Jul 15, 2021

Axios Capital

Situational awareness: Spike Lee has a bitcoin commercial, blatantly ripped off from PayPal circa 2016, telling us to "do your own research." If you're so inclined, start with this thread from dogecoin inventor Jackson Palmer.

  • In this week's newsletter: Inflation, moats, deer, concrete, NFTs, and much more. It's 1,694 words, a 6.5-minute read.
1 big thing: A little too much of a good thing

Illustration: Sarah Grillo/Axios

The booming economy, with abundant help from both Congress and the Federal Reserve, has one downside: It's causing some prices to rise at a somewhat alarming level. Inflation is now well over 5%, and no one's entirely sure when it might start coming down.

Why it matters: If Democrats in Congress get their way, we're about to see more than $4 trillion in new infrastructure spending, which can't help but add to inflationary pressures. However, inflation alone — especially if it's temporary — is not so harmful as to be a reason not to pass such a bill.

How it works: There are different types of inflation.

  • Asset-price inflation (aka the stock market going up) is generally considered to be a good thing. Rising house prices are more of a mixed bag.
  • If a fast-food meal has been artificially underpriced for years due to workers being paid much less than a living wage, then food-price inflation looks a lot like redistribution of wealth to people who need it. The same applies in many other service industries.
  • When pandemic-related supply-chain issues cause shortages that in turn cause price hikes, that's more unambiguously negative, although also temporary and even fixable. The cost of higher prices is clear; any benefit is hard to see.
  • When the economy as a whole grows so fast as to exceed its fundamental capacity, that causes what economists call "overheating" — a broad and inexorable rise in the price of just about everything. There's no evidence that's happening now: Only 34% of goods and services have risen in price by more than 2% over the past year, and that percentage is falling rather than rising.

The big picture: As Andrew Ross Sorkin writes in the NYT, "Inflation has long been seen as the economic villain. That view is changing." There is evidence that inflation is associated with lower inequality; it also helps to reduce the real value of fixed debts such as student loans.

  • The real problem arises when inflation enters a self-fulfilling vicious cycle, where inflation expectations feed directly into higher prices today. That isn't happening yet — and in fact hasn't happened in any rich country for decades.

What's next: Infrastructure spending will be spread over many years, and will largely be paid for by tax hikes on corporations and the rich. The spending will happen in the real economy, where it will exert upward pressure on prices, while the pay-fors will happen largely in the financial economy, with relatively little effect on inflation.

The bottom line: Inflation, while high, is not yet worrisome. Long-overdue infrastructure spending is a much higher priority.

Go deeper: Axios' Sam Ro looks at how CEOs at companies from PepsiCo to Conagra have started raising prices, while I examine what's going on with the used-car market, which, thanks to a chip shortage, is accounting for a massive part of the headline inflation figure.

  • Fun fact: A new car can include as many as 1,400 separate chips.
2. Rise and fall
Data: FactSet; Chart: Axios Visuals
Expand chart
Data: Cox Automotive; Chart: Axios Visuals

Remember the lumber shortage? It's over, with lumber prices now at the lowest they've been all year.

  • If used-car prices follow a similar trajectory, that alone will suffice to depress headline inflation figures.
3. Biden vs. moats

Illustration: Annelise Capossela/Axios

Three weeks after naming Lina Khan to FTC chair, President Joe Biden has made her pro-competition philosophy the centerpiece of a sweeping executive order.

Why it matters: Biden is promulgating Khan's vision of anti-competitive behavior — one that echoes the robust regulation of the Roosevelt era — across "more than a dozen" different agencies.

  • The aim is to entrench the idea that an anti-competitive "moat," as frequently extolled by the likes of Warren Buffett, is just a polite euphemism for ripping off consumers.
  • The larger project is to move the culture and solidify the new narrative more broadly. Where popular opinion goes, lawmakers and jurists will ultimately follow.

Context: A moat, in the eyes of Buffett, is a company's built-in competitive advantage; the best kind of moat is when a company has no competition at all.

  • Flashback: "Competition is for losers," Peter Thiel has said.
  • Between the lines: Thiel says that "capitalism and competition are opposites," since competition makes it much harder for capitalists to accumulate a fortune. Biden, by contrast, says that "capitalism without competition isn’t capitalism. It’s exploitation."

How it works: Biden's executive order is not aimed at all big business. Common targets of the left such as Walmart, ExxonMobil and Goldman Sachs are almost entirely untouched by it.

  • Rather, Biden is taking aim at companies engaged in anti-competitive behavior — firms that actively stifle competition by, say, insisting on having a monopoly on tractor repair, or by forcing consumers to go to a specialist before they can procure a hearing aid.
4. The market solution to the deer problem

Illustration: Annelise Capossela/Axios

Deer are the deadliest animal in America, causing about 200 human deaths per year — as well as 30,000 injuries — when they collide with cars. That's a tragedy; it's also a market failure.

Why it matters: Rather than having deer running around and killing people, it would be much better — and much more delicious — were we to be killing the deer and eating them.

The big picture: Deer populations are exploding, causing enormous human and environmental damage. They eat saplings that would otherwise become carbon-absorbing trees; they destroy native plants that would otherwise house birds' nests; and, of course, they eat their way through countless gardens and vegetable patches.

  • Culling deer is an obvious solution to the problem — one with the ancillary benefit that it would produce large quantities of delicious, nutritious, high-protein, low-fat venison.
  • Natural carnivores also help. Studies have shown that deer-vehicle collisions fall by 22% when cougars are around, and by 24% when wolves are introduced.

The catch: Venison can currently only be sold in the U.S. if it is farmed, rather than wild. If you eat American venison that wasn't shot by yourself or a friend, then it's probably bland meat that comes from midwestern farms raising deer on a corn-heavy diet.

What they're saying: Kurt Vercauteren of the USDA’s National Wildlife Research Center tells the WSJ that a sensible first step would be pilot projects in a few states, to see what happens when wild venison can be sold.

  • If commercial demand fails to meet supply, many food banks would love to make use of the meat, even if hunters are less generous than they used to be.

The bottom line: Wild game is regularly sold in pretty much every other country in the world. Given the popularity of guns and hunting in the U.S., it's bizarre that doesn't happen here.

5. Concrete solutions

Illustration: Sarah Grillo/Axios

What's the solution to America's trillion-dollar concrete problem?

Going forward, there are many good ideas, beyond simply shutting down cement factories, as Sweden just did. Tall buildings can be made of more environmentally-responsible materials, like wood, if it can be sustainably sourced locally. Or the concrete could be mixed with carrots (yes, really, carrots) to make it stronger and less reliant on cement.

  • The rebar can be made more resistant to rust, by coating it in zinc, or passing an electric current through it, or making it out of glass-fiber reinforced polymer, or carbon fiber, or bronzed aluminum, instead of steel. Such actions involve greater up-front cost, while saving a lot of money over the long term.
  • It's even possible that some concrete buildings might not need any reinforcement at all, so long as the concrete is only under compression. No steel rebar means no erosion, after all. But that's still a step too far for most architects and engineers — and most buildings will always end up passing some kind of steel pipes through the external concrete, for things like water, gas, and electricity.

For existing buildings, one solution is to inhibit the corrosion of the rebar; another is to strengthen the concrete so that water can no longer reach the rebar. (For concrete nerds, this YouTube video makes for compelling viewing.)

  • Both solutions are expensive — just not quite as expensive as drilling, reinforcing, and repouring new concrete.

The bottom line: If you want to save money tomorrow, you're going to have to spend money today. On the other hand, as the architects of the infrastructure bill well know, costs are only going up from here, as buildings continue to erode.

6. Damien Hirst gamifies art

The Currency. Photo © Damien Hirst and Science Ltd, DACS 2021

Here's a game you can play if you have $2,000 and a MetaMask wallet: Buy one of Damien Hirst's new NFTs.

  • How it works: The Currency is a set of 10,000 prints, each bearing a unique pattern of dots. Each NFT can be exchanged for one print: If you give up the NFT, it's "burned," digitally, and you get the print in exchange.
  • The other side: If you don't give up the NFT, and keep it instead, then the print itself is — literally — burned.

The first-order question: Which would you rather have? The liquidity and digital permanence of an NFT, or a piece of paper that's harder (but still not very hard) to sell?

  • The second-order tactics: The more people who exchange their NFTs for real art, the scarcer the NFTs become, which probably means the more valuable they will be. For profit maximizers, then, the trick is to make the choice that most other people don't make.
7. Coming up: Netflix's subscriber count

Illustration: Lazaro Gamio/Axios

Netflix will reveal how many subscribers it gained during the second quarter on Tuesday afternoon, write Axios' Hope King and Sara Fischer.

Why it matters: Expectations for subscriber growth are low — around 1 million, down from 4 million in the first quarter of 2021 and 8.5 million in the fourth quarter of 2020.

  • The big picture: Recent reports suggest that some of Netflix's competitors, like Disney+, are also facing slow subscriber growth as the pandemic regresses.
  • As part of its strategy to maintain dominance, Netflix looks to be expanding into video games.
8. Building of the week: St. Paul's Cathedral, Abidjan

Photo: Eric Lafforgue/Art in All of Us/Corbis via Getty Images

St Paul's Cathedral in Abidjan, Ivory Coast, the second-largest cathedral in Africa, was designed in 1980 by Italian architect Aldo Spirito, who was commissioned directly by the country's first president, Félix Houphouët-Boigny.

  • The building, which can welcome 5,000 congregants, is held up by bare concrete beams — and by seven cables connected to the massive cross at the cathedral's prow, overlooking the Bay of Cocody.