Place of the Week: Yuma, Arizona
Econ Weekly (Nov. 29, 2021)
photo courtesy of Visit Yuma
Issue 46: November 29, 2021
Inside this Issue:
Jay to Stay: Fed Head Powell Reappointed
Funds and Roses: The Ups and Downs of Passive Investing
No Tears for Deere: Wages Ballooning but Revenues Booming
Sweet Defeat? DOJ Sues to Stop a Sugar Deal
Dam It! How the West Gets its Water
Woe is He with No Degree: America’s Great College Divide
Emissions Mission: Capital Markets and the Path to Net Zero
September 2001: How the Fed Reacted to 9/11
And this Week’s Featured City: Yuma, Arizona, Arms and Farms
Quote of the Week
“For the first time in Dollar Tree’s 35-year history we are lifting the $1 price point cap at all Dollar Tree stores on the majority of our assortment.”
-Dollar Tree CEO Michael A. Witynski
Market QuickLook
The Latest
For many investors, what happened on Friday was harder to digest than even the turkey. Stocks dropped. Oil prices tumbled. Crypto prices plummeted. And bond yields fell, all in a sign of nervousness about an ominous new strain of Covid identified in South Africa.
The market’s jangled nerves belie important signs of strength in the economy, most importantly a strong start to the holiday shopping season—there’s nothing more correlated with U.S. economic health than consumer spending. Cheaper oil, alas, always helps in that regard. Markets, meanwhile, were pleased to see Jay Powell retain his job as head of the Fed, alongside Lael Brainard as the new Vice-Chair (other key Fed positions, including one responsible for bank regulations, are still left to fill). There was happy news from the job market too, with record-few Americans filing for unemployment insurance. Corporate America continues to post extraordinary profits as robust revenue growth offsets swelling costs. Supply chain bottlenecks appear to be easing at least a bit—an IHS Markit survey of business leaders said supplier delivery delays were at their lowest levels in six months (if still abnormally long). Don’t ignore foreign investment—Korea’s Samsung plans to build a massive $17b semicon plant near Austin (the city every economic development official dreams about). Existing home sales continue to increase, says the National Association of Realtors, with the median sales price up 13% y/y to $353,900. U.S. airports this past week were almost as busy as they were in 2019.
So what’s the problem? Well, there’s Omicron, the new virus strain, already worrisome enough to reinstitute some international travel bans. It was the Delta strain, remember, that played a large role in slowing U.S. GDP growth to just 2% in the third quarter, compared to nearly 7% in the second quarter. Markets certainly haven’t forgotten about inflation. If they needed a reminder, the latest PCE price index for October showed another uncomfortable 5% y/y increase.
There’s other data supporting the pessimists. For all the gains in wages since the pandemic began, real weekly wages (in other words, wages adjusted for inflation), actually declined 1.6% in October, y/y. Put another way, pay increases aren’t keeping up with price increases (though that’s happily not true for some lower-income workers). Fiscal drag is another concern as stimulus measures fade. Monetary drag could be a factor too as the Fed tightens policy. As a reminder, the Fed is now winding down its bond-buying stimulus but not yet raising interest rates—all of Wall Street is scrambling to guess when that will happen (Goldman Sachs says next June, Morgan Stanley says not until 2023).
If and when interest rates do increase, new questions will arise about debt sustainability, all the more so with investors taking riskier and riskier bets to find… (TO CONTINUE READING, VISIT www.econweekly.biz)
Markets
Passive Investing: What was the greatest company takeover of all time? Robin Wigglesworth, a Financial Times reporter, suggests a candidate. Blackrock, a Wall Street money manager anticipating a boom in index fund investing, purchased Barclays Global Investors at a distressed price during the 2008-09 financial crisis. Today, Blackrock is the champion of index investing, managing nearly $10 trillion of wealth. No other company manages more money. Wigglesworth, whose new book “Trillions” tells the history of index funds, told Bloomberg’s “Masters of Business” podcast that Blackrock today is even more profitable than Google. It was, he says, “the greatest deal in the history of asset management and probably the greatest deal in the financial industry as a whole.” What exactly is an index fund? It’s a form of passive investing, allowing savers to buy whatever companies or debt securities are in a specific market index, like the S&P 500. It’s the opposite of active investing, in which a professional fund manager picks the stocks and bonds to buy based on his or her expertise and analysis. Because index investing doesn’t involve a professional manager, the fees are much lower, a good thing for investors if not for many investment firms. Today, nearly half of the market capitalization of U.S. equities is tied to passive investments, up from virtually nothing in the early 1990s. Blackrock, as mentioned, is the industry leader with its “iShares” branded funds. The other two leaders are Vanguard and State Street. In fact, Wigglesworth says, these three companies now account for around a quarter of all shareholder votes cast in the U.S.
Passive Investing: Wigglesworth, on balance, thinks the rise of passive investing is a good thing. But not everyone agrees. Portfolio Manager Michael Green of Simplify, who once managed money for the famed venture capitalist Peter Thiel, is sounding the alarm. He believes index funds are warping financial markets in dangerous ways, causing for example, greater correlation in prices between stocks, large price gains… (TO CONTINUE READING, VISIT www.econweekly.biz)
Places:
Yuma, Arizona: There aren’t too many places in the world wealthier than San Diego. There aren’t too many places growing faster than Phoenix. But in between is mostly nothingness, just vast stretches of desert, especially on the Arizona side. There is, however, a city called Yuma. It’s not large—roughly 200,000 people in its Census area. It’s certainly not rich—median household incomes are almost $20,000 less than the national average. But it is growing—Yuma metro’s population increased nearly 9% during the 2010s. Why are people moving to Yuma? As it turns out, for several good reasons. Americans first started passing through the area during the California gold rush of 1849, long before Arizona was even a state (that didn’t happen until 1912). Yuma happened to be a good place to cross the Colorado River. The Laguna dam just north of Yuma would be the first one built on the Colorado. Later, during the Depression, desperate farmers from the drought-stricken Great Plains came through hoping to land jobs in California’s fertile Central Valley. Many were turned away by California state police, forced to settle in Yuma. A decade later, during World War II, Yuma’s primitive economy evolved into something more substantial when it became an important outpost for military training and weapons testing. Sure enough, it retains that role today, with federal defense spending a critical pillar.… (TO CONTINUE READING, VISIT www.econweekly.biz)
Looking back
September 2001: Last week, we looked at the Fed’s predicament in late 2000 and early 2001, when economic conditions were rapidly deteriorating after a long tech-inspired boom. The Fed had raised interest rates six consecutive times in the late 1990s, in part to address what chairman Alan Greenspan called “irrational exuberance” in the stock market. The Dot.com stock bubble wound up popping in March 2001. Oil prices were rising. And on September 11, four airplanes were hijacked by terrorists, destroying the World Trade Center and parts of the Pentagon. Two days later, Fed officials held an emergency phone meeting to discuss, among other things, how to get the stock market reopened. They also resolved to provide markets with liquidity as demand for safe and liquid assets spiked. On September 17, the FOMC held another unscheduled meeting, this time.… (TO CONTINUE READING, VISIT www.econweekly.biz)
THIS IS AN ABBREVIATED VERSION OF THIS WEEK’S ISSUE. TO SEE THE WHOLE ISSUE, VISIT www.econweekly.biz. Individual subscriptions available for just $15 per month. Company and University licenses also available.
Interested in helping develop and market Econ Weekly? I’d love to hear from you. Email me at jay@econweekly.biz. And be sure to sign up for my free newsletter about the North American railroad industry: