Sep 10, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🚨 Markets will be taking a break on Friday so I can start using my vacation days before they expire. I'll be back in your inbox on Monday.

🌎 Join Axios’ Bethany Allen-Ebrahimian and Dave Lawler on Friday at 12:30pm ET for a live, virtual event on U.S. foreign policy in the post-pandemic world.

🎙 "Art is man's constant effort to create for himself a different order of reality from that which is given to him." - See who said it and why it matters at the bottom.

1 big thing: Big companies can't lose

Illustration: Sarah Grillo/Axios

Business has entered its next evolution — the can't lose market (but only for large companies with access to public markets).

  • Companies with enough size are starting to take advantage of the moment, and backed by a seemingly endless supply of free Fed money can go all-in on whatever they want.

Driving the news: Mall owners Simon Property Group and Brookfield Property Group unveiled plans to acquire "substantially all of JCPenney's retail and operating assets" for $1.75 billion Wednesday.

  • It's the biggest and riskiest of Simon's recent acquisitions through its joint venture with Authentic Brands Group that includes recently scooped-out-of-bankruptcy Brooks Brothers, Forever 21, Lucky Brand and a portfolio of brands known as SPARC.

The big picture: Doubling down on malls might seem a risky strategy, but with the Fed seen as guaranteed to bail out credit markets if asset prices fall too far, big companies are seeing the green light to take risks with little worry about consequences.

  • If things go bad and ideas flop, companies can simply borrow more in the credit markets — investors have shown they will buy up debt even at negative interest rates, or from companies literally barred from operating.
  • That's largely because the Fed has backstopped the market and purchased billions in bonds from large companies.
  • Or better yet, as SoftBank demonstrated with its $4 billion options buying spree, companies can simply make big bets on the stock market going up to raise money.

What it means: Simon and its partners can blitzscale shopping malls or eight-track cassettes or the return of TaB cola with no real fear of running out of money or opportunities to get more and try again.

On the other side: Small businesses without access to the Fed's money machine or public debt markets are running on fumes. More than one in three of those surveyed recently by Goldman Sachs said they expect to run out of cash before year-end without more aid from Congress.

  • An increasing number of U.S. households say they are going without food and many of the 29 million Americans collecting unemployment benefits are having to cut back on things like grocery purchases.

Watch this space: This new normal is fueling distrust of the financial sector.

  • The latest Axios/Ipsos poll shows 62% of Americans have little or no trust in the Fed, compared to 51% in May.
  • A MagnifyMoney survey last month found just 17% of Americans say they completely trust their money in the stock market, and only 5% of women.
  • 23% said they don’t trust any financial source, including financial advisers, journalists or Wall Street analysts.
2. Catch up quick

Stock prices were lower ahead of the European Central Bank's policy meeting this morning. Policymakers are not expected to adjust interest rates but the market will look for any policy tweaks or changes in guidance from President Christine Lagarde. (CNBC)

New coronavirus infections fell by almost 13% over the past week, putting the U.S. at an average of 37,000 new cases a day. (Axios)

The White House is considering a new round of executive actions for coronavirus aid, potentially providing support for the airline industry, unemployment benefits and school vouchers, by redeploying hundreds of billions of dollars of unspent funds from the CARES Act. (Washington Post)

Some JPMorgan Chase employees improperly received funding from the Economic Injury Disaster Loan program, according to an unnamed source. The actions were discovered after suspicious deposits into employees' checking accounts. (Bloomberg)

There were more than 15,000 empty rental apartments in Manhattan in August, up from 5,600 a year ago, according to a report from Douglas Elliman and Miller Samuel. (CNBC)

3. JOLTS shows 1 million fewer jobs added in July than jobs report
Data: U.S. Bureau of Labor Statistics; Chart: Axios Visuals

July's Job Openings and Labor Turnover Summary showed that while U.S. employers did more hiring than in any month in history and job openings increased to 6.6 million, the labor market is still struggling.

What's happening: There were 708,000 more hires than separations, a strong number but more than a million below the nonfarm payrolls estimate of 1.73 million jobs added for the month.

  • It was, however, less than the more than 2 million job differential seen in June.

What we're hearing: "You’re seeing a rebound that's been stronger than anything we’ve seen historically but we’ve never been trying to dig out of a hole quite this deep," Stephen Bronars, a labor economist and partner at Edgeworth Economics, tells Axios.

  • "Rather than looking at year-over-year comparisons, you have to look at how many jobs have been lost and how many of those have come back."

By the numbers: Nearly 21.5 million Americans lost their jobs in March and April and only around half of those jobs have returned.

4. The secret of Netflix's success
Data: FactSet; Chart: Axios Visuals

Axios' Felix Salmon writes: Netflix CEO Reed Hastings is on a publicity tour for his how-to management book, in which he attempts to teach other CEOs how to manage the Netflix way.

  • Between the lines: Hastings' real superpower as a manager — one that he never really admits to in the book — is that thanks to the gravity-defying Netflix share price, he isn't cash-constrained. In fact, the more cash he burns, the more valuable his company becomes.
  • Netflix staffers are all paid "top of personal range," which means base salaries as high as $20 million per year. Meanwhile, Hollywood producers like Shonda Rhimes and Ryan Murphy can effectively name their price.

By the numbers: From 2015 to 2019, Netflix had more than $10 billion of negative free cash flow. That's just the cash going out the door; it doesn't include many billions more in promised future payments.

  • Cash flow improved this year, just because production halted on so many productions after the pandemic hit. But expect it to go sharply negative again as soon as filming restarts in earnest.

The big picture: Columbia Business School professor Jonathan Knee reviewed Hastings' book for the New York Times, noting that "the problem of encouraging innovation in high performing work environments of the creative economy" is pretty low down anybody's list of priorities in this age of existential cultural crises.

The bottom line: The world has changed out of all recognition since Hastings finished this book (which was originally meant to be published in May).

  • If Netflix is gaining lots of subscribers during the pandemic, that's great for the company and its shareholders. But true leadership in the current moment requires a much better understanding of the broader societal picture.
Dion Rabouin

Thanks for reading!

Quote: “Art is man's constant effort to create for himself a different order of reality from that which is given to him.”

Why it matters: On Sept. 10, 1961, Nigerian writer and academic Chinua Achebe, who wrote "Things Fall Apart," the most widely read book in modern African literature, married Christiana Okoli.

  • The couple had two daughters and two sons and were married until Achebe's death in 2013.