A devastating tax
Much of the Los Angeles area burned Thursday as a new fire in the Hollywood Hills broke out as firefighters scrambled to contain others, including the 17,200-acre Palisades fire. Critical fire conditions are expected to continue for at least another day.
The fires are now the most destructive in Los Angeles history. At least five people have died, and estimates of the economic devastation — in terms of damage to homes and monuments, the film and television industry and more — are steadily climbing into the billions. And California’s insurance market, already battered by a string of climate disasters, is taking another hit.
Latest on damage assessment: AccuWeather estimated on Wednesday that the economic costs would reach up to $57 billion. That’s more than triple the forecaster’s estimate for the Hawaii wildfires in 2023 ($14 billion to $16 billion), but less than the 2020 West Coast wildfires ($130 billion to $150 billion.)
The California wildfires have burned more than 27,000 acres, including parts of the upscale Pacific Palisades area, where the median home value is about $2 million. Shares of Edison International, the parent company of the electric utility that serves the Los Angeles area, fell 10 percent on Wednesday. While the causes of the fires are unclear, investors appear concerned about potential legal liabilities costing other companies billions in settlements linked to other fires.
California’s insurance market faces an existential test. The state had already been working to stop insurers fleeing, as wildfires in 2017 and 2018 wiped out a quarter of a century of their profits. More recent fires could accelerate that exodus, which could increase already elevated rates.
More than 100,000 Californians lost coverage from 2019 to 2024, with State Farm — one of the state’s largest insurers — dropping 70 percent of its customers in and around the Santa Monica Mountains last summer.
That has pushed homeowners toward California’s FAIR plan, a state-backed system that’s essentially a last resort for homeowners who can’t get private coverage. If the plan needs additional funding, it can turn to private insurers operating in the state to cover the difference. But that could lead to higher rates across the state.
Parts of Hollywood are in limbo. Dazzling events, including Oscar nominations, Critics Choice Awards and several movie premieres, have been canceled or postponed. Most notably, productions across the industry, one of the largest in the region, have shut down, including the TV shows “Grey’s Anatomy,” “NCIS,” “The Price Is Right” and “Jimmy Kimmel Live!”
Disney closed its headquarters in Burbank, while NBCUniversal closed its Universal Studios Hollywood theme park.
HERE’S WHAT’S GOING ON
The Biden administration plans new export restrictions related to artificial intelligence. The rules, which could be issued as soon as Friday, will limit where AI chipmakers can ship their cutting-edge technology and where AI data centers can be built. Two dozen opponents, including China, would be placed on a blocking list, escalating tensions between Washington and Beijing.
Dock workers reach a tentative deal to avoid a major strike. Their union, the International Longshoremen’s Association, agreed Wednesday with the United States Maritime Alliance on the future use of automated machines at ports on the East and Gulf coasts. The parties faced a January 15 deadline. In other labor news: The Service Employees International Union, which represents nearly two million workers, agreed to join forces with the AFL-CIO, and a labor agreement has been reached to end a ski patrol strike at a resort in Park City, Utah.
Constellation Energy is reportedly closing in on a deal to buy Calpine. A transaction, which is expected to value Calpine at about $30 billion, including debt, would be among the largest in the power generation industry, according to Bloomberg. The utility sector has grown over the past year as electricity demand for data centers is expected to increase in the coming years.
Donald Trump’s inaugural committee is sold out without tickets. The president-elect’s team has told major donors it was no longer providing access to Trump’s inauguration and some related events after it reached $170 million, The Times reports. (Some billionaires have even been placed on a waiting list.) The restrictions partly reflect a rush by deep-pocketed donors and companies to curry Trump’s favor.
Global attachment anxiety
Major stock markets in the United States were closed on Thursday as part of a national day of mourning for former President Jimmy Carter. But the bond market is open – and it’s ringing alarm bells around the world.
The concern is that a sustained selloff in Treasuries could tie the hands of the Fed and President-elect Donald Trump. That is clouding the outlook for rate cuts and his administration’s plans to spur economic growth through tax cuts and other measures.
The latest: The dollar is rising, as are concerns about higher borrowing costs. Treasuries and bonds have fallen amid fears of a return to inflation. Minutes from the Fed’s most recent policy meeting, released Wednesday, showed some officials were concerned that Trump’s plans for immigration and tougher tariffs could push up consumer prices and force the central bank to hold off on cutting rates. .
Another development that doesn’t help: Elon Musk appears to be scaling back expectations for his $2 trillion government spending-cutting initiative, which some deficit hawks had backed.
That said, Christopher Waller, a Fed governor, said he was not convinced the rates would significantly increase inflation and reiterated that “further tapering will be appropriate.”
That did little to reassure investors. Traders this morning were expecting just one cut this year, versus the Fed’s own forecast of about two. And bond worries have gone global, as rising sovereign debt yields have coincided with central bank tightening rates, essentially undoing the efforts of those officials.
The last time yields rose to these heights, in 2022 and 2023, global stocks fell. At least this time, the global economy is growing, reducing the risk of contagion. However, the S&P 500 has fallen nearly 3 percent since its record high on Dec. 6.
Look at Britain. The pound has fallen and 30-year bond yields have risen to a level not seen since 1998, driven by worries about the country’s finances amid rising inflation. It is reviving memories of September 2022, when a debt crisis led to the resignation of Liz Truss as prime minister.
The country is in better fiscal shape now. But the meltdown underscores the challenges facing current prime minister Keir Starmer — who is said to face increased political pressure from Musk and his allies, according to The Financial Times.
After the silence of the advertising industry in Meta
Among those who loudly protested Meta’s plans to overhaul its content policies, including eliminating its fact-checking program, one group was conspicuously absent: major advertisers.
This reflects Meta’s dominance of digital advertising – along with the possible ban in the United States of a rival, TikTok – leaving these companies with little leverage to fight back. And the industry is already licking its wounds after a bitter battle with Elon Musk and the Republicans.
Meta is a cheater when it comes to advertising, commanding about 45 percent of the market last year, according to analysis firm Sensor Tower. (Most of the rest has been taken over by Google.) That dominance has tilted the center of power in conversations about ad spending on digital platforms from advertisers, according to Brian Wieser, a veteran industry executive who runs the consulting firm Madison and Wall.
It wasn’t lost on marketers that Mark Zuckerberg didn’t mention them in announcing his company’s policy changes, suggesting the Meta CEO was making his bombshell announcement from a position of strength. “I don’t think any of them are going to do much for the Meta changes,” Wieser told DealBook’s Bernhard Warner.
The meta can become even more powerful. Sensor Tower predicted that Zuckerberg’s tech giant could gain market share this year if it introduces advertising to its Threads social network, as some expect.
More importantly, the potential U.S. ban this month of TikTok — a fast-growing draw for advertisers, which Wieser estimated raked in $8 billion in U.S. ad sales last year — has already prompted some marketers to shift spending. their Instagram, which is also owned by Meta.
Clashes with Musk and Republican lawmakers have also taken a toll. The non-profit group Global Alliance for Responsible Media, which included some of the world’s biggest advertisers, disbanded last year after the tech mogul sued it.
Musk had accused the organization, which recommended big brands freeze their spending on X after taking over, of organizing an illegal boycott. (This came after the Republican chairman of the House Judiciary Committee, Representative Jim Jordan of Ohio, opened an investigation into whether the group, known as GARM, represented an illegal arrangement seeking to take down the conservative media.)
This is why marketers have grown reluctant to speak out against platforms. “If you say you don’t want your ads to appear alongside hateful content,” Wieser told DealBook, “you’re now making a political statement.”
That said, Meta appears to have taken some steps to alleviate advertisers’ concerns. Nicola Mendelsohn, who leads Meta’s relationships with major advertisers, wrote on LinkedIn that brand safety remained a priority. And even before Tuesday’s announcement, Meta reportedly offered its biggest advertising partners expedited moderation processes, according to The Financial Times.
READING SPEED
bids
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Blackstone agreed to invest in DDN, a data management company for artificial intelligence applications, at a valuation of $5 billion. (WSJ)
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A group of investors led by billionaire Frank McCourt’s Liberty Project has officially submitted a bid to buy TikTok’s US operations as the video platform’s future remains in limbo. (Project Liberty)
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“The Return of Dan Loeb” (Institutional Investor)
Politics and policy
The best of the rest
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A company controlled by Saudi Arabia’s sovereign wealth fund is close to a deal to partner with TKO, parent of the Ultimate Fighting Championship, to create a boxing league. (NYT)
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A public letter from Vivek Murthy, the outgoing US surgeon general, urges Americans to “rethink how we are living our lives”. (people)
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Elon Musk says he is now one of the best Diablo IV players in the world. Other players wonder how the head of six companies and a prolific social media poster found the time. (WSJ)
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