Is this the beginning of the V-shaped recovery in our post-Coronavirus world? Or is this just a temporary spike after most states across the country reopened their economies? Either way, President Donald Trump and his MAGA Country citizens are taking a victory lap.
Jobs, Not Mobs!
In June, the U.S. economy created 4.8 million new jobs, better than the three million the market had penciled in. The unemployment rate slipped to 11.1%, beating the median estimate of 12.3%. This came after the world's largest economy shocked everyone in May when it added 2.699 million new jobs and posted a jobless rate of 13.3%.
Every sector reported an expansion, but the most significant increases were in leisure and hospitality (2.088 million), retail (739,800), education and health services (568,000), manufacturing (356,000), and professional and business services (306,000). Thankfully, government had one of the smallest gains.
The labor force participation rate rose to 61.5%, average weekly hours fell to 34.5, and average hourly earnings dipped 1.2%.
After months of depressing news and forecasts, this is a positive development that should lift the spirits of everybody. Of course, in this toxic climate, it will only anger one side of the political spectrum. But while the minute details of the jobs report do trigger some serious questions, the brass tacks are encouraging for a financial market indifferent to such details.
Bringing Out the dead
Who knew not sending money to dead people would be confusing and contentious? But that is Washington for you. Senator Rand Paul (R-KY) recently submitted a bill, titled "Stopping Improper Payments to Deceased People Act." The purpose of the legislation was to no longer send Social Security money to the deceased. It would also modify the Treasury Department's "Do Not Pay Initiative," a fraud prevention service.
The Senate unanimously passed the bill, seemingly because nobody had any idea what they were doing. Sen. Paul requested the Senate to approve the bill, and Senator Marsha Blackburn (R-TN) asked if there were any objections. The silence was deafening, and since nobody objected, "I guess it passes."
Here is a clip of the smartest men and women in America today:
https://twitter.com/rachelbovard/status/1278465942750715909?s=20
Irrational Exuberance in the IPO Market
Even in the middle of a public health crisis, the initial public offering (IPO) market continues to be a ridiculous financial arena. In recent years, the IPO has been faced with unprofitable companies going public. This year, the theme seems to be central banks' money-printing ways – breathing new life into a market that had been relatively dormant at the height of the COVID-19 pandemic. This week, two tech firms made headlines for seeing triple-digit jumps on their first day of trading.
Agora, a Chinese cloud software company, more than doubled its value in only two sessions, surging 160% to just below $57 a share. Lemonade, a mobile-based insurance startup, logged an impressive IPO debut in 2020 by soaring 140% to a little more than $69.
Many talking heads on CNBC and Bloomberg are discussing how these companies left money on the table by selling their stories on Zoom rather than meeting with the big wigs in Boston, New York, and San Francisco. The real story is the Federal Reserve money spigot.
Typically, the two beneficiaries of an expansionary central bank are finance and tech. They are the first ones feeding at the trough. The power players on Wall Street have a lot of cheap cash on hand to invest their money in companies – profitable and unprofitable – and earn a handsome payday in a trading session or two. As long as the Fed is pumping liquidity into the system, IPOs will continue to record these historical events.
Japanification of the Fed
They all laughed at Japan because the central bank is the largest shareholder on the Nikkei index. Well, nobody is chuckling now after it was discovered that the Federal Reserve is officially a top-five shareholder in the corporate bond exchange-traded fund (ETF) market.
Every week, the Eccles Building publishes its H.4.1 disclosure filing. It offers only the need-to-know details about its ETF holdings, but it falls short of informing everyone about the ETFs it owns. Bloomberg took the initiative to let the market know, compiling financial data regarding what the central bank invests in with newly printed dollars.
The Fed now owns short of $7 billion in market value in 16 corporate bond ETFs. In case you have an appetite for alphabet soup, its most significant holdings are LQD, VCSH, VCIT, and IGSB. It is also the 21st biggest holder of HYG, a junk bond ETF.
As Liberty Nation recently reported, the Fed has been bailing out Wall Street and Corporate America by scooping up their debts. Some of these names include JPMorgan Chase, Walmart, Goldman Sachs, and AT&T. It is only a matter of time before it starts piling up equity stakes in these companies and becomes a stock trading outfit, too. Jerome Powell and Associations anybody?
Happy Belated Bobby Bonilla Day!
July 1 is was not only Canada Day. It was also Bobby Bonilla Day, that time of the year when all Major League Baseball fans gather around the hot stove and crunch the numbers.
For the uninitiated, Bonilla was an MLB slugger who has been paid $1,193,248 per year, plus 8% interest, since 2011. It was part of an agreement that was approved in 1999 when the New York Mets owners negotiated a long-term buyout when the team waived him. The Wilpon family thought it would be a better decision than paying him the remaining $5.9 million on his deal.
Both sides took something from the arrangement: Bonilla attained financial security until 2035, and the Mets deferred the payment to upgrade the roster at the time. The critical thing about the deferral is the guaranteed 8% return, which cannot be found anywhere in today's market. The club owners thought they could cover the 8% because they were earning 10% from Ponzi schemer Bernie Madoff, but everyone knows how that story ended.
Bonilla is not the only professional baseball player to receive deferred payments. The Boston Red Sox are paying Manny Ramirez about $2 million until 2026. The Cincinnati Reds are cutting a $3,593,750 check every year until 2024 to Ken Griffey Jr. The Baltimore Orioles will start the deferral process in 2023 when the team pays the first baseman Chris Davis $3.5 million per year until 2032, which is then reduced to $1.4 million in 2033. The deal ends in 2037.
You could start seeing more of these mega contracts include deferrals since players would probably enjoy the long-term security for themselves and their families. The Bonilla contract highlights the value of playing the long game for your savings instead of taking the short-term view. Would you prefer a seven-year deal worth $70 million or a deferral length of 21 years that adds up to $85 million with interest?
Happy belated Bobby Bonilla Day!
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Read more from Andrew Moran.
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