“I have no doubt that the stock is trading at a bubble valuation. What other word adequately describes a stock with a price-to-earnings (P/E) ratio of 156, and a ratio of price to free cash flow (P/FCF) that's well above 200 (properly calculated)? Investors will need some seriously heroic growth, over multiple decades, for that to make sense.” (Rob Marstrand)
The Chinese Consumer
“One of the interesting things, too, about thinking about the future trajectory of the Chinese consumer is that not only do you have a very strong GDP tailwind, but you also just have sort of the latent purchasing power of the consumer, where the economy, the savings rate is something near 50%, whereas in a Western modern economy, it might be 15% to 20% national savings rate. So just to the extent that the Chinese start to reduce the intensity of their savings as they build more social infrastructure in terms of a social safety net, you could just have a radical shift in, radical growth in consumption” (Janus Henderson Investors)
10 Years After Lehman
“If the policy response to these pre-crisis risks was inadequate, I would say that the immediate policy response to the crisis was impressive. The governments of the major economies represented by the G20 coordinated policies on a global scale. Countries with banking problems limited the drag of flailing financial sectors on the real economy - through measures such as capital support, debt guarantees, and asset purchases. Central banks slashed policy rates and later sailed deep into unknown seas with unconventional monetary policy. Governments propped up demand with large fiscal stimuli.” (Christine Lagarde, iMFdirect)
Brexit Is Pounding Sterling
“What concerns me the most about the progress of Brexit approaching the ‘due’ date next March is that people that are really not fully behind Brexit are in charge of trying to craft something that they don't really believe in. And, if this is true, I see no way in which a successful outcome can be achieved…In 2017, the value of the pound in terms of US dollars got down around $1.20. This value could be tested again in the next six months.” (John M. Mason)
Thought For The Day
In a podcast earlier today, I discussed the question of whether Amazon was a bad employer, a charge U.S. Senator Bernie Sanders makes in his newly introduced “Stop BEZOS bill” (Stop Bad Employers by Zeroing Out Subsidies). You can listen to it if you like (it’s just 3 minutes), but in a nutshell, I argue that consensually employing low-wage workers is not the same as cheating or misleading them, which would make you a bad employer.
Still, I thought I’d offer one sort of radical idea that could perhaps help ease this public spat: Instead of doing the usual corporate philanthropy of giving gifts to hometown non-profits – a million dollars here and a million dollars there – Amazon could pool all of this money and create a new benefit for its workers that would help foster their independence and shield them from welfare, which was the nub of Sanders’s complaint (i.e., that their wages are so low they need to accept public assistance).
In short, Amazon should offer its employees cheap loans. It wouldn’t be a hand-out – the funds would have to be repaid – and there’d be risk in it for Amazon (i.e., defaults). Even better, Amazon could offer financial literacy training as a side-benefit. But here’s the rationale: It’s not so surprising that people who earn relatively low wages might turn to public assistance, where it is available. But a free market-based society should prefer to foster independence, and independence – which implies the worker’s ability to freely move on and employ his skills elsewhere – is the apex of a worker’s dignity. Amazon itself boasts that it opens up such pathways for its employees. I quote from its letter responding to Sanders:
We are expending real money and effort upskilling people with our Career Choice program. Career Choice is an innovative benefit that pre-pays 95 percent of tuition, fees and textbooks (up to $12,000) for courses related to in-demand fields, regardless of whether they’re related to skills for jobs at Amazon or not. We have over 16,000 employees who have participated in Career Choice.””
Career Choice, as described, appears to be a genuinely wonderful benefit. How much better if Career Choice provided loans at rates discounted to the market that would a) enable lower-income employees in a tight spot to handle financial emergencies without resorting to public assistance and b) facilitate the ability of the most entrepreneurial of its employees to expand their career choices through small business loans.
This idea seems not only consistent with Career Choice’s stated rationale, but it seems to fit with Amazon’s regular claims to support small business. Were some of Amazon’s $15 an hour warehouse crew to establish small and medium-size businesses that made their money through Amazon’s system (of which they would have deep personal knowledge), that would truly be win-win-win – for the employee, for Amazon and for the welfare rolls Bernie Sanders says he would like to reduce.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.