Here's to a great 2019 for all of us, including Netflix content chief Ted Sarandos, who will earn a base salary of $18 million next year. That's excluding $13.5 million in stock options. Send me an email, to firstname.lastname@example.org, if you know of anybody who has ever made a higher base salary than that. I'll compile a list!
For all the geopolitical chaos in the world, one thing has never been safer: Lending money to governments. This chart comes from the magisterial Sovereign Default Database, painstakingly compiled on an annual basis by the Bank of England and the Bank of Canada.
Be smart: Sovereign debt won’t look this healthy forever. “Looking ahead, we expect sovereign defaults to pick up again over the next decade,” write the banks’ David Beers and Jamshid Mavalwalla.
Why it matters: It’s been well over a decade since defaulted sovereign debt accounted for even 1% of total world debt. Mega-defaults by Argentina and Greece generated plenty of headlines, but ultimately were relatively small by historical standards. As sovereign debt burdens rise around the world, however, these golden days won’t last forever. Government debt that feels perfectly safe today could turn out to be plenty risky tomorrow.
Go deeper: The podcast I recently recorded with the doyen of sovereign debt restructuring, Lee Buchheit, was easily my favorite episode of 2018.
Here's Matt Egan's summary of one month in the stock market, for CNN: "Not one but two 1,000-point plunges for the Dow. And a powerful comeback... easily one of Wall Street's wildest months since 2008... A real roller-coaster. A wild ride."
Be smart: A stock price is the discounted present value of a company's future cashflows. Tiny adjustments to expected future growth rates, or even tinier adjustments to the discount rate being used, can result in large swings in the fair value of the stock. We see shares trading at a specific price, but conceptually it might be better to think of them as a probability distribution. Right now, those probabilities are wider and more uncertain than at any point since the financial crisis.
Legend avers that an alert young man once found himself in the immediate presence of the late Mr. J. P. Morgan. Seeking to improve the golden moment, he ventured to inquire Mr. Morgan’s opinion as to the future course of the stock market. The alleged reply has become classic: “Young man, I believe the market is going to fluctuate.”
It did. It always has. Perhaps it always will.— Laurence H. Sloan, Security Speculation: The Dazzling Adventure (1926)
Illustration: Aïda Amer/Axios
Wednesday was the first time ever that more than 500 stocks in the S&P 500 rose on the day. (There are 505 stocks in the S&P 500, it turns out; 504 of them rose on Wednesday.)
While American companies were returning hundreds of billions of dollars to shareholders, for Chinese companies the flows went in the other direction, Caixin's Yang Ge reports. They raised an astonishing amount of money in 2018 — some $45.6 billion in Hong Kong and New York alone. That's more than double the $19.2 billion raised in 2017; it's also more than double the $20.7 billion raised in Chinese domestic IPOs.
Be smart: A lot of the money piling into these IPOs is entirely speculative, and that pool of liquidity can dry up as fast as it appeared. Chinese individual investors are being hit by a wave of shadow-banking defaults, and high-profile startups, especially in the scooter-sharing space, are running aground.
Snap CEO Evan Spiegel tells Tim Bradshaw, in this week's Lunch with the FT, that tech companies cannot be trusted, and that old-fashioned media regulations can and should be applied to influencers on social networks. “If you’re broadcasting to millions of people," he says, "you need to serve the public interest.”
The bottom line: Such regulation would be very difficult to draft in practice, but in principle it makes sense for government to regulate broadcasters, no matter which medium they use. Snap, which has seen relatively few controversies surrounding its influencer content, could be well positioned to benefit from any regulatory crackdown.
Go deeper: The Axios rundown of industries that want more government rules
Cal economics professor and OG blogger Brad DeLong took issue with my reasoning that the Fed was right to raise rates. He says that the recent stock market decline is "new information" that should have changed the Fed's mind — that, instead of raising rates this month, the Fed should have held them steady.
Brad then says that interest rates can't have been artificially low, even when they were negative in real terms for almost a decade, because we haven't seen any inflation.
The bottom line: So long as inflation remains below its 2% target, critics will be able to make a credible case that rates should stay low. But how low is too low? (The current range of 2.25% to 2.5% is hardly high.) The question can also be posed a different way: How long is too long for real rates to be negative?
As we discussed, I am a Federal employee who has recently been furloughed due to a lack of funding of my agency. Because of this, my income has been severely cut and I am unable to pay the entire cost of my mortgage... I appreciate your willingness to work with me and your understanding during this difficult time.— From the Office of Personnel Management's official form letters for furloughed federal employees. The OPM motto is "Empowering Excellence in Government Through Great People." The letters were posted "inadvertently," according to the Washington Post.
Illustration: Rebecca Zisser/Axios
Axios' Courtenay Brown writes: Monday is the last trading day of 2018. Exchanges around the world are closed on Tuesday for New Year's Day, so there will be at least one non-volatile day for stocks.
If the partial shutdown continues, it will delay the release of some economic data, but not Friday's jobs report.
Eero Saarinen's War Memorial Center, in Milwaukee, was completed in 1957. The rectangular blocks are not only raised above a central courtyard; they also cantilever out some 30 feet. The building contained the Milwaukee Art Museum until 2001, when the museum expanded into a larger Santiago Calatrava addition.
Thanks to all of you for being so welcoming and constructive in my first months at Axios. If there's anything you want me to concentrate on in 2019, you know where to find me.