• Market Crumbs

Layoffs Are Ramping Up, But Not Everyone Is Worried

Photo via Cytonn Photography on Unsplash

Executives of publicly traded companies have a fiduciary responsibility to maximize profits and returns to shareholders. One of the easiest ways to maximize profits is cutting costs and one of the largest expenses corporations face is labor. One of the easiest ways to maximize returns to shareholders is via share repurchases.

Amidst the longest bull market in history, executives are desperate to keep shareholders pleased as the global economy increasingly starts to show signs of weakness. Despite Friday's September jobs report, where the headlines highlighted the unemployment rate hitting 50-year lows, companies are increasingly starting to lay off workers.

Over the last month, companies that have announced layoffs include Uber, HP, Deere, GM, Harley-Davidson, United Healthcare, Lazard Asset Management, HSBC, WarnerMedia, EQT, Illumina and Kroger. Even private companies such as WeWork and Juul, who have seen their valuations crater, are expected to announce mass layoffs.

While layoffs obviously negatively affect employees and their families, executives likely aren't losing much sleep over it. Since publicly traded companies have had to begin disclosing the ratio between the compensation of their CEOs and the median compensation of their employees under the 2010 Dodd-Frank law, some troubling data has emerged. The CEOs of nearly 80% of S&P 500 companies earned more than 100 times their median worker did in 2018. At the 50 companies with the largest pay gaps, it would take 1,000 years for an employee earning the median salary to earn what the CEO earns in one year.

So while companies ramp up layoffs into the holiday season as they continue to repurchase record amounts of their own stock, its hard to see how this will end well. History doesn't always repeat itself, but it's worthwhile to at least understand what could happen if it does.

Leftover Crumbs

  • No one could've seen this coming. As trade talks between China and the U.S. are set to resume this week, reports say China is now hesitant to pursue a broad trade deal with the U.S. Despite trade wars being "easy to win," the Chinese reportedly will not commit to reforming Chinese industrial policy or government subsidies, which are among Trump's largest demands. As markets immediately sold off on the news, it may not be long before China buys some more pork and beans and markets rise on "hopes of a trade deal."

  • Thanks but no thanks. As speculated last week, PayPal has officially become the first partner to drop out of Facebook's Libra project. The two companies didn't waste any time throwing jabs at each other. With the announcement they're pulling out of the cryptocurrency project, PayPal said "we remain supportive of Libra’s aspirations." They just don't want anything to do with it. Facebook replied by saying "it requires a certain boldness and fortitude to take on an endeavor as ambitious as Libra." Meanwhile, Apple CEO Tim Cook is probably laughing as the wheels come off the Libra project.

  • Lets try plan B. Altria, which continues to deal with the fallout from its investment in Juul, is launching another alternative to cigarettes this Friday. Iqos, which is already being sold in various countries, heats, rather than burns, tobacco. The device, which isn't a cigarette or an e-cigarette, contains fewer toxins and is supposed to give users the same rush as nicotine. Iqos already has approval from the FDA with strict marketing guidelines, which Juul lacks and has largely led to its downfall.

  • Will they be buying cheese on the dark web using bitcoin? With new U.S. tariffs on imports from the EU set to go into effect on October 18th, one unlikely victim is cheese. The tariffs, ranging from 10% to 25% on everything from aircraft to agricultural products, are a retaliation against a 15-year trade dispute over aviation subsidies. U.S. importers began increasing their orders in July and have been stockpiling them since. The President of the Cheese Importers Association of America said certain cheeses could disappear entirely from supermarkets, others will increase substantially in price, and the $1.5 billion per year in cheese imports could fall by 30%. He summarized the situation by saying “if you’re a Gorgonzola lover, you’re definitely out of luck."

  • This symbolizes a lot about the current state of the world. A painting depicting primates in British Parliament by anonymous street artist Banksy sold for £9,879,500, or $12.2 million, a new record for the artist's work. The painting, “Devolved Parliament,” sold for almost nine times its previous price and nearly five times the estimate of £2,000,000 after a 13-minute bidding war. Banksy, who is notoriously against the commercialism of his art, responded by saying "record price for a Banksy painting set at auction tonight. Shame I didn’t still own it." He also shared a quote saying "the price of a work of art is now part of its function, its new job is to sit on the wall and get more expensive. Suppose that every worthwhile book in the world cost $1 million - imagine what a catastrophic effect on culture that would have."