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Illustration: Sarah Grillo/Axios
The stock market is getting worse at an accelerating pace, as is demonstrated by this week's Chewy filing.
Be smart: The problem with the Chewy IPO filing is not that the valuation is high. Rather, it's that PetSmart's private-equity owners, primarily BC Partners, have decided that they're going to retain control of Chewy by giving their shares 10 times the voting rights of the shares being sold in the IPO.
It wasn't meant to be this way. In 2017, S&P Dow Jones Indices announced that no new companies would be admitted to the S&P 500 if they had a dual-class share structure. S&P 500 index funds are the best and most loyal long-term shareholders that any company can ever hope to have, and the hope was that the new rule would persuade companies to have just a single class of stock: one share, one vote.
Details: Chewy's own bankers are warning potential shareholders in its IPO prospectus that they might end up shortchanged.
The big picture: Since the passage of the Exchange Act of 1934, the public stock market has been supposed to be a level playing field. But as Judge Jed Rakoff recently ruled, "Anyone who thinks that the stock market is a level playing field obviously has no contact with reality." The balance of power lies with the private companies going public, who feel free to set whatever terms they like, no matter how much they tip the scales in favor of a select few. The fractured and greedy public stock exchanges seem powerless to stop them.
Illustration: Aïda Amer/Axios
Eventbrite was one of the hottest IPOs of 2018. After pricing at $23, it closed up 60% at $36.50, giving the ticketing company a valuation of $2.8 billion. Today, just over 6 months later, the stock is languishing below its IPO price, at $18.41, and well over a billion dollars' worth of market value has evaporated.
The experience economy itself is not new. Travel and tourism are huge, and have been around for millennia. And Disney, in particular, has perfected the art of selling its theme-park and cruise-ship experiences. Even its theatrical movie releases ("Avengers: Endgame" has now grossed $2.2 billion at the global box office, after just 2 weekends) are built on shared real-world experiences. Disney, however, constantly reinvents itself. Replicating Disney's success is almost impossible, especially if you lack billions of dollars to buy franchises like Marvel, Pixar and Lucasfilm.
Be smart: We know that software as a service works extremely well. But experience as a service? It's no coincidence that Meow Wolf's installations are mostly in tourist towns like Santa Fe and Las Vegas. The toughest nut to crack in the experience economy is finding a large group of people who want to pay to repeat their experience. SoulCycle and Peloton are counting on social dynamics to help them get there, but that, so far, is an unproven model in financial markets.
Illustration: Lazaro Gamio/Axios
Uber. WeWork. SoftBank. Even Tesla. After a decade in which private markets have overwhelmingly funded the most innovative and dynamic companies in the world, public markets are having their day, and showing what they're capable of.
The big picture: Buybacks have already reached $272 billion this year and are on track to exceed $1 trillion for the second year running. That's a lot of cash going into investors' pockets, and most of it is going to get reinvested in the market somehow. It stands to reason that liquidity-constrained companies would want to access that source of funds, possibly on a repeated basis. If Tesla can do secondary offerings, there's no reason why Uber or WeWork shouldn't be able to do so as well.
Axios' Courtenay Brown writes: Unemployment in the U.S. is now at 3.6%, the lowest level since December 1969.
By the numbers:
The big picture: Both unemployment and inflation are at multiyear lows. In theory, companies should be offsetting higher wages by raising prices for consumers, ultimately causing inflation. But this hasn’t happened.
The bottom line: The Federal Reserve has two jobs: maximize employment and keep inflation at or near 2%. It’s doing a great job on the employment front, but inflation remains stubbornly below the Fed's target rate.
Illustration: Lazaro Gamio/Axios
Stephen Moore has now followed Herman Cain in announcing that he doesn't want to be nominated to the Fed board after all. (Moore’s decision came, awkwardly, just minutes after the WSJ sent out a news alert quoting him saying that he was “all in.”)
Why it matters: If Moore is correct, then an equally political nominee with less personal baggage might get through the Senate and be confirmed to the Fed board. Sexist attitudes have no place at the Fed, but neither do partisan attempts to cut rates whenever a Republican is president and raise them whenever a Democrat is in the White House.
Six white men discuss "Common Sense from Uncommon Investors" at this year's Milken Global Conference. Photo: Michael Kovac / Getty
One of the more dubious values in the experience economy is a $15,000 ticket to the Milken Global Conference in Beverly Hills.
Milken went to great lengths this year to tout diversity at its 22nd annual conference, writes Courtenay, but it's still very male and white.
By the numbers: A Milken spokesperson tells Axios that 250 out of its 800 speakers were women, which the conference believes is an improvement over last year, but can't say for sure. They can't say how many speakers were people of color, as they don’t track ethnicity.
One panel, "The Hedge-Fund Shakeout," had four men and one woman debating how to stand out in an environment that's shrinking and underperforming. Missing from the conversation was the lack of diversity at hedge funds, even though the few female-run hedge funds out there have outperformed the rest of the industry.
Why it matters: This is not a problem unique to Milken. This week's Sohn conference, for instance, has 4 women and 17 men speaking. The majority of speakers are white.
U.S. investors hit a major milestone in 2018: In aggregate, they now pay less than $5 in annual fees for every $1,000 they have invested in ETFs and mutual funds. The 6% decline in fees last year was the second-largest since 2000, and there's every indication that the downward trend will continue.
Why it matters: Investors have learned the value of low fees: $605 billion flowed into the cheapest 20% of funds last year, per Morningstar, while $478 billion flowed out of the most expensive 80%. Expect the growth of passive funds to continue, and expect continued price competition within passive funds as well.
By the numbers: Vanguard is still by far the market leader on fees, with an asset-weighted expense ratio of just 0.09%. State Street is second, on 0.17%, and BlackRock is third, on 0.30%.
Illustration: Rebecca Zisser/Axios
Uber is expected to price its shares on Thursday and begin trading on the New York Stock Exchange on Friday, writes Courtenay. Founder Travis Kalanick may or may not be there to celebrate.
Google will hold its annual developer conference on Tuesday, where it’s expected to announce new Pixel phones.
Chinese Vice Premier Liu He — along with a 100+ person delegation — will be in Washington on Wednesday, per the Washington Post, for another round of trade talks. Sources told CNBC that a trade deal could possibly come as soon as Friday, a day after the latest numbers on the U.S. trade deficit are released.
Photo: JEAN-CHRISTOPHE VERHAEGEN/AFP/Getty Images
Swiss architect Pascal Hausermann built the Hotel Thierry just outside Raon-l'Etape, France, in 1966, using a brand-new technique of pouring concrete to create "bubbles."
Elsewhere: Tech CEOs' pay is soaring, including Sundar Pichai, who took home $470 million last year. An oral history of Amazon Prime. Countries that default more frequently on their debts offer higher total returns for investors. Ray Dalio: It’s time to look more carefully at Modern Monetary Theory. Beware the Ferrari-driving FX trader on Instagram.