Thursday 16, December 2021

Robert Reich on inflation

Robert Reich has written a piece about why inflation is happening. It’s about how US companies can preserve or increase margins in the face of escalating raw materials costs. The answer is, of course, market power. This is something that a lot of people have been saying for a while. Anti-trust regulation in the US has been hobbled if not completely disabled by the capture of the legislature by corporate interests. Matt Stoller has been banging on about this for years, but when a fairly mainstream figure like Reich starts fingering this as the big problem we might be seeing the Overton Window move a bit.

Read more here.

In case you think I’m exaggerating, read this.

Maybe it’s just availability bias, but the recent comment by Nancy Pelosi that she and her fellow congressmen should be allowed to profit from this very tilted playing field has enraged commentators on the left. This article captures the mood rather well, I think.

As usual, I like to ask myself “but what does this mean for stocks?” Well, more people may be aware of the situation. Some of them may be investors who think “Wow, P&G must be worth a punt.” But some of them might be activists, who were not aware of how bad things had got and will start to demand action, or at least remove congressmen and senators who are too obviously corporate lackeys. If this happens, the pendulum will swing back towards favouring labour. This could take some time. In principle, it will bring down P/E multiples. Sorry to not come up with a more punchy conclusion.

Turkey

The Turkish Lira has become unanchored. The FT focusses on the fact that Erdogan doubts the link between high interest rates and a strong currency. To my mind, this is like doubting the link between a high yield and a high price for a bond issued by a company with a terrible credit rating. For sure, if the Fed pushed its Fed Funds rate to 15% the dollar would go through the roof. But nobody has any doubt that the Fed would pay out. For Turkey, there is much more risk. Erdogan might shut down the capital account, default on debt, generally screw his creditors. What can they do when a sovereign issuer declines to honour its obligations? Sue it in a Turkish court, presided over by an Erdogan appointee? I doubt it.

KE Holdings — don’t hodl or hold!

Revenue & metric inflation scams abound at $BEKE. Its DeYou operation has a “pilot program” for larger volume stores that “invests” money off the books in installments in exchange for it coming back in as inflated commission share revenue https://t.co/ADluTjAWBe

— MuddyWatersResearch (@muddywatersre) December 16, 2021

Wrap

There seems to have been a massacre of the internet stocks. NDX down 2.5%. Commodities generally up. Bonds up a bit. Basically, a risk-off day and a bad day for long-duration assets in particular. I have no idea what is driving this. Maybe winners from the FAANG boom locking in their profits for the year?

Turkish Lira being hammered again. The BoE tightened, raising rates to 0.25%.