May 27, 2021

Axios Markets

Good morning! Was this email forwarded to you? Sign up here. (Today's Smart Brevity count: 1,564 words, 6 minutes.)

😢 Heads up! This is the last time I'll write this newsletter to you. I can't say what comes next just yet but follow me on Twitter and I'll post the details there as soon as I can. Managing editor Aja Whitaker-Moore will be handling the newsletter on Friday.

🎙 "Be true to your work, your word and your friend." - See who said it and why it matters at the bottom.

1 big thing: The state of the world, according to me

Photo illustration: Aïda Amer/Axios

This being my last Axios Markets newsletter, I figured I'd break from tradition and tell you what I really think. I'm not anyone important, but I read a lot of reports and I talk to a lot of smart people, so I've learned a thing or two.

What's happening: I believe our country is in trouble. And it's not about a loss of morality or religion or liberals or conservatives or the current president or the last president. It's about a fundamental problem we have as a nation — a reckless imbalance of wealth.

  • The people at the top have too much and the people at the bottom don't have enough.

Keep it 💯: This is not a philosophical matter of doing what's "right." It's a practical matter of doing what's necessary to uphold and maintain a consumption-based economy.

  • Wealthy people aren't consumers. They buy more expensive things, yes, but as a percentage of their income, wealthy people save far more than they spend.
  • Poor people, on the other hand, generally spend what they have and save very little. As Donald Glover's character in "Atlanta" points out, "Poor people don't have time for investments because poor people are too busy trying not to be poor."

No cap: We're living in a world now where the wealthy have so much money they literally don't know what to do with it. I wrote an article about it in June 2019 and the problem has only gotten worse — more money and even fewer places to put it.

  • Corporations are hoarding trillions on their balance sheets, cash just sitting idle, largely because there's no such thing as a safe investment anymore.
  • Globally, many bond yields are rising but are still near record lows, meaning investors get compensated next to nothing and they lose money for the privilege.
  • The best high-yield savings accounts are currently paying 0.5% interest, which translates to -3.7% in real yield because of the current state of inflation.

On the other side: Those who aren't asset holders haven't even benefited from the risk-asset inflation that's accompanied housing, medical and education price inflation for the past decade because wage inflation hasn't even come close.

  • Even in the roaring economy that was 2018, 40% of Americans had negative net incomes and were borrowing money to pay for basic household needs.
  • And this trend has only worsened in the years since 2018 and then accelerated at warp speed as a result of the pandemic and policy response.

The bottom line: A consumer economy simply can't function when the consumers are too poor to consume and the wealthy don't want to.

2. State of the world II: Electric Boogaloo

Photo illustration: Aïda Amer/Axios

This problem isn't new. We've been lurching toward this imbalance for years as corporations busted unions, moved jobs offshore and muscled out independent small businesses, aided by politicians who rewarded them with tax breaks and no-bid contracts for doing it.

  • And when the levies inevitably broke and sent the country into recession, the Federal Reserve lowered interest rates to 0% and pumped more money into the economy so those same corporations and top executives could reap further rewards.

You might not have noticed: This has, of course, driven up costs, but only in areas where the actual cost of the item is hidden or can be spaced out over time — health care, housing and education are examples.

  • Retailers can't raise prices, so it is almost entirely a race to the bottom — nearly half of all new retail store openings announced so far this year are from Dollar General, Dollar Tree and Family Dollar.
  • The obvious exception being luxury brands, which are selling products to the wealthy who have more money than they know what to do with.

New companies today almost universally either lose money, free-ride by offering a service that makes some other service cheaper, or sell something to large corporations or the government.

#BigFacts: Because consumers don't have cash to spend, many companies struggle to generate real profits.

  • However, because interest rates are so low, if a company is big enough it can just keep issuing bonds to keep itself afloat.
  • That's why nearly a quarter of the largest public U.S. companies today are zombies — firms that don't even make enough money to pay the interest on their debt.

The end result: For years the Fed has been subsidizing large corporations and recently the government has turned up its efforts to subsidize consumers.

  • But subsidization is supposed to be temporary. It's become a way of life ... the only way of life.

So, what's the solution? I don't know. I just write the news. But it doesn't seem like there's much interest in finding an actual solution, just printing more money, adding more debt and putting more Band-Aids on the problem.

3. Thank you

That depressing bit of analysis aside, I want to take this opportunity to say thank you to everyone who has written me emails this week to wish me luck or show appreciation for the newsletter. My inbox has been flooded by all of you wonderful people (literally hundreds of emails a day) and words can't express how much it's meant to me.

  • I've spent a lot of long hours writing this thing and there's nothing in the world more rewarding than knowing that people appreciate it and that it sparked discussion or helped further understanding.

So thank you all so much, and if I didn't reply to your email, please blame my inbox and not my heart.

4. Shoutouts

Photo illustration: Aïda Amer

Working for Axios has been hard, especially the past few months, but I want to send a shoutout to the incredible people I've met here who have helped make this newsletter a success.

First, I want to send a shoutout to all my pen pals, the people who reply to the newsletter just about every day — Susan, Ray, Jim, George, Robert, Joe and all the rest. It's been an honor getting to know you.

  • And to friends like Justin, Johnny D, Juan, Dan, Madeleine, Lonna, Tyler and Kimberly who read the newsletter and then text me about it because they're too cool to reply via email.

Shout out to Mickey Meece, who wakes up at the butt crack of dawn to copy edit this newsletter and make it readable every day. You are an absolute joy to work with.

Shout out to Eileen "D-Rage" O'Reilly aka SuperCoolLeenz, Axios' editor of standards and style, and my roll dog. You are just the best and I am forever indebted to you for challenging me and for making my work so much better.

Shout out to the whole Axios visuals team, and a special shoutout to Aida Amer, perhaps the most talented person I've ever worked with in journalism, for making all the illustrations in this newsletter.

  • And a shoutout to Andrew Witherspoon, who has stayed up with me way too late many, many times working on charts and graphics.

Shout out to my boss, Aja Whitaker-Moore, for putting up with me and working with me. Thanks for joining the team.

Shout out to Felix Salmon for recruiting me to come join Axios. Thanks for always calling BS when you saw something in the newsletter that didn't look right.

Shout out to the whole Axios business team, and especially all of our new reporters.

Shout out to Raisa Zaidi, editorial director for "Axios on HBO," for all the compliment sandwiches and to Matt O'Neill and Perri Peltz, the executive producers of "Axios on HBO," for taking a chance and putting me on HBO, and to the whole "Axios on HBO" team.

Shout out to Michele, Shane, Rebecca, Gigi and to the Axios newsdesk for all your hard work taking this mess I make every morning and putting it on the Axios website.

Shout out to Ben, Kendall, Caitlin, Tina, Primack, Justin — all the daily Axios newsletter writers, except Ina. There aren't a lot of people who know the struggle we know. (I'm just playing, Ina, you know I love you.)

  • Shout out to all the newsletter writers at Axios, period. This is a hard job.

Shout out to all the amazing Axios journalists I've gotten to work with over the past 2.5 years.

Shout out to Jim, Mike and Roy, the founders of Axios. Thanks for giving me a place where I could be myself and say whatever I wanted, while showing me incredible support.

Shout out to Axios executive editor Sara Goo for all your help and support.

Shout out to managing editor David Nather for being a standup guy and a real joy to work with. Ditto for Sam Baker.

Shout out to Sam, Nana, Yolanda and the whole Axios comms team for helping me get on TV and impress my friends.

Shout out to the Axions of Color and #blaxios for showing love and for all the good memories.

Shout out to Alex Edlund and the whole ad sales team (or whatever you all are called now) for getting me paid and for all your help making the newsletter a success.

Shout out to Abby Clawson for literally getting me paid.

Shout out to the incredible Axios growth team, past and present.

Shout out to all the other talented people at Axios and my former colleagues who have moved on to really exciting things.

If I forgot anyone, it's because Eileen edited out your name because she's mean and doesn't like you.

Thanks for reading!

Quote: "Be true to your work, your word and your friend."

Why it matters: It's my last week, so I'm just posting quotes I like. Today's quote comes from Henry David Thoreau. I think it speaks for itself.

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