Special Issue

November 6, 2017 January 8, 2018

Biotech Brexit
Democrats China The
Saudi Arabia Cybersecurity
Central Banking
Electric Vehicles Year
Marijuana SpaceTravel
Renewables
Microchips Ahead
Congress Shale Trump
Organic Food
Plus: 50 Companies to Watch
2018
 Bloomberg Businessweek The Year Ahead 2018 Contents

The European Central

Bank, which bought
debt issued by the
operator of Italys A12
motorway, will taper
off its bond purchases
 p22

9
PHOTOGRAPH BY LUCA LOCATELLI FOR BLOOMBERG BUSINESSWEEK

Heres what we think willand wonthappen in 2018

 Bloomberg Businessweek The Year Ahead 2018

Economics
Contents
Introduction
The world economy should grow
nicely again in 2018 p13

Central Banking p22

Elections p24
Reform p26
Hot Seat: Jacinda Ardern p28
Brexit p30
Interview: Jim Coulter p32

10

Energy Politics

Pipelines p64 Farm Bill p78

Liqueed Natural Gas p65 Trump p80
Cars p66 Democrats p80
Chemicals p67 Marijuana p84
Renewables p68 Hot Seat: Mitch McConnell p85
Aramco p68 Congress p86
New Fields p70 Interview: David Petraeus p88
Shale Oil p72
Interview: Jack Fusco p74
 Contents

Technology Retail

Silicon Valley p36 Electric Vehicles p50

Cybersecurity p38 Hot Seat: Michael OLeary p51
Internet p40 Online Shopping p52
Aerospace p42 Travel p54
5G p44 Streaming p56
Interview: George Yancopoulos p46 Organic Food p58
Interview: Jeff Koons p60

11

50 Companies to Watch Scoreboard

What we got right and
wrong about 2017 p104
ECONOMICS: VCG/GETTY IMAGES; ENERGY: COURTESY EXXONMOBIL; POLITICS: EDWIN REMSBERG/VWPICS/REDUX;
TECHNOLOGY: COURTESY SPACEX; RETAIL: SPENCER LOWELL/TRUNK ARCHIVE; 50 COMPANIES: GETTY IMAGES (5)

p91
Bloomberg Businessweek The Year Ahead 2018 Introduction

The world
economy should
grow nicely again
in 2018. (Unless
someone does 13

something dumb.)

After several disappointing years, all the major economies By Peter Coy
are expanding at the same time
 Bloomberg Businessweek The Year Ahead 2018 Introduction

Nations to Watch in 2018

Canada U.K.
Canadians Britains exit from
havent given up the European
on a new North Union must
American Free happen by
Trade Agreement March 2019. The
with the U.S., but battle over terms
theyre also pur- of disengagement
suing a trade deal will get even more
with China. fractious in 2018.

Italy
Divisions on the
right are increas-
ing the chance
that a populist,
euroskeptic gov-
ernment could
take power after
U.S. general elections,
which are set for
The Trump May or earlier.
administration is
likely to keep the
14 world guessing
on issues includ-
ing trade, fiscal
stimulus, and mili-
tary alliances.

Mexico
Leftist national-
ist Andrs Manuel
Lpez Obrador
is leading in the
polls and could be
elected to a six-
year term as pres-
ident in July.
Nigeria
Oil output is
rebounding
after touching
a 27-year low
in 2016, when mil-
itants attacked
pipelines. An
overvalued cur-
rency could
deter foreign

Brazil investment.

The economy
climbed out of
recession this
year, but the
political scandals
GDP per capita, No data that threaten to
$02k envelop President
2018 forecast by $210k
Michel Temer
jeopardize
International $1040k growth.

Monetary Fund $40k+

Bloomberg Businessweek The Year Ahead 2018 Introduction

Germany South
Germany con-
Russia Korea
tinues to export Domestic oil pro-
way more than it ducers appear Improving global
imports, annoying to be abiding by demand has
its neighbors. In an agreement fueled a come-
2018 its current with OPEC to cut back in exports.
account surplus production. The Despite the threat
seems likely to biggest risk for of attack from
remain above the the economy in North Korea,
6 percent ceiling 2018 is a sharp businesses keep
prescribed by
the EU.
fall in oil prices. investing, and
consumers keep
Japan
spending. Fresh off reelec-
tion in October,
Prime Minister
Shinzo Abe will
redouble efforts
to restructure the
economythe
third arrow in his
quiver after fiscal
and monetary
policy.

China
Having been
elected to a
second five-year
15
term in October,
President Xi
Jinping may
use 2018 to
push essential
but unpopular
measures,
such as closing
Saudi inefficient plants.

Arabia India
The govern- Growth slowed
ment is sched- earlier this year.
uled to sell But with infla-
shares in Saudi tion finally under
Aramco, the oil control, the
giant, but there Reserve Bank of
are reports it may India is likely to
delay the interna- cut interest rates,
tional portion of fueling a rebound.
the sale until at
least 2019.

Australia
The government
will continue
to fight a debt-
fueled bubble
in home prices
in 2018. Almost
40 percent of
such loans are
interest-only, and
85 percent have
variable rates.
 Bloomberg Businessweek
Healthy growth makes it easier to deal
with the next downturn
Everyone in the worldplus the two SpaceX
customers who technically wont be in the world
when they do figure eights around the Earth and
the moon for two weeks this coming yearcan
look forward to another year of healthy growth
in 2018. Weve gotten so used to complaining about
sluggishness that its a shock to realize the global
economy has quietly accelerated to a respectable
and sustainable cruising speed. Market volatility is
historically low. Even the skeptical Germans sound
happy. The data we get and the indicators we see
are very positive, says Clemens Fuest, president
of the IFO Institute at the University of Munich.
There is no obvious obstacle.
The big story for 2018 is likely to be how to
manage the continued expansion. A turning
point may come at the end of September, when
the European Central Bank might stop or curtail
monthly bond purchases (page 22). The central
banks bought bonds to drive down long-term inter-
est rates; while the Japanese will keep buying, the
Americans and soon the Europeans are betting
that the patient, the economy, is finally well
enough to get along without life support.
The International Monetary Fund, which has
16
reported subpar growth for years, now says the
global upswing in economic activity is strength-
ening. In its World Economic Outlook, published
in October, the IMF says now would be a good
time to deal with issues that went unaddressed
during the convalescence from the 2007-09 finan-
cial crisis, including sometimes-unpopular mea-
sures such as raising retirement ages and making
it easier for companies to hire and fire.
Bloomberg economists predict the U.S. will
grow 2.5 percent in 2018; China, 6.4 percent; Japan,
0.9 percent; and Germany, 1.6 percent. In most
cases those numbers are in line with the growth
expected for 2017, which has turned out to be a
better year than many forecasters expected.
The upswing hasnt benefited everyone. The
IMF points out that prospects are lackluster in
many nations of sub-Saharan Africa, the Middle
East, and Latin America. Even in wealthy nations,
those at the bottom are hurting. In the U.S., wage
growth remains anemic despite an unemployment
rate in the low 4s.
Still, brisk growth thats not shared by all is
better than no growth at all. One reason for opti-
mism about the outlook is that the global expan-
sion seems to be based on strong fundamentals,
not froth. In a virtuous spiral, confident consum-
ers are spending, which allows employers to hire
and invest, which leads to more consumer spend-
ing, and so on. Global spending by companies
on plants and equipment is in high gear with
room to run in the coming year, economists at
The Year Ahead 2018 Introduction
JPMorgan Chase & Co. wrote on Oct. 25. The syn-
chronized expansion reflects a self-reinforcing
turn in the global profit cycle that has boosted Will
business confidence and spending in all corners
of the world, the economists said in an earlier consumers
note. To put it another way: The expansion is not and
dependent on just one region or one sector, says businesses
Richard Turnill, global chief investment strategist continue
for BlackRock Inc. in London.
Healthy growth puts the world in a better posi- to shrug off
tion to deal with the next downturn, whenever it geopolitical
comes. Governments fight recessions by lowering threats?
interest rates, cutting taxes, and raising spending.
Those tools are blunted if interest rates are already
low and government debt is so high that govern-
ments cant get away with bigger budget deficits.
Policymakers goal for now is to normalize interest
rates and repair their countries finances, gaining
altitude so the next downdraft cant plunge them
into a hillside.
Its also possible that were already headed for
a crash. Economists are lousy at picking turning
points. After Queen Elizabeth II questioned the
failure to foresee the financial crisis last decade,
a group of British economists wrote her a letter
saying it was principally a failure of the collec-
tive imagination of many bright people, both in
this country and internationally, to understand
the risks to the system as a whole.
A key question for 2018 is whether consum-
ers and businesspeople will continue to shrug
off some pretty scary geopolitical threats. So far
theyve been nonchalant. The best example is
South Korea, which has been rocked by threats of
nuclear attack from the north, corporate scandals,
and even a warning from President Donald Trump
that its free-trade agreement with the U.S. might not
survive. Despite all that, people are still shopping,
and stocks are at or near record highs. The Bank of
Korea is confident enough in the outlook that its
signaling another interest rate hike on the horizon.
(Economists expect it to happen next year.)
Similarly, on the other side of the planet,
the economy of the U.K. has trundled along at a
better-than-expected clip given the uncertainty
over Britains exit from the European Union,
which must take place by the end of March 2019.
This is all the more remarkable considering
the cack-handed way the government of Prime
Minister Theresa May has conducted the talks.
The headwinds of Brexit will continue to stiffen
as the clock winds down to March 2019, Paul
Sheard, chief economist of S&P Global Inc., wrote
in October.
Or how about Spain, which could lose a fifth of
its economy if Catalonia secedes? In the fraught
leadup to Catalonias unauthorized September
Bloomberg Businessweek The Year Ahead 2018 Introduction

GDP growth projections Central bank net asset

for large economies purchases
India 12-month rolling ow
2017 7.1% G3 total U.S. Japan Euro zone Forecast
2018 7.0% $1.5t
China
6.8% 1.0
6.4%
Spain 0.5
3.1%
2.5% 0
U.S.
2.1% -0.5
2.5% 6/30/06 12/31/18
Mexico
2.3% The Federal Reserve is already letting its bond
2.3% portfolio shrink, and the European Central Bank
Canada may stop adding bonds in 2018.
3.0%
DATA: BLACKROCK INVESTMENT INSTITUTE
1.9%
Russia
1.9%
1.9% Global economic and
France trade volume growth
1.7%
1.7% Year-over-year change
Brazil  World GDP World trade volume
Forecast
0.5% 17
12%
1.7%
Germany These estimates, 6
2.1% from Bloombergs
1.6% own economists, are 0
U.K. strong, although 2017
1.5% has turned out to be -6
1.4% a tough act to follow.
Italy The economists -12
1.5% see above-trend 1981 2018
1.2% growth of 2.5 percent
Japan for the No.1 economy, DATA: WORLD TRADE ORGANIZATION

1.5% the U.S.

0.9%
DATA: BLOOMBERG ECONOMICS
Impact of nancial conditions
on global economic growth
Probability of a U.S. recession
within one year GDP growth impact from the Goldman Sachs Financial
Conditions Index, quarter-on-quarter, annualized

Median of economists surveyed by Bloomberg Forecast

4%

100% 2

0
50
-2

0 -4

1Q 06 4Q 18 1Q 06 4Q 18
DATA: BLOOMBERG ECONOMICS DATA: GOLDMAN SACHS GROUP
 Bloomberg Businessweek
referendum on independence, Spain somehow
managed to post the fastest growth of the big four
Continental economies. Spanish imperturbabilidad
will be tested in the months ahead.
One of the big stories to watch in 2018 will be
how the EU reimagines itself in light of Brexit, the
crisis in Catalonia, and the differing Euro-visions
of French President Emmanuel Macron and
German Chancellor Angela Merkel. Macron wants
more fiscal integration than most Germans are
comfortable with. There is a window of oppor-
tunity in the first half of 2018 for the French and
Germans to come to some kind of compromise
on governance, says IFOs Fuest. After that, he
says, Europe will be distracted by the approach
of Brexit, European Parliament elections, and the
choice of a new European Central Bank president
in 2019. S&P Globals Sheard agrees that 2018 is
shaping up to be a defining year for the EU.
Of all the worlds hot spots, its the U.S. that has
the most potential to rock the global boat, at least
according to one analysis. Dun & Bradstreet Inc.
prepares a quarterly global risk matrix, and in
the third quarter, 4 of the top 10 causes of concern
were American. The biggest risk emanating from
the U.S., D&B said, is that politics will impede
pro-growth economic policies, which in turn
will make businesses curtail hiring and spending,
sapping global momentum. D&Bs three other
18
American risks: The Federal Reserve raises rates
too quickly; tax reform falls short of expectations;
and U.S. productivity growth fails to accelerate.
Much of the rest of the world does look at the
U.S. with a tinge of alarm. Trump pulled out of
talks on the 12-nation Trans-Pacific Partnership
as one of his first acts in office and repeatedly
threatens to end talks with Mexico and Canada
to renegotiate the North American Free Trade
Agreement. There is a risk that we do after all
blunder into serious trade conflicts, with the U.S.
leading the jump off the precipice, says Willem
Buiter, the chief global economist at Citigroup Inc.
Im feeling more optimistic about things outside
the United States right now than inside, says
Michael Froman, who was the U.S. trade repre-
sentative under President Obama.
Constitution Avenue, home of the Federal
Reserve, will be as important as Pennsylvania
Avenue, home of the president. In 2013 the mere
hint that the Fed would end its unprecedented
emergency measures caused bond investors to
throw a taper tantrum that walloped emerg-
ing markets. The markets seem to be taking the
actual tightening in stride. But that could change
abruptly, warns Erik Weisman, chief economist of
MFS Investment Management in Boston. Weve
never done this before, he says. Its completely
uncharted territory.
Chinas economic growth is predicted to slip
slightly in 2018 as President Xi Jinping, beginning
his second five-year term, pushes for changes that
The Year Ahead 2018 Introduction
are good for productivity growth but disruptive,
such as shutting down weak companies. Xi didnt
attempt such reforms in 2017 because he didnt want
to risk slowing the economy before the 19th National
Congress of the Communist Party in October.
In Japan, 2018 could be the year the Financial
Services Agency presses Japanese nonfinancial
corporations to put to work more of the 250 tril-
lion yen ($2.2 trillion) in cash on their balance
sheets. More investment in plants and equipment
would help fight disinflationary forces. A big ques-
tion for 2018 is whether Prime Minister Shinzo
Abe will reappoint Haruhiko Kuroda as governor
of the Bank of Japan to an unprecedented second
term (page 23).
One concern for the global economy as a whole
is that the recovery has been built on too much
debt, which companies will be hard-pressed
to service when growth inevitably weakens.
Marathon Asset Management LP, a firm that
scoops up the bonds of distressed issuers after
their prices fall, is looking at raising a new pool of
investable funds in 2018. When is our next default
cycle? Its not this year or next year, but possibly
in 2019, Chief Executive Officer Bruce Richards
said at a September conference.
Even if the global economy does well in 2018,
financial markets might not. Prices of stocks and
bonds are so high that it wouldnt take much
of a jolt to send investors rushing for the exits.
Investors Intelligence says newsletter writers with
bullish outlooks outnumber ones with bearish
views by the biggest margin since early 1987
months before the worst one-day stock crash
ever. Bullishness is just as strong on the debt side,
where even Tajikistan, six levels below investment
grade, was able to issue bonds yielding barely
more than 7 percent in September, note strate-
gists at Eaton Vance Corp.
Some policymakers are invoking Hyman
Minsky, the late American economist who said that
stability creates its own instability by breeding
overconfidence and bubbles. In October, Peoples
Bank of China Governor Zhou Xiaochuan said, If
were too optimistic when things go smoothly, ten-
sions build up, which could lead to a sharp correc-
tion, what we call a Minsky Moment. Thats what
we should particularly defend against.
Politicians cant relax, either. Economic
improvement hasnt healed political divisions or
reduced long-term fragilities, wrote Bloomberg
View columnist Mohamed A. El-Erian, chief eco-
nomic adviser at Allianz SE, in October. Another
way to say that is that a lot of ordinary workers
remain angry about their situations and doubt-
ful about their prospects. It is way too early to
declare mission accomplished, El-Erian wrote.
So theres plenty of reason for caution. For
now, though, enjoy the ride, like those space tour-
ists who will blast off in 2018. Says MFSs Weisman:
This is about as good as it gets. 
 Bloomberg Businessweek The Year Ahead 2018 Section

Economics
Central
Banking p22

Elections p24

Reform p26

20
Brexit p30

Hot Seat Jacinda Ardern p28

Interview Jim Coulter p32

Edited by Cristina Lindblad

Italian toll road

operator Autostrade
per lItalia was one
of the beneficiaries
of the European
Central Banks
bond-buying spree

21
 Bloomberg Businessweek The Year Ahead 2018 Economics

Central Banking
The tide of easy money is nally turning By Christopher Anstey

After a decade of flooding economies
with money, key central banks next
year will finally start turning off the tap.
Since the financial crisis, theyve kept
interest rates near zero and some have
bought trillions of dollars in government
and corporate bonds. The idea was that
low rates would encourage spending by
businesses and consumers.
Although experts disagree about how
effective the stimulus was in stoking
broad-based economic growth, two
conclusions are in little dispute: The
deluge of cash staved off a global finan-
cial collapse, and it helped propel stocks
and bonds to record levels.
Now policymakers believe their econ-
omies are strong enough to thrive with
less stimulus. The U.S. Federal Reserve
made the first move in October when it
started allowing a portion of bonds on
its $4.5 trillion balance sheet to mature
without replacing them. The European
Central Bank is still buying government
and corporate bonds, though it recently
delineated a plan for tapering off those
purchases starting in January. Chinas

European Central Bank The Federal Reserve

22

European Central Bank President Mario Draghi vowed
ve years ago hed do whatever it takes to save the euro.
So far its taken more than 2 trillion ($2.3 trillion). Thats
the amount by which hes expanded the balance sheet.
On Oct. 26 the ECB announced that its bond buying will
continue through September 2018, albeit at 30 billion a
month starting in January, or half the current pace. The
institution also stressed that it will reinvest proceeds from
maturing debt for an extended period.
European policymakers have been among the most
forceful in their campaign to push down borrowing costs.
They championed negative interest rates, which leave
investors who choose to stash their money in government
bonds with less than they started with. And unlike the Fed,
which has conned its purchases to government and mort-
gage bonds, the ECB has also been buying corporate debt.
In doing so, its extended a lifeline to European businesses
that might have otherwise been forced to retrench.
That aggressiveness has never sat well with German
officials, whove traditionally favored
tighter controls to keep inflation
down. Draghis term runs through
October 2019. Any German candidate
could have an inside track for the job,
given that Europes largest economy has
never had one of its own at the helm of
the regions central bank. Draghi
The Federal Reserve pumped about $3.6 trillion into the
U.S. economy from 2008 to 2014. The link between mon-
etary stimulus and markets was remarkably tight: More
than half the gains in the S&P 500 from 2008 until the
Fed started raising interest rates at the end of 2015 came
on days the Fed announced policy decisions. Thats why,
despite Chair Janet Yellens assurances that reducing the
balance sheet will be a noneventlike watching paint
dry, she saidits impossible to rule out a sharp reaction
in the markets.
The Fed stopped replacing some maturing bonds in
October and has effectively put the process of shrinking
its balance sheet on autopilot, with the rundown in assets
accelerating in stages; $50 billion a month will be taken
out of the nations bond markets by October of next year.
Yellens four-year term as chair is up in February.
President Donald Trump is set to name Jerome Powell,
a former private equity executive whos been a Fed
governor since 2012, to succeed her. Powell has voted
in lockstep with Yellen in gradually
removing stimulus and is expected to
maintain continuity in monetary policy.
A Republican appointed by President
Barack Obama, hes earned a reputation
as nonideological and pragmatic. He
sympathizes with White House calls to
ease nancial regulations. Yellen
 Bloomberg Businessweek The Year Ahead 2018 Economics

policymakers are expected to tamp
down on credit growth next year, as
President Xi Jinping focuses on defusing
financial risks.
The Bank of Japan will probably
keep printing money, but that wont
be enough to offset a global decline
in central bank stimulus, which
economists see starting sometime in
mid-to-late 2018. It will worry a lot
of investors, because no ones really
prepared for it, says Nader Naeimi, a
fund manager at AMP Capital Investors
Ltd. in Sydney whos boosted his cash
allocation to 30 percent in anticipation
of pain in bonds and stocks. It will
hurtyou want it to hurt, otherwise
financial conditions will be too loose.
In surveys, global investors identify
a shift to monetary tightening as the
single most likely cause of the next
recession. History shows such transi-
tions are fraught with risk. When the Fed
started boosting rates in 1994, it set off
the worst corporate bond slide in two
decades. It also helped trigger a sudden
devaluation of the Mexican peso and the
ensuing Tequila Crisis.
Adding to the uncertainty: Three of
the worlds four most important central
bank chiefs are nearing the end of their
terms and may be replaced. The same
factors are likely to propel their succes-
sors toward reducing monetary stimulus.
Most economies are posting solid growth.
Job markets have returned to what policy-
makers deem full employment. American
household incomes are at a record high.
Crisis-wracked European countries such
as Spain have recouped economic losses.
China has shaken off fears of a debt crisis.
Even Japan has pulled out of a long cycle
of mini-recessions.
True, central bankers havent
been hitting their inflation targets;
the failure of prices to rise is one sign
that growth is still subpar. But policy-
makers are setting that concern aside
as they increasingly focus on curbing
the financial excesses that could set the
stage for another crash.

Bank of Japan People's Bank of China

PREVIOUS SPREAD: PHOTOGRAPH BY LUCA LOCATELLI FOR BLOOMBERG BUSINESSWEEK; THIS SPREAD: ECB: ULRICH BAUMGARTEN/GETTY IMAGES; DRAGHI: ALEX KRAUS/BLOOMBERG; ECCLES BUILDING:
BROOKS KRAFT/ GETTY IMAGES; YELLEN: ANDREW HARRER/BLOOMBERG; BOJ: KURODA: DAVID PAUL MORRIS/BLOOMBERG; PBOC: ZHANG PENG/BLOOMBERG; ZHOU: LINTAO ZHANG/GETTY IMAGES

23

Bank of Japan Governor Haruhiko Kuroda and his board
have pledged to keep stimulus going until ination climbs
above 2 percent, a level practically no economist sees
on the horizon for years to come. Still, the rate of money
creation will slow. One reason is that the BOJ has built
up such a huge stock of government bondsmore than
40 percent of the marketthat it doesnt have to buy as
much anymore to keep 10-year yields around zero, the
target it adopted last year.
Kurodas ve-year term ends in April. When he was nom-
inated in 2013, his three-decade-plus tenure at the staid
Finance Ministry and his optimistic, almost avuncular per-
sonality helped ensure his conrmation. Since then, hes
shaken up an institution that had long been criticized for
doing too little to lift Japan out of stagnation.
Now its scal conservatives who are peeved: They say
Kurodas easy money policies have allowed Prime Minister
Shinzo Abes government to avoid wrestling down the
largest public debt load in the world.
Their calls for a more centrist policy
are likely to go unheeded in the wake of
Oct. 22 legislative elections that solidied
the ruling partys hold on power. Market
watchers believe that Abe, whos said he
has complete trust in Kurodas abilities,
will reward him with an unprecedented
second full term. Kuroda
Chinas central bank is more opaque than its peers. Still,
theres a clear consensus among China watchers that
officials in 2018 are likely to intensify efforts to whittle
down a record buildup of debt in the nancial system
since the global crisis.
At the October gathering of the Communist Party
leadership, President Xi Jinping reiterated that defusing
nancial risks is one of his top priorities. A sign of that
commitment was the promotion of Liu He to the 25-member
Politburo. A longtime Xi adviser on economic matters, hes
been an advocate of debt reduction.
Despite layers of capital controls, the Peoples Bank
of Chinas actions can still roil markets around the globe.
A surprise move in August 2015 to devalue the Chinese
currency proved so unsettling that the Fed shelved a widely
anticipated rate hike the following month.
Governor Zhou Xioachuan has held the job for almost
15 years. The question of who will replace him became
more urgent after he hinted at the recent party congress
that hes ready to retire. Even though the
central bank takes instructions directly
from the government, the pick for the
top job still matters. Zhous successor
will have to craft a monetary policy that
balances concern about the nations
debt load with support for an economy
thats shifted into a slower growth track. Zhou
 Bloomberg Businessweek
Elections
Mexico and Brazil vote
Latin Americas two largest economies will
hold presidential elections in 2018. Thats a
nerve-racking prospect for investors whove
become used to decades of policy continuity and
could see Mexico and Brazil take radical turns.
After 36 years of free-market technocrats, Mexicans
could anoint a leftist firebrand whos threatened to
take on Donald Trump. In Brazil, where the pop-
ulist Workers Party held sway for 13 years until
2016, a scandal-fatigued electorate is flirting with
a former army captain nostalgic for military rule.
You will have a lot of investor angst during the
elections, says Daniel Kerner, an analyst at risk con-
sulting firm Eurasia Group Ltd. You will have in
both cases capital flight, pressures on the currency
from investors getting scaredin Mexicos case that
there will be a reversal of reforms, and in Brazils
case, low commitment to reforms.
Whats driving voters yearning for change?
For starters, neither President Enrique Pea
Nieto in Mexico nor his counterpart in Brazil,
24
Michel Temer, will stand for reelection, and
their approval ratings are so dismal that their
endorsements would hardly help a handpicked
successor. Their administrations have been
dogged by endless corruption allegations, and
neither has been able to spur the economy to grow
fast enough to satisfy the middle class.
In Mexico, Trump himself may effectively hand
the presidency to Andrs Manuel Lpez Obrador,
whos sought the job twice before. The U.S. pres-
ident has antagonized Mexico by demanding the
nation pay for a border wall and by threatening to
rip up the North American Free Trade Agreement.
Thats added to the appeal of Lpez Obrador, a
former Mexico City mayor who claims he was
robbed of the presidency in 2006 in a rigged elec-
tion. Supporters of Amlo, as hes popularly known,
see his brash style as the best way to meet Trumps
hostility head-on. If the U.S. walks away from
Nafta or if haggling over the deal inches closer to
the July 2018 vote, that would lift Lpez Obrador
further. Mexico could have a rather intense shift
in political orientation, says Mario Mesquita,
chief economist at Ita Unibanco Holding SA.
Economists are rightly concerned with a possi-
ble end of Nafta, with Mexican elections, and how
that could bring about a Lpez Obrador victory.
Amlo has promised to boost the minimum wage
and increase social spending to help the 50 percent
of the population that lives in poverty. Investors are
most concerned about the candidates pledge to
review and possibly reverse hard-fought reforms that
The Year Ahead 2018 Economics
By Nacha Cattan and David Biller
opened the petroleum and electricity industries to
private competition. Chevron, Exxon Mobil, Total,
and China National Offshore Oil Corp. are among the
almost 70 companies that have signed oil contracts
expected to bring in as much as $80 billion over
the life of the agreements, according to the energy
ministry. Companies can at least take comfort from
the prospect that Amlos Morena party is unlikely
to capture a majority in Congress.
One recent poll shows Amlo with as much as
an eight-point lead on a large field of candidates. Mexicos front-runner,
Mexico is allowing independents to run on the Lpez Obrador
national ticket for the first time, and more than
70 have signed up. Among them is Margarita Zavala,
a lawyer and the wife of former President Felipe
Caldern. She broke away from the right-of-center
PAN to run on her own ticket. The ruling PRI has
yet to unite behind a candidate. At the moment,
the top contenders for the partys nomination are
Finance Secretary Jos Meade and Secretary of the
Interior Miguel Osorio.
In Brazil, three years of investigations into gov-
ernment graft have voters pining for what may be
an extinct species: clean politicians. In a survey
released in October, 87 percent of respondents
said it was very important candidates not be
tainted by corruption. That sentiment may be
PHOTOGRAPH: CARLOS JASSO/REUTERS
an obstacle to former President Luiz Incio Lula
da Silvas hopes of clinching a third term in next
Octobers elections. Hes appealing a conviction
on charges of graft and money laundering.
The desire for an honest candidate has boosted
the appeal of Jair Bolsonaro, a seven-term congress-
man from Rio de Janeiro who calls himself a
 Bloomberg Businessweek
threat to the stubbornly corrupt. The onetime
military officer also is tough on crime: Hes said
hell allow all Brazilians to get guns if elected, a
controversial stance in a nation where seven people
are murdered every hour.
Improving the security situation, Bolsonaro
said, will help attract much needed investment to
consolidate an incipient recovery following eight
quarters of contraction. However, hes the first
to admit he has only a superficial understanding
of economics. His policy proposals, to the extent
hes elucidated them, are mostly inclined toward
resource nationalism, particularly concerns over
China snapping up mining assets. He does support
privatization of nonstrategic assets, which he says
would include Petrleo Brasileiro SA, the state-run
Reform
Saudi Arabia taps the breaks
Crown Prince Mohammed bin Salman hasnt
wasted any time implementing his vision for Saudi
26
Arabias future. Since leapfrogging other senior
royals on the line of succession to the throne, the
prince has granted women the right to drive and
curbed the power of the religious police. Music
plays in restaurants, and many women are swap-
ping their black abayas for colorful ones, sharp
contrasts in a country thats been guided by an
austere brand of Islam for decades.
The princes proposals for the economy are
even more ambitious and are detailed in a plan
called Vision 2030. The blueprint aims to reduce
the countrys overwhelming dependence on oil
revenue by promoting the development of new
industries such as tourism and entertainment.
To fund that effort, he wants to sell shares in the
state-owned giant Saudi Arabian Oil Co. (page 68) as
well as privatize state assets, including flour mills,
soccer clubs, and the stock exchange. Proceeds
from the sales would be channeled into what would
be the worlds largest sovereign wealth fund. The
plan also calls for austerity measures to wipe out
a budget deficit that by last year had ballooned to
more than 15 percent of gross domestic product
because of the drop in the price of crude oil.
But the 32-year-old prince, whos known
casually as MbS, has to be careful: If he moves too
quickly, he could stir up dangerous opposition to
his project from Saudis sympathetic to militant
Islamic groups and a royal family that fears his
policies will lead to their marginalization. Hell
have to balance his impatient demands for change
with the populations willingness to adapt. Its
The Year Ahead 2018 Economics
oil giant that had been a source of national pride
until prosecutors showed it to be the center of a
vast network of patronage and graft.
Bolsonaros penchant for inflammatory state-
ments, which have caused critics to brand him
as homophobic, misogynistic, and racist, doesnt
seem to deter his supporters, who see him as a
Brazilian Trump (minus the fortune). His social
media following is bigger than that of any other
contenderof whom there are many. The field
includes former Acre state Senator Marina Silva;
So Paulo businessman-cum-mayor Joo Doria Jr.;
and So Paulo state Governor Geraldo Alckmin.
Finance Minister Henrique Meirelles is a favorite
among investors, but so far hes denied reports
that hell run. 
By Glen Carey
also unclear if the private sector has the ability
to become the engine of economic growth after
decades of government largesse. This is a huge
challenge for the country, and it has great implica-
tions for the world, Lloyd Blankfein, chief execu-
tive officer of Goldman Sachs Group Inc., said at the
Bloomberg Global Business Forum in New York in
0.6%
September. While there should be urgency, theres
also a case for caution so the change needed for
stability in the long run doesnt produce instability
in the short run, he said.
Already, there are signs that MbS may be moving
too fast. The people reject women driving was
the top-trending Arabic hashtag on Twitter after the
government announced on Sept. 26 that women
will have the right to drive. A rare attack on Oct. 7
on a palace in Jeddah used by the royal family killed
two security personnel and injured three others,
suggesting the ruling Al Saud family is once again
the target of militant groups such as Islamic State
or al-Qaeda.
To preempt a backlash against its policies,
the government launched the most severe crack- Growth in the
down on dissent in years, detaining prominent non-oil economy
clerics and activists. The regime has made enough in the second
quarter of 2017
opposition-quashing moves for it to be confident
PHOTOGRAPH: DMITRY AZAROV/GETTY IMAGES
more so than it might have been earlierthat it
can make this sort of controversial policy change
stick, says Paul Pillar, a professor at Georgetown
University in Washington and a former CIA officer,
referring to the decision to allow women to drive.
Cutbacks in government spending have rever-
berated through the economy. Companies that
supply medical devices have seen sales plunge Prince Mohammed
 Bloomberg Businessweek The Year Ahead 2018
as health-care purchasing was curtailed. Petrochemical com-
panies are having to pay higher prices for feedstock, because
state subsidies have been reduced. Construction, with its reli-
ance on government contracts, has been particularly hard
hit. Official data show growth in non-oil GDP came in below
1 percent in each of the first two quarters of 2017, down from
a peak of almost 10 percent when oil was above $100 a barrel.
Efforts to impose austerity on the massive civil-sector work-
force have faltered. After widespread grumbling, the govern-
ment reinstated allowances and bonuses to state employees,
who make up one-third of the population.
Ali Alireza, managing director of Haji Husein Alireza & Co.,
a Saudi company that sells everything from dump trucks to
Aston Martins, agrees the economy needs to change but worries
that its too much, too soon. The time frame in which these
things are going to be addressed, this is the problem, he says.
Its not only local businesses that are sounding the
alarm. The International Monetary Fund has warned Saudi
policymakers that the rush to reform could cripple the
Economics
reform programs when oil prices are low, sometimes the
enthusiasm wanes when commodity prices move higher,
James McCormack, global head of sovereign ratings at Fitch
Ratings Ltd., said at an event in Riyadh in October. A delay
in selling a stake in Aramco or a disastrous turn in the war in
Yemen, where Saudi-backed forces have been unable to corral
Shiite rebels after more than two years of fighting, could also
damage the princes reputation, hampering his ability to press
ahead with changes.
Alternately, the prince would see his hand strengthened
if his father, King Salman, were to abdicate the throne. This
would allow MbS to personally steer the economys transi-
tion, while quashing dissent from other powerful royal family
members, Eurasia Group Ltd. said in a report in September.
Either way, its clear the future of Vision 2030 hangs on one
man. At the end of the day, Prince Mohammed understands
that the reforms arent something he can pass on to some-
body else, says Emily Hawthorne, Middle East and North
Africa analyst at Texas-based advisory firm Stratfor Enterprises
economy. While in Washington for the funds annual meeting LLC. Economic change is his problem. 
in October, Saudi Finance Minister Mohammed al-Jadaan
told reporters that the government has some breathing room
because its on track to reduce the budget deficit to below
10 percent of GDP this year. Authorities dont see the need
to go from 10 percent to zero in two years, he said.
The governments commitment to
Hot Seat
overhauling the economy could weaken Women were
in 2018 if prices for Saudi crude exports granted the right to New Zealand Prime Minister
drive on Sept. 26
28
head higher. When countries kick-start Jacinda Ardern
The South Pacific nations
youngest prime minis-
ter since 1856, Ardern, 37,
heads a cabinet heavy on
neophytes with little governing
experience. Delivering on her
promise of economic reform
will be a challenge, not least
because her Labour Party must rule in partner-
ship with two other parties.
Items on Arderns to-do list include repealing
planned tax cuts and replacing them with a broad
spending package to help low-income families, as
well as making the rst year of tertiary education
free as of January. Labour also wants New Zealands PHOTOGRAPHS: FAISAL AL NASSER/REUTERS; ARDERN: HAGEN HOPKINS/GETTY IMAGES

central bank, whose sole mandate is price stability,

to add full employment to its objectives, similar to
the U.S. Federal Reserve. The new coalition gov-
ernment is likely to be more interventionist in the
economy than any government New Zealand has
seen in decades, says Dominick Stephens, chief
New Zealand economist at Westpac Banking Corp.
Growth slowed to 2.5 percent in the second
quarter, from 3.5 percent in the same period a
year earlier. Business and consumer condence
have declined, which could result in a lackluster
second half of the year. The key is how they
communicate to the wider community, says
Philip Borkin, senior economist at ANZ Bank New
Zealand Ltd. They need to get buy-in, otherwise
they will get a backlash. Tracy Withers
 Bloomberg Businessweek The Year Ahead 2018 Economics

Three ways it could

T What if Prime
e undone Minister Theresa
May quits or is
By
B Emma Ross-Thomas and
Flavia
F Krause-Jackson pushed out by her
own party?
A shock referendum, a
nation on edge, a leader
o the ropes. The U.K.
on
stars in a real-life drama
about leaving the European
Union,
U while the daily intrigue Labour wins in
n London and the brinkman-
in a snap election
s ip in Brussels have audi-
ences guessing if the country A three-month leadership
will f l off a cliff. battle tears the
A year ago, Theresa May Conservatives apart.
ooked all-powerful while
lo A pro-Brexit candidate
rivval Jeremy Corbyn was seen emerges, but the party
30 ass unelectable. An ill- vise remains divided.
snnap election later, the
Conservatives are on the
baack foot while a radical
neew Labour Party is on
the rise.
The reversal has
T
Conservatives rally
obbservers wondering behind a Remainer
wh hether there could
bee more twists on the As Conservatives fight
road to March 19, one another for control of
the e deadline for the the party, Brexit talks are
U.K.s exit from the suspended.
EU U. Here are three
hypothetical scenar-
ioss for how things
coould take a turn
forr the unexpected. A new pro-Europe
They all start with party emerges
Ma ays own exit
froom the scene.
Conservatives unite behind
a hard-line Brexit backer.
Bloomberg Businessweek The Year Ahead 2018 Economics

The country Brussels The unions that With the

holds its second embraces the provide Labour parliamentary
election in new Labour with most of arithmetic now
less than a government, but its funding clearly pro-
year. Corbyns talks bog down press the party remain, Labour
Labour wins. over nitty-gritty. to reverse its announces
Brexit policy. a second
referendum.

Anti-Brexit
Conservatives
Businesses
The pound The U.K. join forces with
relocate
tanks, forcing economy decel- Liberal Democrat
operations to
the Bank of erates and is and Labour
the Continent.
England to close to tipping lawmakers
Job losses
raise rates. into a recession. to push for
mount.
a second
referendum. 31

The new
The
government
Conservative
lobbies the EU
Party is divided Frightened
for a longer
over whether it by the dire
transition
should push on headlines,
period to allow
with life outside Conservatives
more time for
the EU or apply unite behind
talks, offering a
to rejoin, even a Remainer.
bigger divorce
under worse
settlement.
terms.
Brussels agrees.

Talks with Without putting

the EU bog Younger The U.K. holds the question to
down, and the Europhile elections, a referendum
March 2019 Conservatives and the new first, a new
deadline arrives split off and party wins on government
DAVID KAWAI/BLOOMBERG

without any kind form an alliance a platform of opens talks

of deal to soften with the Liberal returning the with Brussels to
the blow. Democrats. U.K. to Europe. rejoin the EU.
 Bloomberg Businessweek
Interview Jim Coulter
The co-CEO of private equity rm TPG Capital LP feels good
about the global economy, but wonders, Wheres the ination?
What is your portfolio telling you about the state
32
of economies around the world?
With 200-plus companies, we have front-row seats
for the world of business. And right now the show
seems to be progressing pretty well. If anything,
my concerns are that the market seems not to
have concerns in a world that is geopolitically
and socially at an interesting point. Im also still
scratching my head on the state of inflation, where
on one hand we have asset inflation in many parts
of the economy while the general inflation mea-
sures reflect average levels of consumer price infla-
tion. Those seem at odds.
How did the major elections across Europe this
year affect your outlook for the continent?
Europe has, in our view, outperformed over the
past few years. And the recent elections, which
have swung a bit more toward stability after the
swing away from stability at Brexit, have been
encouraging. Catalonia at the moment is an
interesting question, but elsewhere on the conti-
nent, the outlook seems positive.
TPG was an early mover into Asia. What are the
opportunities and challenges there now?
In China, a number of years ago people thought the
story was going to be about transitioning the state-
owned enterprises. Instead, much of the activity
has been around building new companies, new
industries. Because of the focus on the Communist
The Year Ahead 2018 Economics
Party congress this year, we think the economy
may well see a pickup going forwardalthough the
numbers have not been badas politics move more
into the rearview mirror. Across the rest of Asia,
its been a pretty good year in our portfolio and a
pretty good year for the economies. We dont see
that changing in the near term.
TPG recently broadened its ambitions to include
Africa. Why?
Were early in that process yet, but were highly The ability
interested in the demographic trends and certain
sectors that are emerging, most notably health to instantly
care, financial services, and agriculture. share that
moment in a
Whats a tech trend that youre watching closely concert has
from your perch in San Francisco?
somehow
One trend that interests me is the change in made
spending habits from things to experiences, which concerts
has accelerated over the past few years. Thats more
really driven by three points: Experiences are
easier to buy when you can digitally pre-shop for valuable
them; experiences are more valuable to people
if they can be sharedso the ability to instantly
share that moment in a concert has somehow
made concerts more valuable; and while we used
to spend money to brand ourselves with the things
we wore or used, today people are branding them-
selves with the experiences they have that they
can immediately broadcast to their friends. Its a
technologically enabled change in behaviors, which
creates investment opportunities.
More businesses are choosing to remain pri-
vately funded. Is this development temporary
or permanent?
We might be entering a new era of the private
markets. While the stock market is up in value,
the number of publicly listed companies in the
U.S. is down more than 40 percent over the last
20 years. In particular, the new technology com-
panies we watch closely at TPG are increasingly
choosing to stay in the private markets longer. I was
struck that when James Freeman [the founder] of
Blue Bottle Coffee was asked recently why he sold
ANDREW HARRER/BLOOMBERG
to Nestl as opposed to going public, he said that,
from his point of view, going public was like living
in hell without dying. Thats very different than the
traditional view that going public is a celebrated
rite of passage. Devin Banerjee
 Bloomberg Businessweek The Year Ahead 2018

Technology
Silicon
Valley p36

Cyber-
security p38

Internet p40

34

Aerospace p42

5G p44

Interview George Yancopoulos p46

Edited by Jeff Muskus

Next year will be big

for companies that
have been working
toward commercial
spaceflight for a
decade or more

35
 Bloomberg Businessweek The Year Ahead 2018

Silicon Valley
Big U.S. tech companies are about
to spend a lot of time in court
A year ago the big U.S. tech companies were facing threats
from regulators in Europe and to some extent in China, but
they were still golden at home. President Obamas chief digital
officer was a Google veteran, and the month before Election
Day, the White House staged a tech-infused South by South
Lawn festival that Obama called the rst annual. Lobbyists
for Google, Apple, Facebook, and Amazon.com got respect-
ful congressional audiences for their priorities: more visas for
high-tech workers, a crackdown on patent trolls, and extended
tax credits for R&D.
Heading into 2018, the same companies nd themselves
almost as pressured in the U.S. as they are in other parts of
the world. Their stock prices are still sky-high; their reputations
By Peter Coy and Gerrit De Vynck
less so. Various tech companies stand accused of capturing
or suffocating potential competitors, shirking taxes, invad-
ing privacy, and providing a venue for sex traffickers. (They
deny the accusations.)
While all big, successful companies have their share of
critics, few are battling on as many fronts as Google, Apple,
Facebook, or Amazon. Many of the challenges, from court
cases to legislation, will come to a head in 2018. Theres
just so many things that have happened recently, says
Albert Wenger, a partner at New York venture capital rm
Union Square Ventures, an early investor in Twitter and
Etsy Inc. People are starting to ask, Wait, whats going
on here?

Challenges  Prospects

Antitrust networking to strengthen its credibility European Commission is also pushing

European regulators fined Google
36
2.4 billion ($2.8 billion) in June for
favoring its own
shopping service in
search engine results.
Theyre considering
two more cases
against Google, one
involving its Android software and
another focusing on its AdSense
advertising service.
 Google plans to make its shopping
service a standalone business unit
that wont get special treatment in its
search results.
Google abused its market
dominance, says Margrethe
Vestager, the European Unions
commissioner for competition.
as a leading voice on consumer companies to be more proactive in
protection. taking down offensive content.
The case falls into a gray zone
between competition and privacy,
Immigration
Vestager told Bloomberg TV in
September.
The Trump administration doesnt
share Silicon Valleys enthusiasm for
Blocking more open borders.
China is shutting down virtual private
networks (VPNs) that people have
used to circumvent censorship and
reach Facebook, Googles YouTube,
and other sites.
 President Xi Jinping
may further tighten
government control
of Chinas internet in
2018.  Congress may cut back on H-1B
PREVIOUS SPREAD: COURTESY SPACEX; THIS SPREAD: GETTY IMAGES (11)

Xi
visas, which disproportionately go to
tech workers, in 2018.
Germanys competition authority Hate speech
Congress, get ready to do your job -
is investigating whether Facebook
DACA! President Trump tweeted on
abused its power as the dominant A German law that took effect in
Sept. 5.
social network by forcing customers to October requires social platforms to
agree to unfair terms remove hate speech within 24 hours
on how their data are or within seven days in complex cases. Net neutrality
used. Tech companies have said this would
be so onerous that it would force them
 The regulator has The Federal Communications
to enact broad censorship.
begun issuing white Commission is expected to kill
papers on social  This could be just the start. The Obama-era net neutrality rules, which
Vestager

prevent internet providers from
charging different rates to different
customers (from Netflix down to
individual homes) or giving certain data
sources preferential treatment. That
will likely raise costs for tech giants.
 The FCC is on
track to undo the net
neutrality rules by
early 2018.
FCC Chairman Ajit
Pai says the net
Pai
neutrality framework
was originally designed in the 1930s
for the Ma Bell telephone monopoly.
Political advertising
The Honest Ads Act, introduced
in the U.S. Senate in October with
bipartisan sponsorship, would require
internet companies to reveal whos
buying political ads and archive them
for review.
 Congress has been slow to take
action on the bill, which, if passed,
would take effect on Jan. 1.
Election security is national
security, says co-sponsor Senator
Amy Klobuchar (D-Minn.).
Privacy
A European rule
called the General
Data Protection
Regulation calls for
fines of as much as
4 percent of worldwide annual revenue
on companies if they dont adequately
protect customer data.
 The regulation takes effect on
May 25.
Technology
Russian influence
Two congressional committees and
special counsel Robert Mueller are
investigating whether Russian agents
influenced the 2016 presidential
election through inflammatory
ads placed on Facebook, Google,
and Twitter. British Prime Minister
Theresa May has floated the idea
of treating the three companies like
news organizations, making them
responsible for content appearing on
their platforms.
 This could lead to regulation
of American online advertising
by countries that are considered Taxation
adversaries of the U.S.
The EC wants to close loopholes
Facebook says that U.S. tech giants use to reduce
Russian posts
their tax bills. As an interim solution,
landed in the news its considering an equalization tax on
feeds of 126 million
digital companies revenues instead of
people. Twitter just on their profits.
banned ads from
Russia-backed news
Mueller
Mu ll
 In September the commission
services RT and Sputnik. suggested a possible proposal by
spring 2018.
37
The European Union says the
Sex trafficking and average international company with
pornography a digital consumer business pays
an EU tax rate of 10.1 percent, vs.
The U.S. Senates Stop Enabling Sex 23.2 percent if the company has a
Traffickers Act (Sesta) would expose traditional business model.
internet companies such as Facebook
and Google to civil lawsuits over
In 2016 the EC ordered Ireland to
content created by customers. Theres
collect up to 13 billion in back taxes
a similar bill in the House. Opponents
from Apple. The Irish government,
such as the Electronic Frontier
which uses low tax rates to attract
Foundation say it would undercut free
business, has appealed.
speech and innovation.
 The EUs General
 Introduced by Senator Rob Portman,
Court is expected to
an Ohio Republican, the bill has 30 co-
hear the case in late
sponsors from both parties. It has
2018.
a good chance of passage in2018.
Apple CEO Tim Cook
Tech companies find themselves on
called the order
the same side of the debate as sex Cook
total political crap.
traffickers.
By December 2017, many
merchants who sell on Amazon are
expected to begin collecting state
sales taxes in exchange for amnesty
from back taxes in about half of
U.S. states.
 Higher prices could reduce sales
through Amazons marketplace.
 Bloomberg Businessweek
Cybersecurity
The next hack will turn
your lights off
When a serious cyberattack against the U.S. begins,
at first youll blame the weather, or an accident, or
corporate incompetence. Itll be a power outage
that lasts a few hours at most. But things will start
to get more unsettling when reports trickle out that
the blackout is the work of hackers, most likely con-
nected to the Russian government.
This isnt science fictionit happened in
western Ukraine two years ago. That attack, the
first known to take out an electrical grid, used mali-
cious software known as a Trojan to briefly black
out several hundred thousand people. The hack
forced Ukrainians to start taking their countrys con-
flict with Russia much more seriously, says John
Hultquist, director of intelligence analysis at secu-
rity company FireEye Inc. The power outage, and
another that followed in the capital in 2016, took
the front from the east to Kiev, he says. You cant
ignore it when the lights go out.
So far, most Americans and Europeans havent
38
been forced to reckon with the dangers of a large-
scale cybersecurity breach, even as such attacks
have become routine. Although close to half of the
U.S. population had their Social Security numbers,
addresses, and birthdates stolen from credit-
monitoring company Equifax Inc. earlier this year,
the usual round of press outrage and congressio-
nal finger-wagging didnt yield any serious changes.
Equifax Chief Executive Officer Rick Smith resigned
and lost his 2017 bonus, but he got a retirement
package worth at least $18 million.
But the kind of attack that companies will finally
take seriously, something like the one in Ukraine, is
coming. Security experts call such a hack cyberphys-
ical, meaning it spills into the real world, causing
property damage and perhaps deaths. Experts have
already found evidence that the hackers responsible
for Ukraines outages have been quietly rolling into
the systems that run U.S. energy grids. On Oct. 20,
the FBI and Department of Homeland Security
issued an alert warning of a multistage intrusion
campaign aimed at industrial control systems in
critical infrastructure, including in the energy,
water, aviation, nuclear, and manufacturing sectors.
Attacks on infrastructure are extremely tough to
pull off. Most power grids include a tangle of inter-
connected systems, some online, some offline, and
some decades old. Intelligence analysts say only five
countries can hack them: the U.S., China, Russia,
North Korea, and Iran. None, as far as we know,
have successfully disabled physical assets beyond
computers on American soil.
The Year Ahead 2018 Technology
By Max Chafkin and Dune Lawrence
Even so, U.S. companies are woefully unpre-
pared. Industrial control systems have been con-
nected to the internet in recent years, with little
thought given to securing them. Many software
systems patch security holes daily; at power plants,
well-known vulnerabilities may not be fixed for
years, partly because there still isnt a consensus
on whether the manufacturer, installer, or utility
operator bears responsibility for updating the soft-
ware, says Marina Krotofil, a Ukrainian-born FireEye
analyst. There was no security in the past, because
there was no need, she says. Many critical infra-
structure systems, including natural gas pipelines
and storage, are almost entirely unregulated in the
digital realm.
Russian hackers, meanwhile, continue to inno-
vate. Krotofil says many low- and midlevel hackers
have moved on from hijacking Windows PCs and
are writing malware designed to take over power
grids. You see so many exploits, because so many
people got into this field, she says.
So far, Ukraine has been Russias primary target.
The Kremlin-backed group that caused the black-
outs, identified by cybersecurity researchers as
Sandworm, has also been tied to a large-scale hack
that briefly crippled Ukraine this summer. The group In Ukraine, hackers
have proved that
used a well-known ransomware program, Petya, that ransomware can be
normally attacks a targets computer, encrypts the more destructive than
data, then offers to decrypt it for a ransom. But the it sounds
hackers came up with a variation, NotPetya, that
simply destroyed the data.
The hackers spread the virus by targeting the
main application that Ukrainians use to file their
taxes, and in doing so, they took down the system
Ukrainian pharmacies use to keep track of rare
prescription drugs and the radiation monitoring
system at Chernobyl. Banks, airports, and govern-
ment offices were also affected. It was like nothing
wed ever seen before, says Krotofil. The entire
country was paralyzed.
Theres evidence to suggest the blackouts and
NotPetya were just warmups for a hack in the U.S.
Sandworms code has been found on computers
PHOTO ILLUSTRATION BY 731; PHOTO: GETTY IMAGES
run by American electrical operators, according to
FireEye. And in July security groups reported that
another group, believed by U.S. intelligence agencies
to be Russian, had accessed computers at a dozen
U.S. power plants, including Wolf Creek, a nuclear
plant in Kansas. Russian hackers havent done any-
thing malicious to these systems, but such stories
are troubling, especially when combined with their
meddling in the 2016 U.S. presidential election and
 Bloomberg Businessweek
their smaller-scale attacks in Europe, such as the
disabling of a French television network.
The same thing thats kept the nuclear peace
between the U.S. and Russia has also stopped
Russia from launching a cyberphysical attack in
America. The U.S. could respond to a Russian strike
with its own crippling cyberattack along the lines
of Stuxnet, a worm said to have been developed
by the U.S. National Security Agency and Israeli
intelligence that sabotaged Iranian nuclear cen-
trifuges starting in 2009. (Iran has been active in
the U.S. as well. In 2016, the Department of Justice
announced that it was bringing hacking charges
against seven Iranians for crimes that included
accessing a control system for a dam in the New
York City suburbs.) Martin Libicki, a visiting pro-
fessor at the U.S. Naval Academy and the author of
Internet
Chinas crackdowns are getting serious
In late October, as he pushed to cement his grip
40
on Chinas ruling Communist Party for another five
years, President Xi Jinping made it clear that with
him in charge, the countrys internet wouldnt be
getting more liberal.
At the twice-a-decade National Congress of the
Communist Party, during a three-and-a-half-hour
speech extolling the virtues of Chinas version of
socialism, Xi said officials need to engage with
the public and pledged to do it on specific terms.
We will provide more and better online content
and put in place a system for integrated internet
management to ensure a clean cyberspace, he
told more than 2,000 party delegates as he kicked
off the weeklong assembly. We will distinguish
between matters of political principle, issues of
understanding and thinking, and academic view-
points, but we must oppose and resist various erro-
neous views with a clear stand.
Those goals may sound appealing in the era of
fake news, but Xis first five years have been marked
by the biggest crackdown on freedom of expres-
sion in the internet age. Foreign companies com-
plain of restrictions that hamstring operations and
favor homegrown players. Police are shutting busi-
nesses and arresting civilians on message groups
as Beijing plugs more holes in its Great Firewall,
a blockade of blacklisted sites.
Google and Facebook Inc. are trying to figure
out how to nose their way back into the worlds
biggest marketabout a decade after exiting China
because of privacy concerns (Google) and being
blocked from it (Facebook). They have to weigh
The Year Ahead 2018 Technology
Cyberspace in Peace and War, says he worries that a
serious hack could escalate into outright war. My
No.1 fear is not the direct consequences of a cyber-
attack, he says. Its if we get into a conflict with The
another country and theres a cyberattack, we will
overreact, or they will overreact. Russians
How long can fear of retaliation hold off a cyber have crossed
Pearl Harbor, as security researchers sometimes lines and,
call it? Peter Singer, a fellow at the Washington think more
tank New America, says the phrase is so overused
its basically fodder for a drinking game, but the past importantly,
few years have been sobering. Weve seen a series done so
of lines crossed that we thought were no-go areas, without
he says. The Russians have crossed lines and, more punishment
importantly, done so without punishment. That
sends a signal, not just to them but to everyone else,
that, Hey, you can get away with this.
By Bloomberg News
the benefits of a billion potential users against the
implicit support for a repressive regime that works
in opposition to their stated priorities. China
has become far bolder and more strategic in its
approach to a very old and familiar objective, which
is to shore up political control through controls
on information, says David Bandurski, co-direc-
tor of the China Media Project and a Richard von
Weizscker fellow of the Robert Bosch Academy
in Berlin. The party feels it must centralize and
double down on control. The National
China has corralled Tencent Holdings, Alibaba Congress of the
Group Holding, Baidu, and other leading internet Communist Party
GETTY IMAGES
 Bloomberg Businessweek The Year Ahead 2018 Technology

Aerospace
companies to join the effort. Officials say guard-
ing the electronic frontier is necessary to preserve
the stability of a vast country undergoing rapid eco-
nomic and social changes. In June, Weibo Corp.,
the Chinese equivalent of Twitter Inc., was one of
three companies fined and banned by regulators Commercial spaceight
from broadcasting certain types of content without
a license. They want to shut people up and to gets real
tighten self-censorship, says Qiao Mu, a former
journalism professor at Beijing Foreign Studies By Michael Belore
University. They want to avoid mass incidents
and prevent crises before they emerge.
Away from the glare of rules and legislation,
censorship in China has become increasingly gran-
ular, down to what can be shown on streaming
sites. Previous regimes periodically blocked virtual
private networks, the technology long used to cir-
cumvent web filters, but Xis government is shut-
ting them down for good.
Chinas online watchdog has also slapped fines
on news services run by Tencent, Baidu, and Weibo.
Internet regulators say they closed 3,918 websites in
the second quarter for spreading information that
was violent, pornographic, or a danger to national
security. Even Winnie the Pooh was kicked off tem-
porarily after images of the bear started popping
up as an online proxy for the stout Xi.
At this rate, there will not be much left for
the next leader to censor, says the co-founder of Blue Origins New Next year will mark the 50th anniversary of the
42 Shepard suborbital
GreatFire.org, a group that finds ways around gov- first manned lunar mission, during which three
craft in July at the
ernment restrictions, who goes by the name Charlie annual gathering of Apollo 8 astronauts orbited the moon and gave
Smith to avoid reprisals. He is the first Chinese the Experimental the U.S. a decisive lead in its space race against the
leader to truly understand the power of the inter- Aircraft Association Soviet Union. These days, with NASAs milestones
in Oshkosh, Wis.
net, and hence we are seeing an unprecedented receding in the national memory, Russian space-
crackdown on dissenting information. ships are the ones ferrying American astronauts to
Tencents WeChat, with almost 1 billion users, and from the International Space Station (ISS). If
has become adept at preventing sensitive messages all goes well, that will change in 2018.
from ever reaching their destination, such as when This moment is a big one for the handful of
it blocked a flood of photos of the late dissident and companies that have spent much more than a
Nobel laureate Liu Xiaobo this summer. Baidu is decade working toward commercial spaceflight.
building a system to allow cybercops to spot and Boeing Co. and Elon Musks Space Exploration
fix online rumors, letting police agencies insert Technologies Corp. are preparing to bring NASA
themselves directly into everything, including its scientists to the ISS by this time next year, not
search results and discussion forums. long after five teams race unmanned landers to
Services that rely on free-flowing information, the moon to win the $20 million Google Lunar
such as Google and Facebook, would struggle to XPrize. Richard Bransons Virgin Galactic LLC
exist in such a regime, though they remain intent and Jeff Bezos Blue Origin LLC have suborbital
on finding a way in. Facebook-owned WhatsApp, flights scheduled. Rocket Lab USA Inc. and Virgin
which operated unfettered for years, began expe- Orbit, Virgin Galactics satellite arm, expect to
riencing intermittent disruptions in July that indus- begin launching satellites. And SpaceX plans to
try experts blame on the governments increased use its own astronauts to reprise 1968s history-
use of surveillance technology in the runup to the making flight.
party congress. NASA, for one, is counting on commercial
Other companies have made concessions to efforts to succeed next year. Even unmanned tests
Xi. LinkedIn censors its local subscribers posts. of spaceships from SpaceX and Boeing would be
Microsoft Corp. set up software centers where gov- a major milestone in getting the U.S. back into
ernment officials can peruse source code under launching its own astronauts into space, says
COURTESY BLUE ORIGIN

careful scrutiny. Apple Inc. started deleting apps Douglas Messier, managing editor of Parabolic
that bypass Chinas internet restrictions from its Arc, a commercial-space blog. NASA hasnt had
local App Store. Fight it or not, China is simply that capability since it retired the Space Shuttle
too big to ignore.  in 2011.
 Bloomberg Businessweek
NASAs Commercial Crew Program is targeting
April for the SpaceX Dragon 2s first test flight and
August for a manned flight. Boeing is slated to test-
fly its CST-100 Starliner unmanned in August and
crew it in November. In addition to a combined
$7.9 billion in development money from NASA, the
two companies have received a total of $6.8 billion
in launch contracts to transport astronauts.
Sometime after its manned flight in August,
SpaceX says, the Dragon 2 will make its moon-
orbiting flyby with two paying passengers. The
company wont say how much those tickets cost,
but the price is likely to be far more than the
$40 million the last private astronaut, Canadian
billionaire Guy Lalibert, paid the Russians to reach
the ISS almost a decade ago.
Suborbital spaceflights, which breach the
atmosphere but dont go fast enough to reach
The parabolic arc of rocketry
Jeff Bezos founds Blue Origin in
2000 Kent, Wash.
Elon Musk co-founds SpaceX in El
2002 Segundo, Calif.
After Scaled Composites
SpaceShipOne flies the first
commercial astronauts to suborbital
space, Richard Bransons Virgin
Galactic funds development of
SpaceShipTwo
2004
Blue Origin test-flies a vertical takeoff
and landing rocket at low altitude
2006
SpaceXs first launch fails
An equipment explosion kills three
men working on Virgin Galactics
2007 SpaceShipTwo
SpaceXs second launch fails
SpaceXs third launch fails, but a
2008 fourth one gets a payload into orbit
SpaceX executes
a second orbital
launch, the last
use of a Falcon 1
2009 rocket
SpaceX sends its
ILLUSTRATIONS BY CHRIS PHILPOT
new Falcon 9 into
orbit and recovers
it intact
2010
The Year Ahead 2018 Technology
the continuous free fall of orbit, will be almost
as important in 2018, says Charles Lurio, who
publishes the Lurio Report, an industry newsletter.
Blue Origin and Virgin Galactic are both testing
suborbital craft (Blue Origins unmanned, Virgins
with test pilots) and say theyre aiming to reach
manned zero-gravity flights in 2018. Those trips,
Lurio says, will start to give the first tangible idea
of the potential market for suborbital flight.
Satellite launches are a different story. Rocket
Lab, which flew a suborbital test flight of its Electron
rocket in May, says it plans to make its first flight to
orbit in December and begin charging customers to
put their satellites in space next year. Virgin Orbit
has a similar timetable, and its cargo room is long
gone, says Will Pomerantz, vice president for special
projects. Our manifest for 2018 is already fully sold,
he says, as is much of 2019 and 2020. 
A Blue Origin test rocket ascends to Blue Origin flies
2011 45,000 feet and breaks the sound New Shepard to
barrier, then crashes space in three more
unmanned tests
An unmanned SpaceX Dragon
After two more failed
capsule becomes the first commercial
landings, SpaceX
craft to dock with the International
lands a Falcon 9
Space Station
on an unmanned
ship. But another
43
2016 launchpad rocket
explosion destroys
2012 a pricey Facebook
communications
satellite
Virgin Galactic
begins glide-testing
its VSS Unity
spaceplane
SpaceX sends a satellite into orbit
NASA awards SpaceX and Boeing on a used Falcon 9, executes its
launch contracts worth a combined 19th successful rocket landing, and
$6.8 billion to fly astronauts in outlines new designs for a Mars
competing ships to the ISS colonization craft
Blue Origin announces a partnership Bezos says hes funding Blue Origin at
2014 with United Launch Alliance to develop the rate of $1 billion a year from sales
an engine of his Amazon stock
Virgin Galactics VSS Enterprise Branson says he intends to travel to
spaceplane crashes during a test space in Virgin Galactics VSS Unity
flight, killing its pilot in 2018
Blue Origin successfully flies its New
Shepard suborbital rocket and capsule
in two unmanned tests and says its 2017
developing an orbital craft
2015
SpaceX crashes two rockets trying to
land them on a floating ocean platform.
A third lands successfully, but a cargo
flight to the ISS explodes after launch
 Bloomberg Businessweek
5G
Digging deep to nd the future of mobile
In a gold mine hundreds of feet below the boreal
forests of northern Sweden, Ericsson AB is seeking
the answer to an existential question: Does anyone
really want 5G wireless service? The troubled tele-
communications equipment maker, suffering as
sales of 4G technology falter, has bet its future on
the fifth generation of mobile, which is expected to
link billions of devices to the internet with connec-
tions fast enough to transfer a feature film in less
than a second. But even with initial 5G standards
poised to be determined next year, no one is sure
what applications and services will make custom-
ers hand over the billions of dollars the systems will
cost to construct. We need to explore this to under-
stand what well use it for, says Peter de Bruin, an
Ericsson engineer who designed the prototype 5G
network the company built in the Kankberg mine,
500 miles north of Stockholm. The benefits of such
fast download speeds arent really obvious.
The 50-year-old mine is one of dozens of locations
globally where Ericsson and its primary rivals, Nokia
44
Oyj and Huawei Technologies Co., are testing equip-
ment for 5G, which will likely see its first large-scale
commercial deployments in 2020. Nokia has worked
with China Mobile Ltd. to show how ambulances can
use 5G to stream patient X-rays to emergency rooms
as they race toward hospitals. Huawei has showcased
a remotely driven car. Ericsson, which has devoted
the bulk of its 24,000 engineers to 5G, is involved in
about 20 projects, including the highest-profile test,
in February at the Winter Olympics in Pyeongchang,
South Korea. There, the company is working with
KT Corp. and Intel Corp. on a network that will guide
self-driving buses through the athletes village and
allow fans to experience the action live from tiny
cameras embedded in the helmets of bobsledders.
We have talked for a long time about 50 billion con-
nected devices, but we need to understand what
they are, De Bruin says.
Ericsson, Nokia, and Huawei are developing 5G
radio components; chipmakers Intel and Qualcomm
Inc. have showcased modems; and programming
houses are writing much of the code that will
make the systems tick. Even tiny bits of software
or equipment that become part of the global stan-
dard could bring riches to those who create them.
The 5G Forum, an industry group, predicts the 5G
services and equipment market will reach $1.9 tril-
lion in 2026.
Those numbers will depend on industries from
health care to manufacturing finding ways to use the
technology. Until that happens, 5Gs benefits will be
more mundane: improving the speed and quality of
The Year Ahead 2018 Technology
By Niclas Rolander
mobile services for consumers while dramatically
lowering the power needed for devices. That wont
fulfill some of the more futuristic promises of the
technology, but enhancing mobile broadband isnt
a bad place to start, says Daryl Schoolar, an analyst
at researcher Ovum Ltd. You build a foundation.
The three leading equipment makers have suf-
fered from slumping demand as 4G networks
are largely complete in key markets. Ericsson is
more troubled than the others, because it was less
prepared for the downturn; its shares plunged
30 percent after a profit warning last year. Even as
Chief Executive Officer Borje Ekholm seeks to cut
annual operating costs by more than $1 billion to
boost profits, hes pledged to continue investing
in 5Gkeeping one foot on the gas pedal and one
foot on the brakes, he told Bloomberg Television.
At Kankberg, Ericsson has built a network of
about three dozen antennas to cover more than a
mile of tunnels, using equipment that adheres to
proposed standards, even though the first set wont
be completed until next summer. Truckmaker
Volvo AB has developed a remote-control
front-loader for transporting rock. ABB Ltd. is
How 5G could work
4G 5G
Signals broadcast in all directions Focused signals
All data are sent to and from the network Small base stations extend reach and
directly handle some exchanges
Device-to-device communication
5G GRAPHIC BY BLOOMBERG GRAPHICS; DATA: INSTITUTE OF ELECTRICAL AND ELECTRONICS ENGINEERS
providing wireless devices to monitor air quality.
And researchers at Swedens Lulea University have
created sensors that track seismic activity in the
rock. Mikael Staffas, head of mining operations at
Boliden AB, the owner of the mine, says 5G will let
the company and its suppliers create sophisticated
equipment that engineers cant yet envision. We
get a very capable infrastructure, and we need to
think about how to use it, he says. Its a bit uncer-
tain, because no one has really started building
applications for the higher speeds. 
 Bloomberg Businessweek
Interview George Yancopoulos
The co-president and chief scientic officer of Regeneron
Pharmaceuticals Inc. says new medical technologies and
drugs wont keep coming unless we spend on basic science
46
The biotech industry has seen a boom of new
technologies and drugs in the past few years.
What technologies are you most excited about?
Its all about genetics and DNA. Regeneron has
now sequenced a quarter of a million people and
has their health records. This is a resource thats
never been possible or available before. It used
to take 10 to 15 years to do the genetics testing,
and then youd start the drug development, which
takes another 10 to 15 years. Now weve cut out
those first 15.
Are there ethical issues or other drawbacks to
increasing the accessibility of these technolo-
gies? One guy recently injected his arm muscles
with the gene-editing tool Crispr to see if he
could make himself more buff.
Well, I dont think itll work for that guy. At most,
hell get injection-site inflammation and some sore-
ness. Biology is one of the most complicated things
weve tried to tackle as humanity. The danger of
unintended consequences is so high. We have to go
by the rulebook of Hippocrates: Do no harm. Weve
had older gene-editing technology for decades and
could have edited human embryos, but we havent
for that reason. Its so easy to screw things up.
Weve screwed up our health, our environment.
The Year Ahead 2018 Technology
Social media has maybe destroyed the minds of the
next generation. Weve shown how interventions
can so easily go awry. But its so hard to fix things.
Crispr is still at the earliest stages, and its going to
be years before we see large-scale interventions.
The industry has been arguing that its not
recognized for this hard work. Everyone from
President Trump on down accuses drugmakers
of price gouging. Wheres the price conversa-
tion going to go next year?
As an industry, we all have to be more respon-
sible. We know the egregious examples of
[Martin] Shkreli and Valeant [Pharmaceuticals
International Inc.]. Even more respectable com-
panies sometimes, when they want better earnings
per share, do double-digit increases of a drug price Society
for a product theyve had on the market for years. really needs
But I dont want the pricing conversation to dom- to invest
inate to the point that it distracts from the more
in future
fundamental issues here. Society really needs to
invest in future epidemics. If we dont deal with epidemics.
them, then the cost of drug prices today will be If we dont
rounding errors compared to the price of obesity deal with
and diabetes and Alzheimers. Its astounding that
them, then
out of the trillions of dollars we spend on health
care, were only giving $30 billion to the National the cost of
Institutes of Health to try and somehow fix these drug prices
future problems. Thats irrational. People mock today will
the work on worms and fruit flies that the NIH
be rounding
does, but thats where discovery comes from. We
should be increasing the NIH funding tenfold. errors
compared to
What advice do you have for the current the price of
administration?
obesity and
I dont think any administration, including the diabetes and
current one, understands where discoveries really Alzheimers
come from. It can take 10, 20, 30, even 40 years.
Thats where their horizons should be, not the next
election or earnings cycle. I think there are ways
we could be changing corporate tax structures and
introducing incentives to encourage those long-
term horizons. We say at Regeneron, in biology
you get what you select for. Thats the case in pol-
itics, too. Climate change cant be fixed in the next
GETTY IMAGES
quarter. We have to fundamentally change our
thinking. Caroline Chen
 Bloomberg Businessweek The Year Ahead 2018 Section

Retail
Electric
Vehicles p50

Online
Shopping p52

Travel p54

48

Streaming p56

Organic
Food p58

Hot Seat Michael OLeary p51

Interview Jeff Koons p60

Edited by James E. Ellis and David Rocks

A balloon dog
sculpture by artist
Jeff Koons towers
over Jay-Z at
a performance
in August

49
 Bloomberg Businessweek The Year Ahead 2018 Retail

Electric Vehicles
EVs from Tesla and GM may By David Welch
start losing their tax credits
Electric vehicles have caught the eye of many according to IHS. Those various models count as
American consumers. But its not only the cars a single car under the tax credit system. Nissan
green cred that seals the deal. Another big lure: had sold 112,000 of its all-electric Leaf.
a federal tax credit of up to $7,500 per vehicle. The program doesnt end abruptly when
Now that lucrative incentive may be fading away a carmaker reaches 200,000 in sales. Once a
for two reasons. First, buyers of vehicles from manufacturer gets to that number, new buyers
leading EV makers such as Tesla Inc. and General receive ever-diminishing credits over the next five
Motors Co. could soon use up the maximum value quarters, at which point the subsidy is completely
of tax credits for their brands. (Theyre capped gone (chart).
for each manufacturer.) But worse for the entire Brands with reduced or used-up credits would
industry, all EV credit provisions in the U.S. tax be at a financial disadvantage against competitors
code are at risk of being eliminated as part of the that are coming out with models eligible for the full
horse trading under way over a tax cut bill. incentive. Between now and 2022, global carmakers
To understand what could happen to electric plan to sell 50 new electric car models, with many
car sales if Republicans phase out federal EV incen- of them headed for dealer lots in the U.S. GM alone
tives, look at what happened in Georgia. Electric car has 20 coming by 2023.
sales there were growing briskly until the state cut
its $5,000 electric vehicle tax credit in June 2015.
Sales crashed from as many as 1,400 electric cars How the tax credit works
a month statewide to fewer than 100 the month
50
after the incentive was axed. Buyers of a manufacturers rst 200,000 electric and alternative-fuel
Automakers fear a similar sales plunge if the vehicles can claim the full credit, which is $7,500 for EVs such as those
federal tax credit goes away. Losing the credit shown below; plug-in hybrids get less. After sales exceed the thresh-
would crush sales of electric cars just as most major old, the full credit is available for the rest of that quarter and the fol-
automakers are beefing up to sell a slew of EVs over lowing three months. Purchasers in the next two quarters qualify for
the next five years. The credits matter a lot, says half the credit; in the six months after that, new buyers get 25 percent.
Eric Noble, president of the CarLab, a consulting
company in Orange, Calif. In states without EV
2017 Tesla Model 3
mandates or incentives, youll see sales crater. $35,000
Electric cars have always been a tough sell to
Americans, who are hooked on big SUVs and cheap
gasoline. But the tax credits have helped juice
sales, especially for lower-priced EVs and plug-in
hybrids, Noble says. Even if Congress doesnt do
away with the credits, each manufacturerunder
the existing IRS programwould see the incen-
tive start to phase out once it sells 200,000 EVs
or plug-in hybrids. Tesla, Nissan Motor Co., and
GM would be the first to see their credits dwindle,
because theyve sold the most EVs.
If the government keeps the system in place but
lets it run its course, Tesla will probably reach the
limit first. The company had sold 127,000 of the
Model S sedan and Model X SUV through August,
according to researcher IHS Markit. With plans to
produce as many as 10,000 a week of its smaller,
$35,000 Model 3 sedans at some point next year,
Tesla could max out sometime in 2018.
GM would probably be next. The carmaker had
sold 126,000 of its Chevrolet Volt plug-in hybrids
through August, along with 12,000 of the Chevy 2017 Nissan Leaf 2017 Chevrolet Bolt
Bolt EV and 7,000 of the tiny Chevy Spark EV, $30,680 $36,360
 Bloomberg Businessweek
The industry lacks the flexibility simply to pull
back from making alternative-fuel cars because
Californiathe biggest automobile market in
the U.S.mandates that a certain share of all
automakers sales in the state must be zero-
emission vehicles. If they dont reach that per-
centage, they must buy credits from companies
with bigger green footprints (and thus extra emis-
sion credits), such as Nissan and Tesla, to make
up their numbers.
There are big financial implications. If states
continue mandating EV sales but the tax incen-
tives disappear, carmakers will have to lower
prices to get the sales volume required by state
governments, Noble says. Right now the EV
market isnt driven by natural demand, he says.
If you remove the tax credit, then either the man-
ufacturer eats it or sells fewer vehicles.
Electric cars are already big producers of
red ink. GM loses $9,000 on every Bolt it sells,
people familiar with the matter told Bloomberg
earlier this year. And Tesla has burned through
$10 billion en route to becoming a leader in elec-
tric car sales. Analysts dont expect it to turn a
profit for years.
For now, states are helping to bolster man-
ufacturers sales by providing tax breaks for
green-car buyers. Eleven states have some kind
of alternative-fuel-vehicle incentive, and more
are considering following suit. The tax breaks
typically range from $1,000 to $5,000. New York
started a $2,000 tax credit in April, and Texas
began its $2,500 credit in July.
For next year, Tesla should be just fine. Both
the carmakers Model S sedan and its Model X
SUV can easily cost more than $100,000 when
equipped with a longer-range battery and
luxury options. Some affluent buyers of those
models dont even bother to cash in the tax credit,
and most of them dont need it to buy the car,
PREVIOUS SPREAD: SAM NEILL; THIS SPREAD: CARS: COURTESY BRANDS; OLEARY: CHRIS RATCLIFFE/BLOOMBERG
says Rebecca Lindland, an analyst with Kelley Blue
Book, an auto pricing website. But buyers of the
much cheaper Model 3, Teslas attempt to offer a
mass-market ride, may be more price-conscious,
she says.
Tesla Chief Executive Officer Elon Musk said
in August that, given the more than 400,000
deposits customers have put down for the recently
introduced Model 3, his first year of production
will likely be sold out. After that, he could have
a tougher time, Lindland says.
Fears of a negative response from buyers could
explain why GM and other carmakers are spend-
ing more lobbying time trying to make sure the
tax credit is renewed and making the case that
the industry has truly committed to electric cars,
thanks to federal incentives and sales mandates in
both California and China, say two people famil-
iar with the matter.
GM spokesman Pat Morrissey says the
credits are still necessary to help grow the EV
The Year Ahead 2018 Retail
market, adding that the company is working
with the Trump administration and Congress.
Detroit and its rivals should have an unusual
ally in the green lobby as they fight to keep the
incentives alive. But with President Trump threat- If you
ening to water down fuel economy standards for
conventional cars, EV credits arent a top prior- remove
ity for some environmentalists, who instead are the tax
focusing on improving the gasoline-powered cars credit, then
still purchased by 99 percent of buyers. either the
It helps to have EV tax credits, but fuel
economy standards are more important, says manufacturer
Daniel Becker, director of the Safe Climate eats it or
Campaign, which lobbies governments and auto- sells fewer
makers to support clean-car technologies that vehicles
combat global warming. If were going to make
progress in the long term, it will be by making sure
we have efficient gasoline engines. 
Hot Seat
Michael OLeary
CEO, Ryanair Holdings Plc
Botched planning left the Irish
51
budget carrier without enough
pilots at the end of its summer
schedule, forcing it to scrap
thousands of ights and bump
700,000 passengers. A back-
lash among officials across
Europe followed, along with a
cut to its growth forecast, which translates into
6 million fewer passengers over two years. As a
result, Chief Executive Officer Michael OLeary
faces one of his biggest crises in the more than
two decades hes spent building Ryanair into
Europes most valuable airline.
Beyond the reputational damage and lost
revenue, the asco risks emboldening the carriers
pilots, who are trying to unionize. Ryanair is react-
ing by offering unprecedented wage increases
and promising changes to working conditions
and career options to stave off poachers such
as Norwegian Air Shuttle ASA. While some of
Ryanairs 86 bases, where pilots are stationed,
have accepted the peace offering, otherslike
the carriers biggest hub at Londons Stansted
Airporthave rejected the deal.
Buoyed by pledges of nancial support from
cockpit unions at American Airlines Group Inc. and
Southwest Airlines Co., OLearys pilots are demand-
ing unied bargaining and an end to a contractor
model thats helped make Ryanair the industrys
European prot leader. That could put at risk a bare-
bones business model, which makes even pilots pay
for their onboard coffee. Benjamin Katz
 Bloomberg Businessweek The Year Ahead 2018 Retail

Online Shopping
Reducing returns is the next big thing By James E. Ellis

Online sales are growing at about All in the timing

three times the rate of those from Some merchants craft return
brick-and-mortar stores, in part policies to get merchandise
back quickly enough to
because of the popularity of free ship- resell at a good price before
ping. But thats led to a big problem: an it goes out of style or is
superseded by a later model.
explosion of online returns. Almost a But electronics kingpin Best
third of web orders end up being sent Buy Co. also is using longer
return windows as a selling
back, vs. 9 percent of purchases at point for its best custom-
physical stores. The expense of pro- ers. While regular shoppers
Easier returnsat a cost
get only 15 days to return
cessing and shipping boomeranged most items, members of its
Bestbuy.com lets customers
items can range from 20 percent to My Best Buy loyalty program
print a prepaid return label
who gain Elite statusthose
65 percent of an e-tailers cost of who spend $1,500 in a cal- that can be slapped on a
box and dropped off at a UPS
goods sold, says United Parcel Service endar yearget double that
location. Easy peasybut the
period. Elite Plus members
52
Inc. So web merchants are seeking who must spend $3,500 in a shipping fee is deducted
from your refund.
ways to make returns less costly. yearget 45 days.

A discount one-way ticket Why in-store returns are

preferred

Staying close to home
Amazon.com Inc. allows
free returns to the lockers
its installed in many areas.
Theyre often in locations
that keep long hours, such as
convenience stores or gyms.
Consumers process the
return online, pick an available
locker location, and receive a
code to open the locker door.
Re-boxing is the new
normal
A full 75 percent of online
shoppers returned merchan-
dise this year by shipping
goods back to the merchant,
according to the UPS study.
ILLUSTRATIONS BY CHRIS PHILPOT. DATA: 2017 UPS PULSE OF THE ONLINE SHOPPER STUDY, COMSCORE, BUSINESS 2 COMMUNITY, COMPANY REPORTS
Jet.com, the online seller
bought by Wal-Mart Stores About 58 percent of consum-
Inc. in 2016, gives a lower ers prefer being able to return
price for an item if a buyer goods to a physical store,
agrees to opt out of its usual according to a UPS study of
free-return policy. Change online shopping habits. And
your mind? Pay a fee of merchants have good reason
$5.99 plus 5 percent of the to want returns handled this
item price. way: UPS says 66 percent of
respondents who bring back
Its a keeper! online orders to a physical
store make a new purchase
Retailers are providing more sizing information and photos during that visit.
of goodsobviating the need for many returns. Dockers.com
gives the size in inches of thigh and leg openings for its eight Youve got a friend
clothing ts for men. E-tailer ModCloth lets customers upload
photos of themselves wearing its clotheshelping others Some e-tailers let partners
envision how the styles look on bodies that arent a models. help with returns. Kohls
Corp. will start accepting
free returns of Amazon mer-
chandise at 82 Kohls stores
in Los Angeles and Chicago.
And startup Happy Returns
accepts returns for several
online retailers including
Tradesy Inc. and Everlane
at counters inside malls or
at neighborhood boutiques.
 Bloomberg Businessweek
Travel
Just in from China
young tourists
When Ronnie Hou finished her masters
degree last spring, her parents gave her
a trip to Seattlea city that has fascinated
Hou since her teen years in the central
Chinese province of Henan, when she
got hooked on Greys Anatomy. I love
traveling! says the 24-year-old, whos
planning a Christmas trip to New York
City and after that, Europe, Australia,
Japan, Korea.
Hou is part of an army of Chinese
millennials thats reshaping global travel.
Chinese age 18-34 made 82 million trips
abroad in 2016, accounting for 60 percent
of the countrys foreign travel and spend-
ing more than $150 billion, Bloomberg
Intelligence estimates. By comparison,
Americans of all ages made 75 million
journeys abroad last year. As more young
people travel, Chinese outbound tourism
54
is expected to grow 8.5 percent annu-
ally through 2021, more than double the
global rate, Mastercard Inc. predicts.
Venturing far beyond traditional
destinations such as Hong Kong and
Macau, younger Chinese sand-surf in
Dubai, snowmobile in Finland, and
sample U.S. nightlife at spots such as the
Seattle sports bar Hou says was a high-
light of her trip. Theyre less interested in
group tours and cruises than their elders
are, and they spend less on shopping but
more on hotels, meals, and experiences.
Seeing the northern lights is the No.1
wish for young people from China, says
Silvia Wong, a former exchange student
to Finland who co-founded an agency
that organizes tours above the Arctic
Circle for Chinese tourists. They want
to stay in an igloo, go on an icebreaker, go
Top 15 destinations
of outbound Chinese
tourists, first half
of 2017
 Increase of more
than 10 percent
since 2016
Increasing distance
 Increase of
from Beijing
10percent or
less since 2016
 Decrease since 2016
The Year Ahead 2018 Retail
By Carol Matlack
on animal safaris to see reindeer.
The young travelers rely heavily on
services such as mobile messaging app
WeChat and microblogging site Weibo
to research and book tripsand tell their
friends about their adventures. Zhang
Jinpeng, a travel blogger from Yunnan
province whos visited scores of coun-
tries, says the younger generation is
constantly seeking something special,
new, something their friends didnt get,
that they can share online. That, Zhang
says, sets them apart from previous gen-
erations who dreamed of traveling the
world, but it was too difficult.
Tourist destinations are using those
same internet tools to attract Chinese vis-
itors. Two years ago, Edinburgh launched
a Mandarin-language social media cam-
paign, with accounts on Weibo and
WeChat, hiring a Chinese-speaking coor-
dinator to run them and flying in a half-
dozen Chinese bloggers for its Hogmanay
celebration at New Years. The Scottish
capital has seen visits from China jump
more than a third this year, with a dra-
matic shift to younger, independent
travelers rather than busloads of sight-
seers tagging along behind umbrella-
wielding guides. Were much less keen
to have large group tours that can create
a negative experience for other visitors,
says Margaret McNeil of the Edinburgh
Tourism Action Group.
Across the Atlantic, Las Vegas has
benefited from a surge in Chinese
tourism, with arrivals more than dou-
bling from 2010, to 233,000 in 2016.
Hainan Airlines began direct flights
last December and now brings about
Hong Kong
20.9m Thailand
4.7m Malaysia Indonesia
Macau
10.3m 1.1m 1.1m
Taiwan
1.3m
South Vietnam Singapore
Korea 2.3m 1.9m 1.6m
Japan
3.3m
Bloomberg Businessweek The Year Ahead 2018 Retail

A couple gazes
up at the northern
lights from a mobile
cabin on Finlands
Lake Inari

55

COURTESY LAKE INARI MOBILE CABINS; DATA: CHINA OUTBOUND TOURISM RESEARCH INSTITUTE

Australia
674k France
Germany 970k
701k

U.S.
1.4m

Italy
958k
 Bloomberg Businessweek The Year Ahead 2018 Retail

2,000 passengers a month to the
desert gambling hot spot. Affluent
young Chinese rank Las Vegas as one
of their top U.S. destinations, accord-
ing to research firm YWS Design &
Architecture. But unlike older visitors
from China, theyre more interested in
clubs, shows, and restaurants than in
long nights at the baccarat tables.
Not all tour operators have bene-
fited from the surge. After introducing
ships sailing from China with millennial-
oriented amenities such as virtual-reality
game rooms, cruise lines have pulled
back amid weaker-than-expected
demand. Carnival, Royal Caribbean
Cruises, and MSC Cruises have all said
theyll remove ships from Chinese ports
next year. One problem: China in March
banned stopovers in South Korea in a
dispute over that countrys deployment
of a missile-defense system.
Such concerns havent stopped
luxury tour companies from beefing
up their offerings aimed at the wealth-
iest Chinese. Zanadu, a Beijing travel
agency, sells a 12-day trip to Argentina
and Antarctica for almost $30,000
a person and an electronic-music
getaway to a resort on the Thai island
of Phuket where guests can mingle
with 20 of the worlds top DJs. Most
people have already been to Paris with
a tour group, stayed in a two-star hotel,
and spent all their money on a Vuitton
handbag, says Zanadu co-founder Dirk
Eschenbacher. Now, he says, they want
a kind of edge in their experience. 
With Christopher Palmeri

Streaming
The next frontier: Live sports By Joe Mayes

In the past 25 years the cost of broadcast rights for
English Premier League soccer has surged thirty-
fold as deep-pocketed media companies have grown
to depend on live sports to win subscribers and
keep them from defecting to online rivals. Next
56
year an even richer bunchthose same internet
giants that are wooing TV viewerswill likely show
up at rights auctions, pushing prices even higher.
Live sports attracts a passionate fan base, Greg
Hart, video chief at Amazon.com Inc., said in August
after signing a deal to offer Association of Tennis
Professionals matches on Prime Video.
for Premier League matches, says Dan Reed, the
companys head of global sports partnerships,
who notes that there are 300,000 groups on the
social network devoted to the Real Madrid soccer
squad. We can drive great benefit to broadcast-
ers, leagues, rights holders, and teams because
they can access this huge fan base, Reed said at
a media industry conference in April. You can
market to those people in a variety of ways. The amount Amazon
paid for the rights
Traditional media companies are watch- to livestream
ing the new arrivals warily. Sky says the latest 10Thursday night NFL
70percent increase in the cost of Premier League games this season

The biggest prize will be the Premier League
auction this winter. Since the leagues inception in
1992, pay-TV broadcasters have bid up prices dra-
matically, with Sky Plc and BT Group agreeing to
lay out a combined 1.7billion ($2.2billion) a year
at the last auction, in 2015, up from 1.1billion
in 2012. The top leagues in Spain and France
will also be up for grabs, and the U.S. National
Football League will sell streaming rights for its
games. Tech giants are going to become serious
players in sports, says John Enser, an attorney
at CMS Cameron McKenna Nabarro Olswang who
has helped negotiate rights deals.
In 2016, Twitter Inc. paid $10million to livestream
10Thursday night NFL games on a nonexclusive
basis. This year, Amazon elbowed Twitter out of
the way, offering $50million for the same package.
In May, Facebook Inc. signed a deal for one live
Major League Baseball game per week, in tandem
with traditional broadcasters, though it didnt dis-
close the cost. And in September, Facebook offered
$600million for digital rights to cricket matches
in India, but it was trumped by Star India Private
Ltd.s $2.5billion bid for digital and conventional
broadcast rights. Facebook is considering a bid
matchesit has the rights to 126 games a year
caused a 6.2percent drop in operating profit. In
the U.S., ESPN Inc. has seen rights for the NFL
rise to $1.9billion annually from $600million two
decades ago, spurring it to cut staff and launch
a digital push as its subscriber numbers decline. $50m
Fox, CBS, and NBC each pay about $1billion annu-
ally to show NFL games, about double what they
paid two decades ago, researcher IHS Markit says.
Although the U.S. networks have multiyear pacts
for major sports, the tech players have been signing
shorter-term digital agreementssomething the
NFL is encouraging, in hopes they might bid against
the incumbents when current deals begin to expire
in 2021. While the networks have some breathing
roomMLB rights are locked up until 2022, and
the National Basketball Associations contracts end
in 2025the rise of digital players threatens the
all-you-can-eat packages of sporting events that
provide fat profits for the likes of Sky, Comcast,
and AT&T. If youre a pay-TV platform, you are
very worried about the ability of a whole host of
people to bid, says Mostyn Goodwin, a partner
at OC&C Strategy Consultants in London. Sport
is key to retaining subscribers. 
ALAMY
 Bloomberg Businessweek
58
Organic Food
The business gets bigger,
but the margins may not
Organic food growersmany of whom take pride
in tending tiny apple orchards or chicken flocks
will have to sharpen their big-business negotiating
skills in the months ahead as consolidation creates a
shorter list of major customers. Amazon.com Inc.s
$13.6 billion acquisition of Whole Foods Market Inc.
is unlikely to be the last giant deal as others in the
retail and food manufacturing industries try to profit
from consumers changing tastes. Already, sales
of organic goods are moving away from mom and
pop outfits toward huge retailers such as Costco
Wholesale, Wal-Mart Stores, and Kroger.
The shift worries farmers such as Doug Crabtree,
who grows organic crops including grains, pulses,
and flaxseed in Montana and also sits on the
Organic Trade Association board. We need more
smaller entities, not fewer bigger entities, says
Crabtree. It makes me nervous at best.
Thats because the bigger the buyer, the more
difficult it is for farmers to set up an equitable
relationship, Crabtree says. His prices already
are down for many crops, including a more than
36percent drop for organic red winter wheat, and
hes seeing some unwillingness of buyers to enter
The Year Ahead 2018 Retail
$4.57 in 2016 $4.39
113 percent premium 37 percent
over nonorganic
$4.88
89 percent
$0.78
42 percent
GETTY IMAGES (3); ALAMY. DATA: NIELSEN. EGGS PER DOZEN, COMPARED WITH NONORGANIC WHITE EGGS; PACKAGED SALAD, PER INDIVIDUAL UNIT;
By Shruti Date Singh
into long-term contracts. He fears future consoli-
dation in organics will exacerbate both problems.
Growth in demand for organic foods has been
robust for years, and premiums paid to farmers have
held up for four decades, says John Reganold, a pro-
fessor at Washington State University whos studied A lot of
sustainability and pricing. The value of organic these
produce sales for the 52 weeks through Sept. 30,
for instance, increased 9 percent from the same producers
period a year earlier, while conventional produce are at risk for
rose just 2percent. And organic chicken breasts last feeling some
year cost $7.62 a pound, vs. $2.79 for their regular pain
counterparts, according to researcher Nielsen Co.
Yet Amazon and Whole Foods have pledged to
make organic food more affordable and quickly
followed that up with price cuts on bananas, baby
kale, and rotisserie chicken after the deal closed in
MILK, PER GALLON; BANANAS, PER POUND
August. Its likely some price cuts will get passed on
to farmers, says Euromonitor International analyst
Dewey Warner. A lot of these producers are at
risk for feeling some pain, he says. And organic
producers would be wise to remember one of
Amazon Chief Executive Officer Jeff Bezos most
cited quotes: Your margin is my opportunity. 
 Bloomberg Businessweek
Interview Jeff Koons
The creator of some of the worlds priciest art talks about
satisfying his public and how excitement affects value
Your recent collaboration with Louis Vuitton is
going gangbusters.
60
When the opportunity to work with Louis Vuitton
came about, I thought, This is the perfect company:
It has tremendous resources, it understands
aesthetics, and its used to communicating to
people through materialism.
As in, people who buy purses are materialistic?
When I say that I mean through materials
being able to adjust the textures of leather or to
enhance color and dyes through different color-
ing techniques.
Playing with surfaces has been a preoccupation
in your art for years.
What art is, for me, is the possibility that when
someone views something, theyre able to pick
up on the essence of their own potential: Its
a vehiclesomething that stimulates their own
excitement.
In your mind, is there a creative difference
between making a mass-market purse for Louis
Vuitton and a $5 million sculpture?
Its not like I collaborate with people where theres
differences, or tension, or the possibility of an
outcome thats different from what I intended. I
try to choose collaborations where we both really
believe in a commitment to the viewerwhere you
The Year Ahead 2018 Retail
can both communicate that what you really care
about is them.
Thats obviously a very different approach than
the traditional art for arts sake.
What you never want to do is let the viewer down.
You never want someone to be disappointed. In
life, you have these opportunities to communicate
with other peopleto show a sense of equality,
importance, and trust. [Making art] is an oppor-
tunity to show respect.
Theres a certain irony to this, given that you
create some of the worlds most expensive art.
The true value of art has nothing to do with its
monetary value, which to me in a way is abstract:
Society will put these values on something, taking
into account how its viewed in a particular moment
in time or relevance. But its real value is how it
excites people and stimulates them and lets them When you
be aware of a vaster life. look at a
Van Gogh,
Surely you acknowledge that someone spent the value
$58 million on one of your sculptures for reasons
other than just life perspective.
isnt in the
brushstroke
I hope that the works are desirable! Desire is a very
interesting sensation. I try to embed desire into the
art through the use of reflectivity, as a means of a
kind of excitement.
Do you follow your work on the market?
So as far as whats happening in the marketplace,
Im not naive about whats going on. The only thing This $4,000 bag is
an artist can do to help the value of their work, part of the Masters
though, is to make the best work they can. collection Koons
developed in
collaboration with
Are you tapped in to the extent that you actively retailer Louis Vuitton
regulate the number of works based on demand?
JOE SCHILDHORN/BFA.COM; COURTESY LOUIS VUITTON
I mean yes, there are kind of basics of trying to be
coordinated, and be in the service of your work
so that youre trying to give it the best platform
possible. But at the same time, the way we really
communicate value to peopleeven within this
abstracted area of economicsis by the reaction
they have when they see an artwork and how they
interpret the past and present and essence of their
future. When you look at a Van Gogh, the value
isnt in the brushstroke. James Tarmy
 Bloomberg Businessweek The Year Ahead 2018 Section

Energy
Pipelines p64

Liquefied
Natural Gas p65

Cars p66

62
Chemicals p67

Renewables p68

Aramco p68

New Fields p70

Shale Oil p72

Interview Jack Fusco p74

Edited by Matthew Philips and Pat Regnier

A chemical plant
near Lake Charles,
La., owned by South
Africas Sasol

63
 Bloomberg Businessweek The Year Ahead 2018 Energy

Pipelines
Appalachian gas is set to deliver By Tim Loh and
on its bonanza Ryan Collins

David Rheinlander used to dream of build-

ing a cabin in the woods behind his house in
southwestern Pennsylvania. Now when the
57-year-old looks across his backyard, he sees a
line of cut trees, piles of dirt, and stacks of steel
pipe where he once envisioned a tiny cabin. For
Installing a natural
the past six months, construction crews carved gas pipeline for
their way through the back of his property. The Rover near
Moundsville, W.Va.
roughly 100-foot-wide path theyre cutting through
the rolling hills extends about 700 miles to the
west, running through neighboring Ohio and all
the way up into Michigan.
The pathway is for a pipeline that will bring
huge amounts of natural gas out of sparsely
populated Appalachia and into big cities across
the Midwest. The pipeline, called Rover, is being
built by Energy Transfer Partners LP, of Dallas,
which has spent three years and a total $4.2 billion
on the painstaking process of winning permits,
clearing miles of rugged terrain, and fighting a
64
pitched legal battle against environmental groups
and landowners.
Rover is scheduled to begin shipping as much as
3.25 billion cubic feet of natural gas a day in early
2018. When fed through a natural gas-fired power
plant, thats enough to power about 30 million
homes. Rover is one of a handful of pipelines set
to open next year that will begin moving natural
gas from the massive Marcellus and Utica shale
formations that lie beneath parts of Ohio, West
Virginia, Pennsylvania, and New York.
Rheinlander isnt exactly thrilled to have Rover
in his backyard, but he supports efforts to build
up the regions economy. Ive got no issue with
them developing gas, he says, eyeing the pipeline
pieces scattered atop the dirt. My overall feeling
is that weve got to develop as much energy in this
country as we can.
A relative latecomer to Americas shale
revolution, the Marcellus and Utica regions are
booming. In the past 10 years, natural gas pro-
duction there, driven by advances in horizontal
drilling, has multiplied by a factor of 10, to about
25 billion cubic feet a day, or roughly a third of U.S.
output. Despite the increase in production, the
energy companies that drill the wells to produce
the gas complain theyve been bogged down by
a thicket of political and regulatory hurdles, as
well as opposition from environmentalists and
some landowners. These obstacles have prevented
the regions energy industry from reaching its full
potential, they argue.
 Bloomberg Businessweek
Sometimes dubbed the Saudi Arabia of natural
gas, the Marcellus is thought to hold a centurys
worth of reserves. But after an initial boost of
investment and optimism by drilling companies,
activity started to stall, mostly because there
werent enough pipelines to deliver the gas to
large markets. Companies kept drilling wells but
left many of them uncompleted, waiting for the
day when pipelines would be finished. Now, with
a slate of projects opening in 2018, the number of
drilled but uncompleted wells in the Marcellus
has fallen 28 percent since February 2014. With
Donald Trump in the White House pushing to
cut regulatory red tape to unleash Americas
energy supply, a lot of companies have a sense
of expectation. The only thing holding back the
Marcellus Shale is lack of energy infrastructure,
says Rob Thummel, managing partner at Tortoise
Capital Advisors. Natural gas production volumes
have exceeded available pipeline capacity for
several years.
Fifty miles west of Rheinlanders home, in
Liquefied Natural Gas
A global LNG shuffle starts
as long-term contracts expire
The $90 billion global market for liquefied natural
gas will be reshaped in 2018 as a number of large,
OPENING SPREAD: WILLIAM WIDMER/REDUX; THIS SPREAD, FROM LEFT: PETER SMITH/POST-GAZETTE; THE YOMIURI SHIMBUN/AP PHOTO
long-term contracts start to expire. Growing sup-
plies from the U.S., higher demand in Europe and
Asia, and geopolitical tension surrounding Russia
and Qatar, the worlds two biggest gas suppliers,
promise to shift long-established trading patterns.
For decades the majority of LNG bought and
sold around the world has been governed by long-
term contracts of up to 20 years. A fifth of those will
expire from 2018 to 2020. Over the next decade,
contracts governing 80 percent of all global LNG
trade will be rewritten. For now, the LNG market
is in the midst of an enormous supply glut, in part
because of the advent of U.S. exports in the past
two years. That glut is likely to persist until at least
2020, keeping prices low.
Most contracts expiring next year involve buyers
in Europe, where countries are trying to reduce their
reliance on Russian natural gas, which is shipped
via pipeline without being liquefied. Negotiations
are already under way as utilities in France, Spain,
and the U.K. look for new suppliers. Lithuania and
Poland recently built LNG import terminals so that
they arent locked into buying Russian gas. Croatia
got backing from the European Union to do the same.
And Russia is facing competition in conventional
The Year Ahead 2018 Energy
eastern Ohio, Enbridge Inc.s Nexus transmission
line will soon begin its own 250-mile path up and
around Lake Erie into Michigan. That project,
scheduled to open around the middle of 2018,
will be able to ship 1.5 billion cu. ft. of gas a day.
NY
And in northeast Pennsylvania, Williams Cos.
Atlantic Sunrise project will soon be connecting
that regions gas producers to the Transco pipe-
PA
line, a gas superhighway that runs from the Gulf of
Mexico up the East Coast to New York City. Tracing
a similar path, the $1 billion Penn East pipeline WV
VA
project is nearing final regulatory clearance to
begin construction.
Taken together, these projects should allow Shale Formations
Marcellus and Utica gas producers to ship an  Utica formation
 Marcellus formation
additional 7.5 billion cu. ft. of gas a day, increasing  Utica underlying
the regions pipeline capacity by about a third, says Marcellus
Darren Horowitz, an analyst for Raymond James.
It is sorely needed as a long-term solution to free
up highly economic Marcellus and Utica acreage,
Horowitz wrote in a late-September note. Can pro-
ducers fill these pipes? Is the pope Catholic? 
65
By Naureen S.
Malik and Anna
Shiryaevskaya
natural gas: Starting in 2020, Azerbaijan, a former
Soviet republic, will begin piping gas from its giant
Shah Deniz field into southern Europe, including
Bulgaria and Greece.
Europe has no choice but to increase gas imports.
Production from some of its biggest gas fields in the
North Sea and the Netherlands is falling, yet demand
is forecast to remain strong as countries transition
from coal- to gas-fired power generation. Russia is
moving to defend market share. Over the past few
years the state-owned gas giant Gazprom has cut
prices for gas sent to Europe. Its also pushing ahead
with two pipeline projects, one across the Black Sea
and another across the Baltic Sea.
Europes need for more LNG could offer an
Stability and
opening for U.S. exporters. Yet in the current low-
security of price environment, they cant win new business just
supply are by undercutting competitors. U.S. LNG continues
important to be promoted as an attractive diversification
away from Russian gas but currently lacks the eco-
factors
nomic justification to secure a sizable market, says
Claudio Steuer, director of SyEnergy Ltd., a U.K.-
based energy consultant. And the worlds top LNG
exporter, the tiny Gulf nation of Qatar, is looking
to expand market share in Europe. It recently
announced plans to boost LNG production by
30 percent over the next several years. Nigeria
 Bloomberg Businessweek The Year Ahead 2018 Energy

Cars
and other LNG exporters also face a
battle over expiring LNG contracts, and
Algeria says its preparing a strategy on
how to export its gas amid oversupply.
Price aside, there are benefits to
signing deals with U.S. suppliers, says To hit its electric vehicle targets,
Meg Gentle, chief executive officer of
Houston-based LNG producer Tellurian California needs charging stations
Inc. I think that stability and security
of supply are important factors, she
By Mark Chediak

A supply glut has helped drive LNG prices down since 2014
Northeast Asia Spot Index Henry Hub Index
$15/MMBtu
10
5 to bill customers more than $1 billion to electrify Californias
0 nesses, and along highways. As of October, there were about
1/2014 10/2017
DATA: COMPILED BY BLOOMBERG
66
says. Price is not the only factor. One
of the key advantages for the U.S. is its
vast shale reserves, along with a pipe-
line network that will allow exporters
to bring gas from all over the country to
export facilities being developed along
the Gulf Coast, ensuring a steady supply.
And while most LNG contracts come with
strict destination clauses, mandating the
physical delivery point for cargoes, U.S.
exporters are offering their custom-
ers the ability to ship anywhere in the
world. That could make a big difference
to Asian buyers, particularly Japanese
utilities including Tokyo Gas, Osaka Gas,
and Chubu Electric Power, which have
trading operations and want to be able
to shift where they send the gas depend-
ing on market conditions.
U.S. LNG companies hope to sign
big deals in 2018. That would please the
Trump administration. Selling more LNG
to Asia could shave billions of dollars off
the U.S. trade deficit with Japan, South
Korea, and China. LNG contract roll-
off is a huge opportunity, says Kathleen
Eisbrenner, CEO of NextDecade Corp.,
which is seeking to build an export
terminal in Texas and install an offshore
import facility in Ireland. Next year is
going to be a pivotal year.  like this one in San Diego
In 2012, Governor Jerry Brown set a goal of putting 1.5 million
electric vehicles on California roads by 2025. As of September,
the state had 334,393 EVs. To get to 1.5 million, it needs to give
drivers a lot more places to charge up. The state, however,
wants utilities to play a big role in the buildout of charging
stations. The power companies are eager to invest, seeing
a growth opportunity, but before that can happen, officials
need to sort out who will pay for it.
In 2018, state regulators will weigh proposals from
investor-owned public utilities Pacific Gas & Electric,
Southern California Edison, and San Diego Gas & Electric
transportation sector. Utilities plan to install more than
100,000 charging locations at apartment houses, in busi-
13,822 public charging spots in the state.
Consumer advocates have pushed back against the pro-
posals, questioning whether low-income customers should
pay for equipment that will likely be usedat least initiallyby
those who already can afford a pricey electric car. The utilities
see this as their new cash cow, says Elise Torres, an attorney
at the Utility Reform Network, a consumer advocacy group.
For now, the most immediate need for charging is on
highways, says Pasquale Romano, chief executive officer of
ChargePoint Inc., which operates the worlds biggest charging
network. Consumers wont go electric if they dont think they
can find a way to charge on a road trip from San Francisco
to Los Angeles. 
While California utilities
await approval for their
charging station buildout,
Tesla is busy installing
Supercharger stations in
cities. By the end of next
year it plans to have more
than 1,000 in California,
 Bloomberg Businessweek
Chemicals
U.S. chemical companies are making
the most of a rebound
A decade ago, chemicals were just another fading
U.S. manufacturing business. Companies were
reluctant to invest in new factories because of
soaring prices for the oil and natural gas that
serve as both raw materials and power sources.
Dow Chemical and others were closing plants
and moving production to the Middle East to
save money. The conventional wisdom was we
are not going to produce a lot of petrochemicals
here, says Kevin Swift, chief economist at the
American Chemistry Council, an industry group.
Today, Dow, Exxon Mobil Corp., and Chevron
Phillips Chemical Co. are putting the finishing
touches on multibillion-dollar factories along
the Texas Gulf Coast. The plants are part of $185
billion in proposed and recently completed invest-
ments, according to the chemistry council. The
U.S. is punching above its weight at the moment,
says Kevin McCarthy, a chemical industry analyst
at Vertical Research Partners. Credit the rise of
fracking. A torrent of cheap U.S. natural gas has
made the country among the most profitable places
to produce chemicals, beating out the Middle East
in attracting projects. U.S. exports of polyethylene
plastic to Asia will rise more than fivefold by 2020,
with China as the primary destination, according
to research company IHS Markit Ltd.
Almost 20 factories are being built or expanded
to convert gas liquids such as ethane and propane
into ethylene, the most used petrochemical and
the main ingredient in polyethylene plastic. The
largest is an $11 billion complex being built near
Lake Charles, La., by South Africas Sasol Ltd.
Its scheduled to begin producing polyethylene
next year. Much of the investment is coming from
abroad. Along with Sasol, foreign companies
putting money into U.S. facilities include Frances
Total, South Koreas Lotte Chemical, and Taiwans
Formosa Plastics.
FROM LEFT: MIKE BLAKE/REUTERS; AARON GRAUBART/TRUNK ARCHIVE
The largest plants are going up in Texas and
Louisiana, where chemical makers can tie into
existing infrastructure. Houston has always been
the hemispheric center of the plastics business,
but this just cements it for decades to come, says
Bill Gilmer, director of the University of Houstons
Bauer Institute for Regional Forecasting.
For oil-driven Houston, the spending splurge
on chemical plants has softened the blow from
job cuts in the energy sector. Most of the new
jobs arent permanent: Construction on a typical
ethylene plant peaks with about 2,500 workers
on-site. A completed plant requires only about
The Year Ahead 2018 Energy
By Jack Kaskey
80 employees to operate,
Gilmer says. Still, those long-
term jobs pay better than
most. Laura Marshall, 31, was
working as a beautician before
enrolling in a two-year com-
munity college program that
won her an operations job
at one of Chevron Phillipss
new Houston area plants.
Now shes making more than
$100,000 a year, saving for
retirement, and shopping for
a house. It was an extremely
large change in my life, Cheap plasticbrought to you by the
Marshall says. Im no longer fracking boom
living paycheck to paycheck.
The anticipated strain on the Houston areas The cost
export infrastructure has some producers gearing
up to send plastic pellets by rail to ports in Long
advantage
67
Beach, Calif., and Charleston, S.C. Meanwhile, is durable
companies that convert raw plastics to finished enough that
products are expanding to take advantage of the people are
abundant material.
More investment is coming across the country.
going to put
The cost advantage is strong enough and durable money in
enough that people are going to put money in the the ground
ground for a second wave, says John Roberts, a for a second
chemical industry analyst with UBS Securities.
Royal Dutch Shell Plc, the U.K. oil and chem-
wave
icals conglomerate, has started building an eth-
ylene complex outside Pittsburgh that will begin
production in the early 2020s. Shell sees an
advantage in being closer to Appalachian shale
gas deposits as well as to the customers who
turn plastic pellets into products such as pack-
aging, trash bags, and bottles. Even Saudi Arabia
wants a piece of the action. State-owned Saudi
Basic Industries Corp. formed a joint venture
with ExxonMobil to build an ethylene plant in
Corpus Christi, Texas, by early in the next decade.
Fertilizers are another major target of capital
investment: More than 20 U.S. plants are being
built or expanded to convert gas into ammonia,
a key ingredient.
This boom relies on gas remaining relatively
cheap, but also on continued economic growth
worldwide. In India and China, an expanding
middle class increasingly buys goods wrapped in
plastic and appliances produced with chemicals.
If for some reason the world slows, that will be
trouble, Roberts says. 
 Bloomberg Businessweek The Year Ahead 2018 Energy

Renewables
Trump policies could do major By Joe Ryan
and Brian
damage to wind and solar Eckhouse

The Trump administration is
plotting a series of moves in
2018 that could end up harming
the wind and solar industries.
That includes asking regulators
to rewrite power market rules,
revamping the tax code, and
imposing tariffs on foreign-made
solar panels. One of the most
closely watched moves will likely
involve Suniva Inc., a bankrupt
solar panel manufacturer based
in Georgia that filed a trade com-
plaint in April. The company,
which says it was hurt by cheap
Asian imports, has asked Trump
for tariffs on foreign panels. The
administration has until mid-Jan-
uary to decide.
Import duties protecting
68
domestic solar panel man-
ufacturers would appear to
be good for clean energy. But
cheap foreign panels are the life-
blood of the U.S. solar industry,
helping drive a sixfold rise in
photovoltaic generation since
2012. Most of the solar industry
opposes Sunivas push, saying
growth will slow if panel prices
rise. The threat of tariffs has
prompted developers to hoard
panels and put projects on ice.
In September, U.S. Energy
Secretary Rick Perry asked
federal regulators to help coal
and nuclear plants compete in
wholesale power markets. The
request ostensibly is designed
to promote national security
by rewarding plants capable of
storing long-term supplies of
fuel on-site. The proposal may
help keep plants open even if
theyre not economical to run.
That could devastate clean
energy, since electricity demand
has stagnated in much of the
U.S. If aging power plants dont
close, there will be little room
for more wind and solar farms.
The biggest threat to wind
and solar may come from
Trumps proposed tax cuts.
Slashing corporate rates may
reduce the availability of a
key, albeit esoteric, source of
clean-energy financing called
tax equity. And broad reform If nuclear and
would probably make debt coal plants
pricier for new power plants are kept from
and reduce developers savings
closing, there
from depreciation.
The worst-case scenario may be less
would be if Congress ends demand for
clean-energy tax credits early, green energy
which Environmental Protection
Agency chief Scott Pruitt called
for in October. The credits
have strong bipartisan support.
Analysts say the odds of their
being eliminated are slim, but
Republicans will be hard-pressed
to find a way to pay for Trumps
proposed tax cuts. Theyre
going to look under every rock for
revenue, says Gregory Jenner,
an attorney who specializes in
tax law at Stoel Rives LLP. Even
the possibility of that will have a
chilling effect.

Aramco
The $1 trillion question By Javier Blas

If it wasnt a sales pitch, it really sounded like one. Aramco is
by far the lowest-cost producer, said Khalid al-Falih, the Saudi
oil minister, at the Future Investment Initiative in Riyadh. The
October gathering, dubbed Davos in the desert, brought
together a whos who of business and finance, including the
bosses of Blackstone Group LP and Credit Suisse Group AG.
Al-Falih was talking up Saudi Arabian Oil Co., also known as
Aramco, the state-owned oil company the kingdom is plan-
ning to sell shares of.
Aramco is the worlds largest energy company. With a
Aramco is going to be the supplier of last resort, al-Falih said.
I am certain the last barrel that gets produced globally is going
to be here in Saudi Arabia.
Its a hugely valuable businessthe question is, just how
huge? The Saudis say the company is worth at least $2 tril-
lion. Analysts question that figure, and oil executives, speak-
ing privately, say that something closer to $1 trillion sounds
about right. To put that in context, the valuation gap is larger
than the total value of Apple Inc., the worlds most valuable
public company, at about $870 billion.
JG PHOTOGRAPHY/ALAMY

monopoly on exploiting a good quarter of the planets oil Whatever the final valuation, Aramcos initial public offer-
reserves, it pumps more crude than Exxon Mobil, Chevron, ing is likely to be the biggest in history, even though its selling
and Royal Dutch Shell combined. Regardless of the rise of only a sliver of itself. If it floats a 5 percent stake, it could snag
electric vehicles and the fight against climate change, Saudi at least $50 billion, twice the record set by Alibaba Group
 Bloomberg Businessweek
Holding Ltd. in 2014. Saudi officials say the sale is
on track for 2018, but that calendar looks tight.
The problem isnt Aramco, but the Saudi
governmentor, more precisely, the young crown
prince, Mohammed bin Salman, who controls most
of the levers of political, security, and economic
power in the kingdom. For months hes delayed the
decision about where to list Aramcos shares beyond
the local Riyadh stock market, known as Tadawul.
On the table are three main candidates: New
York, London, and Hong Kong. Each has advan-
tages and problems. New York offers the biggest pool
of money and potentially the highest valuation, but
listing there could also leave it more exposed to lit-
igation in the U.S. London is more friendly legally,
but its unclear that British regulators would allow
the IPO in its current form. Hong Kong offers few
regulatory obstacles, but its smaller capital pool
means a lower valuation, too.
The indecision about where to place the inter-
national portion of the IPO will have a cascade
effect. If Aramco ultimately goes to New York, it
will need to present its balance sheet under the
U.S. accounting system, which is different from the
one used by Saudis and Europeans. Accountants
The Year Ahead 2018 Energy
with American rules, but that will take time.
Recently, people familiar with the situation
have said the international portion of the IPO
may be delayed until at least 2019. Saudi officials
have hedged their answers to questions about
timing, making a distinction between the prepa- I am certain
ratory work, which they said would be completed the last barrel
on schedule, and the decision to sell the shares.
that gets
When asked if both the local and international
pieces of the IPO would happen in 2018, Aramco produced
Chief Executive Officer Amin Nasser gave a guarded globally is
answer. The shareholder will make the decision going to be
regarding the venues, he said. The shareholder,
here in Saudi
of course, is the government.
The Aramco IPO is the cornerstone of a much Arabia
wider Saudi program to retool the economy and
make it less dependent on oil. Professor Paul
Stevens, a distinguished fellow specializing in
energy at Chatham House, a London think tank,
says the reputation of the crown prince himself
is on the line. Clearly, there are many serious
problems with Saudi Aramcos privatization, he
says. How the kingdom resolves them could mean
a difference of tens of billions of dollars when the
worlds investors are finally able to put a price on
and auditors can shift numbers around to comply the companys shares. 

70

New Fields Crude output,

barrels per day
Venezuelas once-
mighty oil industry
is in free fall after
the regimes of
3m
Opening up oil in the By Joe Carroll, Sabrina Valle, Venezuela
Hugo Chvez and
successor Nicols

Americas and Adam Williams Maduro drained

the state-owned oil
Brazil production company

GRAPHIC BY BLOOMBERG BUSINESSWEEK. DATA: BP, OPEC, MEXICO NATIONAL HYDROCARBON COMMISSION, EXXON MOBIL,
of cash. Output has
Offshore fallen in 9 of the past
exploration areas 10 years, cratering
In 2015, Exxon 0 last year to the lowest
made a giant oil 1990 2016 level since 1990.
find off the coast of
Mexico Guyana. The new
fields could contain
almost 3 billion
barrels of crude. BRAZILIAN NATIONAL AGENCY OF PETROLEUM, NATURAL GAS AND BIOFUELS

Brazil has some of the

worlds top oil engineering
Venezuela
talent, but it needs capital.
In January, Mexico will hold its biggest Guyana The government plans
auction of drilling rights to date, leasing several auctions of drilling
access to offshore areas as well as rights by 2019. The wild
opportunities to work with state- card: Ongoing corruption
owned Pemex in the 500 million-barrel scandals make it an
Brazil unreliable partner.
equivalent Nobilis-Maximino field.
As many as three additional auctions
also are expected next year. But
presidential candidate Andrs Manuel
Lpez Obrador has vowed that if he
wins, hell review contracts awarded to
producers including Chevron, Exxon
Mobil, and Royal Dutch Shell.
 Bloomberg Businessweek
Shale Oil
The fracking boom hits middle age
Crude prices bouncing around $50 to $60
a barrel have kept U.S. shale producers
stuck on the edge of profitability. That
hasnt been enough to shut down the oil
boom in places such as North Dakota,
Texas, and New Mexicoat least not
yet. Drillers are heading into 2018 on
the defensive as they face skepticism
from shareholders who want to see less
investment and more profit. They may
also be finding that much of the easy oil
has already been pumped.
Theres a complacency that shale
is going to continue to produce at the
kind of volumes that we had in the past,
says Jim Brilliant, a portfolio manager
for Century Management Investment
Advisors in Austin, whose investments
include shares in energy-related
companies. Output has recently failed
to meet expectations. As of June, the
72
U.S. Energy Information Administration
expected an average of about 9.3 million
barrels a day, more than 220,000 barrels
a day higher than companies reported.
Investors are demanding that com-
panies sell off weaker holdings, pare
spending, and pay down their debt,
wrote Paul Sankey, a Wolfe Research LLC
Fracking and
horizontal drilling
made it easier to
unlock oil trapped
in shale
The Year Ahead 2018
analyst, in a Sept. 5 note. Shale produc-
ers traditionally market themselves as
growth companies. With few excep-
tions, they eschew paying dividends
and buying back shares, and instead
plow their money into more drilling.
Many are still outspending their cash
flow. But their shares havent cooperated
with this strategy: While the stock market
has reached record highs this year, an
S&P index of oil and gas explorers and
producers has plunged about 17 percent.
I think people are disappointed for all
the right reasons, says Tom Driscoll, a
Barclays Plc energy analyst.
Executive pay incentives for explo-
ration and production companies are
under scrutiny from investors, too.
The compensation plans laid out
by E&P corporate boards encourage
these companies to grow production at
almost any cost, says Kevin Holt, chief
investment officer for value equities at
Invesco Ltd. For example, pay may
be tied to sales volumes or additions
to reserves, rather than measures of
cash flow. The strategy builds the per-
sonal net worth of the CEOs but does
nothing for the shareholders for whom
A torrent of U.S.
production has held
down oil prices
Energy
By Alex Nussbaum
and David Wethe
they are legally fiduciaries, says Holt.
Drillers also face technical questions
about the shale booms sustainabil-
ity. Pioneer Natural Resources Co. and
Parsley Energy Inc. reported higher-than-
expected natural gas output from their
wells in August. That sent shares tum-
bling, because traders took it as a sign
that oil flows, which are more lucrative,
might peak more quickly than the indus-
try expected. (As wells age, they tend to
produce more gas and less oil.) The com-
panies said their oil production hadnt
diminished, while analysts dismissed the
worries as overblown.
Still, the markets anxiety attack
came amid other warning signs. In July,
London-based investment manager
Horseman Capital Management Ltd.
noted government data that showed
U.S. shale wells were petering out at a
quickening rate and questioned whether
it was the result of increasingly intense
drilling. Later, industry consultant Wood
Mackenzie Ltd. warned breakneck devel-
opment could be testing the geologic
limits of U.S. shales crown jewel, the
prolific Permian Basin, which straddles
the border of Texas and New Mexico.
If you look at what the industry is set
up to do in the next three years in the
Permian, they are going to push on the
rock harder than weve ever pushed on
a shale play before, says Robert Clarke,
a research director at Wood Mackenzie.
A shortfall there could ultimately affect
world oil prices.
For some producers, that will be
good newsif they can keep their own
wells pumping as overall output growth
slows, letting prices rise. U.S. produc-
tion is not nearly the Big Bad Wolf that
everybody thinks, Mark Papa, chief
executive officer of Centennial Resource
Development Inc., said at an investor
conference in New York in September.
But oil consumers could be in for a shock.
E.R. DEGGINER/SCIENCE SOURCE
If the world keeps believing weve got
surplus oil as far as the eye can see
which I dont believethen the reality is
going to smack everybody in the face,
Century Managements Brilliant says.
And it will be hard to catch up. 
 Bloomberg Businessweek
Interview Jack Fusco
The CEO of Cheniere Energy Inc. talks about the
rise of U.S. liqueed natural gas exports and surging
demand from China
74
What sets Cheniere apart from other companies
that liquefy natural gas?
The beauty of the Cheniere model vs. just about
any other LNG facility under construction today in
the U.S. is that we are a full-service model. So if you
are a utility and not a big conglomerate and you
really dont want to worry about procuring gas in
America and shipping it to your facility, you come
to Cheniere and well deliver. If you want it deliv-
ered by ship to your [regasification] terminal in
Asia, we are happy to do that. If you want it f.o.b.
Louisiana, we are happy to do that.
What will drive LNG demand growth next year?
What I see with Asia, whether its India, China, or
Taiwan or South Korea or Vietnam, is we could
easily double the size of the company. It could be
a phenomenal shift. In China alone, its more than
45 percent year-over-year in LNG demand growth,
and no one anticipated that level of growth.
Is that kind of growth in China sustainable?
The part thats extremely exciting to me is its a
secular shift. Its not just because of a tsunami
or that its cold. In China today there are 16 regas
terminals in operation. Theres four under con-
struction, at least a dozen more in the planning
stages. They want to shift from coal-fired genera-
tion in the main metropolitan areas to natural gas
The Year Ahead 2018 Energy
combined-cycle power plants. Theyre building
40-year assets, and they need 40 years worth of
reliable LNG. They could go from 30 million tons
this year to 100 million tons by 2025 if theyre suc-
cessful with their electrification plans.
What about other Asian nations?
When we talk to our customers in Taiwan, theyre
looking at retiring older nuclear plants and utilizing
combined-cycle natural gas plants instead of coal
plants. When we talk to our customers in South
Korea, its the same thing. They want to retire their
coal plants and burn more natural gas. Those are
secular shifts.
Is all the action in Asia?
Its global. We had large central offices. So a
year and a half ago, we had Houston, London,
Singapore. Now we have Houston, London,
Singapore, Japan, Beijing, and Santiago. Were
establishing offices that are closer to our customers
with smaller numbers of Cheniere employees so
We could
we can be present in those markets and not spend easily double
a lot of time flying around the world. the size of
the company.
How does geopolitics affect your business?
It could be a
I try not to think about it at all, to be real honest phenomenal
with you. All the transactions with the U.S. LNG shift
counterparties, including Cheniere, are between
willing buyers and willing sellers.
Does it help or hurt when the White House talks
about using LNG to shift trade imbalances?
For Cheniere, having the president or the presidents
administration talk about our project and be willing
to help us engage with different counterparties
around the world is absolutely positive for our busi-
ness. We are part of the solution for the trade imbal-
ances. Our financials and our revenues are all from
counterparties that are offshore.
Is your next buyer going to be from China?
COURTESY CHENIERE ENERGY
We are talking to everybody right now. We have
a dozen executives traveling around the world.
I cant tell you who the next contract is going to
be with, but I would welcome an Asian counter-
party. Naureen S. Malik
 Bloomberg Businessweek The Year Ahead 2018 Section

Politics
Farm Bill p78

Trump p80

Democrats p80

Marijuana p84

76
Congress p86

Hot Seat Mitch McConnell p85

Interview David Petraeus p88

Edited by Matthew Philips

Lunchtime in Boulder:
The trillion-dollar bill
that funds all things
USDA is coming up
for reauthorization

77
 Bloomberg Businessweek The Year Ahead 2018 Politics

Farm Bill
Agreeing on a $1 trillion law is a key test for Congress By Alan Bjerga

The thing about the Federal Agriculture Reform
and Risk Management Act, also known as the
Farm Bill, is that it has something for everyone.
Thats by design, of course. Every five years or
so, Congress has to reauthorize the measure that
funds every aspect of the U.S. Department of
Agriculture. To ensure bipartisan support, the
bill includes money for everything from clean-
air and -water programs to broadband subsidies
for rural areas to nutritional programs for poor
people. And lots of subsidies for farmers.
Maintaining broad support for the bill will
be crucial next year. The current legislation,
a $955 billion bill passed in 2014, expires on
Sept. 30, 2018. Reauthorizing it gives Congress a
rare chance to prove it can still get things done,
though it may have trouble forming the coalition
that has helped pass the previous versions.
Rural Republicans who depend on the billions
of federal dollars it pumps into their communi-
ties are at odds with budget cutters in their own
party. Urban Democrats wanting to preserve food
stamps may clash with rural Democrats willing
to cut a deal with Republicans. Farm groups that
want more environmental spendingbecause they
get paid for their Earth-friendly effortsmay battle
their own impulses to reject regulation.
Failure to pass it would mean a reversion to the
bills underlying language, written in 1949. This
would remove billions in subsidies and create wild
swings in commodity prices. Milk, for example,
could potentially double in price as a result. It would
also send a larger message in an election year: that
once again, Washington cant deliver.

Fault Line #1
78

Nutrition Advocates vs. Welfare Skeptics

Key to passing the bill is the coalition of farm state Republicans who back subsidies and urban Democrats who want
to protect the Supplemental Nutrition Assistance Programfood stamps.

Republicans Food Stamp Community Democrats

Some Democrats are

House Freedom Caucus more adamant about
members have backed food stamps than others.
deep cuts to SNAP, as Pragmatists, including
Food stamp backers them-
well as work require- the ranking Democrats
selves are divided. Dietary
ments and other means on both the House and
restrictions are favored by
of tightening access, Senate agriculture com-
nutritionists but not by cor-
all billed as ways to mittees, will tolerate
porate SNAP supporters
ensure that federal aid some changes to get a
because they cut into sales.
is targeted to the most bill through. Others resist
deserving. That may any cuts. This undoes
strain the coalition. their united front.

Farm state House Freedom Anti-regulatory

Nutritionists Absolutists Pragmatists
Republicans Caucus food corporations

Absolutists could vote no with members of the Freedom Caucus

Pragmatic Democrats could align with farm state Republicans

 Bloomberg Businessweek The Year Ahead 2018 Politics

Fault Line #2 Fault Line #3

Environmentalists vs. Deregulators Divided AgVocates

When the last Farm Bill passed in 2014, farmers were
enjoying record prots driven by high crop prices. Prices
and prots have plunged since. Thats made environmen-
tal programs attractive because they channel money to
farmers who adopt sustainable practices and in some
cases pay them not to plant crops. But there are govern-
ment strings attached, which farmers typically resist.
Conservation Reserve Program
 Per-acre payment  Per-acre prot for wheat
The AgVocatesfarm and rural lobbyists who support
higher levels of agriculture spendingare the rural part
of the urban-rural coalition. The commodity groups they
represent ght over how to allocate money to corn, soy-
beans, and other crops. They tend to be scal conserva-
tives, toojust not when it comes to farmers.
The AgVocates may have a hard time agreeing on the
distribution of subsidies. Budget constraints mean theres
no extra cash for crop insurance and price supports.

$100

50

Dairy producers and Corn, soybean, and

0 cotton growers both wheat farmers are
PREVIOUS SPREAD: MORGAN RACHEL LEVY/NYT/REDUX; THIS SPREAD, CLOCKWISE FROM TOP LEFT: GETTY IMAGES; ALAMY; GETTY IMAGES; RICHARD HAMILTON SMITH/GALLERY STOCK; DATA: USDA

believe they were largely happy with

shortchanged in the current programs.
last Farm Bill.
-50

-100 79
Without agreement, any deal could
die before it even gets through the
2009 2010 2011 2012 2013 2014 2015 2016 Agriculture Committee.

Environmental issues split the farm groups that provide

key repower to pass the bill. Government-subsidized insurance for crop losses has
become the main form of farm support in the past 15 years;
Republican-leaning that makes it a target for budget cutters. Defending crop
organizations Democratic-leaning insurance may be the top priority of AgVocates. The last
such as the
American Farm
groups such as the Farm Bill stated that money cut from one part of the crop
National Farmers
Bureau Federation Union are more
insurance program has to shift to another. The industry
will probably push open to govern- will ght to keep that requirement intact.
for as little govern- ment oversight.
ment oversight
as possible. Net farm income
$130b

Farmers are likely to unite over

nding ways to increase income. Farm income has
plunged since
the last Farm Bill
passed in 2014
Wheat farmers, for
example, have struggled 90

to make money as produc-

tion costs have risen, and
they may nd programs that
pay them to idle land lucra-
tive. Key arbiters: outdoors
groups, such as Pheasants
Forever and Ducks 50

Unlimited, that want to 2013 2014 2015 2016 2017

Wheat harvest, North Dakota preserve wildlife habitat. (estimate)
 Bloomberg Businessweek The Year Ahead 2018
Trump
Year One was bad.
Year Two could be worse
By Megan McArdle
On April 4, 1841, President William Henry Harrison died. Having lasted
a month, he is without question the president who had the grimmest
first year in office. Donald Trump hasnt bested that record, but hes
making a valiant push for the runner-up spot, for which hell have to
edge out Ronald Reagan, who was shot, James Garfield, who was shot
dead, and Abe Lincoln, who saw the nation descend into civil war.
In his first year, Trump has failed to repeal and replace Obamacare,
failed to appoint enough staff to implement his policy agenda, seen
multiple high-level staffers resign, seen his campaign investigated for
its ties to Russia, and given that investigation greater heft by firing the
FBI chief overseeing it. The swamp remains undrained, the wall is
unbuilt, there is no major infrastructure plan. There is a new Supreme
Court justice, Neil Gorsuch. And while some regulations have been
eased, its cold comfort given how little progress hes made elsewhere.
The latest Gallup poll shows a third of the country approving of the
job hes doing; that could drop in coming days, especially after the
indictment of former Trump campaign manager Paul Manafort and
a guilty plea from campaign aide George Papadopoulus.
80
Having entered office completely unprepared, Trump squandered
his first year. Those failures will haunt him in the second. He barely has
the staff hed need to make policy, even if he had a coherent agenda,
and hes deeply alienated the allies in Congress he needs to pass legisla-
tion, who keep resigning and excoriating him on their way out the door.
Those who remain will rally around the president as best they
can to do tax cuts, the one thing Trump and his estranged party
still agree on. That would give the GOP an actual legislative achieve-
ment as congressional Republicans head into the midterms. But after
that? Perhaps the Russia probe will dead-end at Manafort. Perhaps
the GOP will come off of tax reform newly energized and proceed
to attempt other major legislationan infrastructure bill, a serious
immigration reform. One can describe a scenario in which Trump
recovers from his rookie mistakes and goes on to create policy. What
one struggles to do is believe it.
More than likely, the second year of Trumps presidency will look
a lot like his first: shambolic, unfocused, and largely driven by exter-
nal events. Thats troublesome on the domestic policy front, but its
downright scary when it comes to foreign affairs, where Trumps
flawsimpulsivity, lack of preparation, and an unwillingness to listen
to adviserspresent the greatest dangers. We cant predict what the
crisis will be, only that if and when it
arrives, were all in for sleepless nights.
The physicist Niels Bohr is said to have
remarked that predictions are hard, espe-
cially about the future. But Trumps lack
of vision or preparation has plunged the
country into a sort of permanent dread.
The only thing we can definitely expect
for 2018 is a great deal of uncertainty.
And, probably, insomnia. 
Trump McArdle is a columnist for Bloomberg View.
Politics
Democrats
Can they harness
the resistance?
By Joshua Green
Almost as soon as Donald Trump was elected, an
energetic resistance arose to counter him, spawn-
ing hundreds of grass-roots activist groups and the
Jan. 21 Womens March that drew 2.6 million protest-
ers in Washington, D.C., and around the globe. But
Democrats have learned the hard way that antip-
athy for Trump doesnt automatically translate to
votesand if the resistance marchers dont show up
at the polls next year, their protests wont matter.
In her new memoir, Hillary Clinton expresses admi-
ration for them but adds a dig: I couldnt help but
ask where those feelings of solidarity, outrage and
passion had been during the election?
Clinton wasnt the only one to whom this
thought occurred. Since November a new gener-
ation of progressive entrepreneurs and activists
have quit their jobs to run for office or launch start-
ups aimed at helping Democrats identify and turn
out supporters, especially among groups such as
millennials and minorities that didnt show up for
Clinton. The vital question for Democrats next year
is this: Can they harness the energy of the resis-
tance and steer its members to the ballot box in
2018? Control of Congress and the future of Trumps
presidency hang in the balance.
To reach people who didnt vote, it helps to
meet them on their turf, with enough of an entice-
ment to grab their attention. Thats why, one night
in September, the staff of MobilizeAmerica, a new
field-organizing app, was crammed into a dress-
ing room backstage at an Arcade Fire concert at
Capital One Arena in Washingtonand why theyd
brought along Danica Roem, the first transgender
candidate to run for Virginias House of Delegates.
MobilizeAmerica was founded in May by friends
Allen Kramer, 26, and Alfred Johnson, 31. Until last
November both were happily toiling in the private
sector. Trumps election jolted them in a new direc-
tion. I was helping a large corporation figure out
how to sell IT hardware online, says Kramer, who
had returned to Bain & Co. in San Francisco after
taking a leave to work on Clintons campaign. But
Id just come back from the campaign with the
gut-wrenching context of having seen what hap-
pened up close. We knew we had to do something.
ANDREW HARRER/BLOOMBERG
He and Johnson quit their jobs and moved back
east. They set off on a fact-finding tour, quizzing
campaign managers, organizers, activists, and data
scientists to find the gaps in the system that were
causing Democrats to lose winnable races. We
 Bloomberg Businessweek
kept coming back to the fact that we had millions
of people marching in the streets, says Johnson.
There had to be ways to plug those people into
the electoral opportunities that mattered most.
What MobilizeAmerica landed on could be
described as Tinder for the resistance: a mobile
app and web interface that match grass-roots activ-
ists with nearby candidates who need volunteer
support. With seed funding from Higher Ground
Labs, a Chicago-based progressive technology accel-
erator, Kramer and Johnson hired a small staff of
engineers and organizers, then fanned out across
Washington, D.C., Maryland, and Virginia to connect
with hundreds of resistance groups, small and large.
Like many of the new political-technology start-
ups, MobilizeAmerica is focusing first on Virginia,
the only battleground state with elections in 2017,
and one that also approximates the larger country,
with urban and rural areas and a fast-growing immi-
grant population. MobilizeAmerica chose to focus on
a dozen House of Delegates racesincluding Roems.
82
Roem
If Virginia is a microcosm of America, then the
13th District race between Roem and the 13-term
GOP incumbent, Bob Marshall, is like the 2016 pres-
idential election glimpsed in a fun-house mirror:
Everything is exaggerated even further. Roem grew
up in the northern Virginia district, working for nine
years as a local political reporter and moonlighting
as a singer in a heavy metal band. She began her
gender transition in 2013. Trumps victory pushed
her into electoral politics. What the election taught
me, Roem says dryly, a rainbow scarf in her hair,
is that there is literally nothing in my background
thats disqualifying. That bar is gone. (Even in a
race bursting with sociocultural significance, Roems
campaign pitch is a hyperlocal focus on alleviated
traffic congestion along Route 28, the districts main
thoroughfare. Traffic hates everyone, she says.)
Her opponent, Marshall, is a kind of ur-Trump
who refuses to debate Roem or call her by her pre-
ferred gender pronoun. Marshall is best known
for unsuccessfully pushing a state bathroom bill
to dictate which restrooms transgender people
The Year Ahead 2018 Politics
can use in public buildings. In late October his
Republican backers sent out a campaign flier
reminding voters that Roem was born male.
But Marshall is falling out of step with his district,
which is increasingly composed of highly edu-
cated voters and went for Clinton by 14 points.
David Wasserman of the nonpartisan Cook Political
Report calls the race a toss-up and a harbinger
of national political sentiment heading into 2018.
So Roem is exactly the sort of candidate
Democrats must find a way to push to victory in
90%
2018. And her campaign is an early test run of what
progressives can do at the grass-roots level. To boost
her volunteer network and raise awareness of the
election, MobilizeAmerica had gotten Arcade Fires
Will Butler to livestream a pre-concert interview
with Roem on the bands Facebook page. Local pol-
itics is a matter of quality of life and an issue of life
and death, Butler, wearing a Butler-Roem cam-
paign button, told the 150,000 fans who tuned in.
Butler asked fans to text MOBILIZE to a special
number if they could volunteer. Johnson described
this as an engagement funnel to pull motivated
locals into a MobilizeAmerica list. The next morning
they were sent a video from Butler thanking them The flake rate
among people
and asking them to join a recruitment effort.
reached by phone
One reason Democrats struggle to turn out who agreed to
voters in down-ballot races is that the cutting-edge volunteer to help
the Clinton campaign
technology theyve developed since Barack
Obamas rise has mostly been housed inside pres-
idential campaigns. When the campaign ends,
the tools vanish. Our reputation as Democrats is
that we invest in technology, and thats true, says
Betsy Hoover, a partner at Higher Ground Labs
who directed digital organizing for Obamas 2012
campaign. But the way we do that is really ineffi-
cient. We invest a ton of money inside a presidential
campaign. Down-ballot races never really benefit.
After Trumps victory, Hoover and two part-
nersstaked with $3 million by LinkedIn Corp.
co-founder Reid Hoffman and other Democratic
donorsfounded Higher Ground to provide men-
torship and early stage investment in politically
oriented tech startups. They hoped to foster an
ecosystem outside of national campaigns and focus
on state and local races.
Over the summer, Higher Ground invested
in 11 companies, many of them aiming at reach-
ing voters through mobile technology and social
media. Shola Farber, 27, and Michael Luciani, 25,
who worked as field organizers in Michigan for
Clintons campaign, left their jobs to found the
Tuesday Company, another HGL startup working
in Virginia thats developing digital door knock-
ing technology. While working for Clinton, Farber
could see that the standard voter contact methods
of door knocking, phone banking, and TV ads
STEVE HELBER/AP PHOTO
were not reaching many millennials. When we
talk to people via Facebook or text, they often
dont know theres an election, she says. A Tufts
University poll taken a month before the 2016
 Bloomberg Businessweek
election found that only 30 percent of millenni-
als had been contacted by a campaign. Thats a
figure that haunts us, says Luciani.
Tuesdays technology aims to extend field orga-
nizings best practices into the digital realm. The
one thing Democrats absolutely excel at is volun-
teers, says Farber. Our system uses a bottom-up
approach to build a grass-roots volunteer network
among voters who arent being reached by tradi-
tional Democrat efforts. Roems campaign used
the technology to connect with people whose doors
are harder to knock on because they live in either
private buildings, gated communities, or rural areas.
Reaching voters through Facebook is particu-
larly urgent, Luciani says, because Trumps cam-
paign used the platform to send dark posts
with negative messages to blacks and millennials
to weaken their support for Clinton. The same
people that they dont want to vote are the people
we do want to vote, he says.
On a Tuesday evening just before Halloween the
staff of MobilizeAmerica and a small crowd of volun-
teers gathered in a downtown Washington loft for a
weekly text-banking session, an update on the phone
banks long employed by campaigns to contact
voters. Texting is a more social form of recruit-
ment, says Yasmin Radjy, 30, MobilizeAmericas
Virginia state director. You hang out, you meet
people, eat pizza, drink beer, and play musicall
84
Marijuana
Three more states roll out legalization plans in 2018
Since Colorado legalized recreational marijuana
in 2012, seven other states and the District of
Columbia have followed suit. Next year, California,
Maine, and Massachusetts will begin sales, poten-
tially tripling the size of the legal pot market. By the
end of 2018, 20 percent of Americans will live in a
state where adults can legally buy and sell canna-
bis. Yet big problems remain unresolved, includ-
ing a persistent black market that legalization
was supposed to help undermine. There are also
fights between states in favor of legalizing weed
and localities that oppose it. And of course mari-
juana remains illegal under federal law, casting a
shadow over the industry.
State tax revenue from marijuana sales exceeds
$1 billion. California alone anticipates another
$1 billion in annual tax revenue from legalization.
But with an impending January 2018 deadline to
begin issuing permits, there are signs that growers
and retailers may not join the state-regulated
system. Hezekiah Allen, executive director of the
The Year Ahead 2018 Politics
things you cant do when youre phone banking.
Radjy and other organizers have found its also more
effective for reaching people. Unlike a phone call, a
text message isnt so intrusive and allows people to
answer at their leisureand many do. People are
happier to engage by text than by phone, she says,
adding with a shrug, Its a level of intimacy thats
kind of crazy. But thats how we communicate with
our friends. Calling would be weird. When we
One early discovery from the push into new tech-
nologies is that volunteers recruited by text are talk to people
far more likely to follow through on their commit- via Facebook
ments. During the Clinton campaign, the flake or text, they
rate among people who agreed by phone to volun- often dont
teer ran as high as 90 percent. But Radjy says that
those reached by text sign up for jobs and follow know theres
throughparticularly when theyre members of an election
enthusiastic resistance groups. The conversion rate
of SMS has been incredible, she says. Now theyre
showing up in higher numbers and volunteering.
Regardless of the outcome on Nov. 7, Johnson
and his peers are convinced Virginia will leave
Democrats better prepared to compete and win
next year. We have a better lens into the grass
roots than almost anyonethe volunteers, the del-
egates, and all the local groups, he says. When
we leave Virginia, well know what works, how it
works, and how it can work betterand all that will
be brought to bear on the midterm elections. 
By Erin Schwartz
California Growers Association, estimates that just
3,500 of 40,000 farmers have signed up for permits
but says thats primarily because local governments
havent issued them or have banned marijuana
Maine businesses outright.
This creates problems for state regulators. We
have to work with over 500 different cities and
counties over the state, says Lori Ajax, chief of
Massachusetts
Californias Bureau of Cannabis Control. For us to
issue a license, we have to make sure its not in vio-
lation of a city or county ordinance, and because
of our size, thats a challenge.
California grows 13.5 million pounds of mari-
juana annually; less than 20 percent of it is con-
sumed there. Growers may have to downsize as new
rules ban out-of-state exports. If Californias markets
open in January and many existing growers are left
out, tax revenue could fall short, and a robust black
market will persist. To become legal, marijuana
California
businesses have to secure building permits and
water rights and establish record-keeping protocols
 Bloomberg Businessweek
Soon to be legal
for 20 percent of
American adults
unfamiliar to an industry thats long operated in the
shadows. Its going to take decades for California to
regulate its cannabis industry, says Allen. Its been
decades that weve been making this mess, and its
going to take us a while to clean it up.
In Maine, where a legalization ballot measure
passed in 2016 by less than 1 percentage point,
localities retain broad power to ban marijuana
cultivators and retailers, potentially hinder-
ing the growth of the states cannabis industry.
Massachusetts has a July 2018 deadline to issue
its permits. Thats already been delayed once. In
July state lawmakers established the independent
Cannabis Control Commission to develop regula-
tions. Even with the extension, the commissions
chairman, Steven Hoffman, says the July deadline
is a pretty tight time frame.
Early difficulties are common for recreational
marijuana. Nevada faced product shortages when
its markets opened in July 2017. Alaskas first year
brought in $1.2 million in tax revenue, short of a
projected $2 million. Colorado and Washington
both took in less tax revenue than expected in their
first year, but revenue has grown every year since
FROM TOP: ANDY LEE/STOCKPOT IMAGES; BRENDAN SMIALOWSKI/AFP/GETTY IMAGES
and now exceeds projections. Colorados effective
tax rate is around 30 percent, and Washington has a
flat rate of 37 percent. Joseph Bishop-Henchman of
the Tax Foundation says these relatively high taxes
have allowed a significant black market to persist
by making legal pot expensive. States that have
legalized more recently have set the rate lower. In
Oregon, its 17 percent. Maine and Massachusetts
have proposed rates of about 20 percent, while
California is planning for a 15 percent levy. There
isnt enough data to measure the impact of lower
taxes, but Maine state Senator Teresa Pierce
believes that Maine will hit a sweet spot and be
able to undercut black market prices.
As momentum behind legalization grows, a
federal crackdown appears less likely. To avoid
The Year Ahead 2018 Politics
prosecution under federal law, state legislatures
adhere to the 2013 Cole Memorandum, a docu-
ment issued during Eric Holders tenure as U.S.
attorney general essentially assuring states that
the feds wont intervene as long as they follow
their own rules. But the Cole Memo isnt legally
binding, and Attorney General Jeff Sessions has a
long history of opposition to marijuana. I think
the Justice Department may rearrange the deck
chairs a little bit, but ultimately, theyre not going
to change direction too much, says John Hudak,
a senior fellow at the Brookings Institution. It
seems like a not-so-popular approach to an issue
that most Americans dont see as a problem.
Marijuanas ambiguous legal standing limits the
ability of businesses to operate normally. Major
banks are still unwilling to service growers and dis-
pensaries. Marijuana companies are also ineligible
for common tax deductions. This August, New
Jersey Senator Cory Booker introduced a bill that
would remove marijuana from the Controlled
Substances Act, legalize it federally, and with-
hold prison funding from states with racial and
class disparities in their marijuana arrest rates.
With Republicans in charge of Congress, the bill
is largely symbolic. That leaves states that have
legalized pot trying not to attract undue attention
from a potentially adversarial Trump administra-
tion. I think as long as we keep our noses clean,
85
well be good, says Republican Washington state
Senator Ann Rivers. 
Hot Seat
Mitch McConnell,
Senate majority leader
In a broadening GOP civil war and with Senate
control on the line in the 2018 midterm elec-
tions, Majority Leader Mitch McConnell will nd
his political skills tested as never before. After
a disastrously unproductive 2017, McConnell
must manage the strains in his relation-
ship with President Trump, showcased in the
nger-pointing that followed the failed effort to
replace Obamacare. He also must face down a midterm onslaught
from Steve Bannon, who along with Tea Party-affiliated groups
has vowed to challenge every GOP incumbent senator on the
ballot except Texas Ted Cruz. McConnell has some math on his
side: Democrats must pick up three seats to take control of the
Senate, and only eight GOP seats are on the ballot, vs. 23 held by
Democrats. For now, only three seats appear to be even remotely
in play for Democrats: those of retiring Jeff Flake of Arizona and
Dean Heller of Nevada and the one in Alabama held by Jeff Sessions
before he was named attorney general. Yet if Bannon continues to
succeed in replacing GOP incumbents with far-right candidates, the
Democrats takeover target list could grow. Laura Litvan
 Bloomberg Businessweek The Year Ahead 2018 Politics

Congress
Six House seats the Democrats hope to ip By Greg Giroux

The Democratic Party will need a net gain of 24 seats to win control of the House. It wont
be easy: Republicans have battle-tested incumbents plus advantages in redistricting and
outside money. But the White House almost always loses ground in midterm elections,
and Trumps sagging approval rating is raising Democrats hopes of overturning the GOP
majority for the first time since 2006, when they flipped 30 seats midway through George
W. Bushs second term. Democrats are mounting vigorous early campaigns in dozens of
races, including these six districts. Giroux writes for Bloomberg Government

1 Washingtons 8th 2 Colorados 6th 3 Iowas 1st

86
The retirement of GOP Represent-
ative Dave Reichert after seven
terms gives Democrats a chance
to pick up a district that includes
Seattle suburbanites who work
at Microsoft Corp. and Boeing Co.
Hillary Clinton won here by 3 per-
centage points. The district also
voted in 2016 to reelect Democratic
Senator Patty Murray by 4 points.
Contenders
In the Denver suburbs, Democrats
are again trying to unseat the
GOPs Mike Coffman, whos won
ve elections. In 2016 he got 34,500
more votes than Trump. An Army
and Marine Corps veteran, Coffman
serves on the Armed Services
Committee and was one of 20
Republicans to vote against the
GOP replacement for Obamacare.
The district is about 20 percent
Hispanic, and Coffman spoke
Spanish in a commercial for his
2016 campaign. He supports pro-
tections for so-called Dreamers.
This 20-county district in Iowas
northeastern quadrant is over-
whelmingly white and middle-class,
with a median household income
identical to the nations. Trump won
here by 3 points four years after
voters backed President Obamas
reelection by 14 points.
Contenders
Blum n uer Heckroth

Contenders Trumps Iowa surge helped GOP Representative

Rossi Schrier Rittereiser
The leading Republican candidate is Dino Rossi,
a former state senator who lost statewide races
for governor in 2004 and 2008 and against
Murray for the Senate in 2010. Through the end
of September, he was the top fundraiser, with
more than $578,000. A big field of lesser-known
Democrats includes Kim Schrier, a pediatrician
whos getting donations from dozens of doctors;
Jason Rittereiser, a former prosecutor; Tola
Marts, a city councilman in Issaquah, near
Seattle; and Mona Das, a mortgage broker who
came to the U.S. from India as a child.
Coffman Crow Tillemann
The preferred candidate of Democratic leaders
is Jason Crow, a former Army Ranger who
served in Iraq and Afghanistan and spoke at
the 2012 Democratic National Convention. In
the primary, Crow will take on Levi Tillemann,
a former Obama administration Department of
Energy official, and David Aarestad, a lawyer.
Rod Blum win reelection over a well-funded
Democratic challenger. Blums bid for a third
term will be a test of whether this district will
revert to its earlier Democratic voting patterns.
One of Blums Democratic challengers is Abby
Finkenauer, a state representative whose
donors include Senator Al Franken (D-Minn.)
and labor unions. At 28, Finkenauer is younger
than any current member of Congress. Shell
have to beat Thomas Heckroth, a former
Obama Labor Department aide.
 Bloomberg Businessweek
The 115th Congress
Democrat-held districts
won by Clinton (182)
Democrat-held districts
won by Trump (12)
Republican-held districts
won by Trump (216)
Republican-held districts
won by Clinton (23)
Vacant (2)
4 New Yorks 19th
This Hudson Valley district ipped
to the Republicans in 2016, when
it backed Trump four years after
supporting Obama. Last year,
Republican John Faso, a former
state legislator, beat Democrat
Zephyr Teachout, a law professor
and anti-corruption activist. Faso
bucks his party from time to time,
voting against some bills to ease
environmental and labor regulations.
Contenders
BLOOMBERG (1); ALAMY (4); AP PHOTO (3); GETTY IMAGES (4)
Faso D Flynn
At least eight Democrats are challenging Faso,
including two who raised more than $1 million
through the end of September. Antonio
Delgado, a lawyer and Rhodes scholar, has
financial backing from the Congressional Black
Caucus and many of his fellow lawyers at Akin
Gump. Businessman Brian Flynns million-
dollar campaign war chest includes more than
$695,000 of his own money. Patrick Ryan, an
Iraq War veteran, raised $590,000 from donors
including VoteVets.org, a liberal group that
promotes military veterans.
The Year Ahead 2018
1
2
5
6
5 Virginias 10th
In the last two elections, Republican
Barbara Comstock turned back
Democrats in this educated,
wealthy district that runs from the
Fairfax County suburbs of D.C. to
the West Virginia border. Although
Trump lost the district by 10 points,
Comstock bucked the anti-Trump
sentiment to win a second term by
6 points, in part by advocating for
federal government workers and
transportation improvements for
constituents who have some of the
nations longest commutes.
Contenders
Comstock Wexton Friedman
Look for Comstock to run in 2018 as an
independent-minded Republican. She was
among the 20 Republicans who voted against
a proposed replacement for the Obama-era
Affordable Care Act. Theres a big Democratic
field that includes state Senator Jennifer
Wexton, whos attacked Comstocks anti-
abortion votes. Ex-State Department official
Alison Friedman, Army vet Dan Helmer, and
ex-Veterans Affairs official Lindsey Davis
Stover also seek the Democratic nod.
Politics
3
4
6 Floridas 27th
87
This Hispanic-majority district is
the most Democratic-leaning in
the House held by a Republican
Trump lost by about 20 points
here. The GOP will be hard-pressed
to keep the seat after the retire-
ment of Representative Ileana Ros-
Lehtinen, the rst Hispanic woman
elected to Congress. Theres
already a large eld of candidates
for the August primary.
Contenders
G l
Gonzalez Fl
Flores Barreiro
Democrats include Kristen Rosen Gonzalez, a
Miami Beach commissioner, and Mary Barzee
Flores, nominated for a federal judgeship
by Obama in 2015 but blocked by Senator
Marco Rubio. State Representative David
Richardson, the first openly gay man to serve
in the Florida legislature, put $250,000 of his
own money into the campaign. He and Matt
Haggman, the former program director at the
Knight Foundation, were the early leaders in
fundraising. Republicans include Bruno Barreiro,
a commissioner in Miami-Dade County, and
Raquel Regalado, a former Miami-Dade school
board member and mayoral candidate.
 Bloomberg Businessweek
Interview David Petraeus
The former U.S. Army general and CIA director talks about
the biggest national security threats of 2018
With the ght against Islamic State winding down,
what can we expect next in Iraq and Syria?
88
This is a very significant achievement and a valida-
tion of the strategy that was begun by the previous
administration and then accelerated by this one.
But the battle after the battle is what matters most.
In Iraq, this is the battle over power and resources.
The future of Iraq, frankly, will depend a great
deal on Prime Minister Haider al-Abadis ability to
practice inclusive governance to ensure that the
Sunni Arab community that felt alienated and even
abused by the previous prime minister [is brought]
back into the fabric of society.
In Syria, there is going to have to be stabilization
of the cease-fire lines, the provision of humanitar-
ian assistance, the establishment of local security
forces and local governance, and then over time
the determination of a path forward for Syria as
a whole or perhaps Syria as a number of entities.
What might we see in 2018 with Iran
and the nuclear deal?
We need to see what happens in 2017 first, because
Congress now has to take action within 60 days of
the president choosing not to certify the agreement.
There will have to be a determination of whether
to reform or to change that particular law and also
what Congress might initiate in terms of legislation
that puts sanctions on Iran over its missile program,
its malign activities in the region, and other actions
of concern to the U.S. That is going to predicate to a
considerable degree what takes place in 2018.
The Year Ahead 2018 Politics
How should the U.S. manage the threat
from North Korea?
The Trump administration is pursuing the appropri-
ate course of action, which is to take steps that get
Chinas attention and have it tighten down on the
umbilical cord that runs between it and North Korea.
With President Xi [Jinping] in an even stronger posi-
tion, the hope is he will feel sufficiently confident
to take action against North Korea that is significant
but sufficiently calibrated to bring Kim Jong Un to
his senses and to the negotiating table, but not nec-
essarily to his knees, which they dont want to see
happen because they dont want to see North Korea
collapse and the Korean Peninsula potentially reuni-
fied. That is one of their red lines.
Will the U.S. deepen its footprint in Niger in
2018? With an additional base or armed drones?
Its very hard to say. The Africa Command has always
been a bit of a so-called economy-of-force mission,
because of the demand for the intelligence, surveil-
lance, and reconnaissance assetsPredators and
Reapers [drones] in particular. Its not the platform
that is hard to get. Its the 150 or so people that keep In the fight
it in the air, that fly it, that operate the payload, that against
fuel it, that fix it.
Islamic
Do you ever feel that sense of dj vu? State, the
battle after
Theres never been a doubt that we would defeat the battle is
the Islamic State as an army. But theres also no
what matters
doubt that after that there will still be residual ele-
ments. We will not be able to put a stake through most
the heart of the virtual caliphate, the activities
in cyberspace, the way we will have put a stake
through the heart of the Islamic State army. Clearly
there has to be more doneto reduce the avail-
ability of extremist content online.
Do you think we might see you take
a position in the Trump administration?
I feel very fortunate to be doing what Im doing as
a partner at KKR and chairman at the KKR Global
Institute, [professor at] the University of Southern
California, a fellow at Harvard, and a personal
C FLANIGAN/GETTY IMAGES
venture capitalist.
So youre not ruling it out?
Im not job-hunting. Nafeesa Syeed
Bloomberg Businessweek The Year Ahead 2018 Companies

50 Companies to Watch
1 2 3 4 5 Bloomberg Intelligence
analysts identified 50 publicly
traded companiesout of
the 6,000 they trackworth
6 7 8 9 10
special attention because
they plan to release significant
products and services in the
11 12 13 14 15 coming year or because they
face unusual challenges. To
assemble the list, the analysts
also considered factors such
16 17 18 19 20 as revenue growth, profit
margin, market share, and debt.

21 22 23 24 25 Methodology 91
Figures were compiled or calculated by
Bloombergs Global Data division from
the most recent company and/or broker
reports as of Sept. 15 unless otherwise
26 27 28 29 30 noted. Estimated sales growth: the
percentage change in sales for the
next 12 months, vs. the previous
12 months, based on Bloomberg surveys
of analysts. Estimated EPS growth: the
31 32 33 34 35 percentage change in earnings per share
for the next 12 months, vs. the previous
12 months, based on Bloomberg surveys
of analysts. Figures are in U.S. dollars.
N/M = not meaningful.

36 37 38 39 40

41 42 43 44 45

46 47 48 49 50
 Bloomberg Businessweek The Year Ahead 2018 Companies

Advanced Micro
1 3 4
AMC Entertainment
Holdings Inc.
AT&T Inc.
Devices Inc.
18.8% Estimated sales growth 26.7% Estimated sales growth 0.3% Estimated sales growth

N/M Estimated EPS growth 44.0% Estimated EPS growth 2.0% Estimated EPS growth

$3.37b Total assets $9.81b Total assets $420.8b Total assets

$4.62b 12-month sales $4.19b 12-month sales $161.93b 12-month sales

108.0% 1-year total return 44.4% 1-year total return 3.7% 1-year total return

Semiconductors Entertainment Telecom

After years of disappointing products, AMDs
latest and upcoming chip releasesacross
desktops, servers, and laptopswill determine
the companys return to relevance. The chips
could help AMD regain market share in 2018.
Server processors are an important part of the
92 mix and present an opportunity to gain share.
The worlds largest movie theater operator is
facing the double threats of declining audience
and the Chinese crackdown on Dalian Wanda
Group Co., its majority owner. AMC is betting on
cost cuts to make up for lost revenue and theater
renovations to attract audiences, but it remains
heavily indebted after a spree of acquisitions.
With growth in the wireless market slowing,
AT&T will seek to use content as an edge
against rival Verizon Communications Inc. The
company is on track to close its acquisition
of Time Warner by the end of this year, giving
it a library that includes HBO, Turner, and
Warner Bros.

Change since Q1 2014  Mobile data dedicated to video,

Number of AMC screens in petabytes per month

2 Alaska Air Group AMC movie attendance

120%
Share of mobile data used for video

22.9% Estimated sales growth 70%

9.4% Estimated EPS growth 50k

$10.72b Total assets

60

COURTESY ADVANCED MICRO DEVICES (1); GETTY IMAGES (4); COURTESY AT&T (1); COURTESY ALASKA AIR GROUP (1)
$6.9b 12-month sales
Forecast
14.3% 1-year total return 25

Q1 14 Q2 17 25%

2010 2022

DATA: ERICSSON

Airlines

Although Alaska has offered pilots lower pay

but more stable employment than rivals, its
2016 merger with Virgin America Inc. led unions
to demand wages in line with other full-service
carriersas much as 20 percent above current
levels. If Alaska raises prices to compensate, it
could lose a prime competitive advantage.
Bloomberg Businessweek The Year Ahead 2018 Companies

5 BASF SE 6 Boohoo.com Plc

13.5% Estimated sales growth 36.6% Estimated sales growth Boohoo.com revenue
 Other  U.S.
14.3% Estimated EPS growth 48.8% Estimated EPS growth
 Europe (without U.K.)  U.K.
$86.34b Total assets $235m Total assets
$400m
$67.51b 12-month sales $545m 12-month sales

32.3% 1-year total return 182.9% 1-year total return

200

FY 2011 FY 2017

Chemicals E-Tail

While the rest of the chemicals industry
pursued transformational mergers, BASF has
concentrated on smaller strategic acquisitions
to help it offer higher-complexity, higher-cost
products, increasing both its capacity and
operating marginsa win-win.
The apparel industrys fastest-growing e-tailer
is on track to see sales jump at least 80 percent
this year, with new brands like PrettyLittleThing
gaining traction in the companys home U.K.
market and the U.S. Local sourcing gives it
wider margins than those of its competitors, but
logistics could become a challenge. 93

Cabot Oil & Gas China Merchants Cosco Shipping

7 Corp. 8 Bank 9 Holdings Co.
34.6% Estimated sales growth N/M Estimated sales growth N/M Estimated sales growth

151.3% Estimated EPS growth 17.7% Estimated EPS growth 83.2% Estimated EPS growth

$5.22b Total assets $916.42b Total assets $18.37b Total assets

$1.58b 12-month sales $43.91b 12-month sales $12.26b 12-month sales

7.7% 1-year total return 56.2% 1-year total return 72.7% 1-year total return

Natural Gas Banking Shipping

Despite productivity improvements, delays
in the construction of pipelines have left
Cabot unable to transport some gas for sale.
Northeast infrastructure expansion should
allow the company to ship natural gas from the
Marcellus Shale beginning in mid-2018.
After slow earnings growth in 2015 and 2016,
Chinas leading retail and private bank is turning
around its business thanks in part to better-
quality loans and higher credit card fees. Its also
enhancing its financial technology capabilities
through new mobile, cloud, and blockchain apps.
With its acquisition of Orient Overseas
International Ltd., the Chinese shipping
company is making a play to disrupt Europes
dominance of global shipping. The $6.3 billion
deal, expected to close in the first quarter
of 2018, will make Cosco the worlds third-
biggest carrier.
 Bloomberg Businessweek The Year Ahead 2018 Companies

10 11
Cypress
CSX Corp. Semiconductor Corp.
2.1% Estimated sales growth Change in share price since 12/30/16 10.6% Estimated sales growth
CSX Canadian National Railway
21.7% Estimated EPS growth 65.0% Estimated EPS growth
Canadian Pacic Railway
$35.86b Total assets Kansas City Southern Norfolk Southern $3.74b Total assets
Union Pacic
$11.55b 12-month sales $2.19b 12-month sales
50%
82.5% 1-year total return 25.7% 1-year total return

25

Transportation
Investors are betting that legendary railroad CEO
E. Hunter Harrison will be able to execute yet
another turnaround. Service issues, customer
complaints, and regulatory scrutiny have made
the transition bumpy, but the faithful are optimistic
about Harrisons precision scheduling strategy.
94
Semiconductors
0
12/30/16 10/13/17 The chipmaker is in the early stages of turning
away from the declining memory-based
business to become a major player in the
internet of things. Sales in that space are
expected to increase 20 percent this year, with
even greater potential for growth next year as
the smart-home market continues to expand.

Cypress Semiconductor revenue

 Microcontroller and connectivity division
Dangote Cement
12 Plc 13 Danone SA  Memory products division

Q2 2016
4.6% Estimated sales growth 23.3% Estimated sales growth

5.0% Estimated EPS growth 22.6% Estimated EPS growth

$5.2b Total assets $52.12b Total assets

$2.35b 12-month sales $25.11b 12-month sales

$242m $208m
7.9% 1-year total return 13.3% 1-year total return

Q2 2017

$233m $361m

Manufacturing Food Products

Dangote is poised to make the most out of
double-digit housing and infrastructure growth
in sub-Saharan Africa. Already Nigerias largest
cement maker, its aiming to extend its business
into Sierra Leone, Tanzania, and Congo.
Danones acquisition of WhiteWave Foods Co.,
parent company of Silk nondairy and Horizon
Organic milks, should help bolster the French
companys core dairy business. With the
retirement of Chairman Franck Riboud, CEO
and now-Chairman Emmanual Faber faces
increased pressure to deliver.
 Bloomberg Businessweek The Year Ahead 2018 Companies

14 New CEOs to Watch

Discovery
Communications Inc.
7.9% Estimated sales growth
22 Ford Motor Co.s Jim Hackett is a relative newbie to
18.5% Estimated EPS growth
his industry, and 10 CSX Corp.s E. Hunter Harrison is a
$16.15b Total assets
seasoned insider, but each faces the same challenge:
$6.59b 12-month sales
steadying a flailing business. Ralph Lauren Corp.s
10.1% 1-year total return
Patrice Louvet is the companys second new CEO in as
many years and will attempt a total revamp to appeal to
younger customers who shop online. And after replacing
Jim Reid-Anderson as Six Flags Entertainment Corp.
CEO in early 2016, John Duffey abruptly stepped down
this Julyto be replaced by a returning Reid-Anderson.

Entertainment

In a bid to stanch subscriber losses, the

edutainment company reached an agreement
to acquire lifestyle-focused Scripps Networks Hackett Harrison Louvet Reid-Anderson
Interactive Inc. earlier this year. When that deal
closes in early 2018, Discovery will become a
powerhouse in unscripted programming.
95

15 Dong Energy A/S 16 DowDuPont Inc. 17 DSV A/S

14.1% Estimated sales growth N/M Estimated sales growth 16.7% Estimated sales growth

2.3% Estimated EPS growth N/M Estimated EPS growth 35.1% Estimated EPS growth

$20.5b Total assets $163.46b Total assets $6.14b Total assets

$9.16b 12-month sales N/M 12-month sales $10.54b 12-month sales

34.6% 1-year total return 37.3% 1-year total return 49.1% 1-year total return
GETTY IMAGES (7); AP IMAGES (1); COURTESY DSV (1)

Energy Chemicals Logistics

After selling its exploration and production
assets and shifting from fossil fuels to
renewables, Danish Oil & Natural Gas is
changing its name to Orsted, after the
physicist who discovered electromagnetism.
Its counting on the offshore wind market,
where its already a leader.
Two years after it was announced, the
Dow-DuPont merger is finally complete, and
the chemicals behemoth can start breaking
itself up. In a nod to investors concern over
inefficiencies, one unit will focus on materials
science, another on agriculture, and a third on
specialty products.
A year and a half after absorbing the large
but inefficient UTi Worldwide Inc., transport
company DSV has managed to restore and even
surpass its previous operating margins. Its share
price and earnings are soaring, and DSV is on
the hunt for another $1 billion-plus acquisition.
 Bloomberg Businessweek The Year Ahead 2018 Companies

18 Engie SA 19 Eni SpA 20 Experian Plc

6.9% Estimated sales growth 16.3% Estimated sales growth 9.5% Estimated sales growth

5.0% Estimated EPS growth 124.3% Estimated EPS growth 13.1% Estimated EPS growth

$166.84b Total assets $134.47b Total assets $7.69b Total assets

$72.0b 12-month sales $68.13b 12-month sales $4.34b 12-month sales

19.9% 1-year total return 17.7% 1-year total return 1.9% 1-year total return

Energy Energy Business Services

The French energy giant has been shifting away
from fossil fuel assets and toward renewables,
investing in wind and solar. So far the market
has responded favorably, especially as new
French President Emmanuel Macron affirms his
commitment to green-energy development.
96
The Italian oil companys dual exploration
strategysolo discovery followed by shared
developmenthas made it one of the few
majors to both save cash and raise output. Its
latest offshore site, the Zohr field off Egypts
coast, will start producing at the end of this
year, a record-fast 22 months after discovery.
With greater attention on credit reporting
after the massive Equifax hack, Experian and
its peer, TransUnion, are facing the potential
for increased regulation. Calls for free
security freezes and more access to credit
reports could limit their ability to sell credit-
monitoring services.

21 Fannie Mae Freddie Mac 22 Ford Motor Co.

N/M Estimated sales growth N/M Estimated sales growth 0.1% Estimated sales growth

N/M Estimated EPS growth N/M Estimated EPS growth 5.9% Estimated EPS growth

$3.31t Total assets $2.02t Total assets $247.47b Total assets

$111.89b 12-month sales $71.76b 12-month sales $142.94b 12-month sales

60.6% 1-year total return 58.8% 1-year total return 1.3% 1-year total return

GETTY IMAGES (4); COURTESY ENGIE (1)

Financials Automobiles

After years of funneling profits to the U.S. Department of the Treasury, the two government-sponsored New CEO Jim Hackett will have to bring the
mortgage backers will be forced to operate with a net worth of zero beginning in 2018. Even a small loss venerable automaker up to speed on electric
would require them to go back to Treasury and again borrow from taxpayersa political disaster. and autonomous vehicle development or face
an investor revolt. Third-quarter earnings
benefited from a boost in sales after recent
hurricanes damaged vehicles, yet full-year
profit is expected to decline.
Bloomberg Businessweek The Year Ahead 2018 Companies

Great Wall
23 Gap Inc. 24 Motor Co.
0.9% Estimated sales growth Change in number of stores since 2008 18.1% Estimated sales growth
Banana Republic
2.3% Estimated EPS growth 11.1% Estimated EPS growth
Old Navy
$7.62b Total assets Gap $12.28b Total assets

$15.47b 12-month sales $14.41b 12-month sales

15%
23.7% 1-year total return 31.2% 1-year total return

-15

FY 2008 FY 2017

Retail Automobiles

The companys namesake brand has struggled The Chinese automakers potential tie-up with
to return to its 1990s peak, but a faster, BMW AG may be too little, too late. An earlier
more responsive product pipeline and fewer strategy of refusing to team up with foreign
discounts have helped Gap rebound. With Old brands may have reached its limit. Although
Navy flourishing and Athleta activewear selling it still dominates the countrys SUV market,
briskly, a turnaround may finally be under way. Great Wall faces decreased market share as
competitors are creeping in. 97

Can Retail Turn Around? 25 Hertz Corp.

2.5% Estimated sales growth
Declining foot traffic and intense pricing pressure have
72.3% Estimated EPS growth
gutted retail in recent years. Among companies that have
$22.43b Total assets
struggled the most, 23 Gap Inc. is well-positioned to start
$8.69b 12-month sales
regaining strength. Others, such as Macys Inc., still have
57.2% 1-year total return
too many underperforming stores, and 2018 will likely
bring another round of closures. On the bright side, Macys
owns a substantial number of its stores, so shedding real
estate will produce cash flow. The store chain is counting
on in-house brandsincluding beauty products from
Bluemercury, which Macys acquired in 2016and the
expansion of its discount Backstage outlets to attract more
dollars. LBrandsInc. has responded less well to pressures.
Strength at its younger-skewing Pink lingerie and Bath & Car Rental

Body Works brands hasnt helped VictoriasSecret: Poor With the brands 2014 accounting scandal
still casting a shadow over its finances, Hertz
sales at its stores have continued to drag down the bottom is struggling against competition from Uber
Technologies Inc. and Lyft Inc., as well as
line, even after excluding the negative effect of its exit from automakers. The company shrank its rental car
fleet this year, which helped shore up profitability
swimwear and apparel. even as domestic sales volume continued to fall.
 Bloomberg Businessweek The Year Ahead 2018 Companies

INC Research
26 Holdings Inc. 27 Intu Properties Plc
191.2% Estimated sales growth 7.2% Estimated sales growth Internet retail as a share of the entire retail
sector, 2016
16.0% Estimated EPS growth 11.6% Estimated EPS growth
U.K.
$1.33b Total assets $14.4b Total assets
15%
$1.03b 12-month sales $851.2m 12-month sales Asia-Pacic
11
27.7% 1-year total return 10.9% 1-year total return North America
10
Western Europe
8
Australasia
7
Eastern Europe
4
Latin America
3
Middle East and Africa
1
DATA: EUROMONITOR INTERNATIONAL

Health Care Real Estate

INC Researchs May acquisition of InVentiv
Health vaults the company from a niche
developer to the industrys No.2 contract clinical
researcher. The question now is whether it can
effectively integrate InVentivs operations. Both
companies grew slowly in 2017; theyre counting
98 on increased efficiencies to speed things up.
As U.K. retailers faced competition from online
sales, the mall operator neglected upgrading its
properties so it could focus on buying more. The
strategy pushed its market value down almost
40 percent below the value of its assets. A newly
announced upgrade program may salvage some
malls, but vacancies are likely to climb.

Lundin Petroleum
28 Jacobs 29 Kraft Heinz Co. 30 AB
6.6% Estimated sales growth 2.4% Estimated sales growth 2.6% Estimated sales growth

12.5% Estimated EPS growth 7.6% Estimated EPS growth N/M Estimated EPS growth

$7.24b Total assets $119.4b Total assets $5.11b Total assets

$10b 12-month sales $26.1b 12-month sales $1.59b 12-month sales

12.5% 1-year total return 6.1% 1-year total return 30.3% 1-year total return

Infrastructure Food & Beverage Energy

The engineering company is poised for a Having wrung all the efficiencies it can from The Swedish driller focused entirely on Norway
turnaround in 2018 following three years its 2015 merger with Kraft, the conglomerate boasts lower operating costs and the best
of declining sales. Two acquisitions, of a is on the hunt again for sources of growth. growth prospects among European independent
GETTY IMAGES (5)

cybersecurity company and a leading U.K. Although it walked away from a $143 billion exploration and production companies. Its an
infrastructure design firm, indicate that Jacobs bid for Unilever Plc, the overture signaled that active explorer in the Barents Sea, which holds
is trying to anticipate customers future needs. Kraft Heinz wants to diversify beyond packaged multibillion-barrel resource potential.
foodsand is willing to spend big to do so.
Bloomberg Businessweek The Year Ahead 2018 Companies

31 MercadoLibre Inc. 32 Motor Oil Hellas 33 Naver Corp.

54.3% Estimated sales growth 8.6% Estimated sales growth 18.7% Estimated sales growth

9.2% Estimated EPS growth 25.4% Estimated EPS growth 30.2% Estimated EPS growth

$1.51b Total assets $3.25b Total assets $6.29b Total assets

$1.07b 12-month sales $8.11b 12-month sales $3.77b 12-month sales

62.4% 1-year total return 125.8% 1-year total return 9.8% 1-year total return

E-Commerce Energy Internet Media

The so-called Amazon of South America had to
stretch this year to begin offering free shipping
in Brazil, Chile, Colombia, and Mexico, hoping the
incentive would boost e-commerce. Early signs
point to success, but the investment and new
competition from Amazon mean margins will get
worse before they get better.
34 Nintendo Co.
With the highest overall refinery complexity
in the Mediterraneanallowing it to process
cheaper heavy crude oil and giving it an
above-average refining marginthe company
is well-positioned to take advantage of low
crude prices.
Palo Alto
35 Networks Inc.
South Koreas No. 1 internet search provider
is copying chapters of Googles playbook,
venturing into artificial intelligence and cloud
services. These investments may hold back
profit growth in the near term, but the company
is betting investors will recognize their long-
term potential. 99
Naver revenue by sector, in South Korean won
 Advertising  Games  Other
4t

78.8% Estimated sales growth 25.1% Estimated sales growth

10.0% Estimated EPS growth 26.2% Estimated EPS growth

$13.1b Total assets $3.44b Total assets

2
$5.28b 12-month sales $1.76b 12-month sales

33.2% 1-year total return 3.4% 1-year total return

FY 2009 FY 2016

Consumer Electronics/Gaming Cybersecurity

The Nintendo Switch gaming console is an even
bigger hit than the company had hoped for, with
sales on track to exceed its target of 13 million
units. The success could help attract third-party
game developers to the platform; more games
would boost consumer interest next year.
The growing frequency of cyberattacks has
been a boon to digital security companies,
and to Palo Alto Networks in particular. Its
latest products integrate with users existing
software, allowing for maximum flexibility, and
the company has also begun selling existing
customers more add-on services.
 Bloomberg Businessweek The Year Ahead 2018 Companies

Patterson-UTI
36 Energy Inc. 37 PayPal Holdings Inc.
119.4% Estimated sales growth 23.4% Estimated sales growth  PayPals adjusted revenue
PayPals stock price $64.03
75.7% Estimated EPS growth 25.2% Estimated EPS growth

$5.4b Total assets $35.29b Total assets

$3b
$1.34b 12-month sales $11.76b 12-month sales

1.6% 1-year total return 53.1% 1-year total return $2

Forecast

$1

$36.35 $0

Q3 2016 Q1 2018

Energy Online Payments

As onshore drilling margins have dropped,
Patterson-UTI has responded by diversifying.
Its well completion business now outperforms
its active rigs, and the purchase of directional
driller MS Energy Services will help the
company stay competitive.
100
The original digital-payments company has
forged partnerships with former frenemies,
including Apple, Facebook, Google, and
Samsung. PayPal usage is rising among
shoppers and merchants thanks to new
capabilities such as One Touch mobile
payments, adding to the companys momentum.

PRA Health
38 Sciences Inc. 39 Qualcomm Inc. 40 RWE AG
24.4% Estimated sales growth 2.9% Estimated sales growth 11.9% Estimated sales growth

32.2% Estimated EPS growth 24.7% Estimated EPS growth 21.1% Estimated EPS growth

$2.41b Total assets $64.37b Total assets $86.09b Total assets

$1.69b 12-month sales $23.44b 12-month sales $49.18b 12-month sales

38.1% 1-year total return 13.3% 1-year total return 47.1% 1-year total return

GETTY IMAGES (5); COURTESY PAYPAL (1); COURTESY SEAGATE TECHNOLOGY (1)

Health Care Semiconductors Utilities

Two new strategic partnerships with top-20
global pharma companies should help the
contract researcher continue its five-year
streak of double-digit growth. A growing order
backlog shows PRA still has plenty of room
to expand.
With its core technology-licensing business
under fire from Apple Inc. and regulators,
the company filed a countersuit against the
iPhone maker in a Chinese patent court. Apple
and others have already stopped paying
the company, meaning Qualcomm faces an
existential threat to its royalty business model.
The German utility got a boost this year from
recovering coal prices. But an expected
increase in Chinese coal production, resulting
from a decline in global prices, will put more
pressure on the company and other European
power providers.
Bloomberg Businessweek The Year Ahead 2018 Companies

Tech Litigation to Watch 43 Soho China Ltd.

9.7% Estimated sales growth
Qualcomm Inc. isnt the only company
39
N/M Estimated EPS growth
embroiled in high-stakes legal battles
$10.9b Total assets
Western Digital Corp. spent the better part of 2017 trying to prevent a sale
of Toshiba Corp.s memory chip unit. In several pending legal actions $281m 12-month sales
Western lawsuits and arbitration proceedingsits claiming that a sale would violate
a series of agreements underlying a joint venture between WDs SanDisk 23.6% 1-year total return
Digital subsidiary and Toshiba. Toshiba plans to sell its flash memory unit to a
consortium led by Bain Capital LP for about $18 billion, hoping the sale
vs. will offset massive losses in its U.S. nuclear division. The company must
complete the deal by March 2018 to avoid being delisted from the Tokyo
Toshiba Stock Exchange. The various cases likely wont hold up the sale, but they
could reduce the price by 5 percent if a court decides that Toshiba must
exclude the SanDisk joint venture from the deal.

BlackBerry Ltd. sued Nokia Oyj in federal court in February, alleging

infringement of 11 patents covering key innovations in LTE wireless

BlackBerry technologies. Nokia, BlackBerry says, has unlawfully incorporated the

technology in base station products used by T-Mobile U.S. Inc. and AT&T Inc.

vs. for their LTE networks. BlackBerry isnt seeking to block use of the patentsit
just wants to be paid for them. Under Chief Executive Officer John Chen,

Nokia the Canadian company is focusing on patent licensing after moving away
from hardware and device sales. The outcome of these actions could affect
the strength of BlackBerrys licensing business, which posted $56 million in Real Estate
revenue in the second quartera little less than 24 percent of its total.
Responding to the weak outlook for its
traditional office leasing business, this Chinese
landlord announced in August that it would
start expanding its co-working spaces beyond
Beijing and Shanghai.

Beijing prime office space 101

 Vacancy rate
Average rent paid, yuan/sq m/month
Seagate China Shenhua
41 Technology Plc 42 Energy Co. 333

6.9% Estimated sales growth 3.3% Estimated sales growth

8.6% Estimated EPS growth 6.5% Estimated EPS growth 20%

$9.26b Total assets $90.5b Total assets

$10.77b 12-month sales $33.0b 12-month sales

2.1% 1-year total return 59.2% 1-year total return 10

159
0

Q1 05 Q2 17

DATA: COLLIERS INTERNATIONAL, COMPILED BY BLOOMBERG

Hardware Energy

Rapid changes in the data storage world have
led Seagate to scale back sales of smaller,
less profitable hard drives and focus on high-
capacity, non-PC enterprise drives. Substantial
cost-cutting and stock buybacks are helping
earnings-per-share growth, but sales are under
threat from solid-state drives.
Shenhuas merger with China Guodian
Corp.the consolidation of the countrys two
largest coal and power producersstands to
boost efficiency and reduce earnings volatility.
With pollution an increasing concern for the
Chinese government, Shenhua is also investing
in noncoal businesses.
 Bloomberg Businessweek The Year Ahead 2018 Companies

Spark
44 Therapeutics Inc. 45 Stericycle Inc. 46 Telstra Corp.
268.7% Estimated sales growth 1.6% Estimated sales growth 9.9% Estimated sales growth

11.2% Estimated EPS growth 5.5% Estimated EPS growth 6.9% Estimated EPS growth

$276.6m Total assets $7.04b Total assets $32.3b Total assets

$20.36m 12-month sales $3.61b 12-month sales $21.3b 12-month sales

31.6% 1-year total return 11.8% 1-year total return 13.6% 1-year total return

Biotechnology Waste Management Telecom

The drugmaker is expected to receive the
U.S. Food and Drug Administrations first-ever
approval for a gene therapy drug, Luxturna,
which treats a hereditary retinal disorder.
Although the medication is Sparks first
product, the companys management has ample
102 experience in therapies for rare diseases.
Although cash flow is strong for the worlds
leading medical waste disposal business, debt
remains a problem after its acquisition of the
document destruction company Shred-it two
years ago. That, plus pricing pressure from
competitors, led the company to project five-
year growth below its typical double-digit rates.
Australias largest telecom company has ended
its practice of paying out almost all profits as
dividends, saying it will invest in technology
instead. The move shows Telstra is bracing for
competition, with rival TPG Telecom Ltd. entering
the wireless market and state-owned NBN Co.
taking over Australias fixed-broadband network.

United
47 Tesla Inc. 48 Technologies Corp. 49 Wells Fargo & Co.
75.5% Estimated sales growth 5.7% Estimated sales growth 1.3% Estimated sales growth

19.9% Estimated EPS growth 1.9% Estimated EPS growth 5.8% Estimated EPS growth

$26.04b Total assets $94.8b Total assets $1.93t Total assets

$10.06b 12-month sales $58.3b 12-month sales $90.16b 12-month sales

89.5% 1-year total return 12.7% 1-year total return 15.3% 1-year total return

Automobiles Aerospace Banking

The much anticipated Model 3 missed third- United Technologies pending $30 billion Wells Fargo tried to move beyond the 2016
quarter production estimates by a wide margin. acquisition of Rockwell Collins Inc. will create fake accounts scandal by restructuring its retail
When sweeping layoffs followed in October, the the worlds largest aerospace supplier, giving banking division and offering an effectively
GETTY IMAGES (10)

company said they were unrelated to business. the company increased scale and pricing power. bottomless pool of damage payments to
CEO Elon Musk has promised improvements, That will be key to protecting its profitability customers whose credit suffered. Revenue
and Teslas market value is still in the range of as Airbus SE and Boeing Co. pressure United growth and cost-cutting should help stabilize
General Motors Co.s. Technologies supply chain. the business next year.
Bloomberg Businessweek The Year Ahead 2018 Companies

Williams-
50 Sonoma Inc. IPOs to Watch
4.0% Estimated sales growth
Healthineers
8.1% Estimated EPS growth
Siemens AG conrmed earlier this year that it would wait until
$2.48b Total assets
2018 for a public listing of its health-care business, known
$5.1b 12-month sales as Healthineers. At the time of the original announcement
in March 2016, a Bloomberg Intelligence analysis valued the
2.1% 1-year total return
IPO at 30 billion to 40 billion ($32 billion to $42 billion).
Healthineers, which makes medical imaging equipment, is one of Siemenss
most protable divisions.

Retail
Although its fending off increased competition
from online retailers including Wayfair Inc.,
West Elm continues to be the high performer
in Williams-Sonomas stable of lifestyle brands.
The furniture brand introduced design services
this year and is continuing its push into the
commercial and hospitality markets.
Change in revenue
West Elm Pottery Barn
Pottery Barn Kids Williams-Sonoma
200%
Saudi Aramco
The expected largest IPO ever, announced in 2016, has been
thrown off course by leadership changes at Saudi Arabias
state-owned oil company. In mid-October, the nations oil min-
ister reassured potential investors that plans were on track
to list close to 5 percent of the company simultaneously in
Riyadh and an international market in the second half of 2018, which could
raise $100 billion, by one estimate.
Deutsche Asset Management Inc.
After a rocky 2016 that saw investors questioning the banks
nancial strength and included a $7.2 billion settlement with
the U.S. Department of Justice over its pre-recession dealings
103
in mortgage-backed securities, Deutsche Bank AG is back to
raising capital. Part of its plan involves an IPO of its asset man-
agement division, which has performed well even as the rest of the company
has struggled. Analysts expect the listing to come in the rst half of 2018.

Airbnb Inc.
Among the many 2018 IPOs expected from Silicon Valley
100 unicornsincluding Dropbox, Uber, Palantir, and Slackand
New York-based cousin BuzzFeed, Airbnbs offering is the
most likely to be successful. Although it hit some roadblocks
thrown up by the hotel industry and housing regulators, Airbnb
0 has begun to expand globally, particularly in Asia and Latin America. In early
FY 2012 FY 2017 2017, CEO Brian Chesky said the company was about halfway through as
far as being ready to go public.

Spotify Ltd.
Stock in the Swedish music streaming behemoth is expected
to start trading in 2018, but investors may not see an IPO.
Spotify has been discussing plans with the U.S. Securities and
Exchange Commission to list directly on the New York Stock
Exchange. The company would transfer its existing shares,
now held by executives, private investors, and employees, to the exchange,
rather than creating new ones to sell to the public. The move wouldnt raise
any money, but with 60 million paying subscribers, Spotify has plenty of
cash, and a direct listing, unlike an IPO, would allow current owners to sell
their stock immediately.
 Bloomberg Businessweek The Year Ahead 2018 Scoreboard

What We Got Right (and Wrong) Last Year

Legend: Right Right-ish Kinda wrong Wrong

Insurance Trade Markets Energy

The event that could really turn the The next Chinese banks For the first time in 60 years, the U.S. will
[reinsurance] industry is impossible to control: president of the are lending at an become a net exporter of natural gas.
a major natural disaster. Were kind of due U.S., whether unsustainable rate
for a big event, [Rod] Fox [chief executive [Donald] Trump or and will pose a True, so far. In 2017 the U.S. has exported more
officer of reinsurance brokerage TigerRisk more likely Hillary major risk to the natural gas than it has imported:
Partners LLC] says. Clinton could world economy.
blow up the
Net exports (cubic feet) 0b
Once a reliable moneymaker, the industry delicately Far from
stumbled this year, although it didnt totally tank. constructed collapsing, Chinese Net imports
But after hurricanes Harvey, Irma, Jose, and [Trans-Pacific bank stocks have 50
Maria, we wish wed been less right. Partnership]. increased more
than 20 percent.
While that turned On the other 100
out to be true, we hand, the
Politics did get one very countrys largest 1/2016 2017 8/2017
obvious thing institutions are still
Right-wing populists and nationalists will make wrong. Then again, overleveraged, so
DATA: U.S. DEPARTMENT OF ENERGY

big gains in Europe. so did just about the fuse may just
everybody else, so be longer than

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Austrias anti-immigrant Freedom Party well call it a wash. we thought. Regulation
gained ground, and Germanys Alternative fr
Deutschland became the first far-right party to Europe is about to get
win seats in the Bundestag since the Nazis. That uncomfortable for technology
said, nationalists were largely halted in France, Corporate Leadership companies.
Italy, and the Netherlands.
Activist investor Bill Ackman may force Not only did Margrethe
out Steve Ells as CEO of Chipotle Mexican Vestager, the European Unions
Grill Inc. if its performance remains sickly. commissioner for competition,
Power
slam Google with a record
Ells has managed to hang on even after a board $2.7 billion fine, she also hit
Xi Jinping will use the National Congress of the
shakeup. Unfortunately for Ackman, earnings Facebook and Amazon.com
Communist Party to concentrate control.
continue to disappoint. Hes so far lost about for hundreds of millions of
$386 million on his original $1.2 billion position. dollars each.
Indeed, no obvious successor to the Chinese
president emerged from the partys twice-
a-decade meeting in October, triggering
speculation that Xi will try to stay in office beyond Brexit Oil Growth
the two terms mandated by Deng Xiaoping. He
also stacked the partys Standing Committee Its highly unlikely After two years The worlds developed
with loyalists. U.K. negotiators of pumping at full economies are in for another
will try to secure blast the Saudis year of mediocre growth at best.
special treatment now appear willing
for banks in the to pull back.
Stocks Brexit talks.
If youve read our opening essay,
you already know that most
New York Stock Exchange floor trader Peter Saudi Arabia beat growth expectations for
Tuchman will show up in photos as the face of After a disastrous reduced oil the year. Over the course of
Wall Street. snap election in production from a 2017, the International Monetary
June, the U.K.s record 10.7 million Fund changed its assessment of
ruling Conservative barrels per day in global demand from subdued to
Party has walked 2016 to less than seeking sustainable growth.
back some of its 10 million, helping
hard-line stances, drive the recovery
including this one. in oil prices.
Personal Technology
AP IMAGES (8); GETTY IMAGES (2); REUTERS (1); YOUTUBE (1)

11/21/16 12/1/16 1/13/17 2/17/17

Heading into 2017, there isnt
Mergers and Acquisitions a clear answer to the basic
question of what, exactly, VR
The Anthem-Cigna and Aetna-Humana technology is for.
mergers will face a tough time
with regulators.
This remains true going
3/10/17 4/4/17 5/17/17 6/21/17 into 2018, but we do know
Both deals ultimately crumbled. Anthem Inc. whos winning virtual reality:
and Cigna Corp. are suing each other over the Sony Corp. In the second
$1.9 billion breakup fee that Cigna says Anthem quarter of this year, the company
owesplus $13 billion in alleged damages. In sold more VR headsets than its
October, CVS Health Corp. made a reported two primary rivals, Facebook and
$66 billion offer to acquire Aetna Inc. HTC Corp., combined.
7/17/17 8/2/17 9/20/17 10/18/17