existing law to cyberwarfare — defining the case to a special counsel and chose include worries that China’s government targeting systems of fighter jets. which targets are off-limits (schools Mueller, a former FBI director. Rosenstein’s could use their products to spy on and hospitals, for example) and under boss, Attorney General Jeff Sessions, Americans.) A cyberwarfare attack also Who are the combatants? what circumstances a country can who’d been a Trump campaign adviser, could aim to sabotage a critical system, In addition to Russia, the U.S. and respond to a hack attack with military had recused himself from overseeing the like one guiding the launch of missiles. Israel, nations with active cyberwarfare force. But as the Tallinn Manual (named probe. In his order appointing Mueller, Russia’s manipulation of social media programs are thought to include China, for the Estonian capital, where the Rosenstein gave him a broad mandate, in an attempt to sway Western elections the U.K., Iran and North Korea. think tank is based) itself notes, it “is instructing him to investigate “any links is generally considered a form of not an official document” and “must and/or coordination between the Russian cyberwarfare. So is the so-called Stuxnet Is cyberwarfare waged by actual be understood only as an expression government and individuals associated worm, said to have been developed soldiers? of the opinions of two international with the campaign,” as well as — and this is by U.S. and Israeli intelligence, that Some nations, including the U.S., groups of experts as to the state of the key — “any matters that arose or may arise sabotaged Iranian nuclear centrifuges have dedicated cyberwarfare units law.” In April dozens of technology directly from the investigation.” Trump has starting in 2009. that conduct intelligence-gathering companies including Microsoft Corp. called Mueller’s investigation a “disgrace,” operations and support military and Facebook Inc. signed a pact that but the 1999 rule that created the current Why all the worry? missions. But the Russian “troll farms” they will “not help governments launch version of the position vested the power If influencing elections seems tame, that are accused of meddling in the 2016 cyberattacks against innocent citizens to fire a counsel in the Justice Department consider what full-blown cyberwarfare U.S. elections are separate entities that and enterprises.” official supervising the investigation — in could mean: the complete and engage in what’s known as information this case, Rosenstein. Under that rule, a prolonged shutdown of a power warfare — the art of manipulating dismissal would have to be on a finding grid (something that Ukraine has public opinion. These can be actors of “misconduct, dereliction of duty, experienced twice, presumably at the who maintain an arm’s-length distance incapacity, conflict of interest” or “other hands of Russian cyberwarriors); the (presumably for deniability reasons) good cause.” Rosenstein has said that he wipeout of data centers by malware from their sponsoring organizations. sees no such reason to dismiss Mueller. that overheats circuits; the scrambling North Korea’s notorious hacker army A bipartisan bill to protect Mueller was of bank records to cause financial panic is believed to have begun as part of the introduced in the Senate, but Majority (a 2013 attack froze three major South military. Its specialty is earning money Leader Mitch McConnell said he would Korean banks); interference with the for the ruling regime, by methods 2Takedowns of Ukraine’s power grid by block a vote. INCIDENTS, THREATENING LESS REPORT TO REQUIRED LONGER NO WERE AGENCIES 2016, IN BEGINNING 30; SEPT. ENDING YEARS FISCAL FOR FIGURES GRAPHIC: RESPECTIVELY; 35,277 AND 30,899 WERE 2017 AND 2016 FISCAL FOR FIGURES ACCESS; AT ATTEMPTS FAILED AND SCANS AS SUCH OFFICE ACCOUNTABILITY GOVERNMENT U.S. SOURCE: safe operations of dams and nuclear ranging from filching bank card data attacks blamed on Russia

BZ9_Quicktakes02_biz_world.indd 31 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Saudi Arabia’s Shift By Glen Carey and Dana El Baltaji

For Saudis, life is changing. A ban on women driving was lifted in June, and the government is permitting commercial movie theaters to open. There are more gender-mixed music concerts and other kinds of entertainment, including professional wrestling. The loosening up comes as the biggest economy in the Middle East struggles to urgently wean itself from oil revenue, which fuels a vast welfare state. That means fitting in better with the modern world and tampering with the cash-for-loyalty contract that Saudi kings have had with their subjects for decades. The man forging this future is Saudi Arabia’s 32-year-old crown prince, Mohammed bin Salman, who has amassed unprecedented power, cracked down on dissent and embarked on a grand remake. Two years into the reform drive, Saudi Arabia is trying to save money and speed up social change against a backdrop of one of the world’s most conservative religious establishments.

The Situation the government reinstated the perks in Government funds are pouring into 2017 after complaints on social media. education, health care and tourist To help fund the transformation, Saudi resorts as part of a campaign called Arabia plans to partly privatize its state- Vision 2030. It includes $500 billion run oil company, Aramco, and create the for a futuristic megacity on the Red world’s largest sovereign wealth fund. Sea coast to be called Neom. At the same time, Saudi Arabia is increasing The Background 30%Saudi Arabia’s youth military spending and reining in The kingdom was founded in 1932, unemployment rate clerics, journalists and activists through with the Al Saud family ruling under a intimidation and arrests. Dozens of compact with clerics belonging to the princes were locked up for about three austere Wahhabi form of Islam, who Saudi Arabia deeper into regional months in the Ritz-Carlton Hotel in kept control over social and religious conflicts, including a war in neighboring Riyadh and forced to hand over billions laws. The country became the biggest Yemen. Previous efforts to reduce the of dollars to the state in what authorities oil exporter in the 1970s and remained reliance on government handouts and called a weeding out of corruption. resistant to Western cultural influences expand the private sector have had Meanwhile, subsidies on basics like and political liberalization. The throne only limited success, in part because electricity have been cut, and more of Saudi Arabia, one of the world’s last many Saudis lack marketable skills and revenue is being raised with a value- remaining absolute monarchies, passed continue to view many occupations as added tax. There are renewed efforts to in 2015 to King Salman, who then set beneath them. get more Saudis working, since youth up his favorite son to be the first from a unemployment is about 30 percent and new generation of princes to take charge The Argument expatriates fill half the country’s jobs. of the country’s 21 million citizens. With the world’s biggest petroleum

Women are increasingly encouraged to An economic transformation became fields and about $500 billion in foreign TIMES/REDUX YORK NEW ALSULTAN/THE TASNEEM PHOTO: work, despite traditional disapproval vital after oil prices plunged in 2014, reserves, Saudi Arabia can continue to of face-to-face contact with men. ballooning the budget deficit and forcing rely on its oil money for some time. The There has been some pushback. After the kingdom to burn through foreign question is whether it can reconfigure canceling bonuses for state employees currency reserves at a record pace. the economy and create enough jobs that had long been taken for granted, Prince Mohammed has also pushed for its people before the clock runs out. While it’s becoming less tradition- bound and isolated, Saudi Arabia is still Burning Cash mainly a conservative, male-dominated Saudi Arabia’s foreign reserves are drained when oil’s price slumps society. The crackdowns have raised concerns that the considerable powers of the state are being concentrated in the $140 $800b hands of just one man, unnerving some Net foreign assets of the foreign investors the country will need to prepare for the post- hydrocarbon age. With almost half of Saudis under the age of 25 and the size $400b of the workforce expected to double by Brent crude oil price $75 $70 2030, Saudi Arabia can no longer afford its unproductive population. At the same time, if more Saudis earn their own living and are asked to pay taxes, they 0 could begin to demand a greater say in

5/31/2006 4/30/2018 how their country is run. EUROPE FUTURES ICE AGENCY, MONETARY ARABIAN SAUDI SOURCES: BARREL; PER IS PRICE OIL GRAPHIC:

BZ9_Quicktakes02_biz_world.indd 32 6/8/18 12:37 PM GRAPHIC: OIL PRICE IS PER BARREL; SOURCES: SAUDI ARABIAN MONETARY AGENCY, ICE FUTURES EUROPE PHOTO: TASNEEM ALSULTAN/THE NEW YORK TIMES/REDUX This documentisbeingprovidedfortheexclusiveuseofO'MALLEYAVANTatSAOSCAPITALLLC BZ9_Quicktakes02_biz_world.indd 33 6/8/18 12:37PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Yemen’s Crisis By Glen Carey and Sarah Algethami

In Yemen, a three-year war has produced what United Nations officials have called “the worst man-made humanitarian crisis of our time.” Schools, hospitals and other civilian sites have been repeatedly attacked. Yet disease and hunger rival bombs and gunfire as the biggest dangers to ordinary people. Yemen was already the poorest country in the Middle East. The war, UN officials warn, has put it at risk of famine.

Who’s fighting whom? 28 million people need outside assistance to other countries. For their part, the Broadly, on one side are Houthi rebels, for protection or to stave off hunger. An Houthis extract payments on goods members of a Shiite Muslim tribe from estimated 2.2 million children are acutely that are trucked through the areas the northern mountains, who took malnourished. Within Yemen, the war they control, forcing up food costs. control of the capital, Sana’a, and has driven about 2 million people from other cities in 2015. They complain of their homes. Why is disease such a threat? marginalization of their community Yemen was hit by a massive outbreak and are supported by Shiite-majority Why is there so much hunger? of cholera, an acute diarrheal disease, Iran. On the other side stand forces of Yemen relies heavily on imports for its starting in mid-2017. More than a million the internationally recognized Yemeni food supplies: The country grows only people were sickened, and about 2,200 government and allied militias backed by about 5 percent of the wheat it consumes. died. Cholera is bred by poor sanitation Saudi Arabia and its coalition of mainly That’s because freshwater for crops is and a lack of clean water — conditions Sunni Muslim nations. scarce, and farmers increasingly have created when wastewater treatment turned to cultivating the more profitable plants reduced operations because How bad has it become for civilians? khat, a narcotic leaf that 90 percent of of fuel shortages caused by import The death toll from fighting has been Yemeni men chew daily. The Saudi-led disruptions. An outbreak of diphtheria, estimated at about 10,000. Human-rights coalition has disrupted food and other which destroys respiratory tissue, began groups have documented repeated cases supplies coming into Yemen by imposing claiming more lives later in the year. of airstrikes on civilian targets by the a naval blockade on ports in the Houthi- Saudi-led coalition and indiscriminate controlled north, notably Hodeidah and Is the blockade legitimate? artillery fire into cities by the Houthis. Salif, which normally handle about 80 The advocacy group Human Rights In other ways, life has become wretched percent of imports. Coalition ships have Watch has argued that the Yemen and perilous, on a mass scale. UN officials held up vessels bound for the ports for blockade violates established norms of have said that 80 percent of Yemen’s significant periods or diverted them naval warfare, codified in the San Remo Manual, because its impact on civilians is disproportionate to its military benefits. The Front Lines The group has called on the UN Security A naval blockade exacerbates a humanitarian crisis in Yemen Council to sanction those responsible.

Houthi rebel control Hadi government control Ports subject to Saudi-led naval blockade What do coalition leaders say? They say the blockade is aimed at preventing the Houthis from receiving arms shipments from Iran. The rebels Saudi Arabia Sparsely have periodically shot missiles into Saudi populated Arabia, although they began after the coalition started bombing Yemen. Saudi officials have also expressed concern Sparsely that allowing ships to call on Houthi- populated Yemen Midi controlled ports gives the rebels a source of fees that help fund their war efforts. Luhayyah How’s the rest of the world reacted? Salif Nishtun Sana’a In early 2018, Germany suspended arms Hodeidah Ash Shihr exports to Saudi Arabia and its fighting al-Mukalla partner the United Arab Emirates. Red Sea Norway also ceased such sales to the Balhaf U.A.E. The U.S. and U.K. support the al-Mokha coalition with weapons sales and Gulf of Aden logistical help. The UN has partnered 0 100 Miles Aden with humanitarian groups to provide

0 100 Km assistance to Yemen’s neediest people. PROJECT THREATS CRITICAL INSTITUTE’S ENTERPRISE AMERICAN SOURCE: 2018; 16, MAY OF AS MAP GRAPHIC: BLOOMBERG SOURCE: GRAPHIC

BZ9_Quicktakes02_biz_world.indd 34 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

The Future of Jihad By Caroline Alexander and Tarek El-Tablawy

Islamic State, the most destructive militant Islamist group in modern times, has been subdued in Iraq and Syria. Its self-declared caliphate is in ruins, like the grandest ambitions of its forerunner, al-Qaeda. But the story of modern jihad — holy war waged on behalf of Islam — is far from over. Both groups live on through a collection of like-minded jihadis spread across the Muslim world. They continue to fight to overthrow governments they consider heretical, aiming to establish their ideas of purified Islamic societies and lashing out at foreign powers.

The Situation Jihadi Hot Spots Sunni branch of Islam. The Arab Spring Islamic State’s fighters in Iraq and Syria rebellions of 2011 enabled jihadis were squeezed by an array of forces Afghanistan to exploit chaos in several nations, — notably a coalition led by the U.S. Khorasan Province, an Islamic State affiliate, including Syria and Libya. Islamic conducts extremely lethal attacks on civilians, Meanwhile, affiliated groups ballooned especially Shiite Muslims, considered heretics by State began capturing territory in 2014 in number elsewhere. Al-Qaeda, which Sunni jihadis. in Iraq as well as Syria, where unrest was crippled after launching the Sept. 11, had led to civil war. Arab militants Egypt’s Sinai Peninsula 2001, terror attacks on the U.S., quietly Sinai Province, an Islamic State affiliate, attacks energized radical Muslims farther away, rebuilt as world powers focused on security forces and religious minorities and took in places such as Southeast Asia and battling its spinoff. Today, al-Qaeda credit for the 2015 bombing of a Russian plane Africa’s Sahel region. Jihadi groups that claimed 224 lives. prefers to work through local groups have succeeded in recruiting followers and often tries to hide its connection Libya even though they advocate a much to them. Islamic State and al-Qaeda Jihadis affiliated with Islamic State held the city stricter form of Islam than most Muslims of Sirte for more than a year and have been affiliates have continued to sponsor and tied to terrorist attacks in Berlin in 2016 and embrace. In a 2015 Pew Research Center inspire terrorist attacks in the U.S. and Manchester, U.K., in 2017. survey of 11 countries with significant Europe, often by radicalized individuals Muslim populations, participants Nigeria with no known tie to any organization. Boko Haram, which pledged allegiance to Islamic overwhelmingly registered negative But their greatest impact is in the Muslim State, targets security forces and civilians and attitudes toward Islamic State. world. Civil wars have been on the rise has kidnapped hundreds of schoolgirls. globally since 2003, according to a 2017 Philippines’ Mindanao region The Argument academic study; about two-thirds of Four Muslim insurgent groups allied with Islamic Are military campaigns against jihadis the new conflicts are in mainly Muslim State seized the city of Marawi in 2017 and held it just a game of whack-a-mole? Armed for five months. countries, and the vast majority of rebel intervention by the U.S. and its allies, groups profess radical Islamist views. Somalia including drone strikes, often produces Most are fighting to erase borders and Al-Shabaab, an al-Qaeda ally, commits terrorist civilian casualties, which can then fuel attacks in nearby countries and domestically, create a caliphate, a state claiming including an October 2017 bombing in Mogadishu recruitment of new radicals. Some dominion over all Muslims. Having a that killed more than 500 people. analysts argue that foreign involvement transnational goal has enabled jihadi also lends support to the militants’ Syria leaders to raise donations and recruits Jabhat al-Nusra, al-Qaeda’s strongest franchise, case that alien powers help maintain from many different countries. has an estimated 10,000 men under arms illegitimate regimes. Supporters fighting the Syrian regime. of military action say that U.S. and The Background Yemen European governments have much The fight by Afghanistan’s jihadis to push Al-Qaeda in the Arabian Peninsula claimed at stake: In addition to the threat of out Soviet occupiers in the late 1980s responsibility for the 2015 attack on offices of orchestrated attacks on their soil, their the French magazine Charlie Hebdo and was attracted Arab volunteers who sought a fingered in three attempts to blow up U.S.-bound diplomatic missions, businesses and purpose amid rampant unemployment airplanes. expatriate citizens remain targets where and loss of hope in nations headed by jihadis operate. Plus, the governments iron-fisted leaders. When the Afghan that are the main targets are often ill- battle ended, the volunteers returned the Sept. 11 attacks. In response, U.S. equipped to face the threat alone. At the home to continue fighting holy war. and allied forces drove al-Qaeda from same time, foreign firepower may give Among them was Osama bin Laden, a its sanctuaries in Afghanistan, though authorities in majority-Muslim nations Saudi, who formed al-Qaeda. Arguing remnants of the group survived. The the comfort to put off reforms that that the U.S. and its allies were the U.S.-led invasion of Iraq in 2003 gave could diminish the appeal of holy war. “far enemy” preserving apostate Arab birth to Islamic State, which recruited Those include measures to create more regimes, al-Qaeda declared war on them fighters to resist the foreign occupiers. economic opportunities and expand

GRAPHIC: MAP AS OF MAY 16, 2018; SOURCE: AMERICAN ENTERPRISE INSTITUTE’S CRITICAL THREATS PROJECT THREATS CRITICAL INSTITUTE’S ENTERPRISE AMERICAN SOURCE: 2018; 16, MAY OF AS MAP GRAPHIC: BLOOMBERG SOURCE: GRAPHIC in 1998, killing almost 3,000 people in Both groups draw followers from the political freedoms.

BZ9_Quicktakes02_biz_world.indd 35 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Vladimir Putin By Henry Meyer

He’s among the West’s most distrusted politicians, but at home in Russia, Vladimir Putin’s popularity is unrivaled. In a culture that admires strength, the president’s muscular style of nationalism resonates, as he flaunts his country’s “invincible” new nuclear weapons and defies the West over military interventions in Syria and Ukraine. In power longer than any Soviet leader other than dictator Joseph Stalin, he’s come to symbolize a concept of managed democracy and conservatism that values political strength over individual freedoms. His personal appeal has been tested by economic hardship caused by a fall in oil prices and sanctions provoked by his government’s assertive behavior. But his standing with Russians has hardly been dented.

The Situation and dreamed of working in intelligence. carefully constructed public personality Putin cruised to a fourth term in March In 1989, as a spy in East Germany, he through TV. He appears daily as an elections with a landslide victory, though was forced to destroy documents when ironman of action, rebuking government Russian and international observers crowds tried to break into the office officials, hosting foreign leaders, even complained the vote wasn’t fair. His of the KGB, the Soviet spy agency and taming wild animals and hang gliding. victory came amid an escalation of secret police force. He said the discovery Cultivating his aura of power, Putin is tensions with the West after the U.K. of the powerlessness of his Soviet bosses legendary for showing up late — he’s accused Russia of staging a nerve-agent traumatized him. When Communism kept the pope, Queen Elizabeth II and attack on a former Russian double agent collapsed, Putin switched his public German Chancellor Angela Merkel living in Britain and his visiting daughter. allegiance from the atheistic ideology to waiting. Sports are a passion — he’s a Relations were already strained by the Russian Orthodox Church, to which black belt in judo, a swimmer, skier and allegations of Russian cyberattacks and two-thirds of the population profess to keen ice-hockey player. Occasionally, the efforts to influence elections in the U.S. belong. As president, Putin presents a Putin stone face softens: After winning a and Europe. Before that, Putin had been third presidential term in 2012 following isolated over his annexation of Ukraine’s a tumultuous challenge from street Crimean Peninsula in 2014 and his role Vladimir Putin protesters, he shed tears at a televised in a pro-Russian rebellion in Ukraine. victory rally. More typical: In 2007, he U.S. President Donald Trump expressed 1952 Born Oct. 7 in Leningrad to a factory met Merkel at his Sochi residence and interest in improving relations with foreman and his wife let his pet Labrador retriever sniff his Russia. But an investigation into whether 1975 Graduates in law from Leningrad State unnerved guest. She’s known to be his election campaign colluded with the University; joins KGB foreign intelligence service afraid of dogs. Russians deferred that impulse, and ties 1985 Begins five-year stint with KGB in East actually worsened. With a three-year Germany The Argument Russian military campaign in Syria that Putin once described the collapse of the shored up President Bashar al-Assad 1990 Becomes assistant rector for international Soviet Union as the greatest geopolitical affairs at Leningrad State and adviser to city against rebels backed by the U.S. and government catastrophe of the 20th century. He its allies, Putin challenged America’s sees himself as a guardian of Russia’s dominant role in the Middle East. In his 1996 Transferred to Moscow to join President unique place in the world, under assault Boris Yeltsin’s staff 2018 state-of-the-union address, he played from a decadent West. His constituents videos showing off new Russian weapons 1998 Becomes director of Federal Security appear to take a similar view, given — at one point targeting what appeared Service, the post-Soviet spy agency that his approval ratings remain strong to be the U.S. — and said the arms proved 1999 Appointed prime minister; becomes acting despite adversities caused by a two-year the West had failed to contain Russia. president when Yeltsin resigns recession that ended in 2016, the longest 2000 Elected president in more than two decades. Barring a The Background change in the constitution, which limits Putin, 65, honed his survival techniques 2008 Leaves presidency because of term limits; presidents to two consecutive terms, appointed prime minister as a deprived child in postwar Leningrad Putin can’t run again for the office (now St. Petersburg). Two older siblings 2012 Re-elected president when his term expires in 2024. He’s died during the 900-day German been grooming a new generation of 2013 Relations with U.S. deteriorate with backing siege against the city in World War II, for Syrian President Bashar al-Assad and asylum technocrats, one of whom could emerge according to a 2013 book by a distant for NSA leaker Edward Snowden as his chosen successor. Alternatively, relative. His mother barely survived. he could repeat the maneuver he used 2014 Annexes Crimea in conflict over Ukraine In a 2000 autobiography, Putin wrote in 2008 after serving two presidential that the family lived in a small room 2015 Faces recession that becomes Russia’s terms: becoming prime minister to keep in a communal apartment without hot longest in two decades the reins of power. Or he could create water or a proper bathroom. There he 2018 Elected in a landslide to a fourth term some new role for himself to maintain

said he chased rats, learned martial arts as president his dominance. BLOOMBERG SOURCE: GRAPHIC COMMISSION EUROPEAN SOURCE: GRAPHIC

BZ9_Quicktakes02_biz_world.indd 36 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Europe’s East-West Rift By Zoltan Simon

Almost three decades after the fall of the Iron Curtain, tensions are again threatening to divide Europe. Anti-immigrant, socially conservative movements have roiled politics in places as different as Britain and Italy. But they’ve made their greatest gains in Hungary and Poland, where populist leaders are challenging the settled norms of democracy in the European Union. The key figure is Viktor Orban, who as Hungary’s prime minister has turned against the ideals of his former benefactor, the Hungarian-born billionaire and philanthropist George Soros, to champion what Orban calls the “illiberal state.” French President Emmanuel Macron has called the struggle over values a kind of “European civil war.”

What’s Orban up to? dissenter to Chancellor Angela Merkel’s Not on My Street His Fidesz party again prevailed in April welcoming stance toward refugees, is an Share of people who said they would be totally elections, giving him a third consecutive Orban fan. So is Stephen Bannon, former uncomfortable having an immigrant as a neighbor parliamentary supermajority. The chief strategist to U.S. President Donald government has widened a crackdown Trump, who called Orban a “great hero.” Hungary 60% against nongovernmental organizations Bulgaria 42% and moved to silence dissent by What are their goals? Czech Republic 36% undercutting the media and the Orban portrays himself as a counterpoint Romania 34% judiciary. Political pressure led Soros’s to Europe’s liberal democratic model, Slovakia 34% Open Society Foundations, one of the which he said was destined to lose its Austria 28% world’s biggest funders of NGOs, to competitive edge to centralized states like Poland 27% decamp from Budapest to Berlin. Central China. Poland’s de facto leader, Jaroslaw Italy 26% European University, founded by Soros Kaczynski, is seeking a return to Europe’s Greece 20% to train future leaders in ex-communist Christian roots from the multicultural EU average 18% Europe, is in legal limbo and considering values enshrined in the EU. Others, from Finland 18% moving to Vienna. Czech caretaker Prime Minister Andrej Germany 17% Babis to the populist leaders who took Belgium 13% How has he changed Hungary? power after Italy’s March election, are France 13% After his election in 2010, Orban pushed resisting deeper EU integration. Denmark 8% through a new constitution, curtailed U.K. 7% the power of courts, appointed allies to Why is eastern Europe a hotbed Spain 6% head key institutions and changed the of populism? Netherlands 5% electoral system in ways that helped There’s a rich vein of frustration among Ireland 4% him keep power. The 55-year-old leader people who feel left behind by the Portugal 4% has gathered support by targeting post-communist transformation. Sweden 3% immigrants, particularly Muslims, whom Many of the countries have very short he’s called “invaders.” To protect what histories as functional democracies; he calls “Christian Europe,” he built a most adults grew up with limited rights. Jewish, has had anti-Semitic overtones. fence on Hungary’s southern border and There is also disillusionment with the What’s more, a new class of politically forced asylum-seekers into detention system that produced the 2008 global connected oligarchs in Hungary holds camps when a flood of Middle Eastern financial crisis. While some pockets sway over an ever-greater slice of refugees arrived in 2015. of eastern Europe, such as the Czech the economy. Slovakia’s government Republic, are now richer than parts of fell in March after the murder of an Who’s following his lead? western Europe, relatively low wages investigative journalist focused public In Poland, the Law & Justice Party has and continued hardship elsewhere have anger on corruption. led a similar assault against courts, the fueled discontent. media and other fixtures of democratic What can the EU do? governance since taking power in 2015. What do critics say? EU leaders are debating whether Other former communist nations such That the rhetoric is contrary to the subsidies from the bloc’s budget for as the Czech Republic and Slovakia values the EU has been built upon. poorer countries should be linked to have resisted taking in refugees, while European Commission President Jean- the rule of law, possibly denying them Romania has weakened anti-corruption Claude Juncker pointed out during the billions of euros in financing. The laws. A nationalist party in Slovenia led refugee crisis in 2015 that Europeans of group is also considering using a long- by an Orban ally won the most votes in all nationalities were forced to emigrate dormant law that could potentially strip an election in June. In western Europe, at some point in history, including those Poland and Hungary of their voting nationalists of all stripes have cited in eastern Europe now opposed to a rights in the bloc, though the two Orban as an inspiration. German Interior resettlement system. Others have noted nations have vowed to use their veto

GRAPHIC SOURCE: BLOOMBERG SOURCE: GRAPHIC COMMISSION EUROPEAN SOURCE: GRAPHIC Minister Horst Seehofer, a leading that Orban’s attack on Soros, who is powers to protect one another.

BZ9_Quicktakes02_biz_world.indd 37 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

South Africa’s Chance By Mike Cohen

When the African National Congress swept to power under Nelson Mandela in South Africa’s first multiracial elections in 1994, its campaign slogan assured “a better life for all.” That vision, already somewhat faded, was tarnished during the almost nine-year presidency of Jacob Zuma, which was characterized by scandal, corruption and economic stagnation. Now a new president, Cyril Ramaphosa, has rekindled hopes by starting to clean house. While it could take years to undo the damage that’s been done to Africa’s largest economy, “Ramaphoria” has driven consumer confidence to an all-time high, spurred predictions of higher economic growth and prompted foreign investors to take another look.

The Situation Unemployment’s Grip Zuma appointed him deputy president After years of party infighting led to the South Africa unemployment rate in 2014. He secured control of the ANC dramatic ouster of Zuma in February, 28% in late 2017. Ramaphosa took office and began to crack down on corruption. Some of The Argument Zuma’s most inept ministers were 26% Over the years, South Africa’s fired, and the new administration government has been able to point to began to revamp the leadership of state some successes: The economy has almost companies implicated in graft. Zuma was 24% trebled in size, and the poverty rate indicted on multiple charges, including has fallen from 67 percent in 2006 to racketeering and money laundering. 56 percent in 2015. Ramaphosa’s political Ramaphosa is seeking $100 billion in 22% and business experience has raised new investment over the next five years 1Q 2008 1Q 2018 hopes that he can revive the struggling — an ambitious goal since total foreign economy and address the plight of an investment was just $1.5 billion in 2017 army of poor. The task of rebuilding will and the economy shrank in the first 1910 that disenfranchised black South be helped by the fact that the nation quarter of this year. He’s tried to calm Africans, whom they viewed primarily has transport links and energy supplies investors rattled by the ANC’s moves to as cheap labor. In 1948, the government that are the envy of Africa, a trove of change the constitution to allow land started implementing a legal system of untapped minerals and independent expropriation without compensation, separation of races known as apartheid, courts. Yet racial inequalities persist, which the party says will step up the or apartness. It denied black people and companies remain largely controlled redistribution of wealth to black citizens. the vote, stripped them of land and and managed by whites. The 26.7 percent Ramaphosa insists any policy shift won’t provided only rudimentary education unemployment rate will likely stay be allowed to harm the economy or and health-care services. South Africa elevated, as a poorly managed public- agricultural production. Voters will judge endured decades of economic sanctions schools system, ranked among the his performance in national elections and an armed struggle by the ANC and world’s worst, means more than half in 2019. Disillusionment with Zuma has other groups. Mandela, who’d led calls of the children who start school don’t eroded the ANC’s popular support for for the ANC to take up arms, served complete the full 12 years. Efforts to clean years and cost it control of Johannesburg, 27 years in prison before the government up the state are likely to be frustrated by the economic hub, and Pretoria, the agreed to free him in 1990 and hold the scores of Zuma allies who occupy key capital, in municipal votes in 2016. multiracial elections. Ramaphosa, posts. But if Ramaphosa succeeds, South born in 1952, has played an integral Africa could emerge as an example of The Background part in South African politics since the good governance and democracy for the

European settlement in South Africa early 1980s. He founded the biggest rest of the continent. IMAGES IMAGES/GETTY TIMES/GALLO MABE/SUNDAY MOELETSI PHOTO: dates from 1652, when the Dutch East mineworkers’ union and led talks that India Co. established a supply post in ended apartheid. After losing the contest Cape Town; the British occupied it in to succeed Mandela to Thabo Mbeki, he 1795 to secure the sea route around started his own investment company, the southern tip of Africa. Colonialism which benefitted from requirements spread as the Dutch — known as Boers that white investors partner with black or farmers — migrated to the interior. shareholders. He ended up with stakes Discovery of inland gold and diamond in businesses ranging from mining to deposits spurred the Anglo-Boer Wars, consumer goods. Ramaphosa returned which the British won in 1902. White to full-time politics in 2012, when he $100bRamaphosa’s goal for foreign direct investment

colonists adopted a constitution in was elected as the ANC’s deputy leader; over the next five years AFRICA SOUTH STATISTICS SOURCE: GRAPHIC

BZ9_Quicktakes02_biz_world.indd 38 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC PHOTO: MOELETSI MABE/SUNDAY TIMES/GALLO IMAGES/GETTY IMAGES IMAGES/GETTY TIMES/GALLO MABE/SUNDAY MOELETSI PHOTO: GRAPHIC SOURCE: STATISTICS SOUTH AFRICA SOUTH STATISTICS SOURCE: GRAPHIC

BZ9_Quicktakes02_biz_world.indd 39 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Wave Election By Greg Giroux

When the same party controls both the U.S. presidency and Congress, ambitious legislation can happen. Look at the Affordable Care Act, known as Obamacare, passed under Democrats in 2010, or the bill that cut $1.5 trillion in taxes that was passed by Republicans at the end of 2017. But the congressional elections coming on Nov. 6 could bring one-party government to a halt and increase the odds for gridlock in Washington. An analysis by Bloomberg Government of historical data, election maps and public polling shows that this could be a “wave election” that breaks in favor of the Democrats.

What’s a wave election? energizes citizens, so those opposed to also should be able to run on strong One in which a political party makes the president and his policies are more economic growth. major gains in the House or Senate. motivated to turn out at the polls than All 435 House of Representatives seats those happy with the status quo. The What happens if Democrats win? and 35 of the 100 Senate seats are on backlash can be severe: Since the end of Even if only one chamber flips to the the ballot. Before the election, the World War II, the president’s party has Democrats, Trump’s ability to get Republicans hold a 235-to-193 edge in had a net loss of 26 House seats and major legislation passed would likely the House. Republicans have a 51-to-49 4 Senate seats on average. Democrats be thwarted, and his administration advantage in the Senate. have had strong showings in elections to would face investigations and subpoenas fill vacancies since Republican Donald from congressional committees led by Can Democrats win a majority? Trump became president, adding to the Democrats that are probing whether the In midterm elections, those that come speculation that they can capture the Trump campaign colluded with a Russian halfway through a president’s four- House. It could be harder for Democrats effort to undermine the 2016 election. year term, the party in control of the to take the Senate. They’d have to retain White House tends to suffer a voter almost all their current seats, 24 held backlash. One theory is that anger by the party and two by independent President’s Midterm Party Losses senators who typically vote with Presidential job approval at midterm them, and pick up two or three of the Midterm election House seats gained or PHOTOS: COURTESY U.S. SENATE (5) SENATE U.S. COURTESY PHOTOS: Why Democrats Will Have a Republican’s seats, five of which are in lost by President’s party Hard Time Taking the Senate states Trump won by large margins. Bill Clinton (Democrat) 66% Senate seats up for election in 2018, compared 1998 4 seats with results of the 2016 presidential election, What are polls saying? where Republican Donald Trump ran against George W. Bush 63 Democrat Hillary Clinton That the public is in a sour mood about (Republican) 8 where the country is headed. Trump’s 2002 Republican in state won by Trump (8) approval rating at the end of May, Ronald Reagan 63 Republican in state won by Clinton (1) 40 percent, is near the lowest of any 1986 -5 Democrat or Independent in state president 16 months into his term since won by Clinton (16) 1945, according to Gallup polling data. George H.W. Bush 58 1990 Democrat in state won by Trump (10) The less popular the president, the more -8 No election (17) seats his party tends to lose. Richard Nixon 58 1970 -12 Do Republicans think they’ll lose? Gerald Ford 54 Jon Tester Heidi Heitkamp Joe Manchin House members haven’t said so, but 1974 Montana North Dakota West Virginia many are heading to the exits. Led -48 by current House Speaker Paul Ryan, Jimmy Carter 49 1978 * who’s retiring after serving 20 years in -15 2 * Congress, 48 House Republicans as of May 31 have announced they’ll retire, Clinton 46 1994 run for another office or resign. Among -54 Democrats, the number of departures is Barack Obama 45 20. Three Senate Republicans decided 2010 -63 2 not to run for re-election; no Democrat chose to leave. Reagan 42 1982 -26 Do Republicans have any advantages? Five Democrats are Obama 40 defending seats in Yes. Those include favorable electoral 2014 -12 states the president maps drawn by Republican-dominated won by at least Claire Joe G.W. Bush 38 McCaskill Donnelly state governments after the last 18 percentage points 2006 -30 Missouri Indiana census in 2010. Republican candidates DEMOCRATS; WITH CAUCUS REELECTION, FOR RUNNING INDEPENDENTS BOTH MAINE, OF KING ANGUS AND VERMONT OF SANDERS BERNIE GRAPHIC: LOST) (SEATS PROJECT PRESIDENCY AMERICAN RATINGS); APPROVAL (PRESIDENTIAL GALLUP (MAP); SENATE U.S. AND BLOOMBERG SOURCES: BLOOMBERG SOURCE:

BZ9_Quicktakes02_biz_world.indd 40 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Venezuela’s Collapse By Patricia Laya

Venezuela has more oil than Saudi Arabia and more poverty than Colombia. Once one of Latin America’s richest countries, it’s now plagued with shortages of everything from toilet paper to antibiotics. It’s been a steep downward spiral since the heady days when the late President Hugo Chavez set out to use an oil boom to light a socialist path to prosperity not just for the poor in Venezuela but across South America. Chavez died in 2013, about a year before oil prices fell sharply. His protégé and successor, Nicolas Maduro, has tightened his grip on power as opponents complain of economic mismanagement, corruption and political oppression. Critics inside and outside the country hope for Maduro’s departure, but no solution has emerged that would protect Venezuela’s 30 million people from further harm.

The Situation promptly forbade Americans from Hyperinflation in Venezuela Maduro, 55, was reelected president purchasing it. While Venezuela no Inflation exceeded 6,500 percent, based on what in May in a contest widely seen as a longer publishes basic statistics, the a cup of coffee cost in Caracas, over 12 months 120k charade: Most prominent would-be International Monetary Fund estimated Venezuelan contenders either boycotted the that inflation exceeded 2,400 percent bolivars ▶ contest or were barred from entering it. in 2017 and would zoom higher in 2018. Venezuela doesn’t release Hundreds of thousands of Venezuelans The nonprofit group Transparency inflation data, so Bloomberg created the “Cafe Con Leche have fled to nearby countries in response International ranks Venezuela 169 out Index” as a rough proxy. In to a violent crackdown on street of 180 countries for corruption because the country’s black market, protests, a lack of jobs and an inability of high levels of it among officials. 75,000 bolivars is worth less 60k than 50 U.S. cents. to feed their families. In 2017, the aid agency Caritas International said more The Background than 11 percent of children under age 5 Chavez, a former paratrooper jailed for Price of a cafe con leche were suffering from moderate to severe two years after leading a failed coup

PHOTOS: COURTESY U.S. SENATE (5) SENATE U.S. COURTESY PHOTOS: was 1,800 bolivars malnutrition, yet Maduro has rejected in 1992, was first elected president in humanitarian aid. Oil output has 1998 and revolutionized Venezuelan 0 plunged to 1940s levels, partly for lack of politics with fiery anti-U.S. rhetoric. He 4/2017 4/2018 money for maintenance but also because nationalized thousands of companies hungry workers have grown too weak for or their assets, reducing the country’s heavy labor. Late last year, Venezuela capacity to produce anything but oil. by oil, but has offered no mechanism defaulted on a portion of its debt. That He channeled revenue to the poor and for exchanging the digital tokens for included the $3 billion in so-called expanded Venezuela’s influence in hard assets. He hopes to negotiate a hunger bonds that Goldman Sachs the region by doling out cheap oil. He debt restructuring, but U.S. sanctions Group Inc. bought in 2017 at a deep used widespread support to transform prevent American investors and banks discount — leading to criticism it was a pluralistic democracy into a largely from participating, complicating the helping finance a regime that prioritized authoritarian system. Under Maduro, process. Expatriates, diplomats and paying creditors over feeding hungry with the oil bonanza’s end in 2014, others have proposed responses to Venezuelans. The U.S. and European Venezuela could no longer rely on oil the worsening crisis, ranging from the Union have imposed sanctions against revenue, which accounts for 95 percent modest (increased support for countries the country for human-rights abuses, of foreign currency earnings, to pay for accepting fleeing Venezuelans) to the political repression and graft. Early this imports, creating widespread scarcities. radical (military intervention, similar year, Venezuela introduced the world’s As discontent grew, Maduro and his allies to the U.S.’s removal of Manuel Noriega first state-issued cryptocurrency, the have retained power in part by jailing from the presidency of Panama in 1990). Petro. The U.S. called it a scam and opponents and curtailing press freedoms. When President Donald Trump in 2017 After the opposition won control of the mused openly about the latter, Latin parliament, Maduro last year stripped the American countries quickly objected. body of its power and handed it to what Some Maduro critics instead hope for a the U.S. says is a puppet assembly. military coup — a wave of officer arrests in early 2018 could signal growing The Argument dissension — while others find military Maduro has held onto power but rule unacceptable. The U.S., Europe and without giving much of a plan for Asia could ban the country’s oil imports turning the country around. He has said and hasten Maduro’s demise, still others 11%Share of Venezuelan children under age 5 that some of the economic squeeze will have suggested. But that would worsen

GRAPHIC: BERNIE SANDERS OF VERMONT AND ANGUS KING OF MAINE, BOTH INDEPENDENTS RUNNING FOR REELECTION, CAUCUS WITH DEMOCRATS; DEMOCRATS; WITH CAUCUS REELECTION, FOR RUNNING INDEPENDENTS BOTH MAINE, OF KING ANGUS AND VERMONT OF SANDERS BERNIE GRAPHIC: LOST) (SEATS PROJECT PRESIDENCY AMERICAN RATINGS); APPROVAL (PRESIDENTIAL GALLUP (MAP); SENATE U.S. AND BLOOMBERG SOURCES: BLOOMBERG SOURCE: suffering from malnutrition be fixed with the Petro, which is backed the humanitarian crisis.

BZ9_Quicktakes02_biz_world.indd 41 6/8/18 12:37 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Chapter 4 ENERGY & ENVIRONMENT

BZ9_Quicktakes03_energy_health.indd 42 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

p46 Divestment helped end apartheid. Can it save the planet?

p47 Europe is at odds with Russia but addicted to its natural gas

p51 Half the world’s big cities are at risk of a major earthquake

BZ9_Quicktakes03_energy_health.indd 43 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Energy and environmental issues breed new catchwords all the time. Buzzwords Here’s help decoding them.

By Chris Martin

One way of describing distributed as large as an entrepreneur’s wind farm. storm damage. There’s one big hurdle: a generation is as the opposite of the way That power is meant to be consumed on grid owned by utility companies that may we’ve gotten electricity since the days of the spot, but any excess can be shipped see distributed generation as a threat. In Thomas Edison. In the old model, utilities where it’s needed or as the shifting forces the U.S., some states have adopted policies build a handful of massive power plants of supply, demand and price dictate. called net metering that require utilities to and funnel their power out through a Power sources can also be tied together pay for power that’s fed into the grid. States network of wires and cables known as in a microgrid. Proponents of distributed with lots of solar-powered homes like the grid. In distributed generation, power generation say it’s a better fit for renewable California are moving to a system in which comes from a range of sources with many energy and will increase the grid’s the rates paid to households or businesses owners. These sources can be as small as resilience — a major concern given the producing their own power reflect their a homeowner’s rooftop solar panels or climate change-driven trend toward more share of the costs of operating the grid.

E NVIRONMENTAL S OCIAL G OVERNANCE

By Anthony DiPaola and Wael Mahdi By Melissa Mittelman and Emily Chasan

The world’s most valuable company may be Aramco, as Saudi Companies traditionally have been held accountable for one Arabian Oil Co. is better known. The sprawling state-owned bottom line: profit. Now a growing number of investors are basing producer, sitting atop one-fifth of the globe’s known petroleum decisions on what’s known as ESG figures as well — measures reserves, pumps more crude than the top four publicly traded of how a company performs on environmental, social and oil companies combined. Crown Prince Mohammed bin Salman, governance issues. Assets managed using a broad definition of the Saudi king’s influential son, says the company is worth in the approach reached $23 trillion at the start of 2016, including excess of $2 trillion, more than double the size of Apple Inc. $8.7 trillion in the U.S., by one estimate. Ethical investing started Aramco may also be the world’s most profitable company: A first with church-affiliated organizations in Sweden in 1965 but has glimpse at its finances showed that it churned out $33.8 billion grown to encompass a broad group of investment styles that are in net income in the first six months of 2017, easily outstripping known variously as sustainable, values-based, socially responsible the biggest U.S. companies. The Saudi government is planning a or impact investing. Investment managers like BlackRock partial privatization of Aramco to create a war chest for a post- Inc. now are pushing companies to explain how they make a hydrocarbon age. Some banks have valued a 5 percent stake at positive contribution to society and offering customers more $50 billion to $75 billion. Owned by the Saudi state since 1980, ESG investment options. The European Union is now requiring Aramco generates almost 90 percent of government income. The companies to publish reports on their social and environmental company built the refineries and petrochemical plants that form impact. A fledgling market in so-called green bonds — debt sold the backbone of the world’s 15th-biggest economy. The question for environmentally friendly purposes — is growing quickly, with

now is whether it can help build a nonoil future. global annual issuance expected to surpass $250 billion in 2018. MARKETS CAPITAL RBC SOURCE: GRAPHIC

BZ9_Quicktakes03_energy_health.indd 44 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Energy and environmental issues breed new catchwords all the time. Here’s help decoding them. OPEC Fights Back By Grant Smith

Since its creation more than a half-century ago, OPEC has been jolting the world. The 14-member club of oil exporters is the textbook case of a successful cartel, wielding immense control over the world’s most critical commodity. As waves of new technologies and petroleum discoveries have upended the global energy trade, OPEC’s obituary has been written many times. Yet the Organization of the Petroleum Exporting Countries has just as often defied its critics. Now it’s facing another challenge for long-term survival as the U.S., once its biggest customer, unleashes record supplies of shale oil and the planet turns to renewable energy. So OPEC is again deploying its most trusted tool: cutting output to push up prices. But whether such a tactic can still succeed is unclear.

The Situation the price of crude. It shot to prominence Who Needs High Oil Prices storm damage. There’s one big hurdle: a Weakened by an oil glut in late 2016, in 1973, when its Arab members imposed Estimated per barrel oil price needed to balance grid owned by utility companies that may OPEC members launched their first an oil embargo on Western countries 2018 government budgets see distributed generation as a threat. In intervention in eight years with a pact to in retaliation for their support of Israel. the U.S., some states have adopted policies cut production. Steered by Saudi Arabia, Though OPEC gave up on using oil for Iran called net metering that require utilities to they even joined forces with Russia, for political goals, it still operated as the $52 pay for power that’s fed into the grid. States years a fierce competitor. By mid-2018 “swing producer,” raising or cutting Gabon with lots of solar-powered homes like the gamble had paid off: The surplus output when supplies — and thus prices $56 California are moving to a system in which was eliminated, and oil touched a three- — were too high or too low. Currently U.A.E. the rates paid to households or businesses year high of more than $80 a barrel. That OPEC accounts for about 40 percent of $61 producing their own power reflect their prompted U.S. President Donald Trump world output, controls the bulk of global Kuwait The Brent oil price of share of the costs of operating the grid. to complain about rising oil prices on reserves and operates the most profitable $63 $77.59 on May 31 Qatar left many countries Twitter, and the U.S. quietly asked some fields on the planet. Yet as “petro-states,” under water OPEC producers to pump more. Not all of OPEC’s members depend on high oil $68 OPEC’s success was down to hard work, prices to fund government spending. In Ecuador however. The implosion of Venezuela’s oil some, notably Venezuela and Nigeria, $74 industry amid an economic crisis there the burden is intensified by corruption Angola also helped shrink supplies, offsetting and mismanagement. Saudi Arabia has $78 cheating on production quotas by a further incentive to hold prices high as Saudi Arabia other nations, notably Iraq. The danger it’s pursuing a partial privatization of its $83 for OPEC now is whether its success state oil company, Aramco. OPEC’s latest Algeria backfires: Higher prices have spurred a challenge emerged as U.S. production, $84 frantic return to “fracking” by shale-oil once in terminal decline, began to soar Iraq drillers and enabled the U.S. to overtake in 2011 thanks to fracking — blasting apart $86 Saudi Arabia and Russia as the world’s underground rocks with high-pressure Nigeria No. 1 oil producer. If prices climb higher, liquids to tap the oil and gas within. $124 an even bigger wave of shale oil could The group’s first response was to keep Libya Companies traditionally have been held accountable for one sweep away all of OPEC’s gains. pumping, waiting for this new source to $170 bottom line: profit. Now a growing number of investors are basing fizzle out. But as prices tumbled from $115 Venezuela decisions on what’s known as ESG figures as well — measures The Background in mid-2014 to $27 in early 2016, OPEC $223 of how a company performs on environmental, social and OPEC formed in 1960 when Saudi Arabia, reversed course. governance issues. Assets managed using a broad definition of Iran, Iraq, Kuwait and Venezuela sought the approach reached $23 trillion at the start of 2016, including to wrest power from the giant U.S. and The Argument members can produce crude at about $8.7 trillion in the U.S., by one estimate. Ethical investing started European oil companies that determined How long can OPEC keep it up? As well a third of the cost of U.S. shale. Yet the with church-affiliated organizations in Sweden in 1965 but has as the tie-up with Russia, the cartel cartel’s share of the market is much grown to encompass a broad group of investment styles that are has expanded its powers by building smaller now than during its 1970s heyday. known variously as sustainable, values-based, socially responsible an alliance with 10 other nonmember Its current intervention took far longer to or impact investing. Investment managers like BlackRock countries, a pact the producers say raise prices than the six months originally Inc. now are pushing companies to explain how they make a may become permanent. The world’s envisaged by Saudi Arabia. Plus the threat positive contribution to society and offering customers more appetite for oil isn’t going away: Most of shale hasn’t diminished; it’s now a ESG investment options. The European Union is now requiring forecasters expect that consumption matter of how aggressively it comes back. companies to publish reports on their social and environmental will keep expanding for at least another Then there’s the growing popularity impact. A fledgling market in so-called green bonds — debt sold two decades and any decline will be of electric cars and renewable energy, for environmentally friendly purposes — is growing quickly, with 10Number of countries that joined the slow. OPEC has a built-in competitive technologies that could mean demand for global annual issuance expected to surpass $250 billion in 2018. MARKETS CAPITAL RBC SOURCE: GRAPHIC 14 OPEC members to cut supply advantage, since its Middle Eastern oil peaks sooner than expected.

BZ9_Quicktakes03_energy_health.indd 45 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Divesting Fossil Fuels By Kelly Gilblom

Can you strike a blow against climate change by getting rid of your oil company stocks — and can you do it without losing money? The move by Norway’s $1 trillion sovereign wealth fund to consider selling its oil and natural gas holdings has led many institutional investors to reconsider the financial side of the question. The leaders of what’s called the climate divestment movement, however, have focused on the environmental benefits. Their movement has been picking up steam. But whether, when and in what way divestment could reshape the energy market is a complicated question.

What’s the climate divestment Oil’s Dividend Edge in every major equity index — core movement about? Oil company dividends are reliably higher than the investments, like it or not, for the It has been championed since 2012 by steady payments from government bonds or the mutual funds that almost everyone’s broader stock market the activist group 350.org, whose name pensions or 401(k)s are invested is a reference to what some scientists Dividend yield in. Then there are the dividends. consider the maximum safe level Bond yield Oil companies distribute money to of atmospheric carbon in parts per shareholders with a fervor matched million. Its goal is to “keep carbon in the U.S. 10-Year Treasury bond by few others. If you bought a share of ground,” in part by weakening fossil-fuel 2.9% Shell during World War II, you would producers. Adopting a tactic from the S&P 500 have received a flat or increasing fight in the 1970s and 1980s that helped 1.9% dividend payment every quarter force South Africa to give up apartheid, Chevron without exception. it urges universities and others to divest 3.6% themselves of stocks from coal and oil Exxon Mobil So does divesting mean taking a and gas companies. 4% financial hit? BP Exiting now could mean passing up those How has that gone? 5.1% fat dividends and possibly rising share The group says that so far almost 900 Shell prices, while waiting longer risks losses institutions, from pension funds to family 5.2% if government action or the rapid spread foundations, mostly in North America of renewable power and electric cars cuts and Europe, have made some level of demand sooner than anticipated. commitment to divesting, although 350. say climate change has exponentially org is unable to say how much of their increased the risk of backing fossil fuel If everyone divested tomorrow, $6 trillion in total assets has actually left companies, so investors should put their what would happen? the sector. In addition, it says that more money elsewhere for the sake of their First of all, the sheer size of oil holdings than 58,000 individuals have divested own fortunes. means it would be hard for everyone to about $5.2 billion. Most institutional sell at once — the Norwegian selloff will be investors have limited their share sales to Why is the Norway fund considering done over years. Cheaper shares might companies producing the dirtiest fuels, divesting? make it harder for the companies to raise such as coal and bitumen from tar sands. The world’s biggest wealth fund and funds but wouldn’t cut demand for fossil largest equity investor, it controls about fuels. Renewable energy sources like Has that had an impact? 1.5 percent of global stocks. The fund, wind and solar are growing rapidly but Not in economic terms. Coal companies which was largely built on oil and gas from a tiny base. are under pressure, but that’s mostly profits, says it wants to shield Norway because of low prices for natural gas. against a “permanent drop in oil and Is there another approach? Many oil and gas companies saw their gas prices,” although it’s steered clear While New York City announced in stock prices rise over the past year as of talk of peak demand. The thinking January a goal of divesting fossil fuel demand for their products increased is that given the country’s overall companies from its pension holdings, and crude prices rebounded. But groups exposure to the sector — including its New York state is not following suit. like 350.org say symbolic rejection can ownership in Statoil ASA, Norway’s Its pension fund is part of a group help “revoke the social license of the biggest company — it didn’t make sense that sees oil companies, with their fossil fuel industry.” to also tie up other financial assets in vast balance sheets and skilled fossil fuels. workforces, as potentially part of the Is there an economic argument climate solution. They’ve decided to for divesting? What are the arguments not to divest? engage companies from within, as Sort of. Oil companies themselves see For most investors, having money in shareholders. Those efforts have had demand for their products peaking, but an oil company is almost unavoidable. some success, like a recent push to get not until sometime from 2025 to 2050, Behemoths such as Exxon Mobil Corp. Exxon to better disclose the risks it

and then slowly declining. Advocates and Royal Dutch Shell Plc are included faces from climate change. BLOOMBERG SOURCE: 2018; 31, MAY OF AS YIELDS GRAPHIC: REGULATORS ENERGY OF COOPERATION THE FOR AGENCY SOURCE: 2016; OF AS DATA GRAPHIC:

BZ9_Quicktakes03_energy_health.indd 46 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Russia’s Grip on Gas By Anna Shiryaevskaya and Elena Mazneva

Europe’s relations with Russia are at their lowest point in decades. At the same time, the Continent’s buying more Russian natural gas than ever. Europe vowed to become less dependent on Russia’s energy exports, after gas shipments headed west were twice disrupted. Now a plan to double shipments to Germany, the biggest buyer, through a new pipeline is dividing European leaders and becoming a growing worry for the U.S. There are fears the links will enhance Russian President Vladimir Putin’s ability to use natural gas to squeeze critics and reward allies.

The Situation Russian supplies. The second shutdown its energy sources, since other pipeline Europe last year purchased record lasted almost two weeks in the dead expansions will bring more gas from volumes of gas, worth $38 billion, from of winter. Slovakia and some Balkan places such as Scandinavia. Forging a Russia’s Gazprom PJSC, in part to make countries had to ration gas, shut factories unified European position has been hard, up for depleted fields in the U.K. and and cut power supplies. Since then, the partly because dependence on Russian the Netherlands. Natural gas provides most vulnerable countries have raced pipelines varies so widely: Spain doesn’t about 22 percent of Europe’s energy mix; to lay pipelines, connect grids and build use any, while it makes up 97 percent of about a third of that comes from Russia. terminals to import liquefied natural gas, Bulgaria’s supply. Alternative sources of Construction of the Nord Stream 2 a supercooled form of the fuel that can energy for powering Europe’s homes and pipeline under the Baltic Sea to Germany be shipped from far-away fields, such factories come at a much higher price will begin this year, led by Gazprom and as those in Qatar. Russia relies on oil (LNG) or pollute much more (coal). The partly financed by European energy and gas to fund more than a third of its issue has been complicated by Germany’s companies. A group of 39 U.S. senators government budget. decision to shun nuclear power after wrote to President Donald Trump asking reactor meltdowns at Japan’s Fukushima him to block the project, saying it would The Argument plant in 2011 and from the phaseout make American allies “more susceptible Russia has urged Europe to keep of coal in countries from the U.K. to to Moscow’s coercion and malign diplomatic disputes and its energy trade Italy to meet goals for reducing carbon influence.” Poland, Slovakia and other separate. So far, it largely has, though emissions. Europe could produce more countries that host existing pipelines are German Chancellor Angela Merkel said of its own gas were it not for widespread also opposed, warning that the plan will Nord Stream 2 couldn’t go ahead if Russia opposition to fracking, a technique tighten Russia’s hold over the region by uses it to isolate Ukraine and damage to tap gas trapped in rock layers that giving it the capacity to bypass countries its economy. She said the project won’t has been blamed for earthquakes and at will, including Ukraine. Russia has disrupt the continent’s efforts to diversify groundwater pollution. been locked in conflict with Ukraine since 2014, when a pro-Russian president there was forced from power and Russia seized Who’s Dependent on Russian Gas? the country’s Crimean Peninsula. The About a third of Europe’s gas comes from Russia aggression triggered U.S. and European sanctions against Russia. More recently, 75-100% Less than 20% Major pipeline the U.K. said it would seek to secure gas 50-74% 0% Planned pipeline from other sources after blaming Russia 20-49% No data for the nerve-agent poisoning of a former Finland spy in England in March. The Kremlin Sweden has denied involvement. Estonia Russia Latvia The Background Denmark With its vast Siberian fields, Russia has Lithuania Nord Stream 2 the world’s largest reserves of natural Netherlands Ireland gas. It began exporting to Poland in the U.K. Belarus 1940s and laid pipelines in the 1960s to Germany Poland Belgium deliver fuel to captive satellite states of CZ Ukraine what was then the Soviet Union. Even SK Austria Moldova at the height of the Cold War, deliveries France Hungary were steady. But since the breakup of the SI HR Romania Soviet Union, Russia and Ukraine have BIH Serbia Italy quarreled repeatedly over the pipelines Bulgaria Turkish stream through Ukrainian territory that carry FYRM Portugal the bulk of Russia’s Europe-bound gas. Spain In 2006 and 2009, disputes over pricing Greece

GRAPHIC: YIELDS AS OF MAY 31, 2018; SOURCE: BLOOMBERG SOURCE: 2018; 31, MAY OF AS YIELDS GRAPHIC: REGULATORS ENERGY OF COOPERATION THE FOR AGENCY SOURCE: 2016; OF AS DATA GRAPHIC: and siphoning of gas led to cutoffs of

BZ9_Quicktakes03_energy_health.indd 47 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

The Recycling Crisis By Eric Roston

Is recycling worth it? When it took off four decades ago, recycling was seen as one of the environmental movement’s great successes. It morphed into a gigantic global trade, with freighters that carried China’s exports abroad returning home with half the planet’s scrap paper and plastic stuffed into their otherwise-empty containers. Then China changed its mind, leaving cities and towns around the world stuck with growing piles of waste. That’s forced them to reconsider the cost of being green.

The Situation including Coca-Cola, Unilever and How the World Relied on China Recycling markets were upended in 2017 Walmart said they’ll aim to use packaging Total weight of scrap material imported by when China, as part of an antipollution that is 100 percent reusable, recyclable China each year, measured in metric tons crackdown, announced it would stop or compostable by 2025. Paper and cardboard importing most used plastic and paper. Metals One reason: Too many imported The Background Plastic 50m recyclables were contaminated, During both world wars, metals were sometimes with hazardous substances recycled for use in weapons and like lead and mercury. The decision sent vehicles; paper was collected to preserve prices of scrap plastic and recovered trees for construction and shipping. paper tumbling, creating a crisis for After that, most nations’ waste was sent 25m municipalities that had relied on such to incinerators that belched smoke or sales to subsidize curbside recycling. to landfills that could leach toxins into In the U.S., the average price of used ground water. In the U.S., the passage of corrugated cardboard fell 36 percent. the Clean Air Act and Clean Water Act in It hasn’t been easy to find other takers the early 1970s meant that communities 0 for used plastic, since lower oil prices had to scramble to find other solutions; 1992 2016 have made virgin plastic cheaper than many began to offer recycling programs recycled. While other nations like India as a way to cut down on garbage. China’s and Vietnam have been importing more recycling trade took off in the 1990s as fiber. Recycling plastics and electronics recyclables, they don’t come close to its exports of goods such as textiles and can be dangerous, exposing workers handling the amount China once did. toys rose sharply. Its manufacturers to serious health risks. And there And few industrial nations have enough were hungry for plastics and metals to are natural limits. Paper can only be capacity to recycle all the material refashion into new products and used recycled five to seven times before the on their own. Some communities paper to make cardboard boxes to pack cellulose fibers become too short to be are running out of room to store the them up. Recycling collectors in the reused; most clear plastic bottles can’t mounting stockpiles and have stopped rest of the world often found it more be turned into new bottles. Yet recycling collecting plastic, paper products or economical to sell to this market than does save energy. Making soda cans glass. Some places in Australia and to local processing plants. European from recycled aluminum requires 95 Canada have sent existing piles to countries began to shift some of the percent less energy than mining and landfills or burned them. At the same burden in the mid-1990s by setting using raw ore. Recycling also helps time, under pressure from consumers, rules that required manufacturers of keep toxic materials out of landfills. The

several well-known companies have goods ranging from cardboard boxes upheaval that followed China’s decision NEEMA/POLARIS FREDERIC PHOTO: pledged to use more recycled and to mattresses to handle recycling their prompted calls for bans and fees to biodegradable goods. In 2018 companies products themselves. discourage plastic use; localities started to pass on their higher recycling costs The Argument to homeowners and businesses. Many Recycling is more expensive than areas have announced plans to build tossing items into the trash. In 2016 it new recycling plants; public-private cost New York City $18 per ton more to partnerships, bankrolled by companies collect and process recyclables than that have made recycling pledges, are to dispose of regular refuse. Improper offering to support the effort with low- recycling adds to the cost. Just one cost loans. Environmentalists still pizza box in a cardboard recycling pile encourage recycling, but they also offer can ruin the whole batch, since oils in other solutions: Buy less stuff in the first

1/2 DIVISION STATISTICS NATIONS UNITED SOURCE: GRAPHIC Share of world’s scrap paper and plastic it can’t be separated from the paper place and look for products that last. China once took in 48

BZ9_Quicktakes03_energy_health.indd 48 6/8/18 1:52 PM GRAPHIC SOURCE: UNITED NATIONS STATISTICS DIVISION PHOTO: FREDERIC NEEMA/POLARIS This documentisbeingprovidedfortheexclusiveuseofO'MALLEYAVANTatSAOSCAPITALLLC BZ9_Quicktakes03_energy_health.indd 49 6/8/18 1:52PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Carbon Capture By Eric Roston

We humans are all too good at putting carbon dioxide into the atmosphere. Can we come up with a way to vacuum it out? As climate predictions grow more dire, scientists are concluding that large-scale carbon removal — enough to massively reduce carbon levels, not just lower the rate of increase — is humanity’s best hope for avoiding calamity. Current technology, however, is a long way from being able to meet those goals.

Carbon Capture and Storage How does that work?

One good thing about CO2 is that it can Carbon is captured from It's then compressed and ... where it's injected deep into be dissolved in chemicals and then exhaust streams of power dispatched by pipelines to oil wells to boost production. released. Research labs and start-ups are generators or industrial plants. special geological sites ... developing competing methods for these so-called reversible reactions. Zurich- based Climeworks AG, for instance, builds large banks of filters that suck in

air and combine the CO2 with chemicals called amines. Global Thermostat LLC in New York uses nitrogen-based chemicals while Carbon Engineering Ltd. of British

Columbia captures CO2 in calcium carbonate before separating it out again.

How effective is carbon removal? Couldn’t we just plant a gazillion How well do CCS projects work? It’s mostly still in the demonstration trees? There are more than 20 CCS projects phase. The first commercial Climeworks

Don’t laugh. Trees are the original around the world, but most are plant can take 900 tons of CO2 out of carbon scrubbers. The 2015 international tests or demonstrations. The field’s the air every year. The bad news: More Paris agreement set a goal of limiting biggest black eye is a gas-and-coal than 400,000 plants working at that level warming to 2.0C (3.6F) above pre- plant equipped with the technology would be needed to cancel out 1 percent industrial levels, plus a more ambitious in Mississippi that came in more than of current emissions. target of 1.5C. A United Nations panel three times over its original $2.4 billion says that a reforestation program big budget and is no longer in use. In a Are there other approaches?

enough to offset a quarter of our CO2 recent report, Royal Dutch Shell Plc Yes. One is a variation of CCS called emissions in 2030 could give us a better suggests that meeting the 2.0C goal bioenergy with carbon capture and than even chance of meeting the 2.0C would require 10,000 large-scale CCS storage (BECCS). First, plants are grown

goal. The catch: High-quality land three facilities by 2070. that absorb CO2. Then that biomass times the size of India would be needed. is burned to generate power. Those What’s the other kind? emissions are captured, making for a How much carbon will need to Carbon dioxide removal, or CDR. That carbon-neutral system. Here again, the come out? means pulling it out of the ambient air, amount of land that would be needed We’ve already put 45 percent more something harder to do than capturing to grow enough biomass is many times carbon dioxide in the air than there it in an exhaust flue. the size of India. was before industrialization. Every day, another 100 million metric tons of it goes up. Reducing those emissions to zero Carbon Dioxide Removal would not be enough to reach the 1.5C goal. By one estimate, from now to 2100, Carbon is captured chemically The plant is built alongside ... and use it to make products we’d need to remove more than 800 from the open air by machines factories that take in such as fuels, plastics that remove it many times concentrated CO2 as a and concrete. gigatons of CO2 — the equivalent of 20 faster than trees. raw material ... years of emissions at current rates.

What does carbon removal mean? It comes in two main flavors: carbon capture and storage (CCS) and carbon

reduction. Projects using CCS collect CO2 as it’s emitted. When coal supporters

talk about “clean coal,” they mean CCS. BLOOMBERG SOURCE: GRAPHIC SURVEY GEOLOGICAL U.S. SOURCE: GRAPHIC

BZ9_Quicktakes03_energy_health.indd 50 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Earthquake Readiness By Jeffrey Taylor

At least half the world’s largest cities are considered to be at moderate or high risk of a major earthquake. Fears of the next “Big One” affect such major population centers as Tokyo, Mumbai, Jakarta, Mexico City, Manila, Los Angeles, San Francisco, Sao Paulo, Istanbul and Tehran. With the world becoming ever-more urbanized — almost two-thirds of the population will live in cities by 2050 — earthquake preparation is a massive, long-term challenge thrust into the hands of short-term elected leaders. What steps should be taken today to protect people, companies and economies from a threat so remote that it could strike once in a lifetime, if that?

The Situation San Francisco, share not just proximity taller and denser despite lingering While cities differ greatly in their to fault lines and volcanoes but a soft doubt that high-rise buildings can be preparations, many in fault zones are and saturated soil that can amplify the made quake-proof. In India, efforts to moving more urgently to revisit disaster destruction of a quake’s shakes. Although improve engineering and building code plans in the wake of Japan’s harrowing scientists say major earthquakes are not enforcement have mostly languished, 2011 Tohoku earthquake, which increasing in frequency, the potential leading one expert to lament the lack unleashed a tsunami that triggered a for damage is bound to rise when cities of “champions for seismic safety.” In nuclear meltdown and killed more than grow taller, denser and richer. There Turkey, the government is criticized for 15,000 people. Los Angeles is requiring are 283 million people in metropolitan undoing some earthquake-preparation owners to strengthen certain wood-frame areas at some risk of being killed, hurt measures it pledged after a 1999 quake and concrete buildings, more than 15,000 or evacuated due to an earthquake, killed at least 17,000 people. All that may in total, and San Francisco is requiring according to global reinsurer Swiss Re. explain the move toward early-warning retrofits of wood-frame apartment systems, which could give people a buildings that house a total of more than The Argument tiny window — perhaps just seconds, 115,000 people. In Peru, where the capital Retrofitting cities that date back hundreds but conceivably a minute or more — to city of Lima has a perilous combination of years isn’t cheap or painless. The evacuate buildings. Technology may of unsteady housing built atop unstable benefits are largely theoretical, while come to the rescue with cheaper ways soil, the national civil-defense institute the cost to stretched budgets is tangible. to warn those at risk: U.S. researchers holds nationwide earthquake evacuation Progress can seem excruciatingly are exploring how to employ the motion drills as critics warn of mass fatalities slow. Los Angeles is giving owners of sensitivity and ubiquity of smartphones in a major temblor. Japan, Taiwan, potentially at-risk buildings as many as to create a massive network that would Italy and Mexico are among the earliest 25 years to make improvements. San automatically detect earthquakes and adapters of earthquake warning systems, Francisco is letting its skyline grow issue near-instantaneous warnings. which detect the first waves of a quake and enable rapid public warnings, via broadcast media and text messages to Earthquake Zones mobile phones, as well as automated Earth's crust deforms as plates pull away, dive under and slide past each other slowdowns or shutdowns of vulnerable industrial and transportation systems. Divergent plate boundary Transform plate boundary Plate movement A system for the U.S. West Coast will get Convergent plate boundary Diffuse boundary zones Plate names in bold its first tests this year, though its longer- term viability will depend on securing funding. Improvements to Mexico City’s Eurasia North America Eurasia schools and other public buildings after a catastrophic 1985 quake meant fewer Ring of Fire Istanbul Tehran deaths in a September 2017 temblor, San Francisco though it still killed almost 400 people. Tokyo Los Angeles Mexico City Nubia Arabia The Background Mumbai Shaking is a fact of life. Earth experiences South India Somalia several hundred observable quakes America Jakarta Pacific Nazca daily, with a major one — magnitude 7 Australia or greater — happening more than once Sao Paulo per month on average. There even are so-called induced tremors, or small quakes caused by oil extraction and Scotia other human activities. Coastal cities in the seismically hyperactive “Ring Antarctica Antarctica

GRAPHIC SOURCE: BLOOMBERG SOURCE: GRAPHIC SURVEY GEOLOGICAL U.S. SOURCE: GRAPHIC of Fire,” including Tokyo, Jakarta and

BZ9_Quicktakes03_energy_health.indd 51 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Chapter 5 HEALTH & SOCIETY

BZ9_Quicktakes03_energy_health.indd 52 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

p55 How naming and shaming could fix the pay gap for women

p56 China’s message to couples: Have another baby, please

p57 What are the odds sports betting brings new problems?

BZ9_Quicktakes03_energy_health.indd 53 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Social issues often gain their own vocabulary. Buzzwords Here's a cheat sheet to keep you current. Right NOT to BURN Try By Lisa Du and Grace Huang

Big Tobacco has a new hope: the fast- contain tobacco; e-cigarettes don’t. Most growing trade in heat-not-burn products. heat-not-burn products work by heating Faced with long-term declines in smoking a tobacco-containing stick that releases By Michelle Fay Cortez and stricter policies on tobacco use and nicotine that’s inhaled. The sticks are sales around the globe, companies have heated to about half the temperature been counting on e-cigarettes to keep at which standard cigarettes burn. Making it easier for terminally ill patients business up, but some consumers say the E-cigarettes, by contrast, heat nicotine- to get access to experimental drugs is products don’t deliver the satisfaction or laced liquid to create a vapor that’s a broadly popular idea in the U.S. In flavor they crave. Heat-not-burn devices inhaled. Heat-not-burn devices are said May, President Donald Trump signed are designed to do just that and, like to approximate the taste of traditional into law a bipartisan bill meant to do e-cigarettes, without producing harmful cigarettes better than e-cigarettes just that. Starting with Colorado in smoke and tar of conventional cigarettes. and deliver more nicotine. So far, the 2014, 40 states have enacted their own While consumers often use the terms research is too preliminary to form solid versions. Under the new federal law, a interchangeably, heat-not-burn products conclusions about health effects. patient with a life-threatening disease who’s exhausted all approved treatment options and can’t participate in a trial of an experimental drug would be allowed to take an unproven medicine without BOTBOTBOTBOTBOT the permission of the Food and Drug Administration. The legislation protects BOTBOTBOTBOTBOT manufacturers from liability or increased regulatory review should a patient be By Selina Wang harmed — or even killed. Only the patient, his or her physician and the drugmaker would need to agree. Currently, such What’s a bot? The news sometimes seems mimic human dialogue. On Facebook, patients can apply through their full of them, in often alarming ways, from WeChat, Twitter and other services, physicians to receive experimental drugs the Russian bots that invaded social media chatbots can perform relatively simple with FDA permission. The bottleneck, during the 2016 U.S. presidential campaign tasks like placing food orders for users or however, isn’t so much the FDA but rather to the software bug that briefly had Alexa, booking airline tickets. But bots can also drug companies that limit patient access the virtual assistant in Amazon.com be tied together into “botnets” of tens of to unproven treatments. In some cases, a Inc.’s Echo home speakers, breaking out thousands of accounts that coordinate limited supply is an issue. The companies in random laughter. A bot is a computer social media activity on a massive scale. also worry about undermining clinical program that executes automated tasks Twitter found more than 2 million trials or the fallout from any adverse over the internet — a software counterpart automated election-related tweets from effects. Some physicians and medical to the steel-and-cable robots welding cars Russia-linked accounts. And now, artificial ethicists as well as the drug industry and or assisting surgeons. A simple bot might intelligence is making a new generation of even patient-advocacy groups opposed the tweet a weather report once an hour. bots more powerful and more lifelike — for bill. They said taking the FDA out of the

Chatbots like Alexa are programmed to better or worse. process removes protections for patients. RESEARCH ECONOMIC GLASSDOOR SOURCE: GRAPHIC

BZ9_Quicktakes03_energy_health.indd 54 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Social issues often gain their own vocabulary. Here's a cheat sheet to keep you current. Why Women Earn Less Right By Claire Suddath

There are many ways to look at the explosive issue of why women earn less than men: Are we comparing men and women in similar jobs at the same company? Are aggregate figures skewed by the fact that more women work in schools and hospitals and fewer advance to the top ranks of lucrative professions such as banking? What the numbers lay bare to depends on how they’re assembled. Yet revelations about the gender pay gap provoke outrage, whether in Hollywood, professional sports, at the BBC or among Uber drivers. Some of that fury has been fueled by a new law in the U.K. that forces large companies to disclose their pay gaps, putting real numbers on wage inequality. Advocates say the flood of data will push women’s wages up. Skeptics say it’s a simplistic way to look at a stubborn problem.

Try The Situation Over the next 30 years that figure rose to Mind the Gap The largest-ever set of statistics emerged about 80 percent, but women’s incomes Adjusted 2016 figures control for differences in age, this year as companies with 250 or more relative to men have been stagnant since education, job title, employer and location workers in Britain were required to unveil the 1990s. These days, the debate is Unadjusted male pay advantage a blunt, uniform assessment of what colored by the fact that women still do Adjusted male pay advantage women in their overall workforce earn a disproportionate share of household By Michelle Fay Cortez versus men. Some of the widest gaps work and child care, so they are more U.S. appeared at banks such as HSBC Holdings likely to work part time, work from home 24.1% Plc and Goldman Sachs Group Inc., both or drop out of the workforce after they 5.4% Making it easier for terminally ill patients of which pay women less than half of have children. Nordic countries are often U.K. to get access to experimental drugs is what men earn on average. That’s largely lauded for having near economic parity, 22.9% a broadly popular idea in the U.S. In because women are underrepresented but they still have female workforces that 5.5% May, President Donald Trump signed in senior roles. A new German law gives earn at least 15 percent less than men on Germany into law a bipartisan bill meant to do workers the right to compare their pay average. The gap is most acute in Asia, 22.5% just that. Starting with Colorado in with up to six colleagues of the opposite where the Organization for Economic 5.5% 2014, 40 states have enacted their own sex who have similar jobs. In the U.S., Cooperation and Development reports Australia versions. Under the new federal law, a President Donald Trump’s administration a wage gap of 26 percent in Japan and 17.3% patient with a life-threatening disease reversed an Obama-era rule that 37 percent in Korea. 3.9% who’s exhausted all approved treatment would’ve compelled companies to report France options and can’t participate in a trial of pay information to the government. Some The Argument 14.3% an experimental drug would be allowed companies are doing it anyway, although Critics say the disclosure rules create 6.3% to take an unproven medicine without on their own terms. Under pressure a burden for employers and that the the permission of the Food and Drug from activist shareholders, several large data can distort the issue, sowing Administration. The legislation protects U.S. banks, including Citigroup Inc. and confusion and damaging reputations. highlight a gap in economic opportunity. manufacturers from liability or increased JPMorgan Chase & Co., disclosed figures When comparing how much all women Supporters of more equality say the new regulatory review should a patient be that revealed — after adjusting for factors earn versus all men, much of the gap is transparency provides a deeper level of harmed — or even killed. Only the patient, such as job title and geography — an caused by women’s overrepresentation insight that makes it easier to address his or her physician and the drugmaker identical 1 percent gap. That led some in lower-paying fields such as education, discrepancies and monitor results. Many would need to agree. Currently, such critics to question how they calculated nursing or administration. Yet studies companies have revised their hiring and patients can apply through their the data. In the U.S., the typical job-to-job show that the gap widens as women age, compensation practices in an effort to physicians to receive experimental drugs gap for workers of equal education and have children and enter higher-paying create an egalitarian workforce. The with FDA permission. The bottleneck, experience is 5.4 percent. careers. In that sense, the figures can Silicon Valley company Salesforce Inc., however, isn’t so much the FDA but rather for example, runs an annual analysis of drug companies that limit patient access The Background its staff and adjusts the salaries of any to unproven treatments. In some cases, a Historically, the pay gap reflected widely employee — woman or man — found limited supply is an issue. The companies held beliefs that women should stay at to be inexplicably underpaid. Then also worry about undermining clinical home and doubts that they could perform there’s the question of whether fixing trials or the fallout from any adverse jobs as well as men. Thus they earned the disparity means paying women more effects. Some physicians and medical lower salaries even as they entered the or paying men less. To address its 9.3 ethicists as well as the drug industry and workforce in larger numbers. When the percent average gender pay gap, the BBC even patient-advocacy groups opposed the U.S. passed the Equal Pay Act in 1963, decided not just to raise the salaries of bill. They said taking the FDA out of the American women earned, in aggregate, 1%Self-reported gender wage gap underpaid women, but also to reduce process removes protections for patients. RESEARCH ECONOMIC GLASSDOOR SOURCE: GRAPHIC roughly 60 percent of what men did. at several large U.S. banks the salaries of select men.

BZ9_Quicktakes03_energy_health.indd 55 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

China’s Two-Child Policy By Bloomberg News

Please have another baby. That’s China’s new message for couples after decades of limiting families to just one child. Why the turnabout? China is aging. By 2040, projections show that 24 percent of the population will be aged 65 or older, a slightly higher rate than in the U.S. and more than twice India’s share. This threatens an economic boom that’s been built on a vast labor supply. And there may not be enough able-bodied people to take care of all those seniors. So in 2016, China changed its rules to allow as many as two children. But many couples weren’t convinced that two were better than one. So China may remove the limits altogether.

The Situation government trained tens of thousands China’s Shifting Demographics China’s State Council is weighing of “barefoot doctors” to bring health Newborns to age 14 whether to end family-size rules. care to poor and rural areas. The 15-64 There are growing concerns among mortality rate plummeted, and the 65 and older policy makers that drastic action may population growth rate rose from 1.6b be needed to face a quickly graying 1.6 percent in 1949 to 2.5 percent just society. The nation’s population will five years later. This prompted the first peak at roughly 1.45 billion by 2030 and attempts to encourage family planning 1.2b then hover around 1.4 billion until the in 1953. Still, the total population middle of the century. The International expanded to more than 800 million in Monetary Fund says the number of the late 1960s. By the 1970s, China was 0.8b people in their prime working years — facing food and housing shortages. In ages 15 to 59 — could fall by 170 million 1979, its leader, Deng Xiaoping, decided three decades from now. The aging to limit most couples to just one child. 0.4b workforce may already be chipping into (There were exceptions for rural gains in productivity, with the increase farmers and certain situations, like in China’s output per hours worked at when a first child was handicapped.) 0 its lowest level since 1999. The lifting It worked: The annual population 1950 2100 of the one-child rule worked at first. growth rate averaged just 0.6 percent. The number of newborns in 2016 was But to enforce the rules, Human Rights 18.5 million, a jump of more than Watch says, China forced women to that many couples feel that they can 2 million compared with 2015, though have abortions. Children born outside only afford to have one child — or the average number of births per woman the state plan weren’t allowed to have none. A survey by Zhaopin.com, a job over a lifetime, 1.7, was still below the their hukou — a government registration recruitment site, found 33 percent of 2.1 needed to maintain a steady needed to go to school, buy train tickets women had their pay cut after giving population. In 2017, births fell to or find a job. The traditional preference birth and 36 percent were demoted. 17.2 million; China has not released for sons caused many parents to abort While scrapping the cap altogether to enough data to be able to calculate female fetuses, and the male-to-female allow more than two children would lifetime births per woman for that year. ratio reached 120-to-100 in some drive faster fertility improvements, provinces. The imbalance empowered in smaller cities, where couples have The Background single women to reject suitors without been more willing to have a second After the creation of the People’s money, leaving a generation of single child, hospitals and pediatricians Republic of China in 1949, the men called “bare branches” because have been overwhelmed by the baby they can’t add to their family trees. boom. Officials might need to build up In remote rural areas, some men have medical services and schools and work Stalled Fertility even bought Vietnamese wives from out new tax breaks for families before Average births per woman in China over a lifetime human traffickers. The sex ratio for lifting all family-size limits. Immigration One-child Two children births has been dropping in recent isn’t likely to be an answer, as China policy begins allowed 7 years, though the 2016 figure, 115 boys currently has strict limits on foreign for every 100 girls, was still above the workers. Businesses aren’t waiting for 5 natural rate of 105 to 100. reinforcements. Labor shortages have pushed manufacturers in the Pearl 3 The Argument River Delta, China’s export powerhouse It could be difficult to persuade Chinese across the border from Hong Kong, 1 couples to have more children. High to invest in automation and robots. 0 living costs, long work hours and

1960 1979 2016 surging child-care expenses mean Yinan Zhao contributed to this article. PROJECTIONS; ARE 2015 AFTER FIGURES DEMOGRAPHIC 2017; FOR DATA FERTILITY RELEASED NOT HAS CHINA GRAPHIC: (DEMOGRAPHICS) DIVISION POPULATION NATIONS UNITED RATE); (FERTILITY BANK WORLD SOURCES: OFFICE STATISTICIAN’S GOVERNMENT QUEENSLAND SOURCE: 30; JUNE ENDING YEARS FISCAL FOR ARE FIGURES GRAPHIC:

BZ9_Quicktakes03_energy_health.indd 56 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Sports Betting By Ira Boudway and Grant Clark

One of the main objections to legalizing sports betting used to be that it would tempt players and officials to rig games. But that’s become something of a moot point following an explosion of illegal sports gambling via online bookmakers. In fact, many sports bodies and law enforcement agencies now argue that the best way to combat match fixing is to bring sports betting out of the shadows. Whatever the risks, the potential tax windfall from legalization may be too alluring to pass up. The U.S. is about to become the biggest test case in sports gambling history.

The Situation according to a 2014 report by the Betting on sports is legal in a slew of International Centre for Sports Security. countries from Australia to western Betting syndicates in Asia, where Europe (the U.K. has the biggest legal sports gambling is largely illegal or market) but flourishes globally even restricted, have instigated some of the when it’s outlawed. In the U.S., where a most notorious cases of match fixing. 1992 law had limited the practice almost Europol, the European Union’s law exclusively to the state of Nevada, enforcement agency, found one such $150bEstimate of annual U.S. illegal sports bets illegal sports wagers are estimated at syndicate fixed 380 soccer games from $50 billion to $150 billion annually. That 2011 to 2013, including in the European compares with Nevada’s record Champions League. $4.8 billion of legal sports bets in 2017. The landscape is about to shift, though, The Background after the U.S. Supreme Court in May The internet has transformed sports freed New Jersey to legalize sports betting. After the U.K. legalized betting gambling and other states to follow. establishments in 1961, the shops that Even the professional U.S. sports still line major shopping streets had by 380Number of soccer games a betting leagues, traditionally wary because of law to be kept drab to deter customers syndicate fixed over two years concerns that betting would encourage from lingering. Now, bettors can place corruption, have come around to the a wager at home or on the go via their idea. In fact, the National Basketball smartphones. It’s possible to bet on just why not regulate and tax it? Doing so Association and Major League Baseball about any professional sport played gives bettors greater assurance their are seeking 1 percent of all bets placed just about anywhere, and not just on wagers will be honored and raises on their games. The challenge for legal winners and losers but also on the government funding that otherwise bookmakers everywhere is whether minutiae: the number of fouls or who’ll flows into the pockets of illegal they can lure gamblers who’ve grown win the third game in a tennis match. bookmakers or even organized crime. accustomed to wagering with local That allows gamblers to profit from Detractors say the benefits don’t justify bookies or on overseas or illegal their prescience but also broadens the the social costs of gambling, from websites. Globally, 80 percent of sports scope for corruption, particularly at off- addiction to indebtedness. (Two in bets are placed via the black market, the-radar events. Match-fixing scandals five Australian sports bettors have a have rocked not only soccer but cricket, gambling problem, one survey found.) tennis and even sumo wrestling in They argue that the same limits for Game On recent years. It’s been almost 100 years tobacco and alcohol advertising Australian sports gambling soars since eight players for the Chicago should be in place for bookmakers to A$1b White Sox were banned from baseball protect vulnerable younger people. for life for throwing the 1919 World Athletes and academics also warn of Series. To counter such threats, sports a growing gambling culture around ruling bodies such as the International sports, in which the odds become Olympic Committee and the NBA have the focus of attention rather than A$0.5b linked with data-mining companies to the pleasure or pain of following the Legislation restricts monitor for suspicious betting activity. action. Doomsayers maintain that the gambling but allows sports betting sports-betting genie is out of the bottle, The Argument making match fixing inevitable and The strongest case for legalization is putting the integrity of sports at risk in 0 that sports betting goes on regardless much the same way that performance- GRAPHIC: CHINA HAS NOT RELEASED FERTILITY DATA FOR 2017; DEMOGRAPHIC FIGURES AFTER 2015 ARE PROJECTIONS; ARE 2015 AFTER FIGURES DEMOGRAPHIC 2017; FOR DATA FERTILITY RELEASED NOT HAS CHINA GRAPHIC: OFFICE STATISTICIAN’S GOVERNMENT QUEENSLAND SOURCE: 30; JUNE ENDING YEARS FISCAL FOR ARE FIGURES GRAPHIC: SOURCES: WORLD BANK (FERTILITY RATE); UNITED NATIONS POPULATION DIVISION (DEMOGRAPHICS) DIVISION POPULATION NATIONS UNITED RATE); (FERTILITY BANK WORLD SOURCES: 1995 2016 of whether the law permits it, so enhancing drugs has done.

BZ9_Quicktakes03_energy_health.indd 57 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Americans and Their Guns By Esmé E. Deprez

Each new mass shooting in the U.S. reignites a debate over the country’s treatment of gun rights as virtually sacrosanct. Americans own more guns than anybody else on Earth, even adjusted for population. (Yemenis are second.) Firearms are involved in the deaths of more than 35,000 people annually in the U.S., about two-thirds of which are suicides. Guns are also integral to the story of the nation’s founding. The National Rifle Association, the dominant pro-gun group, has for decades persuaded courts and lawmakers to relax gun restrictions and to prevent the passage of new ones. A new wave of killings, however, may be ever so slightly loosening the NRA’s grip.

The Situation lend to companies that make assault-style and churches. Mass shootings in other Some of the deadliest mass shootings guns used for non-military purposes. countries, although less common, have in modern U.S. history have unfolded Other banks have stopped issuing NRA- also led to debates over regulation. in the past few years: Parkland, Florida branded credit cards. Australia enacted strict gun laws after (17 killed at a high school in 2018); a massacre that left 35 people dead in Sutherland Springs, Texas (26 killed in a The Background 1996; since then, there has been only church in 2017); and Las Vegas (58 killed The U.S. is one of three countries to one mass shooting. at a concert in 2017). Public opinion include gun-ownership rights in its has been shifting toward tighter gun constitution. (Mexico and Guatemala are The Argument controls: In a poll of likely voters taken the others.) The right “of the people to Gun owners, many of whom live in after the Parkland high school shooting, keep and bear arms,” enshrined in the rural areas, view gun controls as an 66 percent said they backed stricter Second Amendment, was established in attack on their way of life. The NRA has laws, up 19 percentage points from 2015. the 18th century to allow states to form argued that criminals simply ignore The Parkland incident also gave voice militias. In 2008, the U.S. Supreme Court gun regulations. Many NRA-backed to a new group of activists — students ruled that the amendment also protects lawmakers have said shootings don’t

themselves — whose demands for the gun rights of individuals. Beyond prove the need for new regulations and tougher controls have begun to produce the legalities, the gun is a cultural icon that it’s better to arm more people, results. After years of mostly declining to in the U.S. It was a necessary instrument including teachers, so they can defend strengthen national laws, Congress — at of soldiers in the Revolutionary War themselves and others. They’ve noted the behest of President Donald Trump, a and cowboys roaming the Wild West. that since Congress let a ban on assault gun-rights ally — enhanced the 1994 law More recently, semiautomatic guns that weapons expire in 2004, shootings in requiring buyers of guns from licensed fire bullets in rapid succession — also the U.S. have declined. Gun-control dealers to pass a background check. called assault weapons — have gained groups (some backed by Michael R. In Florida, the legislature raised the popularity among law-abiding gun Bloomberg, founder and majority minimum age for firearms purchases to owners and mass killers alike. Gun rules owner of Bloomberg News parent 21 from 18. National retailers, including are largely determined by the states, Bloomberg LP) say the drop — part of Dick’s Sporting Goods Inc., raised the and in recent years a majority of them an overall decrease in violent crime — minimum age to buy guns to 21 from 18. have weakened restrictions by allowing occurred for other reasons, notably Some banks said they no longer would guns in more places, including schools improved policing.

Sandy Hook San Bernardino Parkland Stocking Up December 2012 December 2015 February 2018 Events seen as possibly triggering tougher gun rules, notably mass shootings, Aurora Las Vegas can produce spikes in U.S. gun sales, as measured by federal background checks July 2012 October 2017 Orlando 1.5m Tucson Charleston June 2016 January 2011 June 2015 Columbine Virginia Tech Fort Hood April 1999 April 2007 November 2009 1.0m ILLUSTRATION BY CHRIS PHILPOT CHRIS BY ILLUSTRATION

0.5m

9/11 Barack Obama Donald Trump September 2001 elected president elected president November 2008 November 2016 0 MONTHLY CONCEALED-CARRY PERMIT CHECKS NOT INCLUDED; SOURCE: FEDERAL BUREAU OF INVESTIGATION’S NATIONAL INSTANT CRIMINAL BACKGROUND CHECK SYSTEM CHECK BACKGROUND CRIMINAL INSTANT NATIONAL INVESTIGATION’S OF BUREAU FEDERAL SOURCE: INCLUDED; NOT CHECKS PERMIT CONCEALED-CARRY MONTHLY BLOOMBERG SOURCE: GRAPHIC 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2018; MARCH THROUGH ADJUSTED SEASONALLY DEALERS, LICENSED FROM PURCHASES GUN FOR CHECKS BACKGROUND FEDERAL OF NUMBER INCLUDE DATA GRAPHIC:

BZ9_Quicktakes03_energy_health.indd 58 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

The Human Microbiome By John Lauerman

Even when you think you’re alone, you’ve got a lot of company. Of the cells you carry around, only about half, it turns out, are human. The rest belong to microorganisms — bacteria, fungi, protozoans and viruses — that are on and inside you. That may sound unsanitary, but most of them are either harmless or beneficial. Many researchers think that in our overzealousness to kill bad germs, we’ve knocked off some underappreciated good ones, depleting the diversity of our microbiota, whose collective genes are known as the human microbiome. According to one theory, this has contributed to the recent increase, in industrialized countries, of autoimmune diseases such as diabetes, multiple sclerosis and lupus. That’s led to a spate of new research on whether a better relationship with our fellow travelers could undo that rise, and whether some of our microbes could be deployed to make us even healthier.

The Situation practices pass microbes from mother to also deplete microbiota. Scientists for Scientific findings have come quickly, child, perhaps explaining why cesarean years have known that growing up with connecting human microbiota to section babies have higher rates of a dog lowers a child’s chance of having infectious diseases such as HIV and asthma and allergies, and formula-fed asthma — by 13 percent, according to hepatitis, noncommunicable ones like babies are at an elevated risk of obesity one study — and microbial diversity has heart disease and cancer, and even and diabetes. Less socializing, outdoor become the leading explanation. Family psychiatric disorders such as autism activity and exposure to animals may members, it seems, swap microbes by and depression. The discoveries have petting their dogs and being licked by sparked an explosion of research by them. drug companies and academic labs Our Many Germ Companions into possible treatments and cures. Microbes say and do more than we ever knew The Argument The idea, usually, is to alter organisms Researchers stress that therapies in the gut, where about 99 percent of Mouth based on microbiome science will take Bacteria in saliva

human microbiota live. Some of the time to develop. Meanwhile, there’s have been shown most promising research involves fecal to correlate with widespread agreement among scientists transplantation — the introduction a diagnosis of that people in industrialized countries through colonoscopy, endoscopy or rheumatoid arthritis would do themselves a favor by going enema of a donor stool. In early human Lung easy on antibiotics. Already blamed for trials, it’s shown potential as a superior Long thought to breeding resistance in bacteria and thus be sterile, the lung, treatment for recurrent infection with it turns out, hosts creating superbugs, antibiotic overuse C. difficile, a pathogen often contracted an abundance of is now a suspect in killing off good as in hospitals that causes diarrhea and microbiota well as bad bacteria in the human gut. kills about 30,000 people a year in Gut Physicians say they often prescribe the U.S. Obesity has been discussed Microbiota here unnecessary antibiotics for viral synthesize vitamins as another tantalizing target. In and aid in digestion, infections because their patients expect experiments, fat mice transplanted with extracting energy it and there’s no time to explain that microbes from thin mice lost weight from indigestible a bacteria killer won’t destroy a virus. dietary fibers and vice versa. A public-information campaign in the Vagina U.S. aimed at reducing patient demand Diversity is generally The Background best, but here a has corresponded with a decline in Researchers connected to the Human prevalence of the antibiotic prescriptions. U.S. farmers Microbiome Project, an international bacterial species use antibiotics intensively on livestock lactobacillus is a sign effort led by the U.S. National Institutes of good health both to treat and prevent disease. Usage of Health, have cataloged more than is much lower in most countries in the Fingers 10,000 microbial species among Individuals leave European Union, which has banned our companion germs. The average microbial “fingerprints” dosing healthy animals since 2006. human gut contains about 38 trillion distinct enough to have Another possibility for encouraging a forensic implications

ILLUSTRATION BY CHRIS PHILPOT CHRIS BY ILLUSTRATION microbes, weighing about 0.2 kilograms better microbial balance is to take in (0.4 pounds). Compared with people Skin “good” microbes, called probiotics. One study suggested in less-developed countries, those in microbes on the They can be found in food such as industrialized states have significantly skin protect against yogurt, miso and soy beverages or in less diversity in the microorganisms melanoma dietary supplements. Some researchers that populate their bodies. An excessive see potential in probiotics, but the case use of antibiotics, both in medicine and for them requires more investigation, agriculture, is thought to be a leading and there are no established protocols cause. Lower rates of natural childbirth for how much or what strains to GRAPHIC: DATA INCLUDE NUMBER OF FEDERAL BACKGROUND CHECKS FOR GUN PURCHASES FROM LICENSED DEALERS, SEASONALLY ADJUSTED THROUGH MARCH 2018; 2018; MARCH THROUGH ADJUSTED SEASONALLY DEALERS, LICENSED FROM PURCHASES GUN FOR CHECKS BACKGROUND FEDERAL OF NUMBER INCLUDE DATA GRAPHIC: BLOOMBERG SOURCE: GRAPHIC MONTHLY CONCEALED-CARRY PERMIT CHECKS NOT INCLUDED; SOURCE: FEDERAL BUREAU OF INVESTIGATION’S NATIONAL INSTANT CRIMINAL BACKGROUND CHECK SYSTEM CHECK BACKGROUND CRIMINAL INSTANT NATIONAL INVESTIGATION’S OF BUREAU FEDERAL SOURCE: INCLUDED; NOT CHECKS PERMIT CONCEALED-CARRY MONTHLY and breast feeding are others: Those consume for various purposes.

BZ9_Quicktakes03_energy_health.indd 59 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

Sugar By Mary Duenwald

Humanity has a love-hate relationship with sugar. It’s a treat reserved for the end of a good meal, a focal point for holidays, even a term of endearment. But sugar is an enemy, too, long disparaged as empty calories that cause tooth decay and weight gain. In recent decades, sugar’s bad image has grown much worse. For many, it’s displaced fat and starch at the top of the list of dietary bogeymen. Public-health experts have stepped in with advice that we distinguish between naturally occurring sugars — what’s found in milk and oranges, for example — and “added” sugars that sweeten soft drinks and other packaged foods. Increasingly, governments are treating sugary sodas like cigarettes and alcohol and taxing them to discourage consumption.

The Situation The Sweet Tooth Varies difference. Some critics object to soda With obesity and its attendant health Around the World taxes on the grounds that they’re a problems — diabetes, heart disease and Annual per capita sugar use, average 2014-2018 nanny-state measure, an unnecessary cancer — on the rise, advocacy groups intrusion by government into personal are working to persuade people to Australia 49.7 kg behavior. Others argue that they hurt cut back on added sugar, fingered as a Brazil 52.8 the poor and threaten jobs in the food major culprit. (Among such groups is China 11.4 industry. However, Mexico’s experience Bloomberg Philanthropies, the charity Ethiopia 4.8 with a peso-a-liter soda tax imposed of Michael Bloomberg, founder and India 19.9 in 2014 suggests that wealthier people, majority owner of Bloomberg News Japan 16.8 who are less sensitive to prices, end up parent Bloomberg LP.) In the U.S., where Malaysia 56.8 paying the taxes, while poorer people 4 in 10 adults are obese, the average Nigeria 8.5 cut out sugary drinks. Researchers person gets more than 13 percent Russia 38.6 have found no evidence of employment of total calories from added sugar. The U.S. 33.3 losses from the tax. There, and World Health Organization recommends World 22.8 elsewhere, the measures appear to be a maximum of 10 percent, or about working. Mexico’s tax ushered in a 7.6 12 teaspoons a day. (A 12-ounce can of percent drop in consumption over two Coca-Cola contains about 9.3 teaspoons.) of turning it into fat and setting the stage years, according to research funded by To make the advice stick, more than for diabetes, heart disease and more. Bloomberg Philanthropies. Residents 30 countries and a handful of U.S. cities By contrast, added sugars typically come of Philadelphia dialed back their urge have begun to tax sugary beverages, in abundance and, in the case of soda, for a daily soda by 40 percent after a which studies suggest are particularly unaccompanied by nutrients. That extra 2017 city tax went into effect. In the unhealthy. Another strategy is to sugar prompts bacteria in the mouth to U.K., a soda tax levied not simply by strengthen labeling requirements for produce acids that erode tooth enamel. the liter but according to the amount packaged foods. Chile, where people Drinking sugary beverages exacerbates of sugar per liter has pushed beverage take in more calories from sugary drinks anyone’s tendency to become obese, makers to reduce the sugar content in

than anywhere else in the world, now because people can drink a lot of their products. TIMES/REDUX YORK NEW SAPIENZA/THE FRANCESCO PHOTO: requires conspicuous front-of-package soda without feeling full. Suspicions stop signs on foods high in sugar (or that sugar may be habit-forming are sodium, saturated fats or calories) and supported by evidence that laboratory forbids advertising such products to rats demonstrate the classic addiction children. In the U.S., products will have symptoms of craving, bingeing and to carry a notice of their added sugar withdrawal. Low-calorie foods and drinks content by 2020. containing artificial sweeteners obviously cut back on calories, but some evidence

The Background indicates that they may increase appetite Maximum teaspoons of added sugar the Molecule for molecule, added sugars are and, because they are so sweet, keep World12 Health Organization recommends daily no less wholesome than natural ones. people craving the taste of sugar. Whether it’s honey, molasses, refined cane sugar or the sweet stuff in an apple, The Argument it’s glucose, fructose or a combination The way to prevent added sugar from of the two. But natural sugars come in causing problems, soda companies have limited amounts as part of a package argued, is to see that people get plenty that contains nutrients and fiber, which of exercise. Burning calories indeed slows sugar digestion. That gives the helps keep weight off, but limiting those

liver more time to metabolize it instead going in, studies show, makes a bigger 40%Share of adults in U.S. who are obese DEVELOPMENT AND COOPERATION ECONOMIC FOR ORGANIZATION SOURCE: GRAPHIC

BZ9_Quicktakes03_energy_health.indd 60 6/8/18 1:52 PM GRAPHIC SOURCE: ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT PHOTO: FRANCESCO SAPIENZA/THE NEW YORK TIMES/REDUX This documentisbeingprovidedfortheexclusiveuseofO'MALLEYAVANTatSAOSCAPITALLLC BZ9_Quicktakes03_energy_health.indd 61 6/8/18 1:52PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

There are more than 350 QuickTakes available on the Bloomberg Terminal at QUICK ; individual articles can be found online at www.bloomberg.com. Or search “QuickTake” and the topic in your web browser. Index From gender pay gaps to international trade gaps. What’s trending now.

Banking Kurds Deflation Financial Contagion Sports Lone-Wolf Terrorism Dot Plot Fintech Banker Bonuses Myanmar’s Transition Forward Guidance Volatility p22 College Sports Capital Requirements North Korea’s Nukes Free Trade and Its Foes Vulture Investing Doping Shadow Banking Palestinian “Right of Return” Full Employment Hedge Funds Esports Takes Off Stress Tests Privacy vs. Security GDP High-Speed Trading Gay Athletes Subprime Lending Sanctions Helicopter Money Insider Trading Golf in the Rough Over 2,700 Bloomberg Swiss Bank Accounts Sunni-Shiite Divide Homeownership Islamic Finance Sports Betting p57 Too Big to Fail Syria’s Civil War Reconsidered Leveraged Loans World Cup Corruption journalists and analysts Volcker Rule Taiwan’s Tightrope Income Inequality Libor’s Replacements in over 120 countries, Territorial Disputes Intellectual Property MiFID II Technology providing objective China Focus Terrorism Today Japan’s Stubborn Wages Peer-to-Peer Lending reporting you can trust. Two-State Solution Middle Class Ping Pools 5G China Inc.’s Acquisitions Ukraine Standoff Minimum Wage Repo Market Addictive Apps Spree Yemen’s Crisis p34 Monthly U.S. Jobs Report Robo-Advisers Artificial Intelligence China’s Jet Challenge p27 Yemen’s Fault Lines Negative Interest Rates Short Selling p24 Cyberbullying China’s Two-Child Policy p56 Productivity Spoofing Cybersecurity China’s World Bank Countries & Regions in Retirement, Delayed Sustainable Investing Domesticating Drones Debt Bomb Transition Secular Stagnation Driverless Cars Dirty Air Soft Landing p21 Electromagnetic Spectrum Economic Data Arctic Opportunity Trade War p20 Medicine & Health EU’s GDPR Privacy Rules Financial Risk Argentina’s Choices Universal Basic Income Facebook’s Stumbles p14 Great Firewall of China Brazil’s Highs and Lows Alzheimer’s Disease Internet of Things “Made in China 2025” Brexit Explained Education Antibiotic Resistance Mobile Payments Market Meddling Where Brexit Hurts Most p26 Cancer Immunotherapy Net Neutrality p15 Openings to Foreign Finance Canada’s Next Step Student Debt Crispr and Gene Editing Space Race Overseas IPOs Catalonia’s Separatism University Endowments Dangers of Sitting Space Taxis Pain Points Chile’s Funk Drug Prices Streaming Silk Road Colombia’s Peace Plan Energy Ebola Touch-Screen Cuba-U.S. Reboot Engineered Food Generation p12 Commerce & Corporate Cyprus’s Reunification Better Batteries Flu Virtual Reality Governance Egypt’s Déjà Vu Coal Power Food Safety Wearable Technology Europe’s East-West Rift p37 Divesting Fossil Fuels p46 Heroin and Opioids Women in Tech Alibaba’s E-Commerce Hong Kong’s Autonomy Electric Cars Human Microbiome p59 Amazon Economy p8 India’s Aspirations Fracking Obesity U.S. Government & Politics Aramco’s Giant IPO Indonesia’s Nationalism Fracking in Europe Organic Food Black Friday Iran’s Economy Liquefied Natural Gas Sugar p60 Americans and Buybacks Japan’s Shrinking Population Nuclear Power Vaccines Vilified Their Guns p58 CIFIUS Libya’s Breakdown OPEC Fights Back p45 Vaping Budget Battles Crowdfunding Malaysia’s Muddle Russia’s Grip on Gas p47 War on Smoking Budget Deficit Executive Pay Mexico’s Troubles Solar Power What to Eat Campaign Finance Japan Post Nigeria’s Breaking Point Wind Power Congressional Review Act Profit Shifting Pakistan’s Turmoil Profiles Debt Ceiling Remaking Japan Inc. Philippines’ Firebrand Environment Estate Tax Retail Apocalypse p9 Poland’s Populist Turn Pope Francis Export-Import Bank Curated comments Sharing Economy Puerto Rico’s Debt Bee Blight Jack Ma Fannie Mae and Freddie Mac that provide insight South Korea’s Chaebol Qatar’s Bets Carbon Capture p50 Angela Merkel Filibuster from across Twitter’s Tech’s New Monopolies Saudi Arabia’s Shift p32 Carbon Markets Elon Musk Health Insurance Exchanges millions of users. Telecommuting Scotland’s Independence Climate Change Vladimir Putin p36 Immigration “Dreamers” TPP Trade Deal South Africa’s Chance p38 Deforestation Mohammed bin Salman Immigration Overhaul Why Women Earn Less p55 Switzerland’s People Power Earthquake Readiness p51 Xi Jinping Individual Mandate Women on Boards Thailand’s Troubled El Niño and La Niña Labor Unions Democracy India’s Monsoon Public Policy Debates Skilled Immigrants Commodities Turkey’s Continental Divide Overfishing Supreme Court Venezuela’s Collapse p41 Recycling Crisis p48 Abortion Rights Fight Tax Inversions Gold’s Ups and Downs Affirmative Action Voting Rights Iron Ore Wars Finance & Related Asylum Wave Election p40 Resource Curse Currencies Regulation Black Lives Matter Europe’s Refugee Crisis Conflict & Security Bitcoin and Blockchain Active vs. Passive Family Leave Crypto’s Many Questions p10 Bail-In Gay Rights Afghanistan’s War Currency Pegs Broken Benchmarks Japan’s Pension War Boko Haram Currency Wars Broker “Best Interest” Rules Marijuana Legalization Chemical Weapons Euro’s Existential Crisis Capital Controls Millennials Cool War End of Cash Carried Interest Polling’s Perils Cyberwarfare p31 Strong Dollar Policy Circuit Breakers Populism Fighting Islamic State Yuan Internationalization Contingent Convertible Public-Private Partnerships Future of Jihad p35 Bonds Sexual Harassment Laws Hamas Economics Dark Pools Sexual Harassment on Founding partners Iran’s Nuclear Program Dual-Class Shares Wall Street p25 Israeli Settlements Abenomics Europe’s QE Quandary Transgender Rights Japan’s Military Central Bank Independence Exchange-Traded Funds Voting Gender Gap

BZ9_Quicktakes03_energy_health.indd 62 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

From gender pay gaps to international trade gaps. What’s trending now.

Over 2,700 Bloomberg journalists and analysts in over 120 countries, providing objective reporting you can trust.

Curated comments that provide insight from across Twitter’s millions of users.

Founding partners

BZ9_Quicktakes03_energy_health.indd 63 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

BZ9_Quicktakes03_energy_health.indd 64 6/8/18 1:52 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

BZ9_Quicktakes01_disruption.indd 1 6/8/18 1:05 PM This document is being provided for the exclusive use of O'MALLEY AVANT at SAOS CAPITAL LLC

BZ9_Quicktakes03_energy_health.indd 4 6/8/18 2:41 PM