🎙️ Economic Losers

It hasn’t been a hot coworking summer for WeWork ⛱️

Adam Neumann’s formerly $47 billion company is now worth virtually nothing. Its stock trades at just 22 cents, down over 84% this year and almost 98% all time.

The company scorched mind-boggling amounts of cash on luxuries for its coworking spaces like Kombucha on tap, meditation rooms, mini golf, and rock climbing walls.

💭 Even bondholders, who are supposed to get paid first in bankruptcy, expect to get almost nothing back — WeWork’s bonds trade at just 11 cents on the dollar.

— Shawn, Matthew & Werornika

Here’s the rundown:

Today, we'll discuss the three biggest stories in markets:

• The economic losers of the new world order

• How student loan payment resumption will weigh on stocks and the economy

• Will unlimited PTO gain traction in the workplace?

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

👎 Economic Losers of the New World Order (WSJ)

The rich keep getting richer.

The world’s biggest economies, the U.S. included, offer big subsidies to win in future industries, namely artificial intelligence, semiconductors, and green technology. Large subsidies are upending decades of free trade and fostering a renewed winner-take-all spirit.

• New tax credits for manufacturing batteries, solar-power equipment, and other green technology are driving capital to the U.S.

• Japan announced plans for $150 billion of borrowing to finance investment in green tech. These big economies are trying to be less dependent on China, which has a big lead in batteries.

In turn, smaller players are getting left behind. The U.K. and Singapore, for example, lack the scale to compete against bigger countries offering subsidies. Indonesia and other emerging markets also could lag.

Big money: Intel was offered $11 billion in subsidies from Germany to build semiconductor plants, which exceeds the annual budget of Singapore’s Ministry of Trade and Industry.

• Singapore’s deputy Prime Minister told supporters: “Let me tell you plainly: We cannot afford to outbid the big boys.”

Wait, don’t leave: Tech companies cultivated in the U.K. often blossom, then grow elsewhere. A battery-tech startup called Nexeon, raised over $200 million last year but will leave the U.K. to build its first commercial factory in South Korea, followed by a plant in North America.

• “Not the U.K., sadly,” its CEO said.
  

• Said one former U.S. Treasury official: “The world as a whole is becoming more inward and turning away from open trade and investment.

Europe, the U.S., and China are in a subsidy competition, and the losers are poorer economies with less fiscal resources.”

Why it matters:

Big economies tend to stay big, at least in the short and medium terms. The U.S. has the economic might to offer $369 billion in incentives and funding for clean energy as part of the Inflation Reduction Act. That’s driven a windfall of foreign investment.

• BMW is breaking ground on a new battery plant in South Carolina, South Korea’s Hyundai and LG will build a $4.3 billion battery plant in Georgia, and Japan’s Panasonic is building a huge plant in Kansas.

Subsidy race: Everything has hidden costs. Globalization transformed once-poor countries such as South Korea and Taiwan into high-tech, developed countries, lifting hundreds of millions of people from poverty. In turn, western countries like the U.S. got affordable consumer goods and a higher standard of living. But the subsidy race adds to speculations about a reversal of globalization.

• The U.S. is leading the way, taking home about 22% of global foreign direct investment last year, the world’s top recipient.

• Meanwhile, smaller economies hoped adopting green technologies would turbocharge their development while preserving precious resources. Yet many of the world’s biggest players are the only real winners in the green transition.
  

• An Indonesian trade official said, “We have all the natural resources. We have the human resources. And we are a country that’s a democracy. Please don’t shut us down.”

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🧑‍🎓 Will Student Loan Repayments Weigh on Stock Market & Economy? (WSJ)

With student loan payments set to resume, will amateur investors and traders get pushed out of the stock market? It’s an important question when considering whether the S&P 500 can continue its roughly 17% rally this year.

• The stock trading boom of 2020 and 2021 has slowly fizzled out, as amateur day traders suffer whiplash from stocks’ huge swings over the last two years while an inflation surge has eaten into their savings.

And now, as student loan payments resume in October, many will find it more difficult to fund their stock trading habits.

Payment pause: Millions of Americans have enjoyed a pause on student loan payments since March 2020 as part of a government attempt to provide financial relief during the pandemic — the U.S. government provides most of the loans (92%) to student borrowers. Interest rates on these loans range from 4.99% to 7.54%.

• Around 45 million people have student loans, totaling $1.7 trillion, with 55% of that debt belonging to borrowers under 40.

Many of these amateur traders have likely been losing money gradually to professionals since day trading became cool again during pandemic lockdowns, requiring more fresh money to keep trading.

Why it matters:

Pinching pennies: Given that the average monthly student loan payment in the U.S. is around $400, according to the Federal Reserve, payment resumption will significantly shift borrowers’ monthly budgets.

• Student loan borrowers skew young and thus have lower incomes, so they already spend a large share of their income each month, and student loan payments will spur cutbacks elsewhere.
  

• A recent survey from Morning Consult found that over half of student loan borrowers expect to miss a payment or default when the pause ends.

The big picture: The U.S. is heavily consumption driven — consumer spending represents about 70% of the economy. A hit to spending for those in their prime years of spending (those 25 and under tend to spend over 94% of their income) will ripple through the economy and, as a result, the stock market.

• More student loan repayments could mean less discretionary spending, weighing on companies’ profits, which is a key driver of stock performance.
  

• Moody’s Analytics estimates that the resumption of student loan repayments will pull $70 billion out of the economy, assuming debt forgiveness plans don’t come to fruition (the Supreme Court overruled the Biden administration’s forgiveness plan in June, though Biden has alternative strategies.)

MORE HEADLINES

 🇮🇱 Israeli startups are moving jobs and money out of the country, here’s why

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💵 America’s loss of AAA badge a reminder of 'regime shift' for government debt

🧑‍💻 Will Unlimited Vacations Gain Traction? (Bloomberg)

Forget the job “market” — hiring is more like a competitive arena these days.

Thanks to Gen Z’s and Millennials’ propensity for job hopping (discussed last week) and a very low unemployment rate of 3.5% in July (meaning few people are looking for work,) companies are leaning into a wide range of benefits to lure workers into unfilled roles.

Vacation time: Among perks like flexible working hours, home office, sabbatical paid leave, and a four-day work week, an increasing number of companies, such as Netflix, Microsoft, and Goldman Sachs, have embraced the concept of unlimited paid time off (UPTO) for their employees.

• While optional paid time off (PTO) has become a norm for most U.S. companies — nearly 91% of employees have access to it — about 8% of businesses offer the unique benefit of unlimited vacation.
  

• And investors are bullish on unlimited days off, with most pros and amateurs (aka retail investors) surveyed by Bloomberg saying that companies with UPTO will outperform.

In practice: Implementing an unlimited vacation policy in the workplace allows employees to take as many sick, personal, or vacation days as they want, provided they fulfill their work obligations.

While the concept might sound ideal, companies still track the days off to prevent any potential misuse of the policy.

• Employees can’t typically take extended breaks without any notice and must formally request time off. Consequently, workers often compare their availability and vacation usage with their colleagues, which can discourage them from taking extra time off.

Why it matters:

Unlimited vacation is still relatively rare in American companies. But, nearly 70% of employees are enthusiastic about it. Many hope to be granted this perk by their current or future employers, as it offers more flexibility than more structured PTO policies.

How much time to take? Interestingly, Bloomberg found that 39% of employees would opt for 21 to 30 days off if they had UPTO, while 20% would try to take over 30 days off.

• While some executives say they’re excited about this idea because it helps reduce costs tied to compensating unused vacation days, some are concerned that employees might exploit the policy.

Yet, in reality, taking time off poses a challenge for Americans, with more than half (54%) of workers expressing guilt over taking vacations.

• On average, U.S. employees take less than 8 paid days off each year.

Moreover, data from Mercer indicates that more than two-thirds of companies that implemented the policy saw no changes in employees' time off behavior, underscoring that the concept of "unlimited" isn't perceived as entirely boundless by workers.

See you next time!

That's it for today on We Study Markets!

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