Dec 10, 2019

Axios Markets

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“The central issue is we’re developing into a plutocracy. We’ve got an enormous number of enormously rich people that have convinced themselves that they’re rich because they’re smart and constructive.” - See who said it and why it matters at the bottom.

1 big thing: Workers locked down with noncompetes

Illustration: Sarah Grillo/Axios

Nearly half of U.S. companies have required at least some of their employees to sign noncompete agreements, a study released today from the Economic Policy Institute finds.

Why it matters: The agreements force workers to sign away their right to take jobs in similar fields, often for months after leaving a job. These are increasing income inequality and helping hold down Americans' wages, EPI analysts say.

  • Previously a rare clause, the number of companies using noncompete agreements has swelled, as they are now being used in the contracts of "janitors, receptionists, customer service workers, fledgling journalists, even employees of a day care center."

What they're saying: “Noncompetes limit competition among businesses and stifle workers’ wage growth — given that changing jobs is where workers often get a raise," says study co-author Alexander J.S. Colvin, a Cornell University professor.

  • "The rise of noncompetes is likely an important contributor to stagnant wages and declining job mobility in the United States in recent years.”

By the numbers: The study estimates that somewhere between 36 million and 60 million private sector workers in the U.S. have signed noncompete agreements, with 49.4% of businesses surveyed saying that at least some workers were forced to sign them.

  • The wide range of people with noncompetes is due to firms that only require some employees to sign not specifying how many, an EPI spokesperson tells Axios.

Between the lines: The clauses were first introduced as a way to prevent upper-level employees from taking trade secrets to rival businesses, but have since proliferated to low-wage and low-skill workers.

  • More than a quarter (29.0%) of responding businesses with an average hourly wage below $13.00 require noncompete agreements for all workers.
  • The survey also found noncompetes were used for all workers in 27% of workplaces where the typical worker has only a high school diploma.

The intrigue: A similar study in 2014 found that just 18% of workers had noncompete agreements, compared to roughly 28%–47% of private-sector workers in 2017, a two-to-threefold increase.

Of note: Data was collected March to July 2017 from 1,530 establishments with 634 complete answers, yielding a 95% confidence interval for top-line estimates of ±3.9 percentage points. More details here.

Bonus: Where the noncompetes are
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Reproduced from Economic Policy Institute; Table: Axios Visuals

Noncompete agreements are widely used nationwide, EPI notes in its study, with more than 40% of businesses in each of the 12 largest states having at least some employees covered under the agreements.

  • That includes 45% of firms in California, despite the fact that noncompetes are unenforceable under California state law.

What they're saying: "As employers increasingly use restrictive contracts like noncompetes and mandatory arbitration to undermine workers’ rights, there is an urgent need for stronger worker protections, including prohibiting noncompete agreements," says study co-author Heidi Shierholz, a senior economist and EPI's director of policy.

2. Catch up quick

Top trade officials from the U.S., Mexico and Canada are expected to meet in Mexico City today to sign the U.S.-Mexico-Canada free trade agreement that will replace NAFTA. (Politico)

Tiger Global, one of the earliest investors in Juul, has cut its valuation of the e-cigarette maker to $19 billion — half of what it valued the company at in December. (WSJ)

Amazon has filed a complaint in federal court against President Trump, saying he “launched repeated public and behind-the-scenes attacks" to steer a $10 billion contract away from "his perceived political enemy" Jeff Bezos and toward Microsoft. (Axios)

3. What Jerome Powell learned from Paul Volcker

Paul Volcker. Photo: Monica Schipper/Getty Images

Former Fed chair Paul Volcker died Sunday at 92 years old, it was announced yesterday. It reminded me of comments current Fed chair Jerome Powell made about him at the National Association for Business Economics conference in October.

  • Powell said of Volcker: "I don’t think there has been a greater public servant in our lifetimes."

The big picture: Volcker is best known for having the will to drive the U.S. into a recession in order to battle inflation, which he called "the cruelest tax" because of the pernicious way it could hurt the nation's poor and elderly.

  • He served in the Treasury Department under Presidents Kennedy, Johnson and Nixon before moving to the Fed.

Background: Powell said he first met Volcker when he was an assistant at the Treasury Department in the early 1990s and that Volcker, despite Powell's then-minimal profile, "couldn’t have been nicer and more interested in helping me and supporting me. He was a great person to know."

  • Since leaving the Fed, Volcker has made a point to speak out against corporate greed and on behalf of reining in excesses on Wall Street.
  • He was a strong advocate for common-sense reforms and regulations that benefited regular people at the expense of big business and profits.

Where it stands: After being named Fed chair, Powell was seen numerous times with Volcker's memoir, “Keeping at It: The Quest for Sound Money and Good Government.”

  • "I actually thought I should buy 500 copies of his book and just hand them out at the Fed. I didn’t do that. But it’s a book I strongly recommend, and we can all hope to live up to some part of who he is."
4. British pound stalls ahead of U.K. election
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Data:; Chart: Axios Visuals

Since falling to its weakest level in more than three decades against the dollar on Sept. 3, the British pound has been on a tear. It has risen by nearly 10% to its strongest level against the dollar since May and its highest against the euro since May 2017.

What's happening: Currency traders are shaking off fears of a no-deal Brexit.

  • Polling ahead of Thursday's election shows the Conservatives in the lead and they are expected to gather behind Prime Minister Boris Johnson's Brexit plan.

Yes, but: As the election draws near, traders have lost their nerve and the currency has been little moved since closing above $1.31 on Dec. 4.

  • “Nothing is priced in,” David Bloom, global head of foreign-exchange strategy at HSBC, told Bloomberg in November. “The political outcome will determine the future of the currency.”
  • Bloom projects that if Britain can negotiate an orderly exit from the EU, the pound could rise to $1.45 by the end of next year. But, a no-deal Brexit could see it tumble to $1.10.
5. Big American banks are doing quite well in 2019
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Reproduced from Retail Banker International; Table: Axios Visuals

It has been a particularly good year for American banks. Despite historically low interest rates, which theoretically eat into their profits, the sector has enjoyed significant share appreciation.

By the numbers: 75 of the world’s largest 100 banks by market cap have seen an increase in their stock price in 2019, according to a new report from GlobalData.

Between the lines: When it comes to assets held, American banks have ceded global leadership to China, which is home to the four largest banks by assets — Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of China.

6. Few active managers have delivered in 2019

It's been a rough year for active managers. In fact, it's been the worst year since 2016.

Where it stands: "With just a month left in 2019, only 31% of large cap active funds are ahead of their Russell 1000 benchmarks, even after a solid November when 47% of managers outperformed," according to Bank of America Merrill Lynch's latest active manager holdings report.

  • Their data shows that "a simple strategy of buying the 10 most underweighted stocks and selling the 10 most crowded stocks" held by long-only asset managers has delivered nearly 17 percentage points in better returns so far this year, which is a record high in the data recorded since 2009.
  • In 2016, just 19% of funds beat their benchmark index.

The quote comes from Volcker's October 2018 interview with the New York Times. “We’re in a hell of a mess in every direction,” he said.

Editor's note: A piece from yesterday's newsletter was corrected to show 13 attorneys general were suing to stop the merger between T-Mobile and Sprint (not 26).