Jun 30, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🚨 Axios will be hosting a virtual event on how the coronavirus outbreak has upended small businesses on Wednesday, July 1, at 12:30pm ET.

  • Join Axios' Mike Allen and Kim Hart for a discussion featuring Sen. Ron Johnson (R-Wis.), Madison Black Chamber of Commerce president Camille Carter, and Timber Hill Winery owner Amanda Stefl.
  • Register here.

🎙 "Never use a big word when a little filthy one will do." - See who said it and why it matters at the bottom.

1 big thing: Lockdowns return

Photo: Marco Bertorello/AFP via Getty Images

After seeing another record high number of hospitalizations Monday, Arizona Gov. Doug Ducey ordered bars, movie theaters, gyms and water parks to shut down for at least 30 days in a move that followed similar orders from governors in California, Texas and Florida in recent days.

  • “Our expectation is that our numbers next week will be worse,” Ducey said.

Why it matters: Large swaths of the U.S. economy again are having to shut down in an attempt to contain the coronavirus pandemic, threatening to reverse the economic progress of the past month and worsen the recession.

The big picture: It's not just a few states. The virus is spreading so rapidly in the U.S. that Anne Schuchat, principal deputy director of the CDC, said Monday this was "really the beginning" of a surge in new cases.

  • “I think there was a lot of wishful thinking around the country that, 'Hey, it’s summer. Everything’s going to be fine. We’re over this.' And we are not even beginning to be over this," she said.
  • "There are a lot of worrisome factors about the last week or so.”

The big, big picture: The pandemic also is accelerating around the world, as many countries that reopened their economies see a resurgence in cases, Tedros Adhanom Ghebreyesus, director-general of the World Health Organization, said Monday.

  • “Although many countries have made some progress, globally, the pandemic is actually speeding up,” Tedros said during a virtual news conference. “We all want this to be over. We all want to get on with our lives, but the hard reality is that this is not even close to being over.” 
2. Catch up quick

The Fed officially launched its $500 billion Primary Market Corporate Credit Facility to buy corporate bonds directly from companies on Monday. (Reuters)

Joe Biden said during a fundraiser that, if elected, he planned to "get rid of the bulk of Trump’s $2 trillion tax cut,” and raise the corporate tax rate to 28% in order to raise an estimated $1.3 trillion over the next decade. (CNBC)

After Secretary Steven Mnuchin said last week that the Treasury Department was considering pushing the tax filing deadline back to Sept. 15, an official email Monday night urged U.S. taxpayers to file their taxes by July 15. (Treasury)

India announced it would ban TikTok, WeChat and dozens of other Chinese apps, a total of 59, over concerns that these apps were engaging in activities that threatened “national security and defence of India." (TechCrunch)

Fed chair Jerome Powell and Mnuchin will testify before the House Financial Services Committee today. (CNBC)

3. Netflix to move $100M in cash into Black community banks

Illustration: Sarah Grillo/Axios

Axios' Felix Salmon writes: Netflix has pledged to allocate about 2% of the $5 billion it holds in cash — some $100 million — to "financial institutions and organizations that directly support Black communities in the United States," the company announced today.

Why it matters: U.S. corporations are sitting on trillions of dollars of cash, which is earning them effectively no interest. Aaron Mitchell, a recruiter at Netflix, had the idea that some of that cash could be deposited at Black-owned banks, where it would be reinvested into Black communities.

The catch: As part of this pledge, Netflix is investing $35 million into a newly established fund called the Black Economic Development Initiative, as well as buying a $10 million certificate of deposit from a Black-led credit union.

  • But those investments aren't "short-term, highly liquid investments that are readily convertible to known amounts of cash" — so they won't count as cash on Netflix's balance sheet.

The bottom line: Netflix says that it wants to "inspire other large companies" to move their cash deposits to Black-led institutions. But given the limits of deposit insurance, that's easier said than done when billions of dollars are on the line.

  • Corporate treasurers go to great lengths to keep their billions of dollars of cash in risk-free instruments. That does not include things like savings accounts at banks, which are only insured up to $250,000.
  • Netflix hasn't worked out all the details of how it's going to meet its $100 million pledge. The big question remains open: Whether it is possible for significant sums of corporate cash to be held in Black-led institutions, while still remaining classed as cash for GAAP purposes.
4. The myth of closing the racial wealth gap through homeownership

Reproduced from the Urban Institute; Chart: Axios Visuals

A new study from Redfin finds that 44% of Black families owned their own home as of the first quarter of this year compared to 73.7% of white families, a disparity that rises as high as 50 percentage points at its peak in Minneapolis where 75% of white families own their homes compared to 25% of Black families.

Between the lines: Many have suggested that a key to closing the racial wealth gap between Black and white Americans is to encourage more Black families to own homes, but data shows that would be woefully insufficient.

  • "[S]imply advocating the purchase of a new home will not overcome the existing gap produced by national policies," a study from the Samuel DuBois Cook Center on Social Equity finds.

Details: "Rather than homeownership creating wealth, having family wealth in the first place leads to homeownership, particularly high equity homeownership," the study notes.

  • This is borne out in the fact that Black homeowners in the U.S. on average start with much less wealth, purchase lower-priced houses and grow less value in their homes, no matter their age or income level, compared to white homeowners.

How we got here: Much of this can be traced back to U.S. homeownership history — white families were able to benefit from federal housing programs and secure mortgages for generations while Black families were often denied bank loans outright or had to accept predatory loans at extreme interest rates.

  • This allowed white families to pass down houses that had accumulated increased value to their children producing immediate wealth.
  • "[W]ithout sufficient wealth in the first place, households have limited means to invest in homeownership," the DuBois study says. "Wealth, after all, begets more wealth."

By the numbers: Data from the University of Michigan show 87% of white homeowners bought their first homes before age 35, compared with 53% of black homeowners.

  • The Urban Institute notes "the inflation-adjusted average housing wealth at age 60 or 61 for white households was $124,000, compared with $54,000 for Black households."
  • "The average first home purchased by Black homebuyers is valued at $127,000, compared with $139,000 for white homebuyers, yet Black homebuyers, on average, have higher mortgage debt ($90,000) than white homebuyers ($75,000)."
  • "Surprisingly and notably, the difference in mortgage debt ($15,000) is larger than the difference in the home value ($12,000)."

The last word: A 2019 study by the Urban Institute found that while differences in income, credit score, marital status, and education after controlling for the level of racial segregation, housing supply, and housing affordability explained most of the homeownership gap, 17% of the difference "remains unexplained" by any of those factors.

5. Half the U.S. population does not have a job
Expand chart
Data: Bureau of Labor Statistics; Chart: Axios Visuals

The percentage of Americans who are employed sits at just over 50%, according to the Bureau of Labor Statistics' employment-population ratio. The figure plunged to 51.3% in April (the lowest level on record) and edged up to 52.8% in May.

Background: The ratio was as high as 61.2% in January, but has fallen precipitously since coronavirus-induced lockdowns shuttered businesses across the United States.

  • The measure reached its peak in April 2000 when 64.7% of eligible American adults were employed.

What it means: While the BLS' jobs report categorizes people as "employed," "unemployed" or "out of the labor force," the employment-to-population ratio simply captures those who are and are not employed.

The intrigue: Torsten Sløk, chief economist at Deutsche Bank Securities notes, “To get the employment-to-population ratio back to where it was at its peak in 2000 we need to create 30 million jobs."

6. Pending home sales see record high monthly jump
Data: National Association of Realtors; Chart: Axios Visuals

Americans have jumped into the real estate market with both feet so far this year. Pending home sales saw record growth in May, month over month, according to the National Association of Realtors.

  • The 44.3% jump last month was more than double the 19.3% increase predicted by economists, and followed declines in April and March.

Yes, but: Pending home sales are down 5.1% from May 2019. The South was the lone region to see an annual increase.

Dion Rabouin

Thanks for reading!

Quote: "Never use a big word when a little filthy one will do."

Why it matters: On June 30, 1955, "The Johnny Carson Show" debuted on CBS, featuring the comedian. He would go on to host "The Tonight Show," the longest-running, regularly scheduled entertainment program in U.S. history, taking over on Oct. 1, 1962.