You had choices Thursday when it came to what deserved your attention.
Remember: Barring significant scientific advances over the next several decades, your time is limited. As such, you should accord it (the time you have left, I mean) the utmost respect.
With that in mind, you could have spent the day reading about the crisis in Texas and pondering the possible ramifications for the future of US energy policy and, secondarily, the future of the Republican party in the state. That would have been a decent use of a few hours.
Also on the docket Thursday: NASA’s attempt to land a rover on Mars. As The New York Times noted, “NASA’s latest robotic explorer [was] the third spacecraft to arrive at the planet this month after visitors from the United Arab Emirates and China.” The rover’s destination was the Jezero Crater. For those unfamiliar (a group which included myself until Thursday), planetary scientists believe the crater is “an ideal place to find preserved signs of life from several billion years ago, if life ever did arise on Mars,” the same article said.
Alternatively, you could have spent more than three hours watching Robinhood CEO Vlad Tenev, Ken Griffin, and Reddit hero Keith Gill, better known as “Roaring Kitty,” explain to US lawmakers exactly what happened last month when extreme volatility in shares of a left-for-dead, brick-and-mortar video game retailer upended financial markets.
In a testament to the sad state of humanity, far too many Americans chose to tune in to the GameStop hearing, as evidenced by, among other things, obsessive real-time coverage by the financial media. A team of Bloomberg bloggers, for example, recounted the proceedings in hundreds of short posts separated in most cases by just seconds.
I’m not criticizing anyone. Well, maybe a little. But financial media outlets were obligated to cover the farce on Capitol Hill. And reporters were just doing their jobs. I certainly spilled copious amounts of digital ink in these pages documenting the GameStop saga as it unfolded a few weeks back. It was funny. And it did have ramifications for the broader market.
My point, though, is that it often feels like humanity is wasting precious time and energy on things that, in the final analysis, don’t really matter all that much. Yes, GameStop exposed the fragility of markets, but how many times have we seen markets essentially break over the past several years? I can count at least a half-dozen. If you go back a decade, you find that “fragility events” (as they’re sometimes described by analysts with a skillful pen), arrived at semi-regular intervals, and affected assets far more systemically important than GameStop.
Lest anyone should forget, it was just 11 months ago when the US Treasury market briefly “snapped” amid the pandemic panic, underscoring an important point that speaks (loudly) to everything said above: In the face of existential crises, most people would rather just sell everything they have for US dollars, knowing that if everyone perishes, it won’t matter, and if not, they can always use the dollars to repurchase whatever was sold.
Relive the drama: March Madness — How The Treasury Market Blew Up
In any case, I implore folks to broaden their horizons. Watch a little “Roaring Kitty” if you like. But spare a thought for “Perseverance,” which, as I wrote these lines, was descending through the Martian atmosphere. I imagine that was even more perilous than being grilled by dozens of clueless US lawmakers.
Markets meandered into the afternoon in the US. Equities trimmed fairly steep early losses, and investors were compelled to grapple with a disconcerting spike in jobless claims alongside mixed housing data which seemed to suggest that surging prices may be starting to erode demand.
One other notable was Walmart, which had a terrible go of it after making the “mistake” of saying it plans to raise pay to an average of more than $15 per hour, which will affect (read: help) nearly a half-million US employees. On the face of it, that sounds good for labor and good for the country, which almost by definition means it’s bad for capital. Hence the worst single-session decline for the stock since the early days of the pandemic.
Investors were also perturbed by the company’s plans to invest in automation. Net sales, operating income, and EPS are expected to decline in the new fiscal year, “primarily due to the impact of anticipated divestitures,” Walmart said.
Speaking in an interview with Bloomberg, CFO Brett Biggs described the pay raises as an initiative that will “help us fulfill our strategy around online pickup, delivery, and e-commerce.” For rational people (and shareholders aren’t always rational) that sounds like a good idea given prevailing trends.
In addition, Biggs mentioned a desire to offer what he called a “ladder of opportunity” for workers at a time when some new employees are coming from unrelated occupations where jobs were lost to the virus.
That’s important. Some economists believe that depression associated with losing jobs in higher paid occupations and being forced into menial work has contributed to rising mortality rates among disaffected white Americans, the same demographic that comprised Donald Trump’s base. The pandemic has the potential to create a second wave of such employment “downgrades.” The first was from good-paying factory jobs to the services sector. Now, workers are being forced into the open arms of Walmart, which is at least trying to create something like a hospitable environment for them.
Anyway, I don’t want give anyone too much credit. Whenever I do that (i.e., whenever I ascribe too much altruism to corporate management) at least a few readers remind me that the C-suite is inherently nefarious. As if I’m a guy who needs reminding of such things. CNN was quick to pounce, for instance. “Walmart announced pay bumps Thursday that will bring its average hourly wage to over $15 an hour, but the move still falls short of the $15 minimum wage announced by some of its largest competitors,” the network remarked. “Overall, approximately half of Walmart employees— around 730,000—will earn at least $15 an hour.”
Walmart of course benefited handsomely during the pandemic, as shoppers sought cheap staples and necessities. Comps surged, and the company easily beat estimates in Q4 on that front (8.6% versus consensus 5.7%).
Also worth mentioning Thursday was an interesting juxtaposition from the Philly Fed survey.
I’ll frame it as a question: What happens when input prices rise at a time when passing along costs to end consumers is difficult due to recessionary dynamics?
The prices paid index on the February Philly Fed survey rose to 54.4 from 45.4 the previous month. The prices received gauge, on the other hand, dropped to 16.7 from 36.6.
“Nearly 55% of the firms reported increases in input prices, compared with 47% last month,” the color accompanying the survey said. “The current prices received index, reflecting manufacturers’ own prices, decreased 20 points to 16.7 [with] 18% of the firms reported increases in prices of their own manufactured goods, compared with 38% in January.”
“This brings into question the ability to pass-through cost increases to the end-user and provides a challenge to the reflationary story,” BMO’s US rates team remarked. In special questions for this month’s survey, respondents were asked to “forecast the changes in the prices of their own products and for US consumers over the next four quarters.” Firms’ median forecast was for a 3% price hike for their own prices and a matching increase for overall inflation.
By the time it was all said and done Thursday, US stocks were solidly lower, with the Nasdaq underperforming. Treasurys were cheaper, albeit not by much. Yields on 10s and 30s didn’t manage to breach recent highs.
After nearly four hours of “Roaring Kitty” (and related coverage), Bloomberg finally went to Mars: “NASA NAILS HISTORIC MARS ROVER LANDING IN HUNT FOR ANCIENT LIFE,” a red hed declared. “NASA SAYS MARS ROVER HAS LANDED ON SURFACE OF MARS,” said another.
On the off chance the rover finds any ancient hieroglyphs, I imagine they’ll translate as follows: “Where did GameStop close?”