Axios Markets

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May 17, 2021

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🎙 “I don't have a speech prepared by my husband because he winged every single speech. He was intelligent, eloquent and gifted at many things, including public speaking. However, I do know that he would thank everyone that helped him get here, including the people that doubted him and the people that worked against him and told him he couldn't attain his goals. He would thank all of them for motivating him to be here. After all, he proved you wrong." - See who said it and why it matters at the bottom.

1 big thing: Inflation fears get magnified

Data: St. Louis Fed; Chart: Dion Rabouin/Axios Visuals
Data: St. Louis Fed; Chart: Dion Rabouin/Axios Visuals

Last week's Consumer Price Index reading is putting increased focus on the Federal Reserve's laissez-faire stance, drawing concern from new critics and making old ones even more boisterous.

What we're hearing: "Data are pointing more towards higher inflation than I expected, and sooner," former U.S. Treasury Secretary Lawrence Summers tells Axios' Hans Nichols and Mike Allen. "With more inflation signs sooner than I would have expected."

  • "One should be more concerned about inflation than one was several months ago."
  • "There are many reasons for thinking that demand will increase substantially and lead to more inflation."

Background: Summers warned earlier this year that the U.S. could see "inflationary pressures of a kind we have not seen in a generation" due to rapid increases in government spending combined with the Fed's unprecedented easy monetary policy.

The big picture: Inflation worries and real-world price increases are starting to impact various parts of the economy, slowing down and even shuttering businesses.

  • In Atlanta restaurants like Waffle House have started closing their doors to customers during business hours owing to "unprecedented staffing and supply chain challenges."

By the numbers: Data last week showed the Consumer Price Index jumped 4.2% from a year earlier in April, the fastest since 2008.

  • The big jump in CPI combined with the Fed's determination to keep interest rates low has led to the lowest real Fed funds rate since 1980.

Of note: That rate doesn't account for the additional downward pressure on rates from the Fed continuing to pump $120 billion a month into markets through its quantitative easing bond-buying program announced in March 2020.

What to watch: The inflation worries hit Wall Street as all three major stock indexes had their worst week since Feb. 26 despite big gains late in the week.

  • "Not only are [last] week’s events a warning sign of how uncomfortable inflation prints can become but also a warning sign of how overbought equity markets have become," Nikolaos Panigirtzoglou, a managing director at JPMorgan, said in a note.

Where it stands: Fed vice chair Richard Clarida said Wednesday he was surprised by the CPI report, but insisted during a talk at the National Association for Business Economics conference that the central bank continues to believe high inflation readings will be temporary and that the Fed will keep its policies in place to provide support for the labor market.

The last word: "The traditional role of the Fed is to remove the punch bowl before the party gets good, right?" Summers tells Axios.

  • "They have announced that their new policy is to remove the punch bowl only after they have clearly seen a number of people staggering around drunk."

2. Catch up quick

Trading associated with retail investors in U.S. options markets compared with overall volume slid to a six-month low in early May, and total trading volumes across the retail brokerage sector in April were down 26% compared with March. (FT)

U.S. companies authorized $504 billion of stock buybacks through May 7, the most during that period in at least 22 years and trouncing the pace of 2018's flurry that followed the Tax Cut and Jobs Act. (WSJ)

China's retail sales rose 17.7% year over year in April, missing expectations of 24.9% growth and marking a slowdown from 34.2% year-on-year growth in March. (CNBC)

The U.S. is set to announce a truce with the EU over metal tariffs, with the EU to refrain from increasing tariffs on U.S. goods like bourbon (Bloomberg)

Walmart and Starbucks are among the major companies dropping a mask requirement for fully vaccinated customers. (Bloomberg)

3. The new digital extortion

Illustration of a ransom note made of binary numbers.
Shoshana Gordon/Axios

Axios' Kim Hart writes: If you run a hospital, a bank, a utility or a city, chances are you'll be hit with a ransomware attack. Given the choice between losing your precious data or paying up, chances are you'll pay.

Why it matters: Paying the hackers is the clear short-term answer for most organizations hit with these devastating attacks, but it's a long-term societal disaster, encouraging hackers to continue their lucrative extortion schemes.

Driving the news: Colonial Pipeline paid hackers almost $5 million in ransom to restore its systems and get gasoline flowing again after a ransomware attack held the country's largest pipeline hostage, which resulted in widespread disruption of gasoline supply.

The big picture: "This creates a collective action problem — the bad guys win so they'll go out and hit someone else," said Betsy Cooper, director of Aspen Tech Policy Hub at the Aspen Institute.

  • "As an organization, you have to take into account the immediate costs versus the cost of your data. The less prepared you are, the worse it's going to be."

Threat level: Code red. Negotiating can backfire.

  • Last week, foreign hackers released sensitive files they stole from the Washington, D.C., police department last month after the department offered to pay $100,000 rather than the $4 million that was demanded to return the data, DCist reported.
  • The hackers reportedly said they'd keep the files public for months, even if the police department offered more than the original ransom.

Of note: The outfit responsible for the Colonial Pipeline attack announced it was shutting down Friday, but there's no sign the larger problem will abate.

By the numbers: Payments to ransomware attackers rose 337% from 2019 to 2020, reaching more than $400 million worth of cryptocurrency, according to figures just released by Chainalysis, a blockchain analysis company.

  • So far in 2021, hackers have raked in more than $81 million.
  • The average ransom payment has risen from $12,000 in the fourth quarter of 2019 to $54,000 in the first quarter of this year.
  • Chainalysis notes these figures are conservative because they are based on reported attacks and payments.

Read more.

4. AT&T and Discovery to merge media assets

Data: Company filings; Chart: Axios Visuals
Data: Company filings; Chart: Axios Visuals

AT&T has finalized a deal with media giant Discovery to merge its media assets, like CNN, TBS and TNT, the companies announced.

Why it matters: The merger would create a new competitor in the streaming space for entertainment giants like Disney and Netflix and further stratify the landscape, as Axios' Sara Fischer reports.

Details: Variety suggests the companies could either combine their assets through a merger or create a joint venture, where they would both own part of the combined new media giant.

  • AT&T recently formed a joint venture with private equity giant TPG to offload its video assets, including its satellite TV brand DirecTV, its digital skinny bundle service "AT&T TV" and its internet-based TV service "U-Verse."

Be smart: AT&T and Discovery have both launched general entertainment streaming platforms in the past year, but neither HBO Max nor discovery+ come close to the number of subscribers of Disney+ or Netflix.

Go deeper.

Thanks for reading!

Quote: “I don't have a speech prepared by my husband because he winged every single speech. He was intelligent, eloquent and gifted at many things, including public speaking. However, I do know that he would thank everyone that helped him get here, including the people that doubted him and the people that worked against him and told him he couldn't attain his goals. He would thank all of them for motivating him to be here. After all, he proved you wrong."

Why it matters: Last night the great Kobe Bean Bryant was inducted into the Basketball Hall of Fame, introduced by Michael Jordan with an acceptance speech by his wife Vanessa.

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