Economy still divided, Biden starts to cave

Plus Tunisia’s uprising, GameStop games, Amazon organizing, and a bonus column to come

Thanks for reading another edition of Contention! This one will only take six minutes to read. Why is it shorter than normal? Because we are releasing a special bonus column later this afternoon!

In this edition we cover:

  1. Economy still divided, Biden starts to cave 

  2. Tunisians erupt as ‘free trade’ suffering deepens

  3. Rapid Round: Amazon busts unions, Redditors goose GameStop, Europe blocks Brit havens

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Economy still divided, Biden starts to cave 

Markets ended higher last week as Wall Street celebrated the inauguration of business-friendly U.S. President Joseph Biden -- the Dow was up 0.6%, the S&P 500 1.9%, and the tech-heavy Nasdaq surging 4.2%.

Still, distressing shifts in the coronavirus pandemic have some investors skittish, and the quarterly ritual of corporate earnings season has magnified the divides in U.S. society. The message of the week: wait and see.

The two biggest economic data releases of the week highlighted these divides: 

Lower wage jobs are disappearing and poverty is exploding while professionals and investors have more money than ever for houses and luxury goods. The same divide appeared again in Q4 bank earnings:

Despite all this, prospects for Biden’s new $1.9 trillion stimulus package dimmed as Senate Republicans balked at the bill’s size. They are now the minority party, but the bill will not have the votes to overcome a filibuster. Congress could use a simple majority budget process to force the bill through, but Biden is sticking to a centrist-focused bipartisan strategy, with conservative Democrats also objecting to any erosion of filibuster power. 

That is to say that Biden is eschewing the power voters gave him to assuage right-wing Republicans and “centrists” with an appetite for austerity. 

Meanwhile, British Prime Minister Boris Johnson indicated that the new B.1.1.7 coronavirus strain is not only up to 70% more infectious than the virus to date, it may be 30% more deadly. The main U.S. strategy in response: new urgency in vaccinating Americans before new strains can arise or spread. But the process to date has been so bad that Wall Street firms are begging New York to let them take over delivering immunizations

So investors are waiting to see whether anybody can fix that process, whether the virus will become uncontainable, whether self-imposed deadlock blocks aid to desperate families, and whether stocks can keep booming while capital keeps humming along. Indications so far are that they’ll be fine regardless of what happens to the rest of us. 

Tunisians erupt as ‘free trade’ suffering deepens

Almost exactly 10 years after the uprising that kicked off the Arab Spring, demonstrations have rocked Tunisia’s capital and 15 other cities this month, demanding solutions for social crises that have plagued the country since the 2011 revolution. 

The source of the country’s troubles: the same “free trade” and investment regimes that have devastated billions of lives worldwide. 

Protesters have revived the slogans that brought down dictator Zine El Abidine Ben Ali a decade ago: “The people want the fall of the regime.” Daytime marches have centered on a variety of demands around the government’s economic and political failures, while nighttime riots have expressed broad-based rage in working class and poor quarters with “nothing to lose.” 

Police have sought to contain the riots by imposing a curfew and arresting at least 1,000 people -- many of them children -- in arbitrary detentions

Tunisia’s GDP fell a staggering 9% in 2020 with unemployment as high as 20%. The country’s government has nonetheless spent only 1.8% of its GDP on pandemic response, compared to a 5.9% global average. 

Why so little? Because after servicing debts first contracted by the dictator Ben Ali and then sapped away by official corruption, Tunisia has very little left for anything else. The government sought debt repayment deferrals from creditors France, Italy, Saudi Arabia, and Qatar in July, leading to a credit downgrade. The IMF loaned the country $745 million more in April, but is now making future lending contingent on cuts to energy subsidies and public sector wages

Previous austerity measures have left the country’s hospitals with inadequate protective gear, prompting a healthcare worker strike in December. An even broader general strike in 2019 prevented IMF-led public wage cuts at that time. 

The crisis lands in the context of decades of IMF-demanded “structural adjustment” that has forced the country into agricultural monocultures and dependency on subsidized European farm products. This process drove peasants and farm workers into the cities, exacerbating the employment crisis there. 

All of this informs the protests now: demonstrators have targeted the country’s Central Bank with an anti-IMF demand for national sovereignty. The Bank initially refused to loan the government money for pandemic response last year, as the IMF warned that loose fiscal policy could sap foreign reserves. The government’s free trade commitments forbid capital controls.

As for the nighttime protests, the country’s powerful union federation, the UGTT, and other civil society groups have so far declined to support the uprisings, but youth have taken to TikTok and other platforms to spread the word. 

There is no way to predict exactly how the new uprising will turn out -- nobody predicted a decade of chaos and war arising from Tunisian demonstrations in 2011. But January unrest in warm weather North Africa could indicate a spring and summer of outrage in similarly exploited countries to come. Stay tuned. 

Rapid Round

Amazon fights AL unionization effort

Amazon on Thursday filed an appeal with the National Labor Relations Board to disallow a mail-in unionization vote scheduled for Feb. 8 at one of the company's warehouses in Bessemer, Alabama. This comes as COVID cases spike in the United States and warehouse workers attempt to forego a typical in-person election. If Amazon's appeal is successful, those workers will be at risk.

Amazon management sees a potential "yes" vote as an even bigger risk. If the workers vote to unionize and join the national Retail, Wholesale and Department Store Union, it will be the first such organized body for hourly workers at the United States' second-largest employer. The company is infamously hostile to organized labor, practicing surveillance and aggressive retaliatory measures to squash organizing efforts among its 800,000 employees.

These efforts have not stopped growing unrest among Amazon's workforce. Workers have walked out and protested because of unsafe conditions during the pandemic while the company brings on tens of thousands of new workers. Another potential complication for Amazon -- Biden firing Trump-appointed NLRB general counsel Peter Robb, an anti-union management lawyer.

Redditors melt up GameStop 

Retail investors, many at Reddit's r/wallstreetbets forum, sent video game retailer GameStop's stock soaring from $40 to $70 last week in a war with short sellers, causing the New York Stock Exchange to temporarily halt trading of the stock. At root is a collision between a speculative frenzy and questions about the future of an indebted brick-and-mortar business which short-seller Citron Research said is "pretty much in terminal decline."

Day traders claim that surging online sales in 2020 and new consoles such as the PlayStation 5 and Xbox Series X/S make the company underpriced. But this likely an alibi to justify a concerted buying effort that forces short positions to snap up shares before the price gets too much for them to cover. Most analysts believe his “short squeeze” was behind the week’s price meltup.

Next up, most likely: Reddit’s speculators dumping their shares in a now-severely overvalued company, leading to a crash in the price. 

E.U. cracks down on U.K. tax havens

In continuing fallout from the Brexit deal, the European parliament voted overwhelmingly last week to add British overseas territories to the trade union's blacklisted tax havens. The territories include the British Virgin Islands, Guernsey and Jersey. The E.U.'s blacklist is an attempt to crack down on hundreds of billions of euros worth of tax avoidance annually.

Blacklisted countries face restrictions in accessing E.U. funds, and European companies must adopt compliance measures if they do business in the territories.

It's no surprise Brussels prefers to keep funds from the continent from disappearing into this whirlpool. The British Virgin Islands is under further scrutiny after its governor, Gus Jaspert, launched an investigation into political corruption following a $250 million cocaine bust that implicated local police. Politically-connected officials have allegedly hoovered up $40 million of pandemic relief funds intended for working families. Lastly, millions more have disappeared into non-existent airlines and inflated construction projects.


Our only investment advice: Dare to ask the stupidest questions of all.

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