Axios Markets

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December 09, 2021

💰 Good morning, Markets readers!

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Today's newsletter is 1,080 words, 4.5 minutes.

1 big thing: The fever hasn't broken

Illustration of a digital thermometer with dollar bill signs on the screen.

Illustration: Aïda Amer/Axios

A feeling of unreality still pervades financial markets. Investors who take fiduciary duties seriously still exist — but they're seemingly outnumbered by people who see investing as a fun get-rich-quick game, Axios' Felix Salmon writes.

Why it matters: The post-pandemic return to some kind of pre-pandemic "normal" has yet to arrive, and as a result, there's a lot of worry about the disruption and volatility that could accompany such a transition. The markets, so far, have done an excellent job of climbing that wall of worry.

The big picture: The defining characteristic of the pandemic era has been feverishness. The initial weeks of uncertainty and isolation felt like a fever dream, with time dilating and reality warping. After that, the whole country entered a particularly febrile state, as the Black Lives Matter movement and the 2020 presidential election ratcheted up the nation's emotional temperature to unsustainable levels.

  • Markets have not been immune. In some ways, they're the last bastion of delirium, in a country where vaccines and a boring president have allowed much of the country to feel some semblance of normality.
  • Money has become something to play with for fun and profit. There are even now hundreds of play currencies, some of which are worth hundreds of billions of dollars.

Be smart: The strength of the economic rebound from the March 2020 recession came as a surprise to almost everyone. Get-rich-quick fever has reached unprecedented levels over the past 18 months, encompassing everything from GameStop and Dogecoin to SPACs and even Spider-Man tickets.

By the numbers: Apple, Alphabet, Microsoft, Amazon and Tesla have between them gained $6.5 trillion of value since their March 2020 lows. Apple alone has risen in value by an astonishing $1.85 trillion in just 433 trading sessions — an average increase of well over $4 billion per day.

  • Before 2018, no company had ever even been worth $1 trillion. Now, Apple will be worth more than $3.3 trillion if it rises from its current level of $175 and hits Morgan Stanley analyst Katy Huberty's target of $200 per share.

Financial shenanigans are everywhere you look; Bloomberg's Matt Levine, for instance, has a masterful dissection of the $1 billion private investment in Donald Trump's barely existent new social media company — a classic greater-fool trade that doesn't need to be based on any underlying value at all.

What they're saying: Pollster Bruce Mehlman cites "extreme expectations" as the number one risk facing the U.S. in 2022. "Lack of realism and perspective is itself a major risk," he tells Axios. "It undermines the rationality-based cooperation essential for the nation and its institutions to succeed as designed."

The bottom line: The occasional crypto crash doesn't mean the fever has broken. It just means the game is still exciting.

2. Catch up quick

Fitch Ratings labeled China Evergrande as in default after the developer failed to make interest payments within 30 days after they were originally due. Fitch also said that Kaisa, another Chinese developer, defaulted this week as well. (Bloomberg)

House lawmakers overwhelmingly passed a bipartisan bill to help curb the shipping container crisis by restricting the practice of sending empty cargo boxes back to the sea from American ports. The bill now heads to the Senate. (Axios)

Amazon was fined $1.3 billion by Italian antitrust regulators, who said the e-commerce giant favored third-party sellers that use its logistics services — a decision that could presage more scrutiny of Big Tech by global regulators. (WSJ)

3. CPI is the new jobs report

Grocery shoppers in Washington, D.C., last month. Photo: Ting Shen/Xinhua via Getty Images

Grocery shoppers in Washington, D.C., last month. Photo: Ting Shen/Xinhua via Getty Images

The Consumer Price Index has replaced the jobs report as the most anticipated data drop by the U.S. government, Axios' Hans Nichols writes.

Why it matters: Rising prices tend to lower political fortunes. Washington and Wall Street are now waiting for the CPI number to flash at 8:30am ET around the 10th day of each month. This month's report — due Friday morning — will give a reading of how hot inflation ran in November.

The big picture: With unemployment at 4.2%, Congress and the Federal Reserve appear more interested in price pressures than the jobless rate.

  • Sen. Joe Manchin (D-W.Va.) has made clear he wants a better read on inflation before agreeing to President Biden’s plan to spend an additional $1.75 trillion to combat climate change and expand the social safety net.

Flashback: Before the 2012 election, the political implications of the jobs report were so manifest that Jack Welch, a former CEO of General Electric, went full-on conspiracy theory.

  • He accused the Obama White House of cooking the numbers when September's unemployment rate dropped to 7.8%.
  • "Can’t debate, so change numbers,” he tweeted.

What they are saying: “When I was at CEA, we would have an all-out mobilization around jobs day but barely noticed when the CPI came out. Now, it is almost the reverse,” said Jason Furman, who served as one of President Obama's chair of the Council of Economic Advisers.

  • “The CPI number is much more salient in an era when inflation is very much not under control,” Larry Summers, a former Treasury secretary, told Axios.
  • “CPI hasn’t entirely supplanted the employment report, because the employment report has all the wage data, like the changes in average hourly earnings,” he added.

Keep reading.

4. Records were made to be broken

Data: PwC analysis of Refinitiv data; Chart: Baidi Wang/Axios

It’s been a record-shattering year for M&A.

  • And records may be broken again in 2022, Colin Wittmer, PwC’s U.S. deals leader, tells Axios.

The big picture: The market is still awash in capital available for acquisitions — from private equity funds, SPACs and corporate balance sheets — making for fierce competition and more expensive deals, according to a new 2022 outlook report published today by PwC.

What to watch: Technology acquisitions by non-tech companies will be one driver of activity next year, as will acquisitions to diversify or improve supply chain resilience, PwC says.

  • Another driver (or not): more rigorous antitrust reviews by increasingly proactive regulators.

5. The quits rate has peaked

Data: FRED; Chart: Axios Visuals
Data: FRED; Chart: Axios Visuals

Job quits, the monthly stat driving the Great Resignation — which has become synonymous with the post-pandemic economic recovery — cooled a bit in October.

  • And the ratio of unemployed Americans per job opening fell to the lowest level in decades, according to data out yesterday from the Bureau of Labor Statistics.

Why it matters: Though the unemployment rate is still above its pre-pandemic low, almost every other indicator suggests the economy is at full employment, wrote Andrew Hunter, senior U.S. economist at Capital Economics, in a research note.

  • That could have implications for the Federal Reserve's committee meeting next week, where it may decide to speed up the taper of its bond purchases.