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With inflation threatening to weigh on consumer demand, Macy’s says more shoppers could be faced with a consequential choice.
“Are they going to be spending on discretionary items that we sell, or are they going to be spending on an airline ticket to Florida, or travel, or going out to restaurants more?” Macy CFO Adrian Mitchell said.
The department store chain is far from alone in navigating this tricky dynamic, with some signs of a recession emerging.

A person walks past a Macys store in Hyattsville, Maryland, on February 22, 2022.
Stefani Reynolds | AFP | Getty Images

With inflation threatening to weigh on consumer demand, particularly among low-to-middle-income consumers, Macy’s says more shoppers could be faced with a consequential choice: Head to the mall or take a summer vacation.
“The biggest challenge that we’ve had in terms of thinking about managing through the beginning of 2022, is where is the demand going to come from,” Macy’s Chief Financial Officer Adrian Mitchell said during a presentation Thursday morning at J.P. Morgan’s annual Retail Round-Up event.

“We do believe the demand is out there,” he said. “We do believe that the consumer is going to be spending. But are they going to be spending on discretionary items that we sell, or are they going to be spending on an airline ticket to Florida, or travel, or going out to restaurants more?”
Those questions are creating a level of unpredictability that Macy’s must plan carefully around, Mitchell said. For example, the retailer doesn’t want to order too many beach cover-ups or suitcases, if that’s not what shoppers are going to splurging on during the summer.
The department store chain is far from alone in navigating this tricky dynamic, with some signs of a recession emerging. Economists at Deutsche Bank said this week that persistent inflation combined with regular interest rate hikes will likely push the U.S. into recession in 2023. The bond market also recently flashed a classic recession indicator, in which the 2-year Treasury yield rose above the 10-year note. 
Those pressures are spurring expectations that some Americans, especially those in lower-wage jobs, will be forced to choose between, say, a long-awaited vacation or concert ticket over a new swimsuit or handbag.
Some early inflation trade-offs are already taking place, according to one report. Consumers are spending 59% more, on average, at gas and convenience stores than they were a year earlier, based on the latest data in Numerator’s Shopping Behavior Index.

The increases are most pronounced for low-and-middle-income tiers, according to the report. In turn, discretionary categories including home improvement and beauty are seeing the biggest declines, week by week, in unit sales across income levels, Numerator found.
Levi Strauss & Co. CEO Chip Bergh told CNBC on Wednesday that the denim retailer has yet to notice consumers opt for less expensive goods amid inflationary pressures, and that demand has remained robust. But Bergh added that some consumers have just started to dip into their savings accounts for extra cash — a trend Levi is monitoring closely. “We don’t have our head in the sand,” he said.
Levi was confident enough about its current business to reiterate its full-year outlook, while Macy’s has yet to adjust the 2022 financial forecast in February when it called for sales to be flat to up 1% compared with the year-earlier period.
Macy’s said Thursday that it has recently tracked a cooling off in demand for certain home goods and casual apparel relative to the peak of the pandemic. On the plus side, it said weddings are quickly picking up, which would drive up sales of dresses, cosmetics and men’s tailored clothing.
Still, Mitchell stressed that Macy’s remains cautious.
“Even though the consumer is healthy, we do see that inflation is elevated more so than what we expected coming into the year,” he said. “And we also recognize that the supply chain disruptions are not solved.”
Nordstrom, which also attended the J.P. Morgan retail event this week, noted that its typically affluent customer base doesn’t tend to spend more or less amid gas price volatility. The health of the stock market tends to correlate more closely with the performance of its business, said CEO Erik Nordstrom.

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Niche sports organizations such as UFC, WWE and Formula One could be alluring acquisition targets for big streaming companies like Disney and Netflix.
Disney nearly acquired UFC in 2016, sources said.
Buying a sports league would enable a company to control expensive licensing rights that seem to increase with each renewal.

(L-R) Conor McGregor of Ireland punches Dustin Poirier in a lightweight fight during the UFC 257 event inside Etihad Arena on UFC Fight Island on January 23, 2021 in Abu Dhabi, United Arab Emirates.
Chris Unger | UFC | Getty Images

In 2016, before Ultimate Fighting Championship sold for $4 billion to the company that would become Endeavor Group, the mixed martial arts league was nearly scooped up by Disney for a little bit more.
Disney and UFC had negotiated broad terms of a deal in which the entertainment giant would acquire the combat sports company for about $4.3 billion, according to people familiar with the matter.

Disney, which owns the majority of sports broadcast network ESPN, has toyed with the idea of buying sports leagues for years, one of the people said. Then-Disney CEO Bob Iger was the model executive for brilliant intellectual property acquisitions, buying Pixar, Lucasfilm and Marvel.
Ultimately, Iger nixed the UFC deal. He felt the bloody and violent UFC brand didn’t mesh with family friendly Disney, said the people, who asked not to be named because the negotiations were private. A Disney spokesperson didn’t immediately comment.
Two years later, Disney’s ESPN paid $1.5 billion for UFC TV rights in a five-year deal. That deal immediately increased the value of UFC to $7 billion, according to UFC CEO Dana White. Disney’s ESPN+ also signed a $150 million per year deal to stream UFC fights in an agreement that runs out in 2025.
If ESPN renews UFC rights, Disney will pay much more in licensing fees than the $4.3 billion it would have paid in 2016. Popular sports broadcast rights fees continue to rise rapidly as they present unique live viewing opportunities for advertisers and draw relatively large audiences.
This calculus has made professional sports and entertainment leagues such as UFC, NASCAR, Formula One and WWE potentially appealing targets for streaming companies as a way to control ever-increasing rights fees for valuable live programming that still commands advertising dollars.

“Disney would have been far smarter to buy UFC than spend this much to license,” said LightShed analyst Rich Greenfield. “Now the costs are going way up. Owning a league makes a ton of sense.”
While it’s rare anything comes up for sale, the streaming era has likely made sports leagues more desirable acquisition targets as rivals look for exclusive content for competitive advantage. Owning a league, rather than relying on multiyear license renewals that lead to recurring bidding wars, can solidify branding and reduce subscriber churn.

Mercedes AMG Petronas Motorsport driver Lewis Hamilton (44) of Great Britain celebrates clinching the 2019 FIA Formula 1 World Championship following the F1 – U.S. Grand Prix race at Circuit of The Americas on November 3, 2019 in Austin, Texas.
Ken Murray | Icon Sportswire | Getty Images

While Disney balked at UFC’s image, it’s easy to envision WWE- or Formula One-branded roller coasters and theme park rides for media companies that own them. There are clear merchandise tie-ins for Amazon. Netflix can use owned IP for its nascent video gaming division.
Formula One, WWE and UFC are all language-independent properties with global appeal. Formula One, in particular, prides itself on being an international sport, with races across the globe. The league announced last week it has added a third U.S. grand prix, in Las Vegas, beginning in 2023.
That could tip the scales for streaming services that need global subscriber growth, such as Netflix and Disney, to keep investors happy.
“Streaming companies are global,” said Sean Bratches, former managing director of commercial operations for Formula One. He created and oversaw the production of “Drive to Survive,” the hit Netflix docuseries that details full Formula One seasons. “If you’re a sport like F1, one of your primary strategic objectives is to enhance your around-the-world media rights.”
There are no known talks to acquire Formula One, UFC or WWE.

Sparse inventory

While buying sports and entertainment leagues could be appealing targets for the big streamers, there simply aren’t many of them available. The largest professional sports leagues – the National Football League, Major League Baseball, the National Basketball Association – aren’t feasible buyout targets. That leaves a hodgepodge of smaller leagues, which may or may not be for sale at a given time.

World Wrestling Entertainment Inc. Chairman Vince McMahon (L) and wrestler Triple H appear in the ring during the WWE Monday Night Raw show at the Thomas & Mack Center August 24, 2009
Ethan Miller | Getty Images Entertainment | Getty Images

WWE, which has a market capitalization of $4.6 billion, stands out as a potential takeover candidate because it’s a publicly traded company with an aging controlling shareholder. Vince McMahon owns more than 80% of voting power and is 76 years old. At some point, he and his family will have to decide whether to keep control of the company or sell it to the highest bidder. McMahon’s daughter, Stephanie, also works at the company as chief brand officer.
“We’re open for business,” Nick Khan, WWE’s president, said last month on The Ringer’s “The Town” podcast.
A buyer could be a legacy media company, such as Disney, Fox, Paramount Global or Comcast’s NBCUniversal, which last year struck a five-year deal with WWE for more than $1 billion to be the exclusive direct-to-consumer home for WWE.
“If you look at what does NBCU/Comcast need, and I think it’s a factual statement, they don’t have the intellectual property that some other companies have,” said Khan. “I think they look at us as an entity that has a lot of intellectual property. A lot of it has not been exploited it. Now it’s up to us to monetize it properly and show the community exactly what we have.”
NBCUniversal declined to comment.
If a potential acquirer does make McMahon an offer, it could come before the company’s next rights renewal — likely to be announced in mid-2023. That’s probably when McMahon may have to decide to sign up another multiyear deal or sell.
While Disney and NBCUniversal own theme parks, large technology companies Apple and Amazon have also emerged as potentially interested parties to acquire sports and entertainment IP. Both have struck multiyear deals to broadcast MLB games on their streaming services. Amazon also acquired exclusive Thursday Night Football rights, beginning this season. Even Netflix, which has thus far stayed away from live sports, is open to buying Formula One rights after its docuseries “Drive to Survive” broke out as a global hit, co-CEO Reed Hastings said last year.

Potential drawbacks

While Disney proved it could exploit and expand existing intellectual property from Marvel and Lucasfilm, creating new characters is a different skill set, said Khan of WWE. It’s not clear that a streaming service or large entertainment entity would have the same skill set as McMahon.

The Undertaker, top, and Brock Lesnar wrestle during Wrestlemania XXX at the Mercedes-Benz Super Dome in New Orleans on Sunday, April 6, 2014.

Smaller sports companies’ content also may get buried in a large streaming service that can’t feature everything to its users. While Star Wars and Marvel spinoffs often get top billing on Disney+, other intellectual property can get lost in the shuffle. The McMahons will have to decide whether WWE can expand its universe as part of a larger company or if it risks losing cache without the family’s attention.
Buying a smaller sports league may not interest a large streamer enough to make a multibillion-dollar acquisition, said Bratches, the former Formula One executive who also worked for ESPN for 27 years.
Liberty Media, controlled by billionaire John Malone, acquired Formula One for $4.4 billion in 2016. Liberty has spent the past five-plus years investing in F1 and generating revenue by playing different media entities off each other by splitting rights globally and auctioning off licensing rights.
That business model would disappear if one media party owns the league. Any seller that cares about the future of what it’s selling would want to feel confident in the overall health of the acquiring streaming service, said Bratches. If consumers sour on a streaming service, and that company owns a league exclusively, viewership may suffer independent of the quality of the league.
“These are ‘nice to have’ properties, but it’s not like you’re buying the NFL,” said Bratches. “There’s not enough content to move the needle.”
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
WATCH: Liberty Media announces Formula 1 grand prix in Las Vegas

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Baron Capital’s Tesla investment has grown roughly twentyfold since 2016.
Baron plans to hold for at least eight more years, and thinks the stock could grow three or four more times from here.
He isn’t worried that Elon Musk’s recent investment in Twitter will become a distraction for the busy CEO.

Investor Ron Baron has been one of Tesla’s largest shareholders for years, and he has no plans to change that.
Baron told CNBC on Thursday that he thinks the electric vehicle giant’s high-flying stock has much more room to run – and that he plans to continue holding the company’s stock for at least eight more years.

“I think we’re going to make three, four, five times our money on Tesla from here,” Baron said on CNBC’s “Squawk Box.” “I think for Tesla this is the very beginning of what they’re doing.”
Baron’s namesake firm, Baron Capital, invested about $380 million in Tesla between 2014 and 2016 at an average price of just over $50 per share . It now has about 12.8% of its total assets under management invested in Tesla, or about $6.2 billion, following the EV maker’s stratospheric run-up over the last few years.

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But Baron is nowhere near ready to cash out. Asked if he expects to be holding Tesla stock in eight to 10 years, Baron said yes – even though, as he noted, his firm sold about a billion dollars’ worth of Tesla stock in a bid to reduce investors’ risk and might trim its position again in the future.
“I was getting widely criticized for having such a large percentage of my [firm’s] assets in one stock, and people said how can you be so crazy,” Baron said, explaining the decision to trim the firm’s Tesla stake. “I wanted them to think I wasn’t crazy.”
Baron told CNBC that investors should look past near-term speed bumps like the company’s recent miss on deliveries. Tesla delivered about 310,000 vehicles in the first quarter, falling about 7,000 vehicles short of Wall Street’s consensus estimate.

“People said they should have done 317,000 cars in the quarter,” Baron said. “In four years they’ll do a million cars a quarter, and if you go 10 years out it’s something like five million cars a quarter.”
At 5 million vehicles a quarter, or 20 million per year, Tesla’s automotive business would be roughly the size of Toyota and Volkswagen – currently the world’s two largest automakers – combined.
Baron remains an ardent fan of Tesla CEO Elon Musk and said that he isn’t worried that Musk’s recent decision to invest in Twitter will become a distraction. Musk also joined the social media company’s board.
“I just think this [investment in Twitter] is helping his marketing,” Baron said. “There’s no way he’s taking his eye off the ball or anything.”
Shares of Tesla were effectively flat in premarket trading Thursday.

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The new electric GMC Hummer pickup marks a major shift for General Motors in both function and form, according to those who worked on it.
Nontraditional features or surprises include a subtle dig at Tesla’s long-delayed Cybertruck, a prominently placed button that currently does nothing and a “WTF mode.”
The overall mission was to rapidly create a “fun” vehicle that would draw attention to the company and its new EVs.

GMC Hummer EV Edition 1
Michael Wayland / CNBC

PHOENIX – The new electric GMC Hummer pickup is different for General Motors and not just because it isn’t a gas-guzzler like its ancestors. It marks a major shift for the historically conservative Detroit automaker in both form and function, according to those who worked on it.
The “highly profitable” vehicle is the flagship for GM’s new Ultium EV technologies and is the new benchmark for the Detroit automaker in terms of development time. There also are other notable features inside the vehicle that insiders say are testaments to GM changing as a company to better compete against Tesla and newer EV start-ups.

Such features include a subtle dig at Tesla’s long-delayed Cybertruck, a prominently placed button that currently does nothing — and a “Watts to Freedom,” or WTF, mode that launches the massive vehicle 0-60 mph in about three seconds. That’s comparable to a Chevy Corvette and slightly slower than some Tesla performance models that can achieve the speed in under three seconds.
“Hopefully, there’s a lot that’s surprising with this vehicle because it’s all intentional,” Aaron Pfau, Hummer’s lead development engineer, said during a media event. “It is to kind of change your concept of not only what an EV can do but what GM as a whole can do.”

Pfau and other members of the Hummer EV team managed through the company’s infamously tight lawyers and broader bureaucracy to enable quick decisions and unique features for the vehicle that GM has never done before. They did so in a record 26 months. That’s about half the time of a typical vehicle program.
The overall mission, internally referred to as “moonshot” in a nod to NASA’s Apollo 11 first lunar landing, was to rapidly create a “fun” vehicle that would draw attention to the company and its new EVs, which are expected to scale to 30 models globally by 2025.
“The whole goal of this vehicle was to get people excited and thinking about EVs that wouldn’t necessarily be excited and thinking about EVs,” Pfau said. “We’re pulling everything, all the bells and whistles, into this one vehicle. It’s a bit of a halo vehicle, right? It’s not high volume.”

WTF

The Hummer team was largely given free rein to create the vehicle around the idea of building an open-air, performance and off-road “supertruck.” In essence, modernizing the gas-guzzling Hummer brand to create an audacious EV to showcase the best the company has to offer.
“We did empower the design and chief engineering team, and we said, ‘Hey, let’s go,'” Duncan Aldred, global head of GMC, said during an interview. “I think people have had a lot of fun with it, and I think that’s encapsulating that vehicle.”
To use “WTF,” an acronym typically associated with a vulgar term of disbelief, senior members of the Hummer team, with support from GM executives to do things differently, got approval after a battle with the automaker’s lawyers.
“It’s such a engaging experience, and we want to break the norms,” Pfau said. “We don’t want you to continue to have this belief that we’re this old, stuffy, legacy company. We on this program truly were like a start-up, internal to GM, and that cleared this path for us.”
Others such as exterior designer Brian Malczewski and vehicle dynamics performance engineer Drew Mitchell shared similar feelings about the program. Aldred gave credit to Barra and GM President Mark Reuss for giving the team such freedom to operate, within reason.
“That’s not to say we want to do anything that’s irresponsible by any means,” Aldred said. “But clearly we’re in an environment where we’ve got to offer things that customers want and that’s going to excite them. Tesla, to be fair to them, they’ve done a great job of all that stuff.”
Some of Tesla’s features have been controversial. Notably, allowing drivers to play video games while driving, which has been revoked, and concerns about its driver-assist systems being offered to consumers while still in testing or not properly monitoring driver awareness.

Aldred said GM has a history of safely deploying such features, citing third-party praise for its Super Cruise highway driver-assist system, which is available on the Hummer.
The Hummer also has four-wheel-steering that allows it to perform extremely tight turns and offer a “crab mode” that allows the vehicle to move in a diagonal direction. The current model being produced offers 1,000 horsepower, 1,200 foot-pounds of motor torque and 11,500 foot-pounds of wheel torque.
However, much like GM’s original Hummer vehicles of the 1990s and 2000s, such capability comes at a cost. While it doesn’t guzzle gas, it does go through a lot of energy and weighs over 9,000 pounds. That weight is about 4,000 pounds more than the heaviest Chevrolet Silverado 1500 pickup and more than double an average new vehicle, according to the U.S. Environmental Protection Agency.
Car and Driver reports the Hummer EV pickup has a rating of 47 MPGe, an electric vehicle range equivalent for miles per gallon. That’s about 33% less than its competitors, including the smaller Rivian R1T pickup and Ford Motor’s forthcoming F-150 Lightning. GM has declined to confirm the MPGe.
The Hummer Edition 1, which is currently being produced at a plant in Detroit, has an electric range of 329 miles, topping the Rivian and Ford electric pickups. Each of the automakers as well as Tesla have said longer-range options of their pickups will be available at later dates.

Easter eggs

Other hidden or surprising features in the vehicle, also known as “Easter eggs,” range from lunar-inspired design elements to customizable graphics for digital auxiliary buttons. The optional images include dynamite and skulls, as well as a Hummer EV running over a Tesla Cybertruck.
“We had so much fun with this thing that we normally don’t get to do on your average car,” Malczewski said.

The Hummer EV features customizable graphics for digital auxiliary buttons. The optional images range from dynamite and skulls to one of the vehicles running over a Tesla Cybertruck.
Michael Wayland / CNBC

There’s also a prominently placed button on a center knob that currently does nothing. When pressed, it says, “Your Mode. Your Mission. [email protected].” GM wants owners to submit their own ideas for a feature for the button that will then be added through a remote OTA, or over-the-air, update.
The button, a small “H” surrounded by three markings in the form of a triangle, could be used for additional off-road or performance modes or other features for the vehicles, Pfau said.
“We’re soliciting everyone’s feedback right now to say, ‘Hey, what are some things that you want?” he said. “We have looked at all kinds of different features that we can do with controls.”
Such hidden features and remote updates are fairly new for traditional automakers such as GM but have been a staple for Tesla, the industry-leader in electric vehicles. Barra has said GM will top Tesla in U.S. sales of EVs by 2025.

There’s a prominently placed button on a center knob that when pressed, says, “Your Mode. Your Mission. [email protected].” GM wants owners to submit their own ideas for a feature for the button that will then be added through a remote update.
Michael Wayland / CNBC

It’s looking profitable

Since the Hummer EV pickup was unveiled in October 2020, GM has received more than 65,000 reservations for the truck as well as for an upcoming SUV version of the vehicle.
Eighty percent of reservation holders have ordered the most expensive models of the vehicle, according to Aldred.
“We had a target, we had a business case, we’re beating that,” he said, declining to compare the profitability to traditional internal combustion models. “We were very, very profitable on these vehicles even with, for example, a 40 or 50% mix of the top of the line.”
GM has promised investors that its next-generation vehicles, starting with Hummer, would be profitable. The limited “Edition 1” launch version of the Hummer that starts at $110,295. Other, lower-priced versions — ranging from starting prices of about $80,000 to $100,000 — will follow.

Production is now set to begin at the former Detroit-Hamtramck assembly plant, less than two years after GM announced the massive $2.2 billion investment to fully renovate the facility to build a variety of all-electric trucks and SUVs.
Photo by Jeffrey Sauger for General Motors

While the Hummer EV pickup is for sale, new orders will not likely be fulfilled until 2024 due to the number of current reservations, Aldred said. The SUV, which GM unveiled last year after the pickup, isn’t expected to arrive until 2023.
“What we’re looking at now is how can we build the maximum amount and how can we deliver, fulfill these reservations as quickly as possible?” Aldred said. “We’re doing all the studies on that, and we’re confident we can go a lot quicker than we originally thought, but it still means a reservation now probably means delivering in ’24.”

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Walmart said it is hiking pay and launching a new training program for the truck drivers that it relies on to replenish store shelves and warehouses.
The big-box retailer is trying to expand the pipeline of truck drivers amid a national shortage.
The shortage of truck drivers in the U.S. hit an all-time high of over 80,000 workers last year, according to the American Trucking Associations trade group.

A Walmart truck departs the company’s distribution center in Washington, Utah.
Bloomberg | Bloomberg | Getty Images

Walmart said Thursday that it is raising pay for long-haul truck drivers and launching a new program to train the next generation, as it seeks the staffing it relies on to replenish store shelves and warehouses across the country.
The retailer said truck drivers will now make up to $110,000 in their first year with Walmart, which the company said will raise their average pay. The company did not provide the current salary range for a new truck driver at Walmart, but said they have made an average of $87,500 in their first year.

Walmart has also started a 12-week program in Sanger, Texas and in Dover, Delaware, where people can earn a commercial driver’s license and join Walmart’s fleet. It will cover the cost of earning a license, which can run between $4,000 to $5,000, said company spokeswoman Anne Hatfield.
The program will initially be open to only supply chain associates who are near the two training locations, Hatfield said. In the future, she said all Walmart employees will be able to apply for the program. She said the company hopes to train between 400 and 800 new drivers this year.
Walmart, the country’s largest private employer with 1.6 million workers, is ramping up recruiting efforts for truck drivers as the growth of e-commerce changes its business and complicates its supply chain. It is also a tight market for trucking labor.
The shortage of truck drivers in the U.S. hit an all-time high of over 80,000 workers last year, according to the American Trucking Associations trade group. The lack of workers has stemmed from several factors, according to the trade group, including the grueling hours of long-haul trips, the older average age of current drivers and the small number of women in the industry. The pandemic exacerbated the shortage, it said, as some truck drivers left the industry and fewer people went through training programs.
Walmart posted about the pay bump and training program on its corporate website on Thursday morning. It has about 12,000 truck drivers in its workforce. The company hired 4,500 truck drivers, a larger number than any time in its history, a spokeswoman said. 

During the pandemic, more of Walmart’s sales have shifted online as people got groceries delivered to the home or retrieved online orders by curbside pickup. U.S. e-commerce sales rose 11% in the last full fiscal year, ended Jan. 31. They jumped 90% on a two-year basis.
For Walmart and other retailers, soaring online sales have shaken up the cadence of business and prompted a race to deliver packages quickly and keep items in stock at stores.

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IN MOST COUNTRIES the state has no business in most commercial secrets. The Chinese authorities have long taken a different view, considering the review by foreign regulators of accounting documents drawn up in China for Chinese companies listed outside the mainland as an infringement on sovereignty, potentially punishable by death. The government softened its stance in 2020, when some such documents were shared with a Hong Kong accounting body. Now it seems ready to open the books to American regulators, who have been keen for a peek for more than a decade, in order to ensure the soundness of Chinese securities listed in New York.On April 2nd the China Securities Regulatory Commission (CSRC) indicated that it will allow American inspections of Chinese accounting papers. The concession from the Chinese government is a breakthrough in one of the costliest regulatory spats in capital-markets history.Without the reviews, an American law from 2020 could eventually force nearly $1trn-worth of Chinese stocks off New York’s exchanges. Although this would not happen until 2023 at the earliest, the mere prospect has exacerbated a sharp sell-off in Chinese technology stocks abroad, already battered by a broad clampdown on the tech industry at home. The NASDAQ Golden Dragon China Index, which tracks Chinese firms listed in New York, is down by two-thirds from its peak in February 2021. The publication last month of a list of 11 candidates for delisting by America’s Securities and Exchange Commission (SEC) shaved another $260bn from the collective value of American-listed Chinese stocks.Market sentiment was boosted by the CSRC’s decision to cut a clause in securities rules that “on-site inspections will be dominated by domestic regulators or depend on the conclusions of inspections by domestic regulators.” The Chinese stocks have recouped most of the losses sustained after the SEC’s warning. Still, investors remain wary. The shares trade far below their prices a year ago, and they have performed worse than either Chinese tech firms listed in Hong Kong or American tech stocks overall (see chart).One reason is growing concern over geopolitical friction between China and the West. This, reckons Deutsche Bank, “has permanently impaired” valuations of Chinese stocks in America. It is also unclear how China’s newfound fondness for information-sharing will work in practice. The CSRC proposes setting up a “cross-border regulatory co-operation mechanism” to conduct the inspections. This may fall short of American demands for independent reviews. The CSRC also retains the power to approve foreign inspections. Investors may distrust its assurances that it would only rarely deny such approval because of the sensitivity of the material.And doubts persist about how much protection American oversight would actually afford investors. Chinese regulators with full access to accounts have failed to spot many a fraud. Chinese executives seldom face punishment in their home country for defrauding American shareholders, says Soren Aandahl of Blue Orca Capital, a Texan short-seller which has uncovered mischief at some Chinese firms. Until that changes, an incentive to fiddle with the numbers will remain. After all, books don’t get uncooked merely by being opened. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Double-entry book-keeping” More

TOSHIBA WAS once synonymous with Japan’s industrial might. Of late the conglomerate, which has made everything from memory cards to nuclear reactors, has become a byword for drama. Japan’s business press writes of “Toshiba Theatre”, which began with accounting fraud a decade ago and has continued to the present day in a series of “slapstick” struggles between management and shareholders. Toshiba’s share price has underperformed domestic and foreign rivals, as well as the broader Japanese stockmarket (see chart).The latest plot twist comes amid talk of a buy-out led by Bain Capital, an American private-equity group. This raised hopes among investors for some sort of resolution to the saga. Toshiba’s market value has risen by a quarter in the past month.The opening act in the Toshiba spectacle was tragic. The firm cooked its books to inflate profits by $1.2bn between 2007 and 2014. Implicated executives bowed deeply in apology. A new crop of leaders had to apologise again two years later when a big bet on Westinghouse, an American nuclear-power company, went sour. To remain solvent, Toshiba sold its prized memory-chip unit to a Bain-led consortium and issued a block of new shares. Foreign activist investors spied opportunity. Effissimo Capital Management (ECM), a Singaporean asset manager, amassed a stake of nearly 10%, making it the single largest shareholder in the company.That set the stage for a protracted second act of tragicomedy. As shareholders pushed for better returns and more transparency, Toshiba executives squirmed. Some colluded with the Japanese government to stop the activists from getting seats on the board in 2020, according to an independent inquiry. A year ago a surprise bid to take the company private collapsed, bringing the CEO, Kurumatani Nobuaki, down with it. Tsunakawa Satoshi, a former boss who returned to the job after Mr Kurumatani’s ousting, argued instead that the group should be split up.This plan, too, faltered, and on March 1st Mr Tsunakawa fell on his sword. At an extraordinary general meeting three weeks later, shareholders killed the management’s proposal for a split into two businesses, one focused on electronics, the other on infrastructure. At the same time, they also rebuffed calls from Toshiba’s second-largest investor for the group to court buy-out offers.The impasse set the stage for act three. On March 31st ECM announced it had signed an agreement to sell its stake to Bain if regulators gave the nod to the American firm’s bid. A deal would be hefty. Toshiba’s market value is $17.5bn; a premium could add a few billion, putting it in striking distance of the top ten leveraged buy-outs in history. Given Toshiba’s history (which stretches back to 1875) and prominence (it employs nearly 120,000 people), the transaction would also mark a big advance for both foreign investors and private equity in Japan, which has not historically been welcoming to either.Hurdles remain. Japanese laws regulating foreign investment were amended in 2020 to increase oversight of industries important to national security. Toshiba has interests in several, including nuclear power, defence, chips and quantum computing. Regulators helped scuttle earlier buy-out bids. Bain appears to have learned from those experiences, and is said to be in discussions with Japanese funds and companies to form a consortium that would be palatable to the government. But “many issues” must still be resolved, Bain acknowledged. The curtain is far from closed. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “In search of an ending” More

WITH EYES like saucers, nine-year-old Ralph Miles slowly removes his Quest 2 headset. “It was like being in another galaxy!” he exclaims. He has just spent ten minutes blasting alien robots with deafening laser cannons—all the while seated silently in the home-electronics section of a London department store. Sales assistants bustle around, advertising the gear to take home today. “That would be sick!” enthuses Ralph. “Don’t get him started,” warns his dad.Children are no longer the only ones excited about “extended reality”, a category which includes both fully immersive virtual reality (VR) and augmented reality (AR), in which computer imagery is superimposed onto users’ view of the world around them. Nearly every big technology firm is rushing to develop a VR or AR headset, convinced that what has long been a niche market may be on the brink of becoming something much larger.Meta, Facebook’s parent company, has sold 10m or so Quest 2 devices in the past 18 months; Cambria, its more advanced headset, is coming this year. Microsoft is pitching its pricier HoloLens 2 to businesses. Apple is expected to unveil its first headset by early 2023 and is said to have a next-generation model in the pipeline. Google is working on a set of goggles known as Iris. And a host of second-tier tech firms, from ByteDance to Sony and Snap, are selling or developing eyewear of their own.The tech giants spy two potentially vast markets. One is the kit itself. Only around 16m headsets will be shipped this year, forecasts IDC, a data firm (see chart). But within a decade sales may rival those of smartphones in mature markets, believes Jitesh Ubrani of IDC. “Some people ask, ‘Do you think this is going to be as big as what smartphones created?’” says Hugo Swart of Qualcomm, which makes chips for both headsets and phones. “I think it’s going to be bigger.”That points to the second, still more tantalising opportunity: control of the next big platform. Apple and Google have established themselves as landlords of the smartphone world, taxing every purchase on their app stores and setting rules on things like advertising, at the expense of digital tenants such as Facebook. Whoever corners the headset market stands to acquire a similarly powerful gatekeeping position. “It is going to be the next big wave of technology,” says Mr Ubrani, “and they all want to make sure they get a piece of that.”The search for the next platform comes as the last one shows signs of maturing. Smartphone shipments in America fell from a peak of 176m units in 2017 to 153m in 2021, according to IDC. The advertising model that has powered firms like Facebook and Google is under attack from privacy advocates. In response, Mark Zuckerberg, Meta’s boss, has bet the future of his company on the “metaverse”. Microsoft’s CEO, Satya Nadella, has said that extended reality will be one of three technologies that shapes the future (along with artificial intelligence and quantum computing). Sundar Pichai, his counterpart at Alphabet, Google’s corporate parent, said last year that AR would be a “major area of investment for us”. Venture-capital funds pumped nearly $2bn into extended reality in the last quarter of 2021, a record, according to Crunchbase, a data company.Some 90% of headsets sold today are VR. Since buying Oculus, a headset-maker, for $2bn in 2014, Meta has captured the market, with 80% of VR sales by volume in 2021. The Quest 2, which offers a convincing (if mildly nauseating) experience with no need for an accompanying computer, has been a hit since its launch in 2020, helped by lockdowns and a $299 loss-leader price. Last Christmas the Quest’s smartphone app was the most-downloaded in America. Smaller rivals like HTC, a Taiwanese electronics firm, and Valve, an American games developer, which make VR gear for gaming, are being squeezed. Pico, a headset-maker owned by ByteDance, TikTok’s Chinese owner, is doing well in its home market, where Meta is banned.Meta’s VR strategy still revolves around ads. It is selling headsets as fast as it can in order to build an audience for advertisers, says George Jijiashvili of Omdia, a firm of analysts. Horizon Worlds and Venues, its virtual spaces for hanging out, claim 300,000 monthly visitors. To the irritation of some of them, Meta has already experimented with running ads there. The Cambria, a more expensive “pass-through” headset that combines a VR-like screen with front-mounted cameras to display footage of the world outside, will train cameras on users’ faces. That will enable the capture of facial expressions in virtual form—as well as the monitoring of which ads eyeballs linger on.Meta is also monetising its app store. From next year the market for VR content will surpass that for VR hardware, reckons Omdia. One of Mr Zuckerberg’s motives for pushing the new platform is to liberate Meta from dependence on phonemakers for the distribution of its apps. The firm has become a digital landlord itself, with the power to tax Quest-store pur chases in the same way that Apple and Google take a cut of smartphone app sales (Meta declines to say how much it charges).While Meta ramps up its efforts in VR, others are experimenting with the knottier technology of AR. Unlike VR, which takes you to another place, AR is “anchored in the world around you”, says Evan Spiegel, boss of Snap. His Snapchat social-media app has long provided AR filters for phones, allowing users to turn themselves into cartoon characters or virtually try on products like clothes and make-up with the help of their device’s camera. Snap is now toying with hardware, building a prototype set of AR Spectacles, which have gone out to a few hundred software developers.Your correspondent wandered through a floating solar system and was chased around Snap’s London offices by holographic zombies as he tried out the Specs, which at 134 grams look and feel like a chunky pair of sunglasses. The downside of their slender styling is a battery life of 30 minutes and a tendency to overheat. Limits in optical technology restrict the field of view to a square in the middle of the lens, meaning that overlaid graphics are seen as if through a letterbox. Snap’s main reason for making the device is to discover use cases for AR headsets when they become widely adopted, says Mr Spiegel. In the hardware market, “We have a shot. But our goal is still really on the AR platform itself.”For now, AR glasses are a niche within a niche. High cost and wobbly performance limit their appeal. IDC expects industry shipments of 1.4m units this year. The top seller in 2021 was Microsoft’s HoloLens 2, a $3,500 device used by big clients including America’s armed forces (whose order for 100,000 pairs provoked complaints from Microsoft staff that they “did not sign up to develop weapons”). Magic Leap, a startup in Florida, will launch the second generation of its AR glasses, with a wider field of view, in September. It is targeting industries like health care and manufacturing, rather than consumers.Despite VR’s dominance of the headset space, AR sparks more excitement about mass adoption. Even with Meta’s relentless promotion of virtual concerts, office meetings and more, few people use VR for anything other than gaming: 90% of the $2bn spent on VR content last year went on games, according to Omdia. Tim Cook, Apple’s boss, has criticised VR’s tendency to “isolate” the user. “There are clearly some cool niche things for VR. But it’s not profound in my view,” Mr Cook has said. “ AR is profound.” Apple has shown notably little interest in the immersive metaverse that excites Mr Zuckerberg.Apple’s upcoming pass-through headset will give a taste of the AR experience. A pair of true AR glasses are still in early development. These first products are said to be aimed at designers and other creative professionals, rather like its high-end Macintosh computers. Still, the firm’s entry into the industry could prove to be a watershed. “Apple’s ability to drive adoption is probably unparalleled in the market,” says Mark Shmulik of Bernstein, a broker. It will hope to do brisk business in China, giving it an edge over Meta. IDC predicts that in 2026, 20m pairs of AR glasses could be shipped worldwide, making them about twice as popular as VR goggles are today.Argumented realitiesThe big question is whether headsets can go beyond gamers and professionals, and become a true tech platform rather than just an accessory. Today’s AR and VR gear is good at solving “very specific pain-points”, says Tony Fadell, a former Apple executive who helped develop the iPhone. A generalisable platform such as an iPhone “is a whole different story”, he says. “And I don’t believe it,” he adds, at least for the next five years. In the foreseeable future, Mr Fadell thinks, headsets will be a bit like smart watches, popular but not revolutionary in the way the smartphone has been.Mr Spiegel agrees that headsets will not fully replace phones, just as phones have not done away with desktop computers. But, he points out, “one overarching narrative is that computing has become way more personal.” It has moved from the mainframe, to the desktop, to the palm of the hand. The next step, he believes, is for computing to be “overlaid on the world around you” by AR. Desktop computing was mainly about information processing, and smartphones were mainly about communication. The next era of computing, he suggests, will be “experiential”.In this scenario headsets could be part of a broader ecosystem of wearable technology that draws consumers’ attention—and spending power—away from the smartphones that have hypnotised them for the past decade and a half. With smart watches, smart earphones and, soon, smart spectacles, the phone could become personal computing’s back office rather than its primary interface. Gadgets on your eyes would complement the “things on our wrists, things on our ears and things in our pockets”, thinks Mr Shmulik. One day, he speculates, “you might even forget that you’ve got your phone.” ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Seeing and believing” More