Homeowners in fire-ravaged Southern California are coming to grips with the knowledge that they may never recover from the wildfires that have ripped through the multi-million dollar homes in Pacific Palisades and across the Los Angeles area.
More than 2,000 homes have been lost to the flames, and a JPMorgan analyst said losses could top $50 billion, including insured losses of $20 billion. Accuweather said its experts estimated the damage on Wednesday at $52 billion–$57 billion. But as the fires rage, the damage will worsen. The Los Angeles fires have far surpassed what was the most expensive inferno in U.S. history, California’s 2018 Camp fire, sparked by an overheated powerline, which caused $12.5 billion in damage.
Many homeowners may get only pennies on the dollar, however, and some may get nothing. That’s because last year, several top insurers, including State Farm and Allstate, stopped renewing home insurance policies in California, arguing they were unable to charge adequately for the risk involved. California was the only U.S. state that didn’t allow insurers to pass on higher reinsurance costs (that’s the cost of the insurance that insurance companies take on in case of catastrophes). But California had just adjusted that rule when the wildfires hit.
Still, insurance agents are telling the media that not everyone renewed their coverage in time. In Pacific Palisades, NBC News reported that 1,600 policies weren’t renewed last year by State Farm alone. There’s no word on how many of those were subsequently insured, but it may take time to get paid back, and it’s unlikely that insurance is going to cover the cost of rebuilding every home that was destroyed. A last-resort plan that now insures more than 400,000 homes will put a strain on government finances when that bill comes due, so it’s imperative that private insurers return.
“California is the fourth-largest insurance market in the world,” a spokeswoman for the insurance industry’s main lobbying group told a local TV station in San Francisco. “We want to be here, we want to be a part of it, but we do need to make some profit.”
Watch Big Business This Week on Cheddar—and YouTube!The Usual Suspects
- Rate cut for the rate cut? A reading of the minutes from the Federal Reserve’s December meeting shows the Fed’s decision to cut rates by a quarter point in December was a contentious call, and that there’s no guarantee Fed policymakers will cut rates again soon. Fed staff said they assume potential policy changes under Trump would lower GDP growth, and raise unemployment and inflation, emphasizing the need for caution. Greg Daco, chief economist at consulting firm Ernst & Young, says he expects three rate cuts this year, of a quarter-point each, in March, June, and September, bringing the Fed funds rate down to 3.50% to 3.75% by next fall.
- Boeing’s safety kick: In an effort to win back the confidence of customers and employees, Boeing has announced a series of safety initiatives, including surprise inspections at its factories, to prevent screw-ups like the missing bolts that caused a door panel to fall off a 737 last year. The moves come as the company resumes production of 737s after a monthslong machinists strike. Boeing will also inspect fuselage parts before they leave the Spirit Aerospace plant in Wichita, Kansas, for Boeing’s assembly plant in Seattle, and offer extra protections for workers who blow the whistle on safety issues.
- TikTok Supremes: With a congressionally mandated January 19 deadline approaching for TikTok’s Chinese owner, ByteDance, to sell to a U.S. buyer or be barred from the country, the Supreme Court is set to hear arguments Friday on whether the ban unfairly infringes on the social media platform’s free speech rights. Some 39% of Americans age 18 to 29 get their news from TikTok, and Congress and the Biden administration fear the company’s ties to China’s leadership mean it’s being used to spread disinformation, and therefore poses a national security threat. “The right to free speech enshrined in the First Amendment does not apply to a corporate agent of the Chinese Communist Party,” outgoing Senate Majority Leader Mitch McConnell, the Kentucky Republican, told the court. Trump asked the Supremes to strike down the ban. Curiously, before he was against the ban, Trump backed it the first time he was president. • Ahead of the possible ban, creators are moving to other platforms, mainly Meta’s Instagram and Alphabet’s YouTube, and ad dollars are following. TikTik sold about $8 billion of ads in the U.S. last year. What to do if you’re a budding TikTok star? Talent agents are telling streamers to hold off on buying a house or car for now, the New York Times reports.
- Final credits roll for the MoviePass mess: Remember MoviePass? For $9.95 a month (plus tax) you could see as many films as you liked in participating cinemas. The CEO of Movie Pass’s parent company, Theodore Farnsworth, finally admitted what everyone else assumed: It was too good to be true. The problem is that Farnsworth never let on to investors that the pass was a scam. He’s just pleaded guilty to securities fraud, and could face up to 20 years in prison. Th-th-th-that’s all folks!
- Uncle Warren’s mortgage trap: It’s not all smiles behind those sweet jowls. A company owned by Warren Buffett’s Berkshire Hathaway knowingly issued “unaffordable” mobile home mortgages to low-income borrowers, the Consumer Financial Protection Bureau alleges in a suit filed this week in Tennessee. The regulator says Vanderbilt Mortgage & Finance Inc. “ignored clear and obvious red flags that certain consumers would not be able to repay their loans according to their terms.” CFPB director Rohit Chopra said in a statement that “Vanderbilt knowingly traps people in risky loans in order to close the deal on selling a manufactured home.”
- Siri, please don’t record this. Apple says it’s never sold personal data collected by its AI alter ego Siri, nor has it used the material to target users with ads. That’s despite having paid $95 million to end a class-action lawsuit alleging just that. Apple says Siri processes user requests in-device as much as possible.
- Amazon spends more on AI infrastructure: Jeff Bezos’ internet giant says it will spend at least $11 billion to boost its AI and cloud infrastructure in Georgia to meet growing demand for remote computing power. The Wall Street Journal notes that cloud service unit AWS is Amazon’s most profitable, with net sales growing 11% in Q3 from a year earlier to $15.33 billion. Amazon’s capex grew 80% to $22.62 billion during the quarter, its biggest-ever quarterly spend. In fact, Amazon is planning to spend more than $100 billion over the next decade on data centers, more than it plans to invest in its e-commerce warehouses.
- Back to business class: American Airlines says it’s mounting a new effort to win back business class travelers this year, after losing about $1.5 billion in business travel revenue to rivals Delta and United last year. The Wall Street Journal reports that American is restoring some perks (such as lower reward tiers for mileage usage) and offering deep discounts to appeal to travelers for whom convenience often trumps price. American had also made it cheaper and easier for corporate travelers to book their own flights directly on its website, theoretically saving millions in travel agent commissions. But corporations didn’t like employees making their own arrangements, and cut back on American. Now CEO Robert Isom is making an apology tour, meeting chiefs of major corporate clients, the Wall Street Journal reports.
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The Short Stack
- On the waterfront: Port workers on the East Coast and Gulf Coast have reached a deal with employers, avoiding a strike that could have crippled the economy just as Donald Trump takes office. Key to the deal: provisions that protect jobs for members of the International Longshoremen’s Association, and ensure that even as ports automate, union jobs won’t be lost. The ports already averted one strike, in October, by agreeing to a 60% wage hike over 10 years for the workers who move most of the nation’s freight.
- Trump web services? A Dubai developer shared a mic with Donald Trump at Mar-a-Lago this week, and promised to build a $20 billion data center in the U.S. Hussein Sajwani and his firm DAMAC Properties have spent the past decade building Trump-branded golf courses in the Middle East. Sajwani’s data center firm, Edgnex, said it would develop data centers in eight states, including Texas and Indiana, aiming to eclipse Amazon and Google. Trump has offered to expedite review of any Edgnex centers.
- A union of unions: Two of the largest U.S. labor groups are joining forces: The Service Employees International Union, which represents nearly 2 million people, from college professors to janitors and doormen, said it will join the AFL-CIO, which counts more than 50 unions representing 12.5 million workers. The move comes amid concern among U.S. workers that the Trump Administration will move to water down protections for union workers and block efforts to organize workers at Amazon, Starbucks, and other large U.S. corporations.
- More Saudi sports? After soccer and golf, Saudi Arabia is trying to win the hearts and minds of the West (and Donald Trump) with a foray into competitive fighting. A company owned by the Saudi’s sovereign wealth fund is close to a deal for a new boxing league with TKO, which owns the Ultimate Fighting Championship. A new competition, featuring up-and-coming boxers tied exclusively to the league, is imminent, the New York Times reported, citing sources close to the deal.
Trumplandia
- Lego my Greenland: Trump’s increasingly bellicose language about taking over Greenland, a Danish territory, could have some economic backlash. Trump says if Denmark doesn’t yield Greenland to the U.S., he’ll slap tariffs on the land of Lego. Denmark, a U.S. ally and NATO member, exported $11 billion worth of goods to the U.S. in 2023, and the U.S. sent $5 billion of goods to Denmark. Those tariffs would raise the price of some important Danish products, including weight-loss drugs Wegovy and Ozempic and, of course, Lego. Trade watchers note that with Denmark part of the European Union, any tariffs slapped on one member could have a knock-on effect with one of the U.S. largest trading partners. U.S.–EU trade totaled $1.3 trillion in 2022, with the U.S selling $592.0 billion in goods and services to Europe and the EU selling the U.S. $723.3 billion.
- A man, a plan (???), a canal: Panama. The man who runs the Panama Canal has called BS on Donald Trump’s assertions that China controls the vital waterway, and that American ships are charged more than others. “The accusations that China is running the Canal are unfounded,” Ricaurte Vásquez Morales told The Wall Street Journal on Wednesday. “China has no involvement whatsoever in our operations.” And Vásquez Morales said that offering lower rates to ships from some countries—Trump wants a discount for U.S. ships—would violate the treaties and neutrality of the Canal, leading to chaos. “Rules are rules and there are no exceptions,” Vásquez Morales said. The only exception is that U.S. Navy ships get priority passage. Two ports at either end of the canal have been run by China since before Trump was last president.
- The business of Justice: Donald Trump’s nominee for attorney general, former Florida attorney general Pam Bondi, has a long history as a lobbyist, the New York Times reports, representing companies including Uber, Amazon, Carnival cruise lines (they wanted Trump to help them avoid fines for docking in Cuba), and a Russian businesswoman convicted in Kuwait in a multimillion-dollar embezzlement scheme. While she was Florida’s top law enforcement official, Bondi fostered a business-friendly environment, meeting with many companies that had business before the state, including multi-level marketer Herbalife and the for-profit college chain Bridgepoint Education, when both had been the targets of investigations by other states. She also took free travel and campaign donations from lobbyists whose clients wanted to avoid investigations by her office, the Times reported.
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Elon’s World
Musk’s plan to build a series of AI supercomputers in Elvis’s hometown of Memphis, Tennessee, is hitting a roadblock. The first 100,000-GPU-powered supercomputer, for homeschooling Grok, is supplying its own power for now. But the local power utility says it’s not clear Memphis can support the 300,000 megawatts xAI wants now, or the power—possibly 10 times that—for a 1-million-GPU superduper computer, dubbed Colossus, that Musk is talking about. This is part of a bigger problem for AI, whose power needs are already risking so-called power distortions across the U.S. that threaten billions of dollars in damage to home appliances and to utilities’ aging power distribution equipment, Bloomberg News reported. Amazon and Google are already planning to build their own power plants, and Microsoft recently signed a 20-year agreement to buy power from the ill-fated Three Mile Island nuclear plant, whose second unit nearly had a meltdown in 1979. “It is a physics problem, not a political problem, about how much energy can be provided here,” said Doug McGowen, CEO of Memphis’ public utility. • Elon Musk now says his announced plans to use the government efficiency advisory panel to cut $2 trillion from annual federal spending was “a best-case” outcome. “I think if we try for $2 trillion, we’ve got a good shot at getting one,” Musk told former Democratic political strategist Mark Penn in an interview livestreamed on X.
Meta On Bended Knee
In an extraordinary five-minute video message earlier this week, Meta CEO Mark Zuckerberg threw up his hands. Arguing that he is moving to protect “free expression,” Zuckerberg announced Facebook would stop fact-checking most posts, and blamed hyperactive governments that were aiming to restrict free speech.
“Governments and legacy media have pushed to censor more and more,” Zuckerberg said in the video, wearing a dark T-shirt, no trademark hoodie, and a $900,000 watch, the Greubel Forsey Hand Made 1. He said Facebook and Instagram will get rid of the armies of human fact-checkers who had been deployed to keep fake news and disinformation off its platforms. (Facebook, however, continues to remove internal criticism of the company’s latest board member, UFC Fighting CEO and Trump buddy Dana White.) They’ll be replaced with community notes from users, much like the community notes now used by X, whose value has dropped by an estimated 80% since Elon Musk bought it and enacted similar protocols.
Don’t blame us for the fake news, incitement to hatred, and other potential misuses of free speech on Facebook, Zuckerberg said. Instead, blame the media! (Back in 2018, Zuck was happy to shoulder the blame for Facebook’s failure to delete hateful content in Myanmar that helped lead to the death of thousands of Rohingya minority members who opposed the country’s military government.) “After Trump first got elected in 2016, the legacy media wrote nonstop about how misinformation was a threat to democracy,” he continued in the video. “We tried in good faith to address those concerns without becoming the arbiters of truth, but the fact-checkers have just been too politically biased and have destroyed more trust than they’ve created, especially in the U.S.”
To solve that problem, he said, the remaining fact-checkers are moving from California to Texas.
