Ben Walsh

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America’s economy defied expectations and shrank 0.1% in the fourth quarter -- analysts expected 1.1% growth. And it’s all the military’s fault. Or at least, the fault of declining defense spending.

Brad Plumer runs through just how significant the fall off was:

Government defense expenditures plunged by a staggering 22.2% between October and December... The Pentagon spent significantly less on just about everything except military pay. Had the Pentagon not cut back on spending, the economy would have grown at a weak but positive 1.27% pace.

While Plumer notes that military spending often falls from the third quarter to the fourth, T Rowe Price’s chief economist Alan Levenson pointed out in a note to clients that the decline was the single largest decrease on record. Dylan Matthews has a great chart showing just how out of synch defense spending (and inventories) were from the rest of the economy. On a more granular level, this graph from Reuters shows capital expenditures at Lockheed Martin and Northrup Grumman, everyone’s favorite cluster bomb assemblers and  drone manufacturers, falling off a cliff.

The stimulative effects of defense spending are nothing new. Just think WWII or, more recently, the Washington, DC area, where the economy has grown about three times faster than the rest of the country since the financial crisis. Last fall more than a few economists cut their fourth quarter forecasts despite upward government revisions to third quarter growth. Back then, the surge in third quarter defense spending didn’t look sustainable.

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Apple’s stock is down 23% in the last six months. Last week’s earnings report caused an overnight drop in shares from $514 to $461. Earnings growth is decreasing. Investor Jeff Gundlach thinks it’s a “broken company” where innovation has been reduced to “just changing the size of... products”. Fast Company explains “Why Apple is losing its aura” while the WSJ asks “Has Apple Lost its cool to Samsung?”

Not so fast. Legendary VC Michael Moritz, who first bought Apple equity in 1978, has stepped into the doomsaying to decry the lack of “any sense of perspective”. Quarterly revenues, he notes, grew 18%, and topped $50 billion for the first time. And while Apple does face stiff competition, it’s only because it is so successful:

Lance Armstrong’s world-class abilities – as an athlete, manipulator, liar, and bi-pedal pharmacological wonder – are well-documented. What shouldn’t be overlooked, though, is that Armstrong also excelled at capturing his regulators, the same way banks and other industries capture theirs. His undetected doping fueled success, and Armstrong deployed that success better than anyone in the sport as a tool to continue doping.

At his peak, Armstrong was the biggest star in cycling, and a bigger star than any cyclist before him. He needed cycling, but cycling officials and race organizers, not to mention sponsors and manufacturers, needed him too. Here’s his former teammate Frankie Andreu:

He owned the cycling industry. Whatever he said, happened. He had a ton of money and money can buy a lot of things that other people can't get. He knew who did what, because he was the ringleader.

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The world’s plutocrats are currently heading to a more “dynamically resilient” -- and possibly more complacent -- Davos. Don’t expect much introspection, and definitely don’t expect much debate on the hard-to-define “value of finance”.

At the DLD Conference in Munich today, Peter Thiel had an interesting take on the rise of financial services. America’s past 80 years, he said, can be divided into two periods: From 1933 to 1973, real incomes rose 350%; from 1973 to 2013, they rose just 20%. While Americans have remained optimistic about economic growth, Thiel thinks they’ve become uncertain about its sources. That uncertainty, Thiel says, drives Americans to try to benefit from the economic value of others rather than creating it themselves. Because of this, investing in markets generally takes priority over funding specific businesses.

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In the unlikely event that you were harboring deep anxiety about the profitability of Goldman Sachs or JP Morgan, you can skip the Xanax. At the big banks, profits are very much back.

The new Goldman Sachs, Stephen Gandel writes, looks “a little bit like the old Goldman Sachs”. Goldman today reported that its fourth quarter profit rose 53% and full year earnings jumped 70%. The bank also pulled $6 billion in revenue from its own investments for the year, or 17% of its overall revenue. Goldman even found time to placate the rival -- and overlapping -- factions of employees and shareholders by cutting the amount of revenue going to employees, reports Lauren LaCapra. At 38%, Goldman’s compensation ratio is second lowest since the bank went public. Still, in absolute dollars, bank employees got a bump: comp rose 6% over last year.

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The robots are coming for your job.

In the past few months there’s been a boomlet of very smart people worrying about the economic consequences of our increasingly robotic future. Kevin Kelly, in a cover story for Wired last month, describes this imminent -- but not yet sentient -- threat: “before the end of this century, 70 percent of today’s occupations will likewise be replaced by automation... robot replacement is just a matter of time”. He’s not worried, however, because “The one thing humans can do that robots can’t (at least for a long while) is to decide what it is that humans want to do”. You will always have a job; it will just consist primarily of telling robots what to do.

Robot servants and factory workers may give us more leisure time, but Noah Smith worries they’ll further erode labor’s declining share of national income. Even more problematic, they will cause “old mechanisms for coping with inequality break [to] down”. Paul Krugman agrees that a shift is necessary: if labor’s share if income continues to decline, “it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won’t do much to reduce inequality if the big rewards simply go to those with the most assets”.

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Step One in the Tim Geithner Legacy Project is complete: Barack Obama delivered a ringing endorsement of the Treasury secretary, who’ll be stepping down on January 25. Here’s the president:

“With the wreckage of our economy still smoldering and unstable, I asked Tim to help put it back together. So when the history books are written, Tim Geithner is going to go down as one of our finest Secretaries of the Treasury.”