On August 5, the United States labeled China a currency manipulator, after China took “concrete steps to value its currency,” according to the U.S. Department of the Treasury, in order to maintain a trade advantage by making its exports cheaper for international buyers. The Treasury Department uses three criteria in making such designation: active intervention, large trade surpluses with the U.S., and large overall current-account surpluses. The label will require the U.S. to consult with the International Monetary Fund (“IMF”) to attempt to eliminate the unfair advantage from the currency valuation. However, the IMF reported on August 9 that the currency exchange rate has been “largely stable.” On August 11, Chen Yuan, a former central banker for China, noted that the label “signifies the trade war is evolving into a financial war and a currency war.” The New York Times reported that the recent devaluation of China’s currency may not be solely the result of orders from Beijing. The valuation of China’s currency, the renminbi, is an opaque process, but analysts generally understand it to occur as follows: Chinese officials set a daily benchmark exchange rate, but market forces allow the valuation to change, and officials will use that trading activity to set the next day’s exchange rate. Market forces have been causing the value of China’s currency to go down, and, until August 5, China has been actually resisting the devaluation by market forces by purchasing renminbi with its foreign exchange reserves. Thus, a cheap renminbi may be the new normal if the current valuation is, in fact, a result of market forces rather than top-down direction. Former Treasury Department official Mark Sobel summarized: “[I]t seems as if the Trump administration is designating China because it wants China to ‘manipulate’ its currency up, rather than let it fall in response to market forces set off by the president’s own tariff pronouncements.” Cheaper Chinese products will have the effect of reducing exports from the other players in the international trade arena (namely, the U.S., Europe, and Japan). Additionally, the trade uncertainty over China’s currency may cause the Federal Reserve to cut interest rates further, according to The Wall Street Journal. Steven P. Wittenberg
On August 7th, The Wall Street Journal reported that several public companies, mainly those that run venues where large numbers of people gather, such as stores, restaurants, movie theaters, concert venues, hotels, and casinos, have started to add references to active-shooter situations in the “risk factor” portion of their most recent annual reports by warning investors about how gun violence could have an effect on the companies’ financial performance. This comes following the recent rise in mass public shootings which, according to the Federal Bureau of Investigation, between 2016 and 2018 have left 306 people dead and 850 wounded. According to The Wall Street Journal, if a shooting takes place at a company’s location, which would cause its stock to fall, the company could then argue that it had warned its investors that this could occur.
The language used in the corporate disclosures differs by company:
- A restaurant chain based in Lake Forest, CA said in its latest annual report, which it filed with the Securities and Exchange Commission (“SEC”) in March, that “[t]errorist attacks or an active shooter could have a material adverse effect on consumer spending.” That company did not mention active shooters in its previous annual report.
- A Texas real estate company, whose holdings include music venues, stated in the risk factor section of its annual report that “intentional or unintentional mass-casualty incidents,” which includes active shooter occurrences, could require it to cancel or reschedule events and could consequently have a negative effect upon its financial results.
- A U.K.-based theater company with U.S. operations, which for years listed as one of its main risks “terrorism and civil unrest,” has retitled its risk category a “major incident” and added language about concentrating on active shooter attacks as part of continuing cinema procedures.
- A Dallas-based entertainment and dining chain referenced that acts of violence, “including active shooter situations” could cause customers to stay out of their stores, which would have a negative effect upon their business.
- A large American restaurant company has been warning investors about active shooter situations as a risk factor in its annual reports since 2016, and included in its most recent annual report that “[a]cts of violence at or threatened against our restaurants or the centers in which they are located, including active shooter situations and terrorism, could unfavorably impact our restaurant sales, which could materially adversely affect our financial performance.”
- A large American gaming hotel and casino corporation noted in its past two annual reports that “visitation to Las Vegas … declined following the mass shooting tragedy on October 1, 2017.”
- An American developer and operator of hotels and casinos included in its risk factors section that “[t]he occurrence or the possibility of attacks could cause all or portions of affected properties to be shut down for prolonged periods, resulting in a loss of income; generally reduce travel to affected areas for tourism and business or adversely affect the willingness of customers to stay in or avail themselves of the services of the affected properties; expose us to a risk of monetary claims arising from death, injury or damage to property caused by any such attack; and result in higher costs for security and insurance premiums, all of which could adversely affect our results.”
Companies, which revise their risk factors on a regular basis, have for a long time been warning of the risks presented by tragic events like hurricanes and terrorist attacks. According to The Wall Street Journal, the fact that companies are now specifying the risks associated with active-shooter scenarios demonstrates that internal discussions are taking place at companies as to how they need to prepare for the risk of such an attack. While large companies regularly assess their risk factors through internal committees, allowing numerous senior executives to have a say before disclosing, many companies will decide whether they want to add a risk factor by looking at what their competitors have included.