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Trump suggests China will negotiate over trade spat

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Chinese President Xi Jinping and U.S. President Donald Trump attend a welcoming ceremony November 9, 2017 in Beijing, China.

Pool | Getty Images

Chinese President Xi Jinping and U.S. President Donald Trump attend a welcoming ceremony November 9, 2017 in Beijing, China.

President Donald Trump is suggesting China will ease trade barriers “because it is the right thing to do” and Washington and Beijing can settle disputes that have rattled financial markets, consumers and businesses.

A new Trump tweet doesn’t explain why he’s optimistic about resolving an escalating trade clash between the world’s two biggest economies.

Trump says he and Chinese President Xi Jinping “will always be friends, no matter what happens with our dispute on trade.”

Trump insists “China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!”

The U.S. bought more than $500 billion in goods from China last year and now is planning or considering penalties on some $150 billion of those imports. The U.S. sold about $130 billion in goods to China in 2017 and faces a potentially devastating hit to its market there if China responds in kind.

China has pledged to “counterattack with great strength” if Trump decides to follow through on his latest threat to impose tariffs on an additional $100 billion in Chinese goods — after an earlier announcement that targeted $50 billion.

The Trump administration also is pushing for a crackdown on what it says is China’s theft of U.S. intellectual property.

Conflicting messages about the trade fight have come out in recent days from some top members of Trump’s team.

Treasury Secretary Steven Mnuchin has said he was “cautiously optimistic” that the U.S. and China could reach an agreement before any tariffs went into place. But he also said “there is the potential of a trade war.

The new White House economic adviser, Larry Kudlow, has said the U.S. is “not in a trade war” and that “China is the problem. Blame China, not Trump.”

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The market isn’t convinced the Federal Reserve can achieve its inflation objective

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SpaceX and Arianespace win $390 million worth of Intelsat launches

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Intelsat picked SpaceX and its European competitor Arianespace to launch seven satellites in the coming years, with the contracts worth a combined $390 million.

Under the terms of the contract, beginning in 2022 Intelsat will launch four of its satellites on two SpaceX Falcon 9 rockets and two more satellites on an Ariane 5 rocket. The final seventh satellite is contracted with both SpaceX and Arianespace, as a way for Intelsat to make sure it launches on time. Intelsat will award whichever company doesn’t launch the seventh satellite with a contract for a separate later launch, the company told CNBC.

Intelsat declined CNBC’s request for comment on how the $390 million will be split among the two launch companies, citing confidentiality agreements.

Maxar Technologies is building five of the satellites for Intelsat and Northrop Grumman is building the other two.

The satellites and launches are part of Intelsat’s C-band spectrum “transition plan,” which was ordered by the Federal Communications Commission earlier this year. In essence, the FCC wants to use a range of frequencies for 5G mobile services on the ground that is currently utilized by satellites companies. To do so, the FCC is paying companies to replace satellites – a program that may see Intelsat bring in nearly $5 billion. The clearing payments will also help lighten Intelsat’s debt load, which had climbed to almost $15 billion before the company voluntarily filed for Chapter 11 bankruptcy protection in May.

Intelsat plans for the first two launches to take place in the third quarter of 2022, the third in the fourth quarter of 2022, and the final launch in the second half of 2023.

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Snowflake’s first-day pop means IPO left $3.8 billion on the table, the most in 12 years

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Snowflake IPO begins trading at the NYSE on Sept. 16th, 2020.

Source: NYSE

One of the biggest problems with the traditional IPO process (and there are several) is that it’s impossible to say whether a deal is a success or a failure. 

Snowflake, the cloud-based data management company that’s 2020’s biggest IPO, jumped 112 percent in its debut Wednesday. For investors who received allocation at the $120-per-share offering price (which, by the way, was 41 percent higher than the range Snowflake had initially marketed earlier in September), that’s a win. It’s also a win for earlier backers, like Altimeter Capital and Sutter Hill, who have made back multiple times their original investments. 

“The heart’s beating a little faster right now,” said Brad Gerstner, the founder and CEO of Altimeter Capital, on CNBC as he watched the stock open.

But there’s a flip side that’s often talked about: money left on the proverbial table. This looks at the abstract concept of opportunity cost — what Snowflake could have raised if it had priced the deal as the broader market valued it. In this case, that figure is $3.8 billion (in addition to the $4 billion Snowflake raised in the IPO and concurrent private placements). Critics of the IPO process say that’s capital that could have otherwise been invested in the business. 

“In many ways, $SNOW is the final proof of just how broken process is,” tweeted Bill Gurley, general partner at venture firm Benchmark and frequent critic of the traditional IPO process. 

Snowflake’s “money left on the table” is the largest for any company listed in the U.S. since Visa’s IPO in 2008. That deal handed an additional $5 billion to Visa investors who got allocation in the IPO, rather than the company. (Note: Visa shares have soared about 1,200 percent since its IPO, compared with a 161 percent gain in the S&P 500 over that same period). 

Snowflake’s opportunity cost also surpasses that of Alibaba, which is the record-holder for the largest IPO, listed in the U.S., in 2014. However, a minority Alibaba’s IPO comprised shares issued by the company — known as primary stock — with the rest sold by previous investors like founder Jack Ma or Yahoo. That meant, Alibaba left $3.2 billion on the table, below that of Snowflake. 

(To be sure, Snowflake shares were dropping 10% on Thursday, meaning maybe the stock wasn’t as mispriced in the IPO as the first-day pop reflected.)

Are SPACs better?

So why does this matter? Well, skeptics of the traditional IPO process often point to the inefficiencies and mispricings as the reason why the route to public markets needs to be reformed. But the newer methods for IPO candidates, such as SPACs and direct listings, just do a better job of hiding the opportunity costs. 

In direct listings — like the ones of Slack and Spotify in the past and the upcoming debut of Palantir — companies leave no money on the table because they raise no money to begin with (yet). That may soon change as the Securities and Exchange Commission approved the ability for companies to raise fresh capital through direct listings. But as of now, there’s no clear-cut way to measure their opportunity cost as pricing is determined by the forces of the market, without an initial marker by which to compare performance on day one. 

One might argue that there’s an opportunity cost in direct listings for not being able to craft a book of investors, as takes place in traditional IPOs. Or, there’s an opportunity cost in foregoing the ability to issue stock in the deal and raise additional capital. But the exact dollar figure on these is difficult to pinpoint. 

With SPACs, or special purpose acquisition companies, companies find a “backdoor route” to the public markets by agreeing to be acquired by a blank-check shell entity. The price is agreed upon by two parties — the managers of the blank-check company and the board of the start-up. Sometimes the market will bid up the value of the SPAC when a deal is announced, but it’s an indirect line as to what that says about the price by which the start-up was acquired, a deal that is voted on and closed months later.

But maybe that’s the idea. Maybe not having the psychological “what if’s” are a large component for why the alternative processes to go public are more attractive.

But then, should we be reframing our thinking about opportunity costs as these newer methods become more popular? 

Because they always exist.

—With reporting by Gina Francolla.

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