• Market Crumbs

Depending Who You Ask, Everything Is Great Or Not So Great

Image via Max Böhme on Unsplash

The U.S. is in the midst of the longest economic expansion in history. The stock market is less than 2% from the highest level in the history of the world. The unemployment rate is near historic lows below 4%. That all sounds pretty great.

However, everything is far from great. According to federal data released yesterday, income inequality in the U.S. is at the highest level since the Census Bureau started tracking it in 1967. In addition, median household income hasn't grown for 20 years. At $63,179 last year, the median household income, when adjusted for inflation, equals the peak reached in 1999.

On the other hand, stocks have gone up for more than ten years now, which has largely driven the increase in inequality. The top 1% of households own 50% of total household equities. The wealthiest 10% of Americans now hold more than three-quarters of the wealth, which is more than they did prior to the 2008 global financial crisis

So how did the asset bubble causing this record inequality grow so big? Central bank policies such as quantitative easing and low interest rates have certainly helped fuel the gains in stocks, bonds and real estate over the last decade. Corporations have taken advantage of low rates to issue debt to repurchase their own shares at record rates

The growing wealth inequality is one of the hottest topics heading into the 2020 election. Democratic candidates Elizabeth Warren and Bernie Sanders have both called for a wealth tax. Others have called for a limit on share buybacks unless companies first increase workers’ pay and benefits. More than 40% of Americans even think socialism would be a good thing for the country.

It appears some people aren't too concerned about wealth inequality, though. Federal Reserve Chairman Jerome Powell recently said “We serve all Americans." Powell isn't alone in thinking the Fed's policies are the correct course of action. Former Vice Fed Chair Richard H. Clarida said "our existing framework for conducting monetary policy has served the public well."

With the growth in wealth inequality unlikely to slow down any time soon, it may not be surprising to eventually see protests similar to the Gilets jaunes in Paris hit the U.S. If that day comes, the billionaires who have made out so well may be locking themselves in their $240MM penthouses overlooking Central Park.

Leftover Crumbs

  • They didn't name it McFakeMeat. Following similar moves from Burger King and Dunkin', McDonald's is entering the plant-based meat game with Beyond Meat as its supplier. The burger will be called the P.L.T., which stands for plant, lettuce and tomato. Beginning September 30, McDonald's will be testing the burger at 28 restaurants in Canada for 12 weeks. The cost of the burger is $6.49 in Canadian Dollars, which comes out to just under $5.00 in U.S. Dollars. McDonald's already has plant-based burgers in Israel and Germany in partnership with Nestle. It will be interesting to see if McDonald's uses different suppliers for different countries or switches to one supplier. Either way, suppliers will be lining up to win their business as McDonald's is the world's largest restaurant chain by revenue.

  • From A-list celebrity to D-list celebrity. Endeavor Group Holdings Inc., the company that owns Hollywood's largest talent agency and Ultimate Fighting Championship, initially lowered its IPO range ahead of today's planned offering before scrapping it all together. Endeavor planned to offer shares in the range of $26 to $27, down from the previous range of $30 to $32. Citing "hazardous market conditions," in which the S&P 500 is not even -2% from the highest level ever, they pulled the plug on the offering. The company released a statement saying “Endeavor will continue to evaluate the timing for the proposed offering as market conditions develop.”

  • We've seen this one before. As is becoming routine at quarter-end, Tesla emails from Elon Musk were "leaked" saying the electric car manufacturer may exceed vehicle delivery estimates. Musk's email read “We have a shot at achieving our first 100,000-vehicle delivery quarter. Net orders are tracking to reach about 110k, so demand is strong.” Many will argue a company that cuts the price on it's top-selling product isn't seeing strong demand, but we digress. The "leaked" email was good enough to send shares up 6%, meaning the stock is now only -42% from the funding secured price of $420.

  • Apparently investors aren't interested in any of them. Peloton, whose CEO said “I feel like we’re six or seven different companies in one,” dropped 11% on its first day of trading yesterday. As is becoming the new norm, investors quickly shunned the latest money-losing IPO. The company now sports a market capitalization of just over $7 billion on trailing full-year revenues of $915MM, as losses widened to $245MM. Investors may start questioning how big the total addressable market for $2,000 exercise bikes is.

  • Delta Air Lines is flying south. Delta, the world's second-largest airline, is spending $1.9 billion for a 20% stake in LATAM, which is Latin America's largest airline. This is the latest in Delta's aggressive moves to purchase stakes and build relationships with airlines outside of the U.S. It has previously taken stakes in major airlines in Mexico and South Korea, while announcing a joint-venture with a Canadian airline. Due to foreign ownership rules, airlines are prohibited from buying foreign carriers outright. Regulators in the U.S. and Chile will have to approve the Delta stake.