Friday, Apr 8th 2022

The Macro: Elon, unions, and Uber


The below content and projections are the opinion of the authors. Any conclusions or takeaways are their own. This should not be considered as investment advice. Investing involves the risk of loss and returns are not guaranteed.

Three things this week —

1/ Elon joins Twitter’s board. The biggest business news story this week was Elon Musk first disclosing a 9.2% stake in Twitter, then joining the board of Twitter, and then disclosing the stake was actually 9.1% of the company. Shares of Twitter gained 22% through the first four trading days of this week following this news. Changes in a company’s board aren’t typically market movers, but most new board members aren’t Elon Musk. In his career, Elon Musk has demonstrated success in two areas Twitter’s board has struggled — using Twitter and making stock prices go up. Twitter’s share price reaction this week suggests investors believe Musk should have at least a modicum of success in the latter; in a way he already has. And that might be enough for everyone involved.

2/ Rates keep rising. Less than a month ago, we wrote about the average interest rate on a 30-year fixed mortgage rising above 4% for the first time since 2019. Three weeks later, rates are only higher. The average rate on a 30-year fixed hit 4.72% this week, the highest since 2018. In a vacuum, higher rates hurt housing demand, as these rates could add tens or hundreds of thousands of dollars in costs over the life of a loan. The Fed wants to slow the economy to slow inflation, and the housing market appears to be its first target. And, indeed, we have seen mortgage applications slow in recent weeks. But higher rates don’t change that at last check there were just 1.7 months of supply on the market at the current pace of existing home sales. And those under the most pressure from rising housing costs — first-time buyers or those putting less money down — likely won’t get much relief from this new state of play.

3/ Brainard getting in the market’s head. The Federal Reserve can still push the stock market around. On Tuesday, Fed official Lael Brainard teased more aggressive action in the coming months during a speech, calling the reduction of inflation “of paramount importance” and saying the Fed’s balance sheet would “shrink considerably more rapidly” than in the last economic cycle. Brainard is considered the second-most important voice at the central bank behind chair Jerome Powell. These comments sent stocks lower, particularly high-growth stocks sensitive to interest rate moves. And so after late March offered a seeming reprieve from Fed-related market impacts, this week’s developments suggest this phase is far from over. Even as some investors had perhaps started to hope we could move past hanging on the Fed’s every word.

Two notes on union drives —

Unionization pushes from employees at Starbucks and Amazon have gotten significant media play in recent weeks.

On the one hand, these stories capture the labor market at a moment in time — service sector workers haven’t had this much leverage to shape the terms of their employment in years, with job openings at record highs and wages on the rise.

Companies like Starbucks, Amazon, Walmart, Target, and other large, private-sector employers have raised their corporate minimum wages considerably over the last few years, begun offering benefits like paid time off, and are now publicly charting the path workers can take from front-line associate to management.

Businesses have become more cognizant than ever before of how to keep all workers fulfilled and well-paid — and not just their management and white collar staff. And some workers are taking this signal as an opportunity to organize.

The most recent data available from the BLS, however, suggests these high-profile union drives don’t change the multi-decade, economy-wide trend we’ve seen to move away from organized labor.

In its latest annual report on union membership published in January, the BLS found that 10.3% of the workforce was the member of a labor union, unchanged from 2019 and matching a record low since this data started being gathered in the early ‘80s.

Even this data, however, somewhat overstates the union influence on a private-sector, services-related job. In the private sector, just 6.1% of the workforce was a union member in 2021; in the public sector, 33.9% of workers were part of a union as of last year.

From an investor’s standpoint, we understand why these isolated union drives may not so easily be written off. The prospect of widespread organization among a company’s labor force suggests costs in the form of higher compensation and new PR battles could be incurred in the years ahead.

But the distance between an isolated phenomenon and a new economy-wide reorientation of the workforce remains quite large. And serves as a reminder that while the news is about things that happen, just because something has been reported doesn’t make it the only thing or the most important.

One thought for the weekend —

A bird.

A plane.

An Uber?

The FT reported this week that Uber plans to test a program in the U.K. this summer that will allow users to book long-distance travel like trains, buses, and, yes, planes.

Using the internet to book a flight is not exactly a novel idea. Look at returns for a company like Booking Holdings and you’ll find one of the best performing stocks of the last 20 years.

The popular second-level take on this test, however, is it shows Uber trying to push into being a “super app,” which is sort of what it sounds like: an app for everything in a given category. In the financial world, for instance, you have products like Venmo and CashApp trying to meet every customer’s needs.

With this push, Uber is also trying to cross another chasm — how to expand what “Ubering” means to users.

For most people it means get a car, or get a meal delivered. With this test, we see the company asking: but what if “Ubering” also meant flying, or traveling by train, or going anywhere, anytime, by any means?

The tagline: “Don’t just travel. Uber.”

We’ll see if Jon Hamm is available.

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