Aug 5, 2021

Axios Capital

Situational awareness: I’m broadly suspicious of corporate “net-zero” pledges because they all rely to some degree on dubious offsets. The more genuine and heartfelt the pledge is, the lower that reliance will be, and the more effective it’s likely to be. If ExxonMobil comes out with one, I'll give it very little weight absent extremely clear signs of massive change.

  • In this week's newsletter: The post-pandemic economy; the uselessness of economic forecasts; the rise of BNPL; how banks are failing at anti-racism; Robinhood goes meme; and much more. All in 1,689 words, a 6.5-minute read.
1 big thing: The post-pandemic economy has already arrived

Illustration: Aïda Amer/Axios

With the recession having officially ended in April 2020, we're now 16 months into the recovery — and the contours of the post-pandemic economy have taken shape.

Why it matters: While the coronavirus continues to infect roughly 100,000 new Americans every day, it's no longer driving the course of the economy.

  • The Delta variant shows no signs of slowing growth in GDP or consumer spending, both of which are already above their pre-pandemic levels.
  • Corporate earnings and the stock market are at record highs, while Americans collectively are wealthier than ever.
  • Jobs, however, are a different matter.

The big picture: Fiscal policy in the United States has moved on. Emergency pandemic relief is coming to an end; long-term infrastructure investment is now Treasury's top priority.

  • The Federal Reserve's carefully considered official language now says that "the path of the economy continues to depend on the course of the virus" — a downgrade from the prior statement, which said that "the path of the economy will depend significantly on the course of the virus."

Between the lines: Entire industries, like movie theaters, are permanently changed. Studios took advantage of the pandemic to pivot to a subscription-based streaming model — a model that Wall Street has endorsed.

  • Being able to stream movies at home on the same day that they're released in theaters — as Disney recently did with "Black Widow" — is going to be the new normal.
  • Lower-paid industries like food service saw an exodus of jobs over the course of the pandemic, and many of those jobs will never come back. Instead, they will be replaced by technology such as ordering from phones instead of servers.

The bottom line: Recovery does not mean reverting to how things were before the pandemic.

Editor's note: This story has been corrected to say that the U.S. is seeing 100,000 coronavirus cases per day, not per week.

2. The jobs tornado
Expand chart
Data: BLS; Chart: Sara Wise/Axios

The pandemic's lasting impact on the jobs picture is clear: A lot of industries have lost hundreds of thousands of jobs, many of them permanently, while very few have gained.

  • Total employment will eventually recover to its pre-pandemic level — Wells Fargo senior economist Sarah House sees that happening in late 2022 or early 2023. But the headline unemployment rate might never get back down to the 3.5% we saw pre-pandemic.

What they're saying: "The pandemic has been transformational in the world of work," ADP chief economist Nela Richardson tells Axios' Sam Ro. "There are parts of the labor market that will not come back in the same way."

  • "Like a tornado," she adds, the virus has skipped certain areas and flattened others. "It's really picked and chosen how it devastated people."
3. Why investors should ignore economists

Illustration: Aïda Amer/Axios

What kind of investor would ignore economics? A successful one, says legendary hedge fund manager Howard Marks in his latest memo.

Why it matters: Nearly all investors — Marks included — have views on the economy, how it works, and where it's headed. Many of them go to great lengths to disseminate and popularize those views. (Looking at you, Ray Dalio.) But that's all marketing, not investing.

The big picture: One of Marks' investing tenets holds that economic forecasting is "not critical to investing".

  • "I can count on one hand the investors I know who successfully base their decisions on macro forecasts," he writes.

Marks pinpoints the only question that matters: "If you invest on the basis of your macro views, how often have they helped?"

  • There are two common answers to that question. The first, which is typical among individual investors, is "very rarely." Investors tend to overestimate future inflation in developed markets and underestimate the likelihood of a major negative shock in emerging markets.
  • Institutional investors, on the other hand, if they're honest, will tend to say that they don't invest on the basis of their macro views.

Between the lines: A huge part of being an institutional investor is sales and marketing — persuading individuals that you're a smart and safe place for them to put their money.

  • Because stocks do well when the economy does well, and do badly when the economy does badly, those individuals will invariably ask about your economic outlook. So investors need an answer to that question.
  • Once they become adept at answering those questions, they end up being asked those questions even more frequently. While the answers don't help in terms of investment returns, they do often help convey an aura of general expertise that in turn helps to retain and increase their total funds under management.

The bottom line: There's no utility to listening to investors when they're in economic-pundit mode. And there's also no utility in trying to use economic forecasts to make money. Almost no one can do that.

4. The buy now, pay later opportunity
Expand chart
Data: FIS Global; Chart: Sara Wise/Axios

Buy now, pay later (BNPL) is one of the hottest parts of fintech, built on the idea that a simple pay-in-installments plan doesn't really feel like a loan — especially when it comes with 0% interest.

The big picture: That idea has now driven Square to acquire Australia-based BNPL giant Afterpay for about $31 billion in stock, based on where its share price closed Wednesday.

Why it matters: Consumers unwilling or unable to open traditional credit cards can still be persuaded to borrow money if the marketing message is attractive enough.

  • Market leader Klarna recently bought an influencer marketing company and has used Snoop Dogg and A$AP Rocky as pitchmen. Its chief marketing officer told Reuters last week that introducing a new way to borrow money should be a bit like "when Nike drops a new sneaker."
  • Square has already bought Tidal, Jay-Z's struggling music-streaming service, and has seen the growth of its Cash App turbocharged by hip-hop stars and other social media influencers.

What they're saying: "What sets BNPL apart from traditional shopping is how it repackages debt into a form of self-care," writes the Guardian's Kitty Drake.

  • Not mentioned in the marketing campaigns: The way in which racking up BNPL obligations can result in consumers being unable to obtain a mortgage, per an investigation by Refinery29.

How it works: Europeans, who have traditionally eschewed credit cards, still want to buy items online even when they don't have the full amount available in their bank accounts. BNPL now accounts for 7.4% of European e-commerce transactions, per FIS Global.

  • Investors are assuming that younger U.S. consumers will also adopt BNPL, although the U.S. market share is still very low, and much of it is at Affirm, which has a wealthier customer base buying things like Pelotons.
  • Markets without broad credit card adoption are in many ways even more attractive. Indonesia's market leader Kredivo, for instance, is going public at a $2.5 billion valuation.

What's next: Soon, whenever you buy a big-ticket item at a store with a Square terminal, you'll be able to opt to pay for it in installments. Taken directly out of your Cash App account, of course.

5. Exclusive: Finance's dismal anti-racism image

Illustration: Aïda Amer/Axios

The financial services industry ranks dead last in terms of Americans' perception of how well it's doing in addressing racism, according to a new Edelman study shared exclusively with Axios. (See the footer for the methodology.)

By the numbers: Just 33% of Americans think the sector is doing well in addressing racism. No industry does particularly well, but sports does best, with 44% thinking it's doing well.

Between the lines: 71% of Black Americans think that mortgage lenders demonstrate systemic bias and discrimination. 62% of them think the same thing of banks.

  • 73% of Black Americans say that the credit criteria used by mortgage lenders are biased or discriminatory.
  • 54% of Hispanic Americans think the same thing of auto lenders.

The bottom line: 57% of Black Americans agree with the statement: "My personal finances would be better off if financial services companies treated people in my racial/ethnic community fairly."

6. The downside of Robinhood's upside
Expand chart
Data: YCharts; Chart: Axios Visuals

One definition of a meme stock is this: Any publicly listed company whose stock becomes a speculative vehicle beloved of retail investors armed with small-dollar Robinhood accounts.

  • To no one's surprise, Robinhood itself has now become one of those stocks, just a few days after going public last week.

Why it matters: Robinhood is one of the most high-profile disruptive fintechs to have gone public. There's irony and symbolism to its stock price ceasing to be a reflection of corporate fundamentals and instead becoming a short-term gambling mechanism. But that transformation effectively removes an important valuation signal that investors might otherwise have found very helpful.

How it works: One thing that all meme stocks have in common is that speculators tend to flock to listed call options, rather than the shares themselves. (That's great for Robinhood, which makes far more money from options trading than it does from stock trading.)

  • Options on Robinhood stock started trading Wednesday morning, and within 17 minutes of the market opening, the share price had risen by 71% to $80.19 — more than double the IPO price of $38.
  • The stock closed Wednesday at $70.39, up 112% from its low last week of $33.25.

My thought bubble: If activity in other meme stocks like AMC and GameStop is any indication, Robinhood shares have a lot of upside from here. That won't reflect fundamentals, but it's undeniably a fun game to play on your Robinhood app.

7. Stocks are getting... cheaper?
Data: FactSet; Chart: Axios Visuals

Go deeper.

8. Coming up: July jobs

Illustration: Aïda Amer/Axios

The July jobs report comes out tomorrow, Axios' Hope King writes. Economists are expecting payrolls to grow by 620,000 and the unemployment rate to fall to 5.8% from 5.9% in June.

Why it matters: It's a worker's job market at the moment. Job openings and quit rates are at record highs. Employers have bolstered incentives and raised wages to get workers back. States have also ended unemployment benefits early.

  • What to watch: The emergence of the Delta variant poses a new threat to the recovery: Nervous workers may not return to work.

Go deeper: Inside the jobs bonanza

9. Building of the week: Tokyo Toilets

Photo by Philip Fong/AFP via Getty Images

Tokyo Toilets is a scheme by the Olympic organizers to install high-quality public restrooms by world-class architects across the Shibuya district of Tokyo.

  • The architects include Tadao Ando, Marc Newson, Fumihiko Maki and Shigeru Ban — who designed the transparent structure pictured above.
  • Passersby can see for themselves how clean and empty the stall is before they enter.
  • The colorful glass — which really comes alive at night — turns opaque when the door is locked.

The Edelman survey was of 1,500 general population respondents, surveyed from June 11 – June 28, 2021. 941 of them were white, 505 were Black, 502 were Latinx, and 515 were Asian. The U.S. total margin of error is +/- 2.5%, while the margin of error for Black and Latinx respondents is +/- 4.4%.