How vulnerable are states to outside attacks . And why the socalled techlash has only made facebook stronger. Lets start with our global cover. 10 straight weeks of antigovernment protests in hong kong is raising fears about the one country two systems policy that has prevailed since the british handover. Here is businessweek editor joel webber. Joel so we have been talking about it almost in every issue, since the fury broke forth this summer. The thing that happened this week with the airport and the clashes at the airport area at the airport. We felt like that had become a Tipping Point and all eyes on hong kong at this moment. When we stepped back and thought about what is a perspective that we can bring to the store that has not been brought one of the things that came out of the conversation is where is the thing coming from . 47. Is about 20 when hong kong was handed back to china, one country, two systems being this guiding idea for how the city would be managed, 2047 is the Expiration Date of that. When you think about the stakes of this situation, five years out is not enough time to solve that. 10 years out is not enough time. Wasthesis for this story that the fury that we are watching is ultimately about 2047 and hong kongs countdown to 2047. Jason when you think about the nexus of Business Economic politics, there are other places there are few other places in the world where it happens in such sharp relief as hong kong. Joel this speaks to the dilemma that president xi has. If you use force, the situation can escalate quickly. Patience, a little maybe the students who are a large portion of the protesters might go back to school in september. There is this dilemma between use force or be patient. Is now being dropped is terrorism. Terrorism would be perhaps justification to escalate and have things turn to force sooner rather than later. That obviously all eyes on hong kong. That would become a much, much bigger challenge for the world. Jason for more, lets check in with bloombergs managing editor seeing overseeing all of our government coverage in asia. He joins me from hong kong. Dan, thank you so much for joining me. Give us a sense of what we have seen this week. Dan this week, we saw unprecedented scenes of protesters going into airports and essentially grounding all the flights. In hong kong, this is very unusual. When in thailand in 2008 they shut down the airport. That ended in a coup. That is not going to be the case here. China is firmly in control of the government here and of the territory as a whole. Taking over the airport is a drastic move. The government was fairly tolerant for the first couple days, allowing them to occupy the terminal. If you are flying into hong you would see masses of people coming in. This severely affected the economy and raised the stakes in this conflict. Great you provide such historical perspective, being there on the ground. The story in this week magazine takes us all the way to 2047. Help us understand what may be to come. The 2047 is the date that basic law expires. The basic law is what was put in place when the british handed over hong kong to the chinese in 1997. That was negotiated in the 1980s under margaret thatcher. The two systems would converge and the democratic system would prevail. Right now, we are nearly halfway through that period. That has not happened. We have had significantly, over the past couple years, we have seen that system erode. Future where they are subject to the communist party and they are fighting against it now. Jason we see these pictures. For people in the Business World, and the financial world, this is not the hong kong that they know. This is a place that has been central to the global economy, a home to many expats from around the world. What is at stake for the Global Financial system . Dan a lot is at stake. Hong kong is one of the premier financial hubs in asia. It facilitates a lot of the investment that goes into china and that goes out of china. The chinese use hong kong to raise money, to invest around the world. It is a massive policy for president xi jinping. Did lose hong kong as an International Financial sensor people waryo make of investing in hong kong because of political stability is a significant worry. There is a lot of business. We have seen that expats, people who have been here a long time, are very worried about how this is going to end. Many people think it will end ugly. There is a lot of money moving out of this place. Jason thank you so much. Our other big story this week wall street whiplash. Sell off for stocks and sounding the alarm after the u. S. And the invert. Ield curves it is historically a harbinger for recession. He is apologizing for something we wrote before most of us were born. What is an inverted yield curve . It means that the longterm Interest Rates are lower than the shortterm Interest Rates, which is the reverse of the normal condition. It can be a harbinger of recession. What happened this week we had already had a three month and the 10 year. Now the two and the 10 year inversion, which was considered stronger. Not necessarily tomorrow, but maybe in 18 months or so. That was the big news of the week. It was one of the big factors in why the stock market did badly. Jason this is an economic story. It is a business story. It is a market story, but it is also a political story. Donald trump is getting nervous because if they if a recession hits in 2020, it will be bad for his reelection campaign. After federalff reserve chairman jay powell, saying the fed urgently needs to lower Interest Rates. If he did that, if the fed did that, the inversion would go away. Shortterm rates would come down and we would have more of a normal yield curve. Jason talk to me about the store you have this week. You go all the way back to a business week cover story 40 years ago. Ago, august 19 79, business week a cover story called the death of equities. People are still giving us a hard time about it because equities has done nicely. The article came out at a time when inflation was high. What we were observing was that stocks did not seem to be a good hedge against inflation. What was a good hedge was gold, diamonds, singlefamily homes, and stamps. Jason that was my favorite too. I cannot believe that was a thing. Peter what happened after that is that the article was right for three years because of stocks continue to go down and down. After the chairman of the petrol Federal Reserve managed to squeeze inflation out of the system through two recessions, the conditions were set for the rebound. If you look at the market now, the s p, if you invested in dividends over that period of time, we have 7000 . Not bad for a corpse. Right in the shortterm but very wrong in the long term. Glad that our readers are keeping us honest and we are owning up to it. Peter coy, thank you. As that 2020 election approaches, are the poles prepared for hackers . Plus, baltimore reviving the neglected industrial hub. This is Bloomberg Businessweek. Jason welcome back to Bloomberg Businessweek. I am jason kelly. Join us for Bloomberg Businessweek every day on the radio from 2 00 to 5 00 p. M. Catch up on our daily show. Get that up bloomberg. Com. You can also find us online at businessweek. Com and on our mobile app. At the 2020 election approaches, it is democracy versus the hackers. This weeks solution section exposes how efforts in illinois to protect its Voting System show how vulnerable states are still to outside attacks. We got a little preview when Robert Mueller went before congress to testify. Putting aside Everything Else about that event, he kept hitting on this message, that this is a very serious threat we are confronting. That is what the takeaway was from that report. I think when we get into the details like we do in this story about focusing on illinois, it is emblematic of what is happening across the country. It is a huge problem that is becoming bigger and that is hard to contend with for a number of reasons. Jason illinois got hacked. Weree of two states that clearly singled out in muellers report and that is really owning up to the hacking and trying to say this is what happens to us and we do not want to repeat this. We really want to be prepared. What is happening is there is a concern that the hacking of 2016 was almost like a practice run for what they are going to do in 2020. The number of parties is going to be more. The number of countries that are doing these kinds of moves we are aware now it is not just russia. It is north korea, china. The resources you need to contend with this are tremendous. While a lot of resources have been devoted, it is a fraction of what is necessary. Jason we are talking low double digits percentagewise of what a state like illinois would need. Lets talk about the electoral system. One of the things i was reminded of in this story as well is it is incredibly complicated and it is really decentralized and a lot of ways. It is statebystate. It is localities. You have election boards and secretaries of state that deal with it. You have different positions and he really have to figure out how you are going to persuade since it is not centralized all of those people about the necessity to really invest. The first thing this comes down to is money. A lot of them do not have the money and they are not getting as much as they need from the federal government. When you are saying try to find the money, 30 million more than what you are devoting, they look at it and say well who are we and why would anybody want to hack us . Jason that is exactly right. That was such an important point of this. You have local officials that are essentially saying i know they might go over after voting in chicago or the state of florida. That is the ground zero for a lot of this and you talked to the governor of that state, ron desantis, as well. But a small county in kansas or town in kansas, they are like who cares . But a lot of damage can be done there. It is not just messing with the voting machine. It is getting at databases ahead of time, messing with the roles, with the names of voters. Ways that they have that will just really create a lot of chaos. No confidence in the system ultimately. What you are also doing is a psychological war. Which is going to lead people to say, why should i vote when this is all happening . Jason from illinois, lets go east to maryland, specifically baltimore. A renaissance story may set a template for other American Cities hollowed out by forces of globalization. The 3100om maloney on acre fixerupper. Trades is a story about point atlantic. It used to be one of the biggest steel mills in the world. It employed more than 30,000 people. Then started falling on hard times at beginning of the century like a lot of other steel sites in the u. S. And went through a series of owners. In 2012ly went bankrupt and was bought out by an asset stripper. After spending some time at the site, a couple years, i realized it could be incredible valuable as a logistics center, which is what it is becoming today. Jason you have some big names, wellknown names in the Business World who have been betting big on this. Not the least of which is kevin plank from under armour. It has been one of the biggest champions of the hometown of his company. How does he play into this narrative . Tom under armour opened a facility there very recently. It is 1. 5 million square feet warehouse. That is the size of 23 football fields or Something Like that. Just an enormous ecommerce facility. What was interesting speaking to the guy a trade point atlantic, even though kevin plank is a baltimore booster, he was looking across the east coast for this facility and he just saw that trade point atlantic is unique in a lot of ways. What made it attractive as a steelmaking facility, being right on the water and close to rail and the interstate highways, the same thing that makes it ideal as an ecommerce logistics facility. They can have ships unloading goods right there and then get them straight onto trains, straight onto the highway. 24 hours from about a third of the u. S. Population. Jason still to come, my exclusive interview with don. Addell goodell jason welcome back to Bloomberg Businessweek. I am jason kelly. Listen to us on the radio on sirius xm channel 119, also a. M. 113. 0 in new york. 99. 1 in washington, d. C. And london on dav digital and through the Bloomberg Business app. Now to a businessweek exclusive. He has worked at a private equity firm for three decades. He became ceo in 1998. We are seeing 18 billion in assets. He has seen some things in some times. In todays chaos, hong kong, brexit, volatility in the u. S. I asked him what role pe plays now . Don private equity can be a buffer during these periods. To be fair, private equity firms , virtually all of them, are not hearty and they do not say we are going to buy on a downturn. One of the challenges of private equity to play that buffer role is it is harder now to deploy capital than it has been in a while. I say that because, notwithstanding the chaos, valuations and private equity remainedons have stubbornly high. They have been growing over the last four or five years. You cannot reverse the laws of supply and demand. With all of the money that has know, this, as you dry powder that is available, to respond to a lot of those pressures. If you look at the statistics, i am going to praise it in a way that sounds shocking but it is just mad, if you recognize it, about one in five s p 500 ceos change every year, that means that this is the ceo change in the s p 500 about every four or five days. That is just math. If you are the ceo, you are looking at those numbers and youre looking to the left, the right. You like to have eyes behind you and it is not that you do not trust your board or that people are not going to give you some time, but it is a measure of the environment that it is tough and andtenure is being reduced ceos have a tough job and Public Companies. It is tough everywhere. Leadership is always hard. Now, the scrutiny of social ,edia, activists, shareholders makes it very hard to be a Public Company ceo. Jason for my entire conversation, including what he has learned from hiring and firing literally dozens of ceos over the years, check out our businessweek extra podcast wherever you get your podcasts. We turn now from anxiety to board room changes students and graduates and the lasting burden of student debt. Here is the businessweek explainer from the finance section. Americas 1. 6 on trillion dollars student loan balance and the bottom line is pretty lame grim. A student an analysis found student loan borrowers are paying down 1 of their debt every year. For the average borrower, that is 300 on a typical 30,000 loan. The debt will not be paid off for a sentry at that rate. No wonder it has become a political issue. Progressives bailout because tuition far outpaced tuition and wages. Conservatives blamed the government for promoting outofcontrol borrowing. About 8 million borrowers are in incomebased plans to let them reduce Monthly Payment and can lead to Debt Forgiveness in sus 10 years. That has led to fewer liquid sees. They have lead to slower payments and rising balances. Is ats while unemployment a 50 year low and economic expansion is the longest in history. As times get tougher, the student loan crisis is likely to get worse. Ahead, back to making life difficult for intel. The ftc and facebook, why the techlash is only making the social network stronger. This is Bloomberg Businessweek. From the couldnt be prouders to the wait did we just winners. Everyone uses their phone differently. Thats why Xfinity Mobile lets you design your own data. Now you can share it between lines. Mix with unlimited, and switch it up at anytime so you only pay for what you need. Its a different kind of Wireless Network designed to save you money. Save up to 400 a year on your wireless bill. Plus get 250 back when you preorder a new samsung note. Click, call or visit a store today. Jason welcome back to Bloomberg Businessweek. Still ahead, last months 5 billion settlement with the ftc may make facebook even stronger, plus, premium, personalized weed. But first up, technology. American chipmakers found themselves in the crosshairs of the trade war between the u. S. And china. And one is thriving. That one is amd. It has been a rivalry between amd and intel. Amd is in white, up 600 in the last five years. The gains in intel only up 50 or so. You know there is a rivalry between these two, even with the trade war. It is impressive from a market perspective. Jason that outperformance is really something. Amd is thriving thanks to the ceos efforts to exploit intels woes. A little volatile, and as you expect from amd, they have had huge run ups and huge declines. But in general, i spoke to one fund manager who said i dont want a rock star. We have had people who thought they were rock stars and never turned out well. I am much more comfortable with somebody comfortable in their own skin. She is the person who goes in and checks on people. Checks whether the chips will be out on time, rather than the person out there on stage. That appears to have resonated with investors and analysts. Look at the other side of the coin. The intel side. Obviously, that is a company we have talked about. It has had some management challenges and technical challenges as it has tried to continue down the road of shrinking things on Semi Conductors, shrinking down to 10 nanometers. Nobody has ever seen this from intel. Like any company, they have ups and downs, but this appears to be fundamental. This is the thing they have used to beat up everybody. Amd is remarkable because they are a survivor. All manner of companies try to compete with intel, all of them are gone. That is because they ran the best factories on the planet. That was their boast and it was hard to argue. Normally, 18 months, we are on to the next node of processing. That gives not just cheaper costs, but makes these chips perform better. Nobody was even coming close to what intel was capable of. But now, 2017 is when they promised 10 nanometer. Not going to happen in server chips until next year. Something you point out that is so fascinating is that lisa su and her team made a key decision around their own manufacturing which has allowed them to step in at a time when intel has stumbled. This is an example of her pragmatism and what people tell us about her. She makes decisions not based upon becoming intel are trying to compete but doing the best for her company and positioning themselves. What she has done is shift production to a Company Called taiwan Semi Conductor manufacturing. That company has really pulled ahead in the last couple of years. That company, which only does outsource Manufacturing Company the vast majority of volume comes from smartphone processors and memory. A lot of what goes on in chip factories, of course, pure science. Its material science, applied physics and chemistry, the simple making sure these are working flat out. Tsmc is the best at making these work right now and has, in theory, better manufacturing than intel. Jason staying with technology, the techlash has only make facebook stronger. Didnt see that coming. The ftc begins an antitrust probe of the social network, but we are looking at the fine print last months 5 billion privacy settlement. Think about facebook and what makes facebook work. The 70 billion advertising revenue business, its all about data. The data facebook has compiled, not just from users, but from third parties and tracking people around the internet understanding what they click on , and watch and care about, that is the value at the center of their advertising business. And so when the ftc comes and tells them you cant share that data with anybody else, great facebook loves that, in a way. They are big enough now that they do not really need to rely on other companies building other kind of products. There used to be a reason for facebook to share its data with games the developers for for facebook and quizzes and all the things you remember from the facebook of five or six years ago. But now, the company is big enough that it does not need to rely on that network. So the ftc is punishing a version of facebook that no longer exists. Jason it is such a provocative idea. I loved reading this story because it turned it on its head. It made me think about this in a whole different way. You go back to the Cambridge Analytica story, which is part of the reason we are even talking about this. Right. In Cambridge Analytica, there was a developer who used a tool to gather information on theions of people, not just people who used the quiz but their friends, and sold that data to Cambridge Analytica this , political consultancy. It worked for conservative campaigns including trump. That was an uproar, but that happened before 2015. The fact that facebook knew about it and did not do anything about it that is a big problem. But we will continue to see leaks like that from the past. These breaches of user data that will come back to haunt facebook. But the facebook of today, the facebook of the future, is not the same company. So when regulators think about how to fix the current problem of this company with tremendous power over our society and how we think and what kind of information we get and who we connect with that facebook is , not the one sharing data with third parties. It is not the one relying on people to make personality quizzes. In fact, it is just trying to become a selfsufficient network of its own making and combine its messaging app so they have this network to work with. It is a very different company. Itll be interesting to see if regulators start to think about the future of what they are looking at. Jason up next, the next stage in Legal Cannabis cultivating returns. This is Bloomberg Businessweek. Jason welcome back to Bloomberg Businessweek. I am jason kelly. Join us every day on the radio from 2 00 p. M. To 5 00 wall p. M. Street time. And catch up on our daily show, listen and subscribe to our podcast. And find us online at businessweek. Com. Turning to a story you can find online, here is our reporter on how weed is normalizing by going upscale. We are talking about an industry where sales were over 10 billion in the u. S. Last year. It is becoming big business. There are 11 states where adults can buy marijuana, another 24 with medical access. The latest progression is Luxury Products and customized products. We talked to a company from colorado that will make custom blunts, a cigar filled with marijuana. They sell for 1200 a pop. People are buying these for their weddings. We are seeing more and more people doing this for bachelorette parties and rap groups that are getting custom joints. So the progression and a normalization is now the emergence of Luxury Products. Jason its interesting. The celebrity angle, i feel like one of the subheads could be smoking weed, its not just for snoop dogg anymore. You are talking about chelsea handler, jayz, willie nelson, obviously. There are a lot of celebrities that have been out there with it going back to the way before, when this was 1960s, demonized. And you are seeing again, this is about the normalization. In new york, it is still illegal. There are still those stigmas. If you go out to california, it is a very different attitude. People are moving away from drinking. Happy hour, people think its crazy that people would go out and get drunk after work because they have to get up early and do yoga or do all these other things. Cannabis has been positioned as part of an active lifestyle and i think you are seeing more and more celebrities. Martha stewart is a great example of somebody that has come out there. She has a friendship with snoop. I guess you turned her onto it. I think the important piece here is how this is being embraced by people across the cultural spectrum. Jason walk me through where we have come over the last two years. Weve got big Institutional Investors coming into this. That feels like evidence of a step forward or a maturing of this industry. 100 . About a year ago this time is when Constellation Brands put 4 billion into the worlds most valuable cannabis company, that was the inflection point. This was a big, Public Company in the u. S. Saying we think this is real and we are betting on that. In the fall, we had a slew of u. S. Companies going public in canada. Since then it has been a steady , drumbeat. The big banks are largely on the sidelines. Federal prohibition is keeping the goldmans, the credit suisse, those guys are staying away. It is small enough for them to ignore still, despite the fact that it is growing, and they are concerned about the regulatory risk. The federal government still considers marijuana to be illegal and to be among the worst narcotics around with , heroin. It is this crazy dichotomy. The government says it is illegal, but it is a thriving business in california, the sixth largest economy in the world, largest marijuana market in the world now, and business is booming there. Family offices are showing up, hedge funds are getting interested. Josh kushners thrive capital led to this round. It is the first time they have invested in marijuana. Slowly but surely, people see the growth, see the potential across a variety of industries and are starting to put money in. Just for fomo. They see a lot of growth and dont want to have missed out. And the interesting thing about kushner, it is nonplant touching. That is still a distinction for a lot of people. They invested in a tech company. They do not touch the plant, which is the industry term for dealing directly with marijuana. So they did not invest in a grower or a brand or a retail chain. They invested in a Technology Company that is working in canada. So there are still these subtle distinctions. Jason for more on the business of cannabis, we spoke with leaf link ceo and cofounder ryan smith, the online marketplace for wholesale buyers and sellers of cannabis. They just raised a 35 million round led by thrive management. Thrive back to instagram before its acquisition by facebook. This is the first cannabisrelated investment. I asked ryan what they planned to do with this money. We are really proud to be that bridge that connects institutional quality investors to the cannabis space. We are a Technology Company, so it is a valuable way to look in and participate. We want to work with and think of ourselves as this professional tech outfit and we want the best investors. Jason give me the basic pitch. Leaf link is a b to b marketplace, connecting brands, territories, with licensed retailers. If you are a purchase ching purchasing manager eddie dispensary, you need to buy from 30 to 50 brands to stock your shelves, you do that in one cart on leaf link. Jason youll be scaling the financial piece, all of those issues have got to be one of the most complicated things to tackle in this ecosystem. We have done our best to follow the rules that exist and we work closely with regulators to make sure the things we put in the market are following regulations. For example, if we were a marketplace selling shoes, we could plug in paypal. None of those are available to our clients, so we had to come up with a solution that was somewhat removed but also compliant. That is what gave rise to leaf link financial. That allows them to pay for their goods through the marketplace. Jason walk me through how you even go about building Something Like this. As you say, its not like selling shoes or books or anything we are used to buying. For us, the first three and a half years of the company were about being close with our clients. People were paying a flat fee to be on the platform, so we were not a part of the transaction. What we found was that its not that banks and Financial Institutions cannot serve cannabis companies. It is that there is a higher level of due diligence. Jason know your customer. Exactly. And we deeply know our customers and licenses, the individuals. So we have a solution that takes advantage of things that only we have to provide them to banks and institutions that lessen the amount of work they need to do to service these companies. Jason how did you get this idea . My cofounder and i, zach, was at ebay for a bit. I have been selling things online. My parents would say things went missing in the house. Zach and i had each started in independent companies that we sold in 2014 and we began thinking about a way to virtualize the supply chain. Why arent b to b marketplaces a thing for individuals . We go home and shop for anything and everything. We go to work and we are emailing and writing pos, faxes. We were thinking about a great place to bring this value. If we were to launch this in the Paper Industry our space itself , is a startup so we built a marketplace here. Jason lets talk about that ecosystem a little bit. We have had some highly valued, Public Companies come onto the scene. Some of which you are associated with. Canopy most notably. Talk about that relationship. We have been growing over the last 3. 5 years in the states. Now that canada is federally legal, that was going to be a market for us. We reached out to canopy rivers to open up international markets. They are operational in over 12 international territories. So we formed with them to launch our software into these markets that are still trying to find their way amongst regulators. So we opened up an office in toronto around that effort. Jason coming up, the world of pursuits from a slightly different angle. We look at why you cant quite get what some consider dirty money out of museums around the world. This is Bloomberg Businessweek. Jason welcome back to Bloomberg Businessweek. I am jason kelly. You can listen to us on the radio on sirius xm channel 119, and on a. M. 1130 in new york, 106. 1 in boston, 99. 1 f. M. In washington, d. C. A. M. 960 in the bay area, london on dab digital, and through the Bloomberg Business app. We cant let you go without a little pursuit. This weeks opener, the art world is in crisis. The wave of protests against Museum Donors is creating an existential threat to art organizations across the world. These protests that are occurring in museums across the United States and europe have to do with some very, very wealthy families who have been doing some very controversial things. There is the Sackler Family, which owns Purdue Pharma which produces oxycontin, which various lawsuits allege is responsible for perpetuating the opioid epidemic. And theres a man who produces teargas, which processors allege teargas, which protesters allege is misused during confrontations at the u. S. Mexico border. It just so happens that the Sackler Family and others are major art patrons. Movementa tremendous from a lot of different people to remove the Sackler Family from various cultural institutions. The point of all of this is that protesters are alleging that cultural institutions are, in whatever way, forwardlooking and liberal and espouse various worldviews that are completely in opposition to people like the sacklers. They feel these cultural institutions are art washing the names of these families in a way they benefit in a way they should not. Jason lets take a step back. What you have just laid out goes to the very core of how institutions, cultural institutions have been funded , for centuries, a millennia, in some ways. That is exactly right. The entire thing is that, in europe, institutions are funded by the government. In the United States, they have always been paid for by wealthy people. In the United States, most wealthy people have made their money in ways that are not necessarily completely blameless. There are only a finite number of people whose fortunes are derived from green energy. Everybody else is, in whatever way, subject to scrutiny. The issue, then, is that museums rely on this vast wealth to stay in business. They dont really have any other way of getting money. There arent public funds available. So as museums attempt to respond to the protesters, they are put. In this interesting position, some might say impossible position, where they want to be responsive to their constituents but they also need to keep the lights on. This is the real crux of the issue and nobody has a great for how top help this going moving forward. Jason lets take a virtual stroll through the various wings of various museums in new york city. Look at the outsides of the buildings, the boards of trustees. You dont have to dig very deep to find oil, private equity, hedge fund money. What is a museum to do . Currently, they have no idea. Thats the short answer. For the time being, museums are putting out fires whenever they come. But also, partly by necessity, and partly by principal, saying look, if people believe in our mission, we are not in a position to make value judgments about the ways they might have made their money in a capitalist society. Jason Bloomberg Businessweek is available on newsstands now, online, and through our mobile app. There, you can find more stories from this weeks issue, including a political upset and panicking investors in argentina. Plus, french tv reform as netflix and Youtube Capture a growing chunk of advertising dollars. And china in its bid for technological supremacy has one small problem, research and Development Spending at a little more than 2 of gdp, is dwarfed by that of israel, japan, and the United States. Check out our podcasts. More Bloomberg Television starts now. As it occurred to you that maybe