Sep 20, 2019

Axios Markets

By Dion Rabouin
Dion Rabouin

Was this email forwarded to you? Sign up here. (Today's Smart Brevity: 1,136 words, ~ 4 minutes.)

Situational awareness:

  • The New York Fed will inject an additional $75 billion into the repo market today, its fourth liquidity injection of the week, after swap spreads fell to their lowest level on record. (Bloomberg)
  • Payment processing company Stripe increased its valuation to $35 billion after a new fundraising round from Sequoia Capital, General Catalyst and Andreessen Horowitz. (WSJ)
  • Saudi Arabia is trying to "force," "coerce" and "bully" some of the kingdom's wealthiest families into investing in the Aramco IPO, per 4 anonymous sources. (FT)
1 big thing: Economists see sustained low growth, but no recession

Illustration: Aïda Amer/Axios

The OECD became the latest international economic organization to cut its global growth forecast, announcing Thursday that it's dropping expected growth to 2.9% this year, the slowest since the financial crisis.

Why it matters: The designation follows similar moves from the IMF, World Bank and a slew of central banks and ratings agencies that slashed their estimations for the world's economic growth this year as data continues to worsen.

  • "We're heading slowly towards lower growth and the biggest risk that we see to these projections ... is that we remain stuck, engulfed at a very low level of growth," OECD chief economist Laurence Boone said in an interview with Bloomberg. "That is largely due to the uncertainty that has been created by the trade conflicts all over the world."

Yes, but: While the direction of economic growth has been clearly negative, none of the organizations are expecting a recession, this year or next.

  • In fact, from central banks to ratings agencies and intergovernmental orgs, top economists remain steadfast in their insistence that they do not expect a recession for the U.S. or global economy.

What they're saying: Even projections by mainstream economists on the low-end of the spectrum show the U.S. "comfortably" avoiding a recession and China continuing to see GDP growth around 6%.

  • "That's why we're not forecasting any kind of global recession," Tony Stringer, COO of Fitch's global sovereigns group, told Axios on the sidelines of the ratings agency's Global Sovereign Conference. "Obviously if either of those really fell off a cliff that's when you get a different paradigm."

Between the lines: The key, Stringer said, is consumption and U.S. consumers have shown it in droves over the last few months. Retail sales, consumer confidence and jobs data metrics remained at high levels, even as manufacturing, investment and CEO confidence stumbled.

Some economists are even bullish on the state of things.

  • "There is no denying that elevated uncertainty is bad for investment, but our tracking of global fixed capital formation finds little sign of lasting damage, at least at this stage," Institute of International Finance economists Robin Brooks and Jonathan Fortun said in a recent note.
  • "If we combine this relatively benign global growth picture with material easing from key central banks, it paints a picture that arguably looks quite constructive for risk assets."

Be smart: Economists almost never see recessions coming. Ahead of the global financial crisis, economic leaders from the Fed, Treasury Department and major ratings agencies gave no warning of what was to come.

2. British pound hits 2-month high as no-deal Brexit fears fade

The British pound rose to a 2-month high against the dollar Thursday as hopes are again rising that the U.K. will avoid a no-deal Brexit.

Driving the news: European Commission President Jean-Claude Juncker said in an interview yesterday he expects Brussels to reach a deal with Britain to leave the EU with a deal in place to avert a messy break-up.

  • “I think we can have a deal,” Juncker said in an interview with Sky News. “I am doing everything to have a deal because I don’t like the idea of a no-deal because I think this would have catastrophic consequences for at least one year.”

Background: Sterling had fallen to its lowest since 1985 against the dollar in August as Boris Johnson took over as prime minister, but has since risen more than 5 cents against the greenback.

3. Altria's big bet on Juul is going horribly wrong
Expand chart
Data:; Chart: Axios Visuals

Altria's $12.8 billion investment for a 35% stake in Juul is at risk of becoming one of the worst corporate investments of all time.

Driving the news: So far, vaping is suspected or confirmed as the cause of death for 8 people and 530 cases of pulmonary illness across 38 states, the CDC said, with a federal official saying that a criminal probe has begun.

Sens. Mitt Romney and Jeff Merkley proposed a bill late Thursday that would:

  • Ban e-cigarette flavors other than tobacco.
  • Create new design standards for e-cigarettes.
  • Apply existing tobacco taxes to e-cigarettes
  • Urge the Department of Health and Human Services to oversee a campaign about the health risks of e-cigarettes.
  • Make it more difficult to refill vape cartridges with home-made tobacco pods.

“With nearly a quarter of high school students vaping regularly, we must take decisive action to prevent a new generation from addiction and serious health risks,” Romney said.

Between the lines: "Sometimes it's darkest before the light, but right now it looks like Altria got smoked," Axios' Dan Primack writes.

The big picture: Juul keeps getting hit left and right — particularly after the recent spate of vaping-related lung diseases. The company is also facing a possible congressional subpoena after failing to provide documents in July.

  • Last week, President Trump proposed banning all flavored vaping pods from the U.S. market, including mint and menthol.
  • Earlier this week, Juul products disappeared from Chinese e-commerce sites and Alibaba's, without explanation.
  • India banned e-cigarettes entirely.

In the market: Altria's stock has been falling for much of this year and has been on a clear downward path over the past 6 months.

  • The recent blowback against e-cigarettes has sent shares down another 8% in just the past week.

Go deeper: The global anti-vaping tipping point

4. Exclusive: 1 on 1 with the king of financial country music
Photo courtesy of Merle Hazard

Merle Hazard, the biggest name in country music about financial markets, played his first ever show in New York on Thursday night, performing for a packed house at WNYC's Jerome L. Greene Performance Space.

  • A native of New York who bills himself as the son of a coal miner and a compliance director at Morgan Stanley-Dean Witter, the 57-year-old Hazard unleashed a string of hits from his 2018 opus "Tough Market" backed up by his son Merle Jr. (aka David Shayne) on guitar.

The big picture: The legendary crooner behind hits like "How Long (Will Interest Rates Stay Low)," "Dual Mandate" and "Inflation or Deflation" is unquestionably the economics world's biggest country music superstar. But Hazard, aka Jon Shayne, still has his day job.

Behind the scenes: He's an asset manager, dealing mainly in U.S. equities at his firm Shayne & Co. Investment Management overseeing portfolios for around 100 client accounts.

  • "There's an audience for [my music]," Hazard said during a one-on-one exclusive with Axios, "but I'm not sure it's a sufficiently big paying audience to really make this a career."

Background: He got his start in finance at brokerage firm Paine Webber as a "number-crunching analyst in the mergers group," but eventually moved to Nashville, where he was able to combine his love for country and finance.

  • "Everything I sing about in the songs ... they're all real issues to me."

Fun fact: Hazard now records at Compass Sound studios on Nashville's Music Row, the former home of Glaser Brothers Productions aka Hillbilly Central "where the likes of Waylon Jennings, Willie Nelson, Kinky Friedman and Tompall Glaser gave rise to country music’s 'Outlaw' movement," according to the studio's website.

The intrigue: While his songs generally focus on high-level macroeconomic themes like central banking, GDP growth and interest rate policy, his heart is in value investing — as a Warren Buffett devotee he specializes in company valuations and stock picking.

Go deeper: Who would’ve thought a bluegrass spoof of atonal music would take off on YouTube? (WashPost)

Dion Rabouin