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The Finance 202: Wall Street spent heavily to take down Alexandria Ocasio-Cortez. It was a bad investment.

Analysis by
Staff writer
June 24, 2020 at 7:57 a.m. EDT

with Brent D. Griffiths

Wall Street moguls succeed by making winning bets. But a who’s who of finance heavyweights saw their records dented Tuesday night as Rep. Alexandria Ocasio-Cortez dominated the in-person voting over their preferred candidate in the Democratic primary for New York's 14th congressional district.

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Michelle Caruso-Cabrera, a former CNBC anchor and onetime registered Republican, was always a long shot against Ocasio-Cortez. After pulling in 18.7 percent of the in-person vote, while Ocasio-Cortez won 69.6 percent of it, the Associated Press and the New York Times called the race for the incumbent, who declared victory. 

By one measure, Caruso-Cabrera made the race competitive, raising an impressive war chest of more than $2 million for her bid, most of it in big checks from the financiers whom Ocasio-Cortez has made a point of targeting. That haul paled in comparison to the roughly $10.5 million Ocasio-Cortez raised mostly in small donations. Here's a Financial Times visualization of how the candidates raised their money, respectively: 

The caliber of the executives lining up against Ocasio-Cortez points to the threat they perceive from her. 

In two short years, she went from a no-name who shocked the political world by knocking off a powerful, business-friendly incumbent – to a celebrity pol in her own right with the clout to bend the debate in her party toward her democratic socialist views. A member of the House Financial Services Committee, Ocasio-Cortez has pushed a slate of proposals targeting the sector and its executives. She wants to impose a financial transactions tax, for example, and has floated taxing individual income over $10 million at 70 percent.

Perhaps no surprise then that Caruso-Cabrera pulled in $23,850 from employees of the largest U.S. banks, including $5,600 from Goldman Sachs CEO David Solomon, according to Federal Election Commission records. She raised another $16,800 from six executives at private equity giant Blackstone Group, including CEO Steve Schwarzman.

And a parade of Wall Street’s top investors also donated the maximum allowable to Caruso-Cabrera. They include hedge fund billionaires: Christopher Flowers; Tudor Investment’s Paul Tudor Jones; Paulson & Co.’s John Paulson; and Trian Fund Management’s Nelson Peltz and Peter May. The list goes on, as she also collected checks from Interactive Brokers founder and multibillionaire Thomas Peterffy; Crestview Partners CEO Barry Volpert; and Key Square Group founder Scott Bessent. 

A number of her backers were traditionally GOP donors: TD Ameritrade founder Joe Ricketts, Elliott Management executive and former Bush administration official Dan Senor; former Bush administration economist Larry Lindsey; Home Depot founder and billionaire investor Ken Langone; billionaire Gristedes Foods CEO John Catsimatidis; and billionaire investor Stanley Druckenmiller. (Druckenmiller also contributed $25,000 to a super PAC called Fight for Our Communities, which spent $28,000 on digital ads and direct mail targeting Ocasio-Cortez; Caruso-Cabrera’s husband, Stephen Dizard, managing partner at investment firm Wood Capital Partners, was the group’s top donor, contributing $30,000, per FEC records.)

Caruso-Cabrera attempted to use Ocasio-Cortez’s national profile against her. 

She accused the incumbent of neglecting her district, which spans from Queens to parts of the Bronx. She referred to Ocasio-Cortez as “MIA” and noted in their debate she remained in Washington — in a “luxury apartment over a Whole Foods” — for a week after the pandemic broke out.

Caruso-Cabrera also drew active support from the U.S. Chamber of Commerce. The business lobby encouraged her to get in the race last fall, Scott Reed, the group’s senior political strategist, told the Associated Press’s Alan Fram.

Reed said the group plowed six figures into digital ads promoting her. But he also indicated the chamber opposed Ocasio-Cortez in part to send a signal. “We play to win, but sometimes we play to make a statement,” he told the AP.

Ocasio-Cortez took the challenge seriously and worked to frame her challenger as an industry ally. 

“Ms Caruso-Cabrera’s credentials as a Democrat have been questioned by Ms Ocasio-Cortez,” the FT wrote. “She was registered as a Republican as recently as 2015. In 2010 the former broadcaster wrote a book about the financial crisis titled You Know I’m Right that said her favourite president was Ronald Reagan and described the Democratic party as ‘out of control when it comes to spending’. The book’s foreword was written by Larry Kudlow, a former CNBC colleague who is now Mr Trump’s economic adviser.”

Ocasio-Cortez highlighted Caruso-Cabrera’s fundraising in the closing days of the race:

She took a victory lap around those Wall Street donors in a late-night tweet Tuesday, perhaps reminding the executives why they tried to sink her:

Market movers

Stocks rallied but point to losses at the open. 

A second straight day of gains lost steam toward the close. “The S&P 500 jumped as much as 1.2% before paring the gain by two-thirds on reports that spiking cases in several hotspots in the South and Southwest threatened to derail plans to ramp up reopening,” Bloomberg's Sarah Ponczek reports. “The Nasdaq Composite hit an all-time high, with investors keying on signs of continued economic growth and the idea that any setback will be met with increased government spending and Federal Reserve moves.”

  • Futures slide. More from Bloomberg: “U.S. futures dropped and European stocks slumped the most in a week as a resurgence in virus cases around the world sharpened concern about the pace of the economic recovery. Retailers and travel shares -- companies that stand to benefit from life returning to normal after the pandemic -- were among the biggest losers in European trading. Oil and copper retreated, while gold approached $1,800 an ounce. The Bloomberg dollar index steadied.”

Jeff Ubben tells the FT he is leaving ValueAct for social investing: 'Finance is, like, done' (CNBC)

Latest on the federal response to the economic crisis

Some Republicans are open to a second round of stimulus checks.

But Trump's private backing comes as divisions in the White House remain: “Sen. Thom Tillis (R-N.C.) suggested he would back smaller versions of the initial measure if targeted for ‘the people who are hurting the most.’ Sen. Rob Portman (R-Ohio) said it should be considered as part of the discussion on how to handle the increase in unemployment benefits approved by Congress in March,” Jeff Stein, Josh Dawsey and Erica Werner report.

  • Not everyone is on board: “Some White House officials have also argued internally that the checks were pocketed by Americans rather than spent in the economy, pointing to an enormous increase in Americans’ personal savings rate after the payments went out, one person aware of internal discussions said. Sen. Mike Rounds (R-S.D.) made a similar argument to reporters … Sen. Mitt Romney (R-Utah) said he opposes another round of stimulus payments in favor of adjustments to the Paycheck Protection Program for small businesses, as well as extending unemployment benefits at a lower level than approved by Congress in March.”

Treasury Secretary Steven Mnuchin confirmed he is open to more stimulus: “'It’s something we’re very seriously considering,' Mnuchin said in an interview during the Bloomberg Invest Global virtual event. He said he expects the U.S. economy to exit recession by year’s end," Bloomberg's Saleha Mohsin and Erik Wasson report.

“Mnuchin joined GOP senators at their weekly policy lunch and talked up the impact of the stimulus checks," my colleagues report. “'He just said that when he went around the country, people came up and thanked him for it. It seemed to have made a difference to them,' Sen. Bill Cassidy (R-La.) told reporters."

14 percent of businesses still expect layoffs even after PPP funds: The finding headlines a survey published by the National Federation of Independent Business, CNBC's Greg Iacurci reports.

“Nearly half — 47 percent — of entrepreneurs who received a PPP loan or a loan through another relief measure, the Economic Injury Disaster Loan program, anticipate needing additional financial support over the next 12 months, according to the NFIB survey. More than half of survey respondents — 56 percent — said they’d likely need $50,000 or less over the next year, while 27 percent anticipate needing more than $100,000."

Coronavirus fallout

White House coronavirus task force members and public health experts testified June 23 before a House committee. (Video: The Washington Post)
From the U.S.:
  • At least 2,330,000 cases have been reported; at least 119,000 have died. 
  • Seven states report record hospitalizations: Arizona, Arkansas, California, North Carolina, South Carolina, Tennessee and Texas. “Thirty-three states and U.S. territories reported a higher rolling average than last week,” The Post reports. 
  • Fauci says spike in cases is concerning: “Top federal health officials warned that surges in coronavirus infections in more than a dozen states could worsen without new restrictions, and contradicted [Trump’s] recent claims that he told officials to slow testing so the country would record fewer cases,” John Wagner, Felicia Sonmez, Yasmeen Abutaleb, Lena H. Sun and Laurie McGinley report.
  • But the administration is poised to end support for local testing sites. “The federal government will stop providing money and support for 13 sites across five states which were originally set up in the first months of the pandemic to speed up testing at the local level,” Talking Points Memo's Josh Kovensky reports. 
  • Over 700 cash-strapped cities halt plans amid budget shortfalls: “ The decision to suspend or terminate some of these long-planned purchases, upgrades and repairs threatens to worsen municipal services and harm local businesses, according to the National League of Cities, which deduced from a new survey that more federal aid is necessary to ensure that local financial woes do not imperil the country’s economic recovery,” Tony Romm reports.
  • Americans will soon need the extra money some saved: “During the worst economic collapse in generations, U.S. households actually managed to put aside more money. It may not be enough to get them through the aftermath,” Bloomberg's Ben Steverman reports. “But the fiscal lifeline is a temporary one. When it’s withdrawn -– and Congress is already discussing the timetable –- fragile household finances may come under growing strain."
Covid-19 has unleashed a wave of “zombie” companies.

Responses to the pandemic have accelerated a growing trend: “Nearly one in every five publicly traded U.S. companies is a zombie, according to data compiled by Deutsche Bank Securities. That figure has doubled since 2013 and is up dramatically from the late 1990s, when there were almost no half-dead companies staggering across the landscape,” David J. Lynch reports.

“Years of ultralow interest rates intended to stimulate the economy after each of three 21st-century recessions created the conditions for zombies to proliferate, according to economists. Since the pandemic sideswiped the U.S. economy in March, the Federal Reserve has again lowered borrowing costs to near zero and further eased credit conditions by purchasing corporate bonds … Nonfinancial business debt grew in the first quarter by almost 19 percent, the biggest percentage jump in at least 40 years, according to the Federal Reserve. Businesses took on more than $3 trillion in new debt in the first three months of 2020, almost 10 times as much as in the previous three months.”

More from the corporate front: 
  • Homebuilders see strongest May in over a decade: But the nearly 13 percent annual increase comes with a big looming problem. “A telling point in the data: The biggest sales jump came in homes not yet started. That caused the supply of homes for sale that were under construction to drop 15 percent compared with a year ago. Homebuilders are ramping up hiring to meet the improved demand … but they were already struggling to find skilled workers before the pandemic hit,” CNBC's Diana Olick reports.
  • Analysts say there's a cooper boom coming: “The pandemic is set to pave the way for ‘the age of copper,’ according to the director of energy, climate and resources at Eurasia Group, as governments double down on investments that will drive up demand for the red metal,” CNBC's Chloe Taylor reports.
  • Saks to reopen Fifth Avenue flagship: The store  will reopen “with ultraviolet handrail cleaners on its escalators, a remote video-shopping service and a host of other measures designed to make customers feel safe amid the coronavirus pandemic,” WSJ's Suzanne Kapner reports.
Around the world:

E.U. may ban U.S. travelers amid coronavirus spike: “European Union countries rushing to revive their economies and reopen their borders after months of coronavirus restrictions are prepared to block Americans from entering because the United States has failed to control the scourge, according to draft lists of acceptable travelers reviewed by The New York Times,” the Times's Matina Stevis-Gridneff reports.

“That prospect, which would lump American visitors in with Russians and Brazilians as unwelcome, is a stinging blow to American prestige in the world and a repudiation of [Trump’s] handling of the virus in the United States, which has more than 2.3 million cases and upward of 120,000 deaths, more than any other country. European nations are currently haggling over two potential lists of acceptable visitors based on how countries are faring with the pandemic.”

U.S. eyes $3.1 billion of EU, U.K. imports for new tariffs (Bloomberg)

When superpowers collide

Decoupling threat hits reality.

The threat from some in the White House comes as imports and investment rise: “Conflicting talk from Trump administration officials about ‘decoupling’ the U.S. economy from China is running into a challenging reality: Chinese imports of U.S. goods are rising, investment by American companies into China continues, and markets are wary of separating the world’s biggest economies,” Reuters's David Lawder reports.

“U.S.-China trade is actually increasing, after the coronavirus caused major drops shortly after the trade deal was signed in January. U.S. exports to China rose to $8.6 billion in April, up from a 10-year monthly trough of $6.8 billion in February, according to U.S. Census Bureau data. Imports from China shot up to $31.1 billion from $19.8 billion in March, which marked the lowest monthly total in 11 years. U.S. Department of Agriculture data showed soybean exports to China rose to 423,891 metric tons in April, more than doubling the 208,505 tonnes imported in March … U.S. companies had announced $2.3 billion in new direct investment projects in the first quarter of 2020, only slightly down from last year's quarterly average …”

  • Kudlow praises China's new approach: “'They’ve actually picked up their game,' National Economic Council Director Larry Kudlow told Fox Business Network. ‘It’s not just commodity buying, although that is picking up too,’ but also extends to the issue of intellectual property theft, which has long been one of the sore spots for the relationship, he said,” Reuters's Tim Ahmann reports.

Political donors linked to China won access to the president, GOP: “Soon after [Trump] took office, people with ties to the Chinese state poured hundreds of thousands of dollars into his re-election bid to get close to and potentially influence the new president,” WSJ's Brian Spegele reports.

“The effort had early success in gaining access for those involved, helping them meet the president or top Republicans at fundraisers or at an internal GOP leadership meeting. It reveals how China seeks to build inroads into U.S. politics, gather information on U.S. leaders and if possible affect policy-making.”

Campaign 2020

Obama breaks the bank in Biden fundraiser.

The world's most powerful bromance is back: “Obama was the main draw at a virtual fundraiser for Biden, raising more than $7.6 million from 175,000 individual donors, according to Biden’s campaign. The campaign collected another $3.4 million at a separate event held for high-dollar donors,” Matt Viser reports.

“The event marked a new phase for Obama, who is expected to increase his campaigning not only for Biden but also a full slate of Democrats aiming to preserve the House majority and win back the Senate.”

The former president had some things to get off his chest:

Pocket change

Big tech slams Trump's immigration crackdown.

They join the Chamber of Commerce and other businesses: “Trump signed an executive order on Monday that suspends foreign work visas including the L-1 visa that allows firms to transfer staff from overseas offices and the H-1B visa that enables companies to hire highly skilled people in certain fields,” CNBC's Sam Shead reports.

“Google’s Sundar Pichai, YouTube’s Susan Wojcicki and Tesla’s Elon Musk were quick to condemn the restrictions, as were representatives from Amazon, Facebook and Twitter … Apple CEO Tim Cook said via Twitter: ‘Like Apple, this nation of immigrants has always found strength in our diversity, and hope in the enduring promise of the American Dream. There is no new prosperity without both. Deeply disappointed by this proclamation.’” (Amazon CEO Jeff Bezos owns The Washington Post)

J&J loses bid to overturn baby powder verdict: “A Missouri appeals court rejected Johnson & Johnson’s bid to throw out a jury verdict in favor of women who blamed their ovarian cancer on its baby powder and other talc products, but reduced damages by more than half, to $2.12 billion,” Reuters's Jonathan Stempel reports.

“[The court] lowered the original $4.69 billion verdict from July 2018 after dismissing claims by some of the 22 women and their families who had sued.” 

Wirecard's former CEO Markus Braun is arrested: “Wirecard AG’s recently departed chief executive, Markus Braun, was arrested by police, days after the German payments company revealed a $2 billion hole in its books. It was a swift turn of events, but followed years of German regulators ignoring red flags about the once-promising company,” WSJ's Patricia Kowsmann, Ruth Bender and Paul J. Davies report.

“Munich city prosecutors said Braun turned himself in to authorities late Monday and accused him of ‘inflating Wirecard AG’s sales volume with fake income.’ Prosecutors said he was also under suspicion of making the company look more attractive to investors and customers than it actually was, and possibly cooperating with other perpetrators.”

Trump tracker

Trump Organization has stake in potential sale of prominent office buildings.

The president's private company continues to raise conflict of interest questions: "Vornado Realty Trust is exploring the potential sale of two office towers that it co-owns with the Trump Organization, a deal that could be complicated by the president’s ownership and an uncertain commercial real estate market, Bloomberg's Caleb Melby, Gillian Tan, Noah Buhayar, and David Kocieniewski report.

“The New York-based real estate investment trust is working with brokers to market its 70 percent interest in the properties, 555 California Street in San Francisco and 1290 Avenue of the Americas in Manhattan. The Trump Organization may also sell its stakes in the buildings … The Trump Organization’s 30 percent stake in the buildings has been described as passive, meaning the business doesn’t actively oversee the properties. The San Francisco building is home to tenants including Goldman Sachs Group Inc., KKR & Co., Microsoft Corp. and McKinsey & Co.”

Chart topper

Americans aren't pleased with how the federal government is handling the pandemic: 

Daybook

Today:

  • J.C. Penney, Pier 1 Imports, KB Home and Winnebago Industries Inc are among the notable companies reporting their earnings

Thursday:

  • The Labor Department releases the latest weekly jobless claims
  • Nike, Rite Aid and Darden Restaurants Inc are among the notable companies reporting their earnings

The funnies

Bull session

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