Econ Weekly (July 19, 2021)

Inside this Issue:

  • Crisis in Prices? Latest CPI Again Shows Climbing Costs for Consumers
  • The Transitorian: Powell Still Chill, Says Pricing Pain will Wane
  • Bank Goodness: Lenders Just Fine Despite Lending Decline        
  • Three Cheers for Ten-Years: Oddly, Demand Keeps Rising for Longterm Treasuries
  • Lord of the Skies: Delta Mending as Travelers Start Spending
  • Eating More, Paying More: Food Giant Conagra Says Demand Up, Costs Up
  • Chuck E. Fees: Banks Earning Quite a Few Pennies from their Overdraft Levies
  • Jassy’s Legacy: How Amazon Became King of the Cloud   
  • Gassy’s Legacy: Is Natural Gas a Help or a Hindrance?
  • Cash in the Cradle: Connecticut Gives Bonds to Babies  
  • And This Week’s Featured Place: Greenville-Spartanburg, South Carolina, Upcountry Car Star

Quote of the Week

“Without any doubt, the place to look is the labor market… That’s what you need to do to understand the direction of the Fed, and to understand inflation… [The Fed’s] been very consistent on this. Until we have a lot more job creation in this country, and we see unemployment going back down, they are not going to move on rates.”

– PGIM CEO David Hunt

Market QuickLook

The Latest

How’s the economy doing? There’s a gusher of new clues, none more closely watched than the Labor Department’s monthly index on consumer prices. The June report leaves no ambiguity: Inflation is hot. But less clear is how concerned we all should be.

By now you know the arguments behind the transitory story: That high inflation readings reflect skewed y/y comparisons and largely unmeaningful spikes in isolated categories like used cars (which are by the way showing signs of coming down, reports Cox Automotive). Suppliers need time to adjust to an unforecastable surge in demand. And they will, say the tranquil. Fed chair Powell preached this sermon on Capitol Hill last week, hammering home his message: The top concern right now is jobs, not inflation.

Powell spoke before both Houses of Congress to present the Fed’s semiannual policy report, which paints a generally sanguine picture of the economy. But it does highlight some areas of potential risk. For one, “asset prices may be vulnerable to significant declines should investor risk appetite fall, interest rates rise unexpectedly or the recovery stall.” Leverage at hedge funds and life insurance companies, it adds, continues to be high. Transparency regarding hedge fund holdings is another concern (remember the Archegos affair?). There’s the Covid virus still lingering, of course. Still another worry: Structural deficiencies in short term money markets. There’s some uncertainty about the ability of borrowers in loss-mitigation programs to meet their obligations after those programs end and government support runs out. Business debt, furthermore, remains high relative to GDP, and thus also a potential vulnerability should interest rates rise.

But rates are certainly not rising now. Last week, the Treasury’s ten-year yield fell again, never mind the latest CPI readings. John Authers, a Bloomberg columnist, reviews some possible reasons. Maybe the market thinks inflation has peaked. Maybe it thinks growth has peaked. Maybe pension funds, after enjoying big stock market gains, are rebalancing their portfolios back to safe bonds. Maybe it’s foreigners driving demand for Treasuries, whose nominal rates are at least positive. Maybe it’s growing fear of Covid’s Delta resurgence. Maybe it’s a bet that new rounds of fiscal spending won’t escape Congress. Maybe it’s fear of what might happen to the economy if the Fed tightens sooner than expected. Or maybe it’s a reaction to underwhelming economic data from China, where slower growth could have a deflationary impact on the world.

In any case, while everyone’s buying Treasuries, indicators of consumer spending—perhaps the biggest driver of U.S. economic growth—remain solid. Encouraging too is a New York Fed business survey suggesting intent to boost investment spending. Washington, meanwhile, continues to debate a $1.2 trillion investment in infrastructure, alongside a new plan for $3.5 trillion in spending to address issues like climate change and the care economy. But passage of each is far from assured, leaving the possibility of no additional stimulus spending. Treasury Secretary Yellen, for her part, while championing global tax reform, can’t warn legislators enough about the risks of breaching a Congressional debt ceiling.

The risks of climate change are ever present as intense heat scorches the West, and as severe droughts threaten America’s farms. In the Fed’s latest Beige Book report on economic conditions around the country, the Reserve Banks of Minneapolis, Kansas City, Atlanta, Texas and California all mentioned drought as a current challenge for their agricultural sectors.

Oh, and last week marked the start of second quarter earnings season. Banks were in the spotlight, trumpeting strong results despite weak loan demand and low interest rates. UnitedHealth, a massive insurance and care provider, said demand for non-Covid care is starting to normalize after a period in which many Americans avoided non-urgent medical procedures. Delta, the country’s largest airline by many measures, sees demand roaring back so fast that it can’t keep up with staffing.

Earnings season is now in full swing, with reports this week from giants Coca-Cola, Netflix and IBM. Semicon colossus Intel reports too, amid talk that it might make a big acquisition. It’s a big week for telecoms with Verizon and AT&T up to bat. For more on inflation in the auto market, tune in to AutoNation’s call on Monday. D.R. Horton will talk housing. Biogen will field questions about its controversial (and expensive) new Alzheimer’s drug. Health care mega-players HCA and Johnson & Johnson report too. Railroads, restaurants, more banks, more airlines… it’s gonna be a busy week.

Inflation Update

It was more of the same from the latest Labor Department consumer price index (CPI). June’s reading was again way above norm, with annual inflation now running far above the Federal Reserve’s long term annual target of 2%—it’s now 5.4%. But still no cries of concern from the Fed. Chair Powell reiterated his “transitory” thesis on Capitol Hill, insisting that the elevated readings will normalize once the post-Covid economy normalizes, in other words when supply eventually adjusts to the sharp and sudden fiscal boost to demand. He cited the example of lumber, whose prices soared and then tumbled. So no plans to tighten up on the monetary reigns just yet, never mind a chorus of critics—some prominent economists among them—sounding the inflation alarm. The Fed, Powell makes clear, has its eyes squarely on the labor market, still many jobs short of where it was pre-Covid. Until more people have jobs, Powell isn’t ready to tighten. Just from May to June, by the way, the CPI reading jumped 0.9%, up from a 0.6% increase from April to May. But again, an outsized portion of the increase came from auto-related categories (used cars and rental cars, especially), travel categories (i.e., airfares), food and energy (the latter two are notoriously volatile and often excluded from economic analyses). There’s no inflation at all right now in medical care and pharmaceuticals. Nor is there much in the largest CPI category of all: Housing, notwithstanding surging home prices. The Labor Department does not treat buying a home as a consumer purchase; it’s considered an investment. The CPI’s housing figure, by contrast, reflects only the monthly costs associated with shelter, be it rent or the equivalent thereof. Alright, so what’s next? The Commerce Department’s own inflation index, measuring personal consumption expenditure (PCE), will be updated for June on July 30. That’s just before the Fed’s policy committee holds its next meeting. Also on the agenda: The Kanas City Fed’s annual Jackson Hole symposium in late August. As a reminder, the market awaits the Fed’s decision on 1) easing or ending its monthly purchases of Treasury debt and agency mortgage-backed debt, and 2) raising interest rates. The first could be announced any month now, the latter not until 2022 or 2023, depending on which Fed committee member you ask.

Companies

  • JP Morgan: It’s the reverse of a classic bank run. Americans are rushing not to withdraw money but deposit Lots of it. Companies too, after a rush of emergency credit-line tapping early in the crisis, are doing more depositing than borrowing these days. In fact, the Federal Reserve, created to be the lender of last resort to banks, now finds itself a borrower of last resort, agreeing to hold hundreds of billions of excess bank and money market cash overnight, offering a small return in exchange. Better that, it reasons, than allowing nominal interest rates to turn negative in short-term money markets (real inflation adjusted rates already are deeply negative). It’s frankly not a great time to be lending for giant banks like JP Morgan, the nation’s largest. A safe time, yes, with all those extra reserves (deposits were up 22% y/y last quarter). But how’s a bank supposed to make money when loan demand is weak and interest rates (or more precisely interest rate spreads) are miniscule? Don’t shed any tears. JP Morgan and its peers did just fine during the second quarter of 2021. Their results were excellent in fact, thanks to profits from activities other than lending—investment banking and asset management, most notably. When will loan demand increase and interest rates rise? That depends in part upon legislation in Washington—will there be more fiscal stimulus, or will stimulus wane? For JP Morgan and other big banks, conditions are as good as ever, never mind the situation with loans and low interest spreads. CEO Jamie Dimon spoke of a strong GDP outlook, robust household balance sheets and healthy levels of inflation. Yet threats—some troubling, some modest—loom from all directions: less regulated shadow banks, fintech startups, neobanks, crypto entrepreneurs, Silicon Valley… even Walmart. All want to disrupt the financial services sector. The Federal Reserve too, could lure away customers if it creates digital currency deposit accounts. To be clear, JP Morgan itself is buying lots of fintech rivals before they become a problem. It’s also incidentally playing offense in overseas markets like the U.K.
  • Goldman Sachs: As the most famous name in investment banking, Goldman Sachs minted money last quarter, riding a boom in merger deals (including SPAC transactions) and equity issuance (including IPOs). Once a non-player in the traditional lending business, Goldman is now aggressively growing its consumer banking division, despite the unhelpful lending and interest rate environment. Along with taking deposits from individuals, it’s building a credit card business alongside Apple. Still, consumer banking remains the smallest of Goldman’s four divisions, with asset management now the largest. Normally, that distinction belongs to its global markets division, but global markets were much less volatile last quarter, resulting in lower trading revenue. CEO David Solomon, who by the way wants his workers back in the office, expressed more concern about a resurgent virus than persistent inflation. He expects U.S. GDP to grow nearly 7% this year and nearly 5% next year. As an aside, financial services are one rare corner of the economy where U.S.-China cooperation is expanding thanks to Beijing’s deregulation. Goldman, indeed, is building a joint venture with China’s ICBC.
  • Bank of America: Only a quick word here to put some figures on the lending slump bankers face. Charlotte-based Bank of America said deposits have now crossed $1.9 trillion mark, while loans outstanding are merely $900 billion. What to do with all that extra cash?
  • Delta: It awkwardly shares a name with a virus variant. But that’s not dampening momentum at Delta, the Atlanta-based airline. To be clear, it’s still losing lots of money—$678m last quarter, excluding one-off accounting adjustments. But pretax earnings turned positive in June, with more profits expected in the second half of the year. Bank of America, talking about spending trends on its credit cards, captured the situation best: Domestic airline purchases, it said, are now 8% higher than they were at this time in 2019. But international airline purchases are still down roughly 40%. Overseas travel is what’s hurting most. And Delta, uncomfortably, has lots of overseas routes, not to mention major equity stakes in overseas airlines (including Richard Branson’s Virgin Atlantic). But it does report clear signs of intercontinental demand recovery, especially to Europe heading into the fall. When borders reopen, it explained, demand quickly responds. Travel to Asia and Latin markets like Brazil and Chile, however, will take longer to recover. As for business travel, it’s still way down but recovering, especially among smaller businesses. Higher fuel costs are a challenge, but average prices were not much higher last quarter than they were in the same quarter two years ago. A more pressing problem right now: Restaffing to meet the sudden surge in domestic leisure demand. Delta says it’s not having trouble finding The problem is the time it takes to train them. For the record, 72% of the airline’s employees have been vaccinated.
  • Conagra, the Chicago-based company behind popular supermarket brands like Slim-Jim, Duncan Hines and Orville Redenbacher popcorn, said what many companies will surely say during Q2 earnings season: That demand was exceptionally strong, but costs rose uncomfortably fast. On balance though, the positive outweighed the negative, resulting in historically strong results. “New behaviors and habits created during the pandemic resulted in an elevated and sustained level of at-home eating.” Note the word sustained, implying expectations that a revival of restaurant dining won’t reverse the momentum. But Conagra is raising prices now and—so far—this hasn’t dented demand much. But nor has it fully offset the company’s cost inflation. To the extent that price hikes do offset some of the impact, meanwhile, there’s a lag time between the time the cost is incurred and the time the price hikes take effect.

 Tweet of the Week:

Sectors

  • Banking: An American Banker podcast discusses the thorny topic of overdraft fees, responsible for an estimated $34b in annual revenue for U.S. banks and credit unions. These are fees that banks charge customers when they try to withdraw more money than they have in their account. A Brookings Institution study found that just 9% of bank customers account for 80% of the fees collected, with lower income customers typically paying the highest fees (fees are often waived for customers with large account balances). Brookings highlighted six smallish banks for which revenues generated more than half their net income. Three had overdraft revenues that exceeded total net income, meaning they lost money on every other aspect of their business. One was First National Bank of Texas (doing business as First Convenience Bank), which collected more than $100m in overdraft fees last year yet posted an annual profit of just $36m. Critics, including some prominent Senators like Elizabeth Warren of Massachusetts, argue that overdraft fees prey on people who often run short on money. Banks and credit unions, they say, are behaving like check cashers or payday lenders—it’s another example they give of how being poor in America is expensive. Defenders argue that without such overdraft fees, many more Americans would be unbanked, thus denying them access to important financial services. Recall that Warren, at a Senate hearing this spring, confronted JP Morgan CEO Jamie Dimon on the matter, alleging that his bank collected nearly $1.5b in overdraft fees last year. Dimon insisted that all such fees were waived upon request.

Consumer Trends, as tracked by the American Bankers Association 

From the ABA’s Consumer Delinquency Bulletin (Q1, 2021)

  • Corporate Real Estate: You surely know about one booming corner of the otherwise hard-hit corporate real estate sector— warehouses are hot. Well, there’s another hot niche area of the market, one highlighted by the Wall Street Journal. Soundstages for movie and television production are in big demand as media companies race to produce content for their streaming platforms. Netflix, for its part, releases a new movie every week on average. YouTube and TikTok producers are booking time in these studios too. And alternative investment firms like Blackstone are jumping in. Los Angeles, home to Hollywood, is naturally the top spot for film production. But studios are popping up all over the country, from Buffalo to Chicago to Spokane.
  • Small Business: “The cost of failure is getting as close to zero as it’s ever been.” So says Harvey Finkelstein, president of the fast-growing online retail platform Shopify. Speaking on the Founder’s Journal podcast, he recounts the story of his grandfather who many years ago started an egg stand at a farmer’s market. To do so, he had to incur lots of high-interest debt and mortgage his home. Today, launching an online store on Shopify costs $29 a month. What’s more, you’ll reach a global audience from anywhere. No wonder why new business formation is growing exceptionally fast right now.

Markets

  • Cryptoassets: Remember the crypto frenzy during the first quarter of the year? It’s now a quickly fading memory. According to Morning Brew, trading volumes at major cryptocurrency exchanges fell more than 40% in June. Wow. Was it all a big speculative bubble? For some assets—dog-themed coins and non-fungible token art, perhaps—maybe yes. But the cryptoeconomy remains a potential force of disruption, with lots of talent and money still hard at work developing new financial products. That said, no killer apps yet, more than a decade after the advent of Bitcoin and blockchains.

Government

  • Baby Bonds: Connecticut’s state legislature passed a so-called “Baby Bonds” bill, the first of its kind nationwide. Subject to gubernatorial approval, it would build on ideas advanced by New Jersey Senator Cory Booker and others, creating what’s essentially a trust fund for children born into poverty. Eligible newborns—some 16,000 kids a year whose mothers qualify for the state’s Medicaid program—will receive $3,200 placed in a state investment fund. There, the money would have a chance to grow until the child turns 18, at which point it could be used for various purposes including education, retirement savings, buying a home in Connecticut or investing in a Connecticut business. The bill allocates $50m a year for the next 12 years. Baby Bonds, supporters say, will mitigate income and wealth inequality, especially stark across racial lines (almost 40% of the state’s Medicaid families are non-white). Connecticut happens to be the country’s wealthiest state on a per capita basis, not least because of all the wealthy Wall Street financiers who live there. It’s also home to many hedge funds, including the esteemed Bridgewater Associates.
  • Antitrust Policy: When President Biden laid out his plan for stricter enforcement of existing competition laws, he specifically mentioned several industries. Unsurprisingly, Big Tech was among them. But also on his list: hospitals, health insurers, drug makers, agricultural firms and companies engaged in global container shipping. He mentioned foreign monopolies as well. The policy aims to boost the fortunes of workers, farmers, small businesses and consumers. But the order by itself won’t have any big immediate impact—it’s more of an aspirational document directed at executive branch regulatory agencies. Naturally, many big business lobbies are critical. The Association of American Railroads, for one, said the policy threatens to “interfere with functioning freight markets [and] could ultimately undermine railroads’ ability to reliably serve customers.”

Places

  • Greenville-Spartanburg, South Carolina: Once upon a time, when Detroit was the world’s center of auto manufacturing, Upcountry South Carolina was the world’s center of textile manufacturing. After the Civil War, the railroads came to the foothills of the Blue Ridge Mountains, and so did New England and mid-Atlantic mill owners seeking lower labor costs. The aftermath of another war—World War II—would mark a slow and painful decline for the textile industry in Greenville and Spartanburg, not unlike the auto decline experienced in places like Detroit. Where did the textile industry go? Mostly overseas, to low-wage economies in East Asia and the Indian subcontinent. And where did the auto industry go? Many companies went to the American South, no less determined to find lower labor costs than their textile industry predecessors. To be precise, it wasn’t America’s auto giants that came—many were prevented from doing so by union contracts. Instead, their foreign competitors came. Mercedes Benz, Honda and Hyundai came to Alabama. Toyota came to Kentucky. Nissan and Volkswagen came to Tennessee. And BMW came to Greer, South Carolina, situated just between Greenville and Spartanburg. The German carmaker arrived in 1992, putting the area on a road to becoming a manufacturing powerhouse. In 2018, BMW was employing 8,000 workers at its South Carolina factory, producing vehicles for both the domestic and export markets. In fact, BMW is today the largest car exporter from the U.S., with most of its products shipped via the port of Charleston to markets like China, South Korea, Russia and of course the company’s home country Germany. Just as importantly for the local Greensboro-Spartanburg economy, the BMW plant drew many auto suppliers to the area, from Michelin (tires) to ZF (transmissions) to Bosch (powertrains). In 2014, according to a Housing and Urban Development report, BMW had a direct impact of $12.5b on South Carolina’s economy. It’s not just the non-union workforce and business-friendly conditions that BMW finds attractive. It’s also Greenville-Spartanburg’s location between Charlotte (less than two hours away by road) and Atlanta (roughly three hours). It’s also close to the booming tourist and retirement community of Asheville in the Blue Ridge Mountains. Proximity to Charleston’s world-class port facilities, too, is important. So is access to Charlotte and Atlanta airports, both with nonstop flights to BMW’s home city Munich. The tens of thousands of lost textile jobs won’t be forgotten. But the auto jobs make the memories less painful. Non-auto manufacturers are now coming as well, supplemented by large numbers of health care jobs. The restaurant chain Denny’s is headquartered in the area. Just last month, Oshkosh Defense announced plans to build a $155m operation in Spartanburg, creating 1,000 new jobs to build electric delivery vehicles for the U.S. Post Office. China’s Gissing announced an investment last month as well. Less happily for the region and its thriving manufacturing base, the U.S.-led tariff war had a dampening effect on further investment, especially from Germany and Japan. David Britt, chairman of the local economic development committee, told a recent discussion panel that BMW for one hasn’t made any meaningful investments since the start of tariff hostilities. Nevertheless, Greenville-Spartanburg’s economy is booming again. Britt speaks of $1.2b in new investment in just the past six months, creating 3,100 new jobs. People are coming for the jobs, plus the favorable weather and relatively low living costs. Just before the pandemic in 2019, the Greensville-Spartanburg airport saw record passenger traffic. As it happens, the two neighboring cities, if treated as one metro area, would be the state’s largest with 1.2m people—that’s after robust population growth of about 12% during the 2010s. Neither the capital Columbia nor Charleston itself has more people. Just how humming is the economy now as the Covid crisis recedes? In an interview with NPR’s Marketplace, Britt made his assessment clear: “Things are far better than we ever imagined.”

Abroad

  • China and Russia have emerged as America’s two most important geopolitical rivals. But what’s the relationship between the two? The Center for Strategic and International Studies (CSIS) examined the question with guests Paul Schwartz at the Center for Naval Analyses and Richard Weitz at the Hudson Institute. Despite a history of tensions along their long border, China and Russia have grown closer amid their mutual tensions with the West. One aspect of their economic cooperation is evident in the arms market, where Russia is a big player worldwide. Russian arms sales to China have become important to the latter’s military advances, especially in the maritime domain. Chinese missiles and submarines, for example, owe a sizeable part of their strength to Russian technology. By selling sophisticated arms to China, however, Russia risks pushback from two of its biggest clients: India and Vietnam—India is in fact Russia’s largest arms client. China itself, meanwhile, is increasingly penetrating the global arms market, cutting into Russian market share. Though oil is by far Russia’s most important export economically, Schwartz and Weitz note the importance of arms sales to financing research and development.
  • Russia: Another point about the Russian economy, from Timothy Frye, author of the book “Weak Strongman: The Limits of Power in Putin’s Russia.” Speaking on the New Books Network podcast, he recalls how Vladimir Putin was able to cement his autocratic power during his first two terms in office, when the size of the economy doubled thanks to sky-high oil prices. Much of the windfall, he adds, was managed relatively responsibly, without serious inflation (the non-oil export sector also benefited from the ruble’s devaluation in 1998). But today, after a decade of mostly low oil prices, living standards are 10% lower than they were in 2012, Frye says. Politically, he asserts, this means Putin’s retention of power depends more today on tactics like electoral manipulation, nationalist foreign policies and repression of dissent. Regarding relations with the U.S. and Europe, the big debate among scholars is how Russia’s foreign policy might have evolved differently had the West not expanded NATO all the way to Russia’s borders.
  • China, explains Bloomberg columnist John Authors, is starting to adopt economic policies that should put downward pressure on its currency value. And a weaker yuan, Authors, writes, is a deflationary force for Americans. Simply put, it means Americans pay less for their Chinese-built goods. An instructive exercise for the next time you’re in a Walmart or Target: Check the tags of items you find on the shelves. Chances are, a good number will say “Made in China.”

Looking back

  • Amazon Web Services: Morning Brew co-founder Alex Lieberman looks back at the creation of Amazon’s powerful cloud computing business, which generates more than 60% of the entire company’s operating profit. Its $54b in annual revenue, furthermore, makes it larger than companies like American Express. Or, as Lieberman writes, larger than Marriott, Netflix and Twitter… combined! What is AWS? It’s the largest player in the $150b on-demand cloud computing market, with origins that date back to 2003. Amazon was growing rapidly, with lots of time and human resources spent just trying to manage information technology infrastructure, i.e., building servers and provisioning databases. In stepped Andy Jassy, now Amazon’s CEO. He greatly simplified Amazon’s IT infrastructure, focusing on “storage, computing and databases.” By 2006, the company was offering its IT services to others. Rather than having to build their own servers, computing power and databases, companies could just rent them as needed from Amazon. The benefits of using Amazon’s service were huge, as Lieberman outlines. Fixed costs became variable costs. Total costs dropped with economies of scale. On-demand IT services created flexibility and speed. Companies no longer had to maintain their own expensive servers. Suddenly they had global reach and best-in-class performance. Or more succinctly, AWS offered speed, cost efficiency, security and reliability. Amazon’s new cloud business turned into nothing less than the “electricity of the internet.” Lieberman highlights Netflix as one example of the many firms outsourcing their IT to AWS today. “If you go to Netlflix.com, you’re seeing that homepage because of AWS. Your computer is actually connecting to an AWS server via the internet.” No need for Netflix to have thousands of physical servers, nor the real estate to house them, nor the people to maintain them.

Looking ahead

  • Getting to Net Zero: The University of Pennsylvania’s Kleinman Center, in its podcast, spoke with the IEA’s Peter Fraser about the disputed role of natural gas in a world trying to adopt clean energy. In one respect, it’s celebrated as a reliable, low-carbon alternative to coal—natural gas currently produces about 40% of all U.S. electricity. On the other hand, it’s still a fossil fuel, and one that’s costly relative to coal in many countries outside the U.S., including China, India and Indonesia. Fraser and the IAE see an important role for natural gas in meeting the world’s near-term energy needs—it’s indeed cleaner than coal, and cleaner than oil too. But ultimately, to get to net zero carbon emissions by 2050, natural gas too will need to be replaced by cleaner sources, including perhaps lower-carbon gasses like hydrogen. Encouragingly, solar power is already cheaper than either coal or natural gas in many emerging economies like India. Such countries, as it were, never had a U.S.-like fracking revolution to drive down gas costs. On a final note, natural gas prices—like prices for so many commodities—have spiked this year.

Welcome!

Login to your account below

Create New Account!

Fill the forms bellow to register

Retrieve your password

Please enter your username or email address to reset your password.

Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?