Jun 14, 2021

Axios Markets

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Now for today's news in 1,368 words, 5 minutes.

1 big thing: A higher ed shakeout

Illustration: Sarah Grillo/Axios

Behind the scenes in colleges across the U.S., institutions are having trouble paying their bills, writes Axios' Kate Marino.

Why it matters: There’s a reckoning coming in higher education — especially for smaller, private liberal arts schools — that’s been years in the making. In obvious ways, COVID-19 accelerated some of the trends, but college finances have been hurting for a while.

  • Pandemic-era government stimulus funds helped a slew of schools gain another year or two of financial runway.
  • Yes, but: Restructuring advisers that work with higher ed institutions as clients say there’s been an uptick in schools that are beginning to explore financial transactions to keep from going under.

Demographics is destiny: A declining birthrate means the pool of college-age Americans has been declining, and it could be as much as 15% lower by the mid-2020s compared with the early 2000s.

Catch up quick: Smaller, nonurban liberal arts schools take the brunt of the shrinking student body, more so than elite universities with huge endowments or large state schools that receive public funding.

Then COVID hit.

Schools lost much of their room-and-board revenue over the last year. And some of that may never come back as remote learning expands.

This fall’s enrollment numbers will be make or break for many.

Be smart: Colleges can’t file for Chapter 11 bankruptcy the way insolvent companies can because they would lose their accreditation and student access to federal loans.

  • Banks and other lenders that provide loans to colleges are usually willing to provide more leeway than they would to corporate borrowers — with maturity extensions and other relief, says Mark Podgainy, managing director at consultant Getzler Henrich.
  • No bank wants to see headlines about it tossing kids out of school, he says.
  • In return, lenders usually require the universities to shore up their balance sheets, through mortgaging or selling real estate, or by inking an M&A or cost-sharing transaction with another school.

If a school still can’t survive, the insolvency process it uses is called a “teach-out” — where another school takes over its facilities and offers classes to students, while the legacy school liquidates its assets.

The bottom line: Students don't usually evaluate a school's wherewithal to pay its bills when choosing a college — but they're the ones who stand to lose the most from closures. The earlier schools deal with their problems, the more likely they’ll be able to provide a smooth path for students to finish their degrees.

Go deeper.

2. Catch up quick

The market for private capital has ballooned to over $7 trillion — and could hit $13 trillion by 2025 — spurred by the pursuit of more lucrative investment strategies targeting opaque assets. (FT)

The New York Times investigates how the private equity industry has "conquered the American tax system" — via avoidance sleight-of-hand and deeply connected lobbying efforts. (NYT)

The SEC aims to propose new disclosure requirements for companies on climate change risks, board diversity and cybersecurity by this fall. Proposals to increase oversight of SPACs are expected by next spring. (Bloomberg)

3. Bring on the gamma squeeze
Expand chart
Data: IHS Markit; Chart: Will Chase/Axios

The origin story of the meme stock phenomenon centered around an uprising by retail investors, who wanted to make money at the expense of Wall Street short-sellers, Kate writes.

But in today’s meme stock world, there’s not that much short interest in the names most popular with the WallStreetBets crowd.

Driving the news: Mudrick Capital — a hedge fund that profited from AMC Entertainment trades this year — recently saw its flagship fund lose 10% in just a few days thanks in part to bets on AMC options, the WSJ says.

Why it matters: Though meme stocks are off their highs, they continue to trade at sky-high valuations disconnected from fundamentals. Many, like AMC, GameStop and newcomer Clover Health, booked another day of gains in Friday's session.

How it works: Call options give buyers the right to purchase a specific stock within a certain time period. A buyer of the call option makes money when the stock rises in price.

  • An increase in call options activity can force the sellers of the options to buy the stock, since they may have to deliver the shares. This pushes the stock price up.
  • The chain of events is known as a gamma squeeze.

State of play: Investors like hedge funds could be buying certain stocks to try to trigger a gamma squeeze, Helen Thomas, founder of U.K.-based financial research firm Blonde Money, told the WSJ.

  • Such a squeeze can accelerate a stock's ascent — and also its decline.

The bottom line: “Hedge funds are scared to have holdings on significant short positions [in meme stocks], even if fundamentally it makes a lot of sense,” Lorenzo Di Mattia, chief investment officer of Sibilla Capital, told WSJ.

4. Tables turn for workers

Illustration: Aïda Amer/Axios

American workers have been losing power since 1980 — but now the tables are turning, writes Axios Capital author Felix Salmon.

Why it matters: The 2010s gave us the gig economy and left millions of workers stranded seemingly forever on the precipice of financial ruin. The 2020s could be the decade when workers seize back the reins of power.

The big picture: The number of unfilled jobs continues to grow, the size of the workforce is stagnating, and workers are flexing their muscles whether or not they have formal union representation.

  • Demographic realities mean that only increased immigration will be able to boost the number of working-age Americans in the coming years.
  • The lowest wage that workers without a college degree would be willing to accept for a new job now stands at an all-time high of $61,483, a rise of $10,000 in just one year, according to a New York Fed labor market survey.

Financial security is now easier to come by even without a job, thanks in part to the Obama-era expansion of health insurance.

  • A booming stock market, along with the pandemic-fueled broadening of unemployment benefits, seems to have made enough workers rich enough that they can afford to be pickier about which jobs they're willing to accept.

Between the lines: Recent decades have seen exaggerated power asymmetries between most employers and most employees. That's a far cry from textbook capitalism, where the price of labor is determined in negotiations where both parties are on an equal footing.

  • Those negotiations are now beginning to happen in earnest, which can be discomfiting for employers.
  • The rise of sophisticated, free group-communication software, like Slack and Discord, has made it much easier for employees to talk to each other and to act in unison, without going through formal corporate channels.
  • Even gig-economy workers are beginning to win union representation.

The bottom line: America is not a workers' paradise. But it seems to be moving in that direction.

Bonus chart: Unfilled jobs soar
Data: BLS via FRED; Chart: Axios Visuals

By the numbers: There are now a record 9.3 million open jobs in America.

  • The labor force stands at 161 million, about 3 million people fewer than it was pre-pandemic, and has seen no growth since August.
5. U.S. Chamber CEO: People are being paid to stay home

Credit: "Axios on HBO"

Speaking of job openings and power shifting ...

U.S. Chamber of Commerce CEO Suzanne Clark said in an "Axios on HBO" interview with Axios' Mike Allen that supply and demand is failing to cure a worker shortage largely because of a skills gap and the $300 supplemental unemployment benefits.

Why it matters: A debate is raging in this country over whether the additional money — which helped millions of Americans tread water as the pandemic ravaged their lives and the economy — is now hurting businesses who say they can't find workers.

What they're saying: "We're paying people to stay home," Clark says.

  • "I do think it's only one of the challenges. ... Opening schools, opening camps, access to good child care. Those are really important pieces of this puzzle that we want to help solve."

What to watch: Full recovery is in sight for business, according to Clark.

  • "So the goal is that by the end of this year, the pandemic is over. We've achieved this 10% growth. We are not being hamstrung by the worker shortage, by big tax increases, by regulatory overreach, and we're letting business solve the problems that only business can solve," she says.

Go deeper.

Thanks for reading! Let's have a great week.