Home sales surge amidst malaise
Plus continued jobless woes, Global South debt crises, and Palantir's big moves
Thanks for reading Contention! This week we’ve got just over seven minutes of delinquent dissident business news, including:
Layoffs over 1 million again, markets shrug
Home sales surge amidst malaise
Poor country debt crisis boosts the dollar
Rapid Round: China tech moves, Mali’s coup, Epic/Apple round two, Panantir’s debut
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Layoffs over 1 million again, markets shrug
Markets moved up slightly last week in the midst of lackluster economic data confirming the same patterns we’ve experienced for months now -- large-scale suffering, significant uncertainty, but strong returns for capital. The Nasdaq gained 2.7%, the S&P 500 0.7%, and the Dow was unchanged.
New jobless claims missed expectations: 1.106 million new layoffs versus an expected 923,000. This was the 21st time in the last 22 weeks that claims exceeded one million. The stubbornly high levels of job losses indicate a slowing, stalled economic recovery.
Nobody knows how to turn things around: digging out of the hole where 17.5% of the U.S. workforce is on some sort of jobless benefit requires more workers getting hired than fired -- more than six million new jobs a month. But sagging leading indicators suggest the jobs aren’t coming soon. Economists are now bracing for an unemployment “tsunami.”
Markets don’t seem to care though. The S&P 500 closed at its all time high this week, recovering all its losses from March’s shutdown. Its growth has everything to do with Federal Reserve action in the markets, and if traders reacted to anything this week it was Wednesday’s release of the Federal Open Market Committee’s (FOMC) July meeting minutes.
The central bank’s main policy committee seemed to take Yield Curve Control off the table as an interest rate strategy, and provided none of the explicit forward guidance on rates the markets hoped for. The FOMC also downgraded GDP forecasts, describing the working class as “frozen in place,” but assumed that Congress would enact a new fiscal relief package.
Instead, talks on the bill remained stalled this week with bothsides trying to pare things down to a level that might get passed. Those levels are too low to offset major losses in aggregate income.
If these “real economy” impacts ever do catch up to market fantasies, there’s little left the Fed can do now but intentionally devalue the dollar. Even that could pay off for capital, however, as all investor classes are now net short on the dollar. For workers left without jobs, without public support, and with savings eroded by inflation, livelihoods are precarious at best.
So the question is whether central bank conjuring and financial speculation can sustain returns in the absence of employment and output from working people. If so, the status quo will drag on forever. If not, the volatility might spread far beyond the trading floor.
Home sales surge amidst malaise
The one unambiguous bright side for the economy last week: housing. New housing starts blew past expectations to grow 22.6% in July, and homebuilder sentiment hit an all-time high. Housing has moved past the recovery, it is now booming.
But like equity markets this good news floats on a sea of deep, swelling inequality.
July was the third straight month of housing market gains, as the lowest mortgage rates ever are driving up home prices and builder stocks. On the other hand, mortgage delinquencies are soaring, with the largest quarterly jump ever this year. Early stage delinquencies -- debtors who missed one or two payments -- are now down to pre-pandemic lows, but this is because lenders have pushed their delinquent borrowers into forbearance programs. These families have stopped paying their mortgages, but they get marked “current” by their creditors.
This is why “serious delinquencies” -- accounts more than 90 days past due -- still rose 20% month over month in July. These are the people who stopped paying before banks could hide them in their forbearance programs.
How are home sales nonetheless surging amidst all this malaise? The main narrative sees a mass exodus of the affluent from cities, a new round of “White flight” fleeing homelessness and long-inflated home prices. Zillow’s latest Urban-Suburban Market Report throws some cold water on this idea, showing that sales are up in both suburban and urban markets at roughly the same level.
But they do find that just after the lockdown, sales in cities decelerated more than those in the suburbs, and rents are dropping faster in urban markets than in suburban ones. Dropping rents indicate falling demand for housing in cities.
So for those who have the capital to cover a down payment, credit that can squeeze through historically tight conditions, and professional and technical jobs that can be done from home, Fed-suppressed interest rates make this an ideal time to move.
At the same time millions of families are not making their housing payments, with hourly workers seeing their industries disappear, all waiting for the other shoe to drop.
The good news: foreclosures are at an all-time low, likely a function of political fears around mass unrest and practical concerns about flooding the market with vacancies. The bottom line question then is this: which comes first, a significant turnaround in the labor market or landlords and lenders running out of patience with non-performing assets?
The well-off professionals decamping right now are hoping that they’ll be safe and comfortable either way. We will see.
Poor country debt crisis boosts the dollar
Argentina’s President Alberto Fernández declared last week that his country would not submit to any IMF conditions as they exit their latest round of debt default. "I am not in a position to accept any conditionality,” Fernández said. “I am not in a condition because Argentina is not in condition to."
This independence contributed to Argentine debt already trading at distressed levels despite just completing a restructuring agreement with private creditors. Investors’ real concern: any glimmer of hope for countries with crushing external debt.
Last week the Jubilee Debt Campaign reported that developing country debt has more than doubled in less than a decade, with the number of countries facing a debt crisis rising from 30 to 52 since 2018.
Dozens of poor countries are now spending more on debt service to rich country creditors than they are on healthcare, even in the midst of the pandemic. They can’t adjust the spending without defaulting and deepening their credit crisis. Pro-business trade agreements also put these countries at risk of liability to investors if they undertake basic virus responses such as mandatory social distancing and shutdowns.
These are government actions impairing investment, so investors can demand compensation, increasing poor country debt burdens yet again.
Why don’t creditors just change the rules or relieve the debt? First -- and most significant -- “emerging market” debt is now mostly issued and held by private lenders, not First World governments and international financial institutions. These creditors have fiduciary duties to their investor clients under the law, and would be fined or sued if they extended significant debt forgiveness.
Second, the public institutions that can issue forgiveness are more interested in geopolitical score-settling than humanitarian relief. World Bank President David Malpass, a U.S. appointee, has made it a priority to attack China because the China Development Bank (CDB) isn’t participating in the G-20’s Debt Service Suspension Initiative (DSSI) in Africa.
But the CDB lends very little to the African countries engaged in the DSSI. China’s Export Import Bank lends in the region, and is participating in the DSSI. Even then, the DSSI is extremely narrow, locks participating countries out of the bond market, and does nothing to reduce their debt burden -- it only delays payments.
This works well for the United States: desperate commodity-export economies are a key support to the declining dollar. If the U.S. investor class and its media outlets seem loud in their attacks on Argentina, China, and other countries seeking a real way out, that’s why.
Rapid Round
TikTok, Huawei battles advance
Oracle entered the running as a potential buyer for the popular social media platform TikTok last week, now facing a new 90-day deadline to be sold or face a U.S. government ban. President Donald Trump indicated support for Oracle’s bid -- the company’s founder Larry Ellison has been a significant Trump supporter.
Trump also slapped Chinese tech giant Huawei with a more stringent ban on access to semiconductors made with any U.S. technology, forcing third parties selling chips to the company to get a license from U.S. domestic regulators. While this could be a “killing blow” to Huawei, Chinese markets did not seem phased. A 700 billion yuan liquidity injection from the People’s Bank of China more than offset the concerns as the country remains in a more stable strategic position than the legacy superpower.
Mali coup doesn’t slow gold
A group of military officers calling itself the National Commission for the People’s Salvation led a successful coup d’etat in Mali, seizing the country’s president, Ibrahim Boubacar Keïta. This was the second coup in the country in eight years, and followed months of protests over disputed elections and government corruption. Crowds in Mali’s capital Bamako greeted the coup with celebrations.
The U.S. military trained the coup’s leader, Col. Assimi Goita -- roughly two-thirds of all successful military coups are led by U.S.-trained officers, and U.S. military training makes a country twice as likely to experience a coup. Two other coup leaders trained in Russia, and the coup came days after they returned from the Russian Federation.
Mali is a major gold exporter, and Barrick -- the country’s largest miner and recent gold rally beneficiary -- confirmed that everything was business-as-usual despite the coup.
Epic vs. Apple, Round II
Apple retaliated against Epic Games for the Fortnite maker’s App Store antitrust gambit last week, threatening to cut all of the company’s products off from the Store, as well as blocking access to developer tools necessary to build apps for the tech giant’s platforms. Apple’s lawyers responded to Epic’s lawsuit with a brief calling out the orchestrated nature of Epic’s terms of service breach, revealing that the company had previously sought a side deal to reduce their commissions payments.
Epic’s position in the dispute may have worsened further last week as the judge appointed to the case ruled in Apple’s favor in a similar suit in 2013. Epic also faces its own antitrust obstacles to forming a customer coalition against Apple, but Epic may have state support as well: their case dovetails with regulator interests probing Apple for related antitrust violations.
Palantir prepares to go public, and to Colorado
Palantir, the shadowy data-crunching firm founded by right-wing billionaire Peter Thiel filed paperwork with the SEC last week to finally go public after 17 years. The company plans to pursue a private offering, which does not raise new capital for the company. Curiously, the company is pursuing an extensive “lockup” period for insiders that would block them from unloading stock, a rare move for private listings.
The likely reason: the company’s fundamentals are not very strong. Leaked financial documents revealed that the company lost $579 million dollars in 2019, has only 125 customers, and fully 28% of them are government agencies. The top three agencies are all secret, but Palantir has a history of human rights abuses.
The company’s CEO, Alex Karp, also announced last week that the company would be moving its headquarters from the Bay Area to Colorado, denouncing the “intolerant monoculture” of the more liberal region. Colorado’s close association with the U.S. Air Force may make it a more welcoming locale for the company.
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Photo Credit: U.S. Air Force