Market Update
The inflation number out on Wednesday should not have been a surprise to anyone who has seen the headlines over the last six months. Still the stock market seemed completely shocked. The Consumer Price Index marked a year-over-year rise of 4.2%. In absolute terms this is big, but less so when considering how rough the economy fared last spring during lockdown.
There were some eye-popping numbers in a few industries, like in the used car space. There was a 10% increase in the price of used trucks and cars just in April and 21% year-over-year. The average used car sold for over $25,000 last month. This increase seems directly related to the semiconductor shortage, which we mentioned last week is forcing car manufacturers to leave out items like GPS and back-up cameras, features drivers have come to regard as must-haves in a new vehicle.
Understandably, Americans are giddy over upcoming business and personal travel plans after such a long lapse in getting out and about. Hotel and airline prices rose 7.6% and 10.2% respectively. Recreation prices were up .9% and car insurance was up 2.5%.
On the other hand, there was the expected, and not unusual, rise in the cost of housing at 0.2%. Medical care inflation was flat.
Despite the reaction from the stock market, on the whole this is all good news. Americans are happy to spend and they have the savings to do so. Hotels and airlines are delighted to have the business. Prices are not yet to pre-pandemic levels but there is the hope that they can get there soon. Thus, there will be continued inflation as prices recover. And as prices go up, so will profits.
The CPI data also helped support the case that this inflation should be short-lived, which is what the Federal Reserve has been steadfast saying. Should expenses like rental housing and healthcare rise, which would likely be due to increased employment, it would be more worrisome. For now, we are experiencing a strengthening and energetic economy with supply constraints on goods and opportunities that will moderate over time. If the Fed feels that it must raise interest rates sooner, it will be because the economy has found its footing and in a complex convoluted way, that is what was so upsetting to the stock market this week.
The Digital Hustle
Tesla CEO Elon Musk joked that the crypto-currency Dogecoin was "a hustle" during his Saturday Night Live hosting gig last weekend, causing laughs and panic. Dogecoin's price dropped dramatically in minutes. Hustle or not, the impact of digital currency on all manner of finance and business continues to grow.
Exhibit one is Tesla’s first quarter earnings released in late April. Even though it is the world’s most valuable automotive company as ranked by market capitalization (share price times shares outstanding), currently at $550 billion, it only sold 185,000 cars in the first three months of the year. Toyota, the second most valuable car company sold over 600,000.
But sales are besides the point, which is really to highlight that Tesla made $101 million just by trading Bitcoin; net income was the highest ever at $438 million for the quarter, a figure it would not have reached without its trading desk. Then on Wednesday Tesla announced it will no longer accept Bitcoin as payment citing the climate damage that occurs from mining the currency. In the afternoon of the 12th, Bitcoin dropped from $54,778 to $46,000 before recovering.
This week we also followed the cyber attack on Colonial Pipeline’s computer network, which effectively cut off service from its gas pipelines. Colonial, which learned of the attack around May 7th, supplies 45% of the East Coast’s gas supply. Colonial fairly quickly paid $5 million in untraceable crypto-currency to the hacker group DarkSide. In return, it received a decryption tool that worked, albeit very slowly, to release its computer files and allow normal business to resume. This ransomware event highlights the massive role that crypto-currencies are playing in cyber criminal activities. A recent report said that in 2020 cyber victims, which have included hospitals, school districts, businesses and governments, paid a total of $350 million in ransom. All of it has been paid with crypto-currency.
Then there is the still developing story around Binance Holdings. Binance is the largest exchange by trading volume for crypto-curriencies and is now under investigation by the U.S. Justice Department and Internal Revenue Service for suspicion of money laundering and tax evasion.
Perhaps all press is good press in the long run. For now, the the bad news continues to damage the cause for those who are serious about creating a successful currency (or currencies) that is beholden to no government influence or oversight. If Bitcoin turns 12 years old this year, we should all brace for some challenging teen years ahead.
She-Cession Continues
Employment is a long way from a full recovery to pre-pandemic levels but we are making strides, particularly in the hardest hit industries of travel and leisure. However, there are two glaring issues bubbling just under the surface.
One is the large mismatch between many job openings and few applicants available or interested in filling them. Depending on whom you ask, the reason for the mismatch is starkly different. The Biden Administration says that potential workers are still waiting for vaccines and figuring out childcare. This despite the fact that nearly 50% of the country has received some vaccine. Others say that unemployment benefits are too generous and workers are making more on the dole than on the job. This despite the job gains in April that were in the lowest paying jobs like restaurant work.
The second issue is that the job market continues to lose women, particularly mothers. In April a net 266,000 jobs were created when economists had expected 1,000,000 jobs. But an even bigger disappointment was the large outflow out of women who are continuing to leave the workforce. Employment levels are particularly low for Latina and Black women. This is the "she-cession" imbalance that has persisted and perplexed many even with the vaccine rollout, many schools back in person and the general reopening of economy.
Experts believe that getting consistent care for children has been expensive and challenging, forcing mothers to give up working or looking for work even at this stage of the pandemic. This a situation that also often leaves them without access to unemployment benefits as not every state allows claims for those who leave jobs by choice. By comparison, The New York Times found last fall that disruptions to working women without children have been much lower. Disruptions to employment of men with and without children have also been lower.
At this point, the National Women's Law Center estimates it will take 28 months of jobs growth for all of the women who were employed in early 2020 to gain back jobs. If only it could be that easy. Either the pandemic needs to end, which does not seem imminent, or our country needs innovative and compassionate solutions from our lawmakers and business owners before women, particularly mothers, will be able to return. They have chosen in favor of their families by leaving the workforce and it will take more than a continuation of the status quo for women to return.
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