Connect with us

World

The Fed could be facing a jobs headache in its inflation fight

Published

on

Residential single family homes construction by KB Home are shown under construction in the community of Valley Center, California, June 3, 2021.

Mike Blake | Reuters

If the Federal Reserve’s view on inflation prevails, a few key things have to go right, particularly when it comes to getting people back to work.

Solving the jobs puzzle has been the most vexing task for policymakers in the pandemic era, with nearly 10 million potential workers still considered unemployed even though the number of open positions available hit a record of 9.3 million in April, according to the latest data from the U.S. Labor Department.

There’s a fairly simple inflation dynamic at play: The longer it takes to get people back to work, the more employers will have to pay. Those higher salaries in turn will trigger higher prices and could lead to the kinds of longer-term inflationary above-normal pressures that the Fed is trying to avoid.

“Unfortunately, we see good reasons to think that labor participation might not return quickly to its
pre-Covid level,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note. “Whatever is happening here, the Fed needs large numbers of these people to return to the labor force in the fall.”

The pace of inflation is of critical importance for economic trajectory. Inflation that runs too high could force the Fed to tighten monetary policy quicker than it wants, causing cascading impacts to an economy dependent on debt and thus critically tied to low interest rates.

Consumer prices increased at a 5% pace year over year in May, the fastest since the financial crisis. Economists, though, generally agreed that much of what is driving the rapid inflation surge is due to temporary factors that will ease up as the recovery continues and the economy returns to normal following the unprecedented pandemic shock.

That’s far from certain, though.

The Atlanta Fed’s gauge of “sticky” inflation, or price of goods that tend not to fluctuate greatly over time, rose 2.7% year-over-year in May for the strongest growth since April 2009. A separate measure of “flexible” CPI, or prices that do tend to move frequently, increased a stunning 12.4%, the fastest since December 1980.

In their most recent forecast, Fed officials put core inflation at 2.2% for all of 2021; Shepherdson said the current numbers suggest something closer to 3.5%.

“That’s a huge miss, and it potentially poses a serious threat to the Fed’s benign view of medium-term inflation because of its potential impact of the labor market,” Shepherdson said.

What’s keeping workers home

Surveys show a variety of factors keeping workers from taking jobs: Ongoing pandemic concerns, child-care issues, particularly for women, and enhanced unemployment benefits that are being withdrawn in about half the states and will expire entirely in September.

From the employer perspective, worries over skill mismatches have persisted for several years and have worsened during the pandemic. For instance, a survey from online learning company Coursera showed that the U.S. has fallen to 29th in the world in digital skills needed for high-demand entry-level jobs.

The dilemma is a pervasive one in American business nowadays.

All of my customers are struggling to staff at levels that they need staff to really get to the other side of this surge.

David Wilkinson

president of NCR Retail

David Wilkinson, president of NCR Retail, the cash-register maker that now provides a variety of products and services to the industry, said he sees “a bit of a labor crisis” unfolding.

“As labor gets harder to come by, as labor gets more expensive, the other side of the inflationary worry is that as prices go up, the cost of living goes up and you have to pay people more as they demand more,” Wilkinson said. “All of my customers are struggling to staff at levels that they need staff to really get to the other side of this surge.”

While he thinks inflation eventually will come down from its current level, he expects it will be higher than the sub-2% that prevailed during most of the post-financial crisis era.

The implementation of technology accelerated during the Covid era. While that will continue, Wilkinson said he also expects to see retailers paying higher wages to fill the demand for manpower.

“We’re seeing an increased focus on the worker in retail, and part of that is both the experience, the technology they need to do the job, and part of that is the willingness to pay,” he said. “This brought that back to the forefront.”

Managing its way through the various dynamics could prove difficult for the Fed.

Previous attempts to normalize policy over the years have largely failed, with the central bank having to revert back to the zero-interest money-printing world that arose during the financial crisis.

“The Fed is trapped,” wrote Joseph LaVorgna, chief economist for the Americas at Natixis and former chief economist for the National Economic Council.

While LaVorgna sees inflation as staying relatively under control, he thinks the Fed could face problems from deflationary pressures. The Fed doesn’t like inflation that’s too low, as it creates a low-expectation cycle that constricts monetary policy during downturns.

“The political pressure to do nothing will be intense” as government debt increases, LaVorgna said. “If the Fed cannot (or will not) remove excessive policy accommodation when the economy is booming, how can policymakers do it when growth invariably slows?”

Markets betting on the Fed

Indeed, markets aren’t expecting much movement at all in policy.

Treasury yields actually have dropped since Thursday’s hotter-than-expected consumer price index report, and market pricing now points to no rate hikes until about September 2022 and a fed funds rate of just 1% through May 2026.

A report Friday from the University of Michigan also showed consumers are lowering their inflation expectations, with the year-ahead outlook at 4%, down from 4.6% in the last survey, and at 2.8% over five years, down from 3% though still well above the Fed’s 2% target.

“For all the fears that the Fed will be prompted to tighten policy early to curb inflation, we suspect officials will be just as worried about a slowdown in the recovery in real activity,” wrote Michael Pearce, senior U.S. economist at Capital Economics.

Federal Reserve Board building is pictured in Washington, U.S., March 19, 2019.

Leah Millis | Reuters

Fed officials likely will talk next week about which way the risk are tilted in the current scenario. They’ve been lukewarm about the recovery, continuing to emphasize the role, albeit diminishing, of the pandemic and encouraging a full-throated policy response.

However, if inflation readings persist to the upside, the pressure at least to tap the brakes on the monthly asset purchases will build.

“There’s been this debate about whether inflation is different this time,” said Quincy Krosby, chief market strategist at Prudential Financial. “If inflation rises in a more material and less transitory way, consumers are going to need higher wages.”

The Fed is betting that a return to the labor market, particularly by women, will help hold down wage pressures and keep inflation in check. The current labor force participation rate for women is 56.2%, up from the pandemic lows but otherwise the worst since May 1987.

Regardless of the inflation pressures, the Fed last year changed its mission statement to keep policy accommodative until the economy sees inclusive labor gains, meaning across gender, income and race.

“They are going to make sure that the glide path to [policy] liftoff is long,” Krosby said. “The question is, if inflation picks up in a more meaningful way and is stickier, what does the Fed do? That’s the concern the market has.”

Become a smarter investor with CNBC Pro.
Get stock picks, analyst calls, exclusive interviews and access to CNBC TV.
Sign up to start a free trial today.

Source link

World

GameStop shares jump after the company raises over $1B in stock sale

Published

on

A GameStop store is pictured in New York, January 29, 2021.

Carlo AllegriI | Reuters

GameStop shares climbed after the video game retailer said it sold 5 million additional shares, raising $1.13 billion in capital to accelerate growth.

The original Reddit-favorite meme stock jumped 10.6% at one point Tuesday morning after the company announced the completion of its at-the-market equity offering program that was initially disclosed on June 9. By late morning, the daily gain was about 6%. GameStop said it will use the proceeds for general corporate purposes as well as for investing in growth initiatives and maintaining a strong balance sheet.

This is the second stock sale that GameStop has conducted since the company became a star on Reddit’s WallStreetBets forum, where retail traders aimed to push stock prices higher and squeeze out short-selling hedge funds. GameStop sold 3.5 million additional shares in April and raised $551 million.

Investors have been encouraged by the moves and looked past the dilution of their stakes as GameStop took advantage of its monstrous rally this year — more than 1,000% — to speed up its e-commerce transformation.

White Square Capital, a London-based hedge fund, is closing its main fund and returning capital after suffering losses from betting against GameStop, the Financial Times reported Tuesday.

Earlier this month, GameStop named former Amazon executive Matt Furlong as its new CEO.  The company also hired several other former Amazon executives, including Jenna Owens, its new chief operating officer; Matt Francis, its first chief technology officer; and Elliott Wilke, its chief growth officer.

For its fiscal first quarter, GameStop reported narrower-than-expected losses per share and revenue that topped Wall Street estimates. As of May 1, GameStop said, it had paid off its long-term debt and no longer had any borrowings under its asset-based revolving credit facility.

Enjoyed this article?
For exclusive stock picks, investment ideas and CNBC global livestream
Sign up for CNBC Pro
Start your free trial now

Source link

Continue Reading

World

Gen Z investing in cryptocurrency BTC, ETH and meme stocks AMC, GME

Published

on

The next generation of investors are super online ⁠— instead of traditional investments, many Gen Z and young millennial investors, from teens to those in their early 20s, are bullish on cryptocurrency and the technology that surrounds it.

This includes digital coins and blockchains, like bitcoin and ethereum; meme coins, like dogecoin; NFTs, or nonfungible tokens; and DeFi, or decentralized finance.

Some have spent the bulk of their savings on these type of investments: Nearly half of millennial millionaires have at least 25% of their wealth in cryptocurrencies, according to a new CNBC Millionaire Survey. More than a third of millennial millionaires have at least half their wealth in crypto and about half own NFTs.

Young investors have also taken part in recent meme stock rallies, which occur when retail investors buy up shares of stocks shorted by Wall Street hedge funds, like GameStop and AMC Entertainment. In part, the investors hope to force hedge funds to pay, overcoming what they see to be an inefficient system.

One reason young people have turned to alternative investments like crypto is simple: Many just don’t trust traditional investment institutions, as Allison Reichel, 23, tells CNBC Make It. They prefer to rely on their own research rather than use insights from traditional institutions, like financial advisors from legacy firms.

That includes Reichel herself. While working on her PhD in economics, Reichel is also a senior editor at crypto news site Blockworks in Washington, D.C. She started to invest “heavily” in crypto this year, and her crypto holdings account for most of her portfolio, she says. Reichel plans to hold her bitcoin and ethereum long-term.

Allison Reichel, 23, says she invests most of her income in cryptocurrency.

Courtesy of Allison Reichel

But this distrust isn’t the only thing driving young people to invest in cryptocurrencies and meme stocks. First, many have a genuinely positive outlook on blockchain technology. And second, at the same time that they feel disconnected from traditional investments, many are finding community, and sometimes fun, in the crypto space. They want to invest in what they connect with, whether it be stocks, coins or digital assets.

CNBC Make It talked to several Gen Z and young millennial investors, like Reichel, about how these factors impact where they choose to put their money, and why they’re still investing with caution.

‘I’m big on the technology’

Although some young traders bet on altcoins and attempt to turn a quick profit through buying and selling, many plan to “hodl” their favorite cryptocurrencies for the long haul.

“In any crypto, you have those super strong network effects where people believe in it so much that they’re like, ‘I’m never selling because I believe it’s the future of finance,'” Reichel says. “I see the long-term applicability and use of crypto,” she says of her own plans to hold.

That’s true of many young investors, who believe in the technology itself.

While doing research for her PhD, Reichel was inspired by how bitcoin was being used to help those in need in different countries. In Venezuela, for example, crypto was a way that families could still receive money from relatives in the U.S. during a time when the president wasn’t allowing humanitarian aid.

And although its high price may make owning bitcoin seem unattainable, Reichel points out the option to buy fractional shares called satoshis.

Similar reasons led 23-year-old Kyla Scanlon to begin investing in bitcoin and ethereum during college in 2016. “I really liked the application that [bitcoin] has for people who are unbanked. My whole life thesis is, ‘How do we create financial accessibility and equality for everybody?’ I think crypto is one step in allowing people who don’t have access to traditional methods like banks to do so,” she says.

Kyla Scanlon, 23, says she began investing in bitcoin and ethereum in 2016.

Courtesy of Kyla Scanlon

Scanlon first started trading options in high school and began working in asset management after graduating from college, which has boosted her confidence in her personal investment decisions, she says. Her core cryptocurrency holdings still consist of bitcoin and ethereum, and she also owns stock in companies like Roblox, Facebook and Etsy.

Scanlon is also bullish on blockchain technology, which is a decentralized digital ledger that documents cryptocurrency transactions and other information. “I don’t know if bitcoin will ever be like a currency, but I’m big on the technology,” she says.

Kayla Kilbride, a 24-year-old known on financial TikTok as @girlstalkstocks with over 108,000 followers, has “a growing confidence in bitcoin and ethereum specifically,” due to the capabilities of each blockchain.

Kilbride began investing in bitcoin and ethereum earlier this year, starting with small amounts here and there. She has just a few hundred dollars invested in cryptocurrency, but plans to continue to grow her holdings. In lieu of a full-time job, she currently day trades and sells NFTs of her social media content to earn income.

The risk was worth it because I liked the technology.

“As I began to understand the blockchain and the technology behind it, that is when I felt comfortable saying ‘OK, even if I invested when bitcoin was priced at $60,000 and it drops down to, let’s say, $20,000 or even lower, I can still support it, even if I lose money in the endeavor,'” Kilbride says. “The risk was worth it because I liked the technology.”

Many financial experts view cryptocurrency as a speculative, volatile and risky investment that can be susceptible to fraud.

But this doesn’t worry Reichel, Scanlon and Kilbride much, in part because they’re intentional with their investments.

Reichel is extremely bullish on bitcoin’s future value, but only invests what she can afford to lose. “I’m comfortable losing it because I make sure that I have all my bills paid,” she says. “Obviously it’s great when the gains come, but for me, [bitcoin is] truly something that I believe has the potential to revolutionize monetary regimes throughout the world.”

A distrust with traditional institutions

Of course, many Gen Z and young millennial investors initially turned to cryptocurrency as a way to avoid traditional financial institutions, but still build wealth.

Reichel, Scanlon and Kilbride, who all research on their own and invest without the help of financial advisors, say part of their distrust stems from witnessing inequitable and inefficient financial systems.

The younger generation worries about their wealth and retirement, Reichel says. They don’t want to rely on the same traditional systems that their parents did. “I think a lot of people see inefficiencies and really want to change it,” she says.

Scanlon agrees. She also believes concerns over inflation are driving some interest in cryptocurrency among young people.

And with crypto, the barrier to entry is often low.

“It’s about accessibility,” says Cooper Turley, a crypto strategist at ethereum-based streaming app Audius. “With most tokens, there is no IPO. Retail investors have the same opportunities to contribute to and earn value from early stage [crypto] projects the same way venture capitalists do.”

Cooper Turley, 25, says he began to invest in cryptocurrency in 2017.

Courtesy of Cooper Turley.

Turley, 25, invested in bitcoin and ethereum in 2017 while in college, and now, he says those investments have made him a millionaire. Turley is an angel investor in the space, he says, and also acts as an advisor for Variant Fund, a crypto venture firm.

“This paradigm shift of democratized ownership paired with 24/7 trading and always-on exchanges is far more native to an internet-savvy generation than using a brokerage,” he says.

Still, it’s important to note that there are significant downsides to crypto. Experts warn investors to be cautious when putting money into cryptocurrency; it can be extremely volatile and it’s possible to lose your entire investment.

A love of memes

Many young investors also choose to have fun with their investments by buying meme coins, like dogecoin, and meme stocks, like GameStop and AMC Entertainment.

“Crypto and meme stocks are more memorable to young investors than traditional companies,” Turley says. “Young investors care far less about the bottom line of a corporation and far more about a meme or narrative they can collectively share with their friends.”

Dogecoin, for example, launched in 2013 based on the “Doge” meme, which portrays a shiba inu dog. Its creators didn’t intend for dogecoin to be taken seriously, but it is now one of the top 10 cryptocurrencies my market cap, with a market value of over $22 billion.

Kilbride sees dogecoin as a way to introduce people to crypto. “Dogecoin, being very cheap, is affordable. It’s easy to understand,” Kilbride says, which is part the reason she bought it too. “I’ve invested more in bitcoin and ethereum because of dogecoin [gains].”

Kayla Kilbride, 24, began investing in crypto earlier this year.

Courtesy of Kayla Kilbride

“Meme stocks take away those super scary aspects of finance,” Reichel says. “When you think about the stock market, the typical picture is all of these older guys in suits who have been running it for years.” That’s not true for something like dogecoin.

There’s also the feeling that seemingly everyone is getting in on the action. Though many meme coins are entirely speculative, very risky and sometimes fraudulent, it can be difficult to not jump in on the trades. “It can be hard with all the FOMO (fear of missing out), because you see all these coins taking off,” Reichel explains.

For Turley, “the best example of a meme coin I’ve invested in is unisocks, or $SOCKS, a digital token representing a claim on a physical pair of socks,” he says.

But sometimes, it’s about more than fun. For many, the rallies of meme stocks like GameStop and AMC symbolized standing up to big-name Wall Street hedge funds, a desire that stems from a feeling of “a lack of access for the ‘little man,'” Kilbride says.

To Scanlon, “there’s this underlying resentment because our parents were able to have a 60/40 stock/bond portfolio and be fine and retire with no worries at all. But that’s not the case for this generation.”

Yet despite putting money into “fun” investments, these young investors still aim to be somewhat careful.

For Kilbride, that means avoiding any coins that seem sketchy. “When there’s so much hype … a lot of people are getting tricked, a lot of other people think it’s funny, but when you don’t have so much [money] where you can just lose, it’s too dangerous,” she says.

‘I invested as part of the community’

While traditional investments feel inaccessible to the next generation of investors, many are finding a sense of community in alternatives like cryptocurrency and meme stocks.

“I say the C in AMC stands for community, because I think that’s what [the frenzy] is about,” Scanlon says. “Post-pandemic, I think there’s a sense of loneliness. People are finding community within the stock market, in the Discord servers, in Reddit. People are just craving community because we don’t have that in the same way that we used to.”

Buying into things like GameStop and AMC is partially about being a small part of the movement, Kilbride says.

“When GameStop first rallied back in January, I invested as part of the community. I did not invest very much and I invested near the top, just to hold the line. I was like, ‘I want to purchase to be able to print it out and frame it on my wall,'” she explains.

Companies that maybe never perform that well were having this crazy moment. I was like, ‘I want to be part of this.’

Source link

Continue Reading

World

YouTube secures a big win in the EU over copyright

Published

on

YouTube’s logo is seen against the flag of the European Union.

Omar Marques | SOPA Images | LightRocket | Getty Images

LONDON — The European Union’s top court on Tuesday ruled that Google’s YouTube and other online platforms should not be held liable for copyright-infringing uploads in certain situations.

As things stand, online platforms “do not, in principle, themselves make a communication to the public of copyright-protected content illegally posted online by users of those platforms,” the European Court of Justice said.

However, YouTube and other platforms could still be held liable if it “has specific knowledge that protected content is available illegally on its platform and refrains from expeditiously deleting it or blocking access to it,” the ECJ added.

The EU recently introduced copyright reforms aimed at making its rules fit for the digital age. One part of the law which drew significant controversy at the time meant that YouTube, Facebook and other platforms would have to install filters to block users from sharing copyrighted material.

Tuesday’s ruling focuses on old copyright rules in the bloc. The case arose from a lawsuit from music producer Frank Peterson against YouTube over the uploading of recordings in 2008 over which he claimed to hold the rights.

The news marks a win for YouTube and other content-sharing sites, which have long tussled with artists and musicians over how to compensate them fairly for work that gets distributed on the web.

YouTube has clamped down on copyright violations over the years, a move that has drawn the ire of some popular creators on the platform. Tensions over YouTube copyright action escalated in 2020 as the company increasingly automated content moderation due to coronavirus lockdown restrictions.

A YouTube spokesperson said the company paid over $4 billion to the music industry over the past 12 months, with 30% of that sum coming from monetized videos.

“YouTube is a leader in copyright and supports rights holders being paid their fair share,” the spokesperson said Tuesday. “That’s why we’ve invested in state of the art copyright tools which have created an entirely new revenue stream for the industry.”

Source link

Continue Reading

Trending