Countdown to a shutdown
Washington is on the brink of crisis, as 38 House Republicans joined nearly all Democrats last night in rejecting a government funding plan backed by President-elect Donald Trump and Elon Musk. If a last-minute deal isn’t reached, the government will shut down at 12:01 a.m. Eastern.
The chaos raises questions over how much control the president-elect and Musk have over the Republican Party as it prepares to gain control of the White House and Congress. And it offers corporate America and the markets an ominous preview of the next four years. (Andrew joined a discussion with The Times’s Michael Barbaro, Maggie Haberman and Catie Edmondson on today’s episode of “The Daily” about the political drama.)
“You never have any ounce of self-respect,” Representative Chip Roy, a Texas Republican who voted against the deal, told his colleagues. He and other G.O.P. dissidents rejected the package because it would have allowed the government to borrow more money, something many have opposed for years. “To take this bill and congratulate yourself because it’s shorter in pages, but increases the debt by $5 trillion, is asinine,” he added.
Trump conceded concern about what comes next. The failed legislation would have suspended Washington’s borrowing cap until 2027. Failure to lift that limit would hurt Trump’s ability to introduce expansive tax cuts and increase border security spending. “Congress must get rid of, or extend out to, perhaps, 2029, the ridiculous Debt Ceiling,” the president-elect wrote on social media.
Trump openly said this week that he would prefer a debt-ceiling increase to happen under President Biden so he could avoid taking heat for increased government borrowing.
Some in Congress questioned who’s really in charge of Republicans. Representative Jamie Raskin, Democrat of Maryland, lamented that it was not clear whom Democrats need to negotiate with: “Is it Mike Johnson? Is he the speaker of the House? Or is it Donald Trump? Or is it Elon Musk?” (The crisis has set off speculation that Johnson’s tenure as speaker is in peril.)
Many have already been concerned about the sway that the unelected Musk has over Washington. Representative Rosa DeLauro, Democrat of Connecticut, referred to the tech mogul as “President Musk.” And congressional Republicans are worried about the abrasive C.E.O. dynamiting sensitive legislative negotiations and threatening to primary Republican lawmakers who cross him.
What is business to do? Recent surveys of C.E.O.s suggest that corporate leaders are bullish on the Trump-era economy, largely on the hopes of deregulation. (Many have sought to build bridges with the president-elect, most recently Jeff Bezos, the Amazon founder.)
But the prospect of disorder in Congress and a hit to America’s finances — all before Trump has been sworn in — will be a tough pill for C-suites to swallow.
HERE’S WHAT’S HAPPENING
The F.A.A. temporarily bans drones over portions of New York and New Jersey. The agency prohibited most of the devices from airspace near dozens of communities through mid-January. The move came after weeks of increasing public concern about reports of drones near airports, despite Biden administration officials saying that most don’t pose a threat.
Federal prosecutors charge Luigi Mangione with murder. The count, part of four in total, carries a maximum potential sentence of death, raising the stakes for Mangione, a suspect in the shooting of UnitedHealthcare’s C.E.O., Brian Thompson. The highest penalty he could face if convicted in relation to state charges filed this week would be life in prison without parole.
Workers at Starbucks and Amazon go on strike. Unionized baristas at the coffee chain are set to walk off the job in Los Angeles, Chicago and Seattle on Friday as they push for a better wage offer in contract negotiations. Separately, the International Brotherhood of Teamsters said that thousands of workers employed by contractor firms at seven Amazon facilities nationwide had gone on strike, though it was unclear how many had actually walked off the job. (The company expects the hubs to function as usual.)
Novo Nordisk shares plunge after its new obesity drug performs worse than predicted. The market value of the Danish drug maker fell sharply on Friday — a record — after patients using CagriSema in a trial failed on average to achieve its 25 percent weight-loss goal. The results raised questions about the company’s ability to compete with Eli Lilly for domination of the fast-growing market.
Investors on edge
Markets are down sharply on Friday on growing worries that a U.S. government shutdown could become reality, adding to investor jitters over high interest rates and the return of inflation.
President-elect Donald Trump has jolted markets further by threatening the European Union with “TARIFFS all the way!!!” in a social media post if the bloc doesn’t buy more American oil and gas.
The high drama comes before a key inflation report. The Commerce Department is set to release the November Personal Consumption Expenditures index at 8:30 a.m. Eastern.
The Fed put the markets on notice on Wednesday. It lowered its benchmark lending rate by a quarter point, but warned that stubbornly high inflation had forced it to be more cautious about further cuts next year and beyond.
The S&P 500 has declined 3.2 percent since the Fed’s announcement, and is down again on Friday. Bitcoin has fallen even further over the same stretch, to trade below $95,000.
Economists have begun to detail the fallout of a potential shutdown. G.D.P. growth would fall by 0.15 percentage points “for each week it lasted,” Alec Phillips, an economist for Goldman Sachs, wrote this week in a client note. The disruption shouldn’t hinder the federal government’s ability to borrow in the near term, he added.
Still, the Treasury market is a growing concern. This week’s sell-off started during the Fed’s hawkish news conference on Wednesday. That has pushed the yield on the 10-year Treasury note close to a seven-month high, threatening to inflate borrowing costs even as the central bank lowers its prime lending rate.
That’s bad news for prospective house hunters — mortgage rates are heading higher — and could stymie some of Trump’s ambitions to bolster growth through tax cuts and other stimulus measures. The sell-off in Treasury notes and bonds risks “waking up” the bond vigilantes, Henry Allen, a markets strategist at Deutsche Bank, told Bloomberg Television on Friday.
Is A.I. set for a correction?
Is the artificial intelligence boom in trouble, or is it a mere stumble? Nvidia’s stock has fallen into correction territory over the past month. Policymakers are expressing greater worries about the national security implications of the technology. And analysts say a slowdown in the pace of development could put a crimp on the sector.
The bulls would point to the huge investment flows. Databricks, an A.I. start-up, closed a monster $10 billion funding round this week. And Nvidia’s stock has more than doubled this year.
But the Biden administration is weighing rules that could hit Nvidia’s global reach. The dominant A.I. chipmaker expects to amass more than $10 billion in revenue this year outside the United States. But officials are considering tightening rules on overseas sales, The Times’s Tripp Mickle and Paul Mozur report.
Here’s how the proposed framework could work:
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American allies would be able to make unfettered purchases;
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Adversaries would be blocked entirely;
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Other countries would get quotas based on their alignment with U.S. strategic goals.
Some A.I. leaders are warning that development is slowing. Demis Hassabis, who leads A.I. at Google, says that tech companies are running out of data to train large language models. “Everyone in the industry is seeing diminishing returns,” he told The Times.
Still, that might not stop the money flowing. Hock Tan, the C.E.O. of Broadcom, a chipmaker whose market value surpassed $1 trillion last week, says his clients’ big spending will last until the end of the decade. “They will stop when they run out of money or when shareholders put a stop to this,” he told The Financial Times.
How Britannica Group set itself up for a potential I.P.O.
Twelve years ago, the publisher of Encyclopaedia Britannica said it would no longer print the bookshelf-busting reference tomes, raising questions about how the company could survive in the age of Wikipedia.
But Britannica Group has done just that, embracing the internet and artificial intelligence — and setting itself up for a potential I.P.O., DealBook’s Michael de la Merced writes.
Britannica has branched out beyond encyclopedias. It runs websites, including Britannica.com and the online Merriam-Webster dictionary and thesaurus. But it also sells educational software to schools and libraries and A.I. agent software that underpins applications such as customer service chatbots and data retrieval.
The publisher says its sites draw more than seven billion page views a year from more than 150 countries. “We have more users now than we’ve ever had,” said Jorge Cauz, its C.E.O.
A.I. is a big part of Britannica’s future. The publisher has been exploring the technology for decades: In 2000, it bought Melingo, a specialist in natural language processing that in 2017 began developing A.I. agent software.
But it was the introduction of ChatGPT in 2022 that persuaded the company to incorporate A.I. more thoroughly into its operations. Britannica now uses A.I. to help produce content for its websites and power its own chatbot, which draws exclusively from its encyclopedia content and from educational software that personalizes curriculums for students.
That has helped Britannica’s finances. The company is set to approximately double its revenue from two years ago, when it was on track to collect about $100 million. And Cauz said that the company had pro forma profit margins of about 45 percent.
What is next for Britannica? The company is exploring going public, potentially seeking a valuation of about $1 billion, according to a person with knowledge of the matter. That would be about double what Britannica’s owner, the Swiss financier Jacqui Safra, valued it at in 2022. (In the interim, the publisher is weighing raising additional debt and equity capital, partly to pay off some of Safra’s debts.)
Cauz declined to comment on going public, saying only that Britannica didn’t need additional capital.
THE SPEED READ
Deals
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FedEx plans to spin off its freight trucking division, a unit that analysts say could be worth about $30 billion. (FT)
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Shares in Soho House surged on Thursday the embattled chain of private members’ clubs received a takeover offer valuing it at $1.7 billion, a more than 80 percent premium to its closing price on Wednesday. (Bloomberg)
Politics and policy
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Georgia’s Court of Appeals disqualified Fani Willis, the Atlanta prosecutor who brought an election interference case against President-elect Donald Trump and his allies. (NYT)
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Alejandro Mayorkas, the homeland security secretary, warned the European Union that its “adversarial” relationship with Big Tech was making it harder to regulate artificial intelligence. (FT)
Best of the rest
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A father and son pleaded guilty to orchestrating a stock-fraud scheme that helped pumped up the market value of a small New Jersey deli’s parent company to $100 million. (CNBC)
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“James Bond Outdueled Goldfinger and Dr. No. Can He Win a Battle With Amazon?” (WSJ)
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