🎙️ Welcome Back (To The Office)

The U.S. government gets much attention for its spending, but many other countries’ budgets comprise a larger percentage of the economy 😬

In terms of jobs, at 35%, Austria takes the cake with the highest percentage of workers employed by the government. In comparison, about 17% of American workers work for the government at all levels (local, state, and federal).

💭 One study finds a huge opportunity in the U.S. to improve the government’s productivity — roughly $750 billion annually could be saved while keeping government services operating just as effectively.

See our Chart of the Day below for more.

— Matthew & Shawn

Here’s today’s rundown:

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

• The new boss’ headache: Nobody is quitting

• Taming the Treasury basis trade

• The fight over the return to office gets dirty

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

👉 By the way, are you a business owner, manager, recruiter, or someone else with unfilled job postings? We’d like to help. Get in touch with us here.

CHART OF THE DAY

IN THE NEWS

💼 The New Headache for Bosses: Employees Won’t Quit

Not even a year ago, we heard how challenging it had been for companies to keep staff. Now, not enough people are leaving their jobs. 

• Employee turnover has fallen so sharply at some large corporations that companies are over-budget on select teams, putting leaders in a tough position: Postpone projects and investments, or cut staff right before the holidays.
  

• Other bosses are concerned about keeping their best employees engaged, motivated, and compensated when there are fewer vacant positions internally.
  

• In some industries, turnover has fallen to pre-pandemic levels, a far cry from 2021 and 2022, when job-hopping became a popular trend amid the hot labor market.
  

• About 73% of workers say they plan to stay at their jobs, up from 61% last year. 

War of attrition: “People feel it’s probably a bit cold outside with the macroeconomics not being so good,” one executive noted.

• The decline in quitting could be a welcome trend for bosses tired of job-hopping and rising salaries.
  

• Executives have been surprised at how fast the labor market flipped from hot to much less hot. Hiring slowed sharply in October as employers added half as many jobs as they did in September.

The unemployment rate rose to 3.9% from 3.8%, still near historic lows but up meaningfully from 3.4% earlier this year. The “Sahm rule” — a popular economic heuristic, defines a recession as a 0.50 percentage point rise in average unemployment rates from the lowest point in the last 12 months.

Why it matters:

Employees staying put generally tells us how people feel about the broader economy. Specifically, they’re less confident about their job prospects. 

But hey, that’s what seemingly 47 “recession looming” headlines daily will do to one’s psyche. 

• Kidding aside, the trend is real: Morgan Stanely has laid off employees partly because of low attrition within the 80,000-person Wall Street firm.
  

• As Morgan Stanley’s CEO said: “Really high performers are in demand across the Street, but we’ve actually had the opposite issue. We’ve had very low attrition, which is why we did some of the expense initiatives.”
  

• Same at Wells Fargo, which is offering record severance to reduce its headcount.

The bottom line: This is more evidence that we could be in a rolling recession, where different parts of the economy experience downturns at different times — rather than a “typical” recession where most or all of the economy falters simultaneously.

Read more 

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💥 Taming the Treasury Basis Trade

The Treasury basis trade. To 99% of people, it sounds like alphabet soup. But on Wall Street, the strategy remains as popular as ever.

It’s not terribly complicated (it is a little complicated, though). To speak the jargon, what happens is that hedge funds exploit pricing inefficiencies in different markets for things that are functionally the same but have different prices, aka “arbitrage.”

So, the Treasury basis trade happens when there’s a differential between the prices for Treasury bonds (purchased today) and the prices for Treasury bonds in the futures market — the market for speculating on Treasury bonds at specific future dates.

• These differences are often tiny, but with enough leverage (borrowed money), the profits can be substantial.

How it works: Hedge funds will typically buy Treasury bonds today, which are often slightly cheaper due to regulatory treatment, and sell/short corresponding Treasury futures.

• To leverage these small profits into something bigger, they take the Treasury bond they purchased and then post it as collateral to borrow against.
  

• This gives them more funds to roll into more Treasuries they can purchase and borrow against to buy even more Treasuries, and so on, until they’re playing with big sums of borrowed money that juice returns.

Why it matters:

The technical details aren’t that important, but the big picture is. Thanks to the basis trade’s popularity in the Treasury market, hedge funds have become “supersized buyers of U.S. government debt,” according to the FT.

At a time when it’s increasingly popular to question who’ll lend funds to the U.S. government to support its budget deficits, hedge funds’ demand for Treasury bonds carries major implications.

• In other words, many investors believe the Treasury basis trade by hedge funds helps support Treasury bond prices, allowing the government to issue debt at lower yields, which translates to lower interest costs.

Good with the bad: That’s important, but it should be weighed against the cons — tons of leverage in Treasury bond trading risks escalating crises.

• In times of trouble, “forced selling” of Treasury bonds by hedge funds who need to repay borrowed funds can fuel further chaos.
  

• Yet, Oxford Economics finds that the basis trade has likely hit new records lately.
  

• And financial system watchdogs have taken notice — the Bank of England, the Bank of International Settlements (BIS), and the Federal Reserve have all warned about the resurgence in Treasury basis trading and the risks it creates.

Read more

MORE HEADLINES

💼 The U.S. sanctions cartel members over fentanyl trafficking

💸 The interest on America’s debt now exceeds $1 trillion per year (it’s doubled in 19 months)

🐶 The most popular dog names in each state

📢 Bumble founder steps down as CEO amid sliding sales, struggling stock

😎 Economy could be on ‘golden path’ toward low inflation

👟 Nike sues New Balance and Sketchers over infringement of its sneaker tech

💬 The Fight Over Returning to the Office is Getting Dirty

For a company like Amazon, with a $1.3 trillion empire built on customer analytics, you’d think it would apply the same data-focused capabilities to personnel decisions. Apparently, it doesn’t.

The tech giant has pushed employees back to the office, telling managers in October that employees who couldn’t meet return-to-office requirements would be fired.

• So, it’s surprising to hear a senior VP overseeing Prime Video and Amazon Studios say he had “no data either way” on whether in-office work is more productive.

While many companies hailed the productivity of remote work in 2021, sentiment shifted in 2022, and in 2023, firms have increasingly cracked down on WFH holdouts.

Not apples-to-apples: Many studies citing in-office work’s benefits extrapolate “productivity” across industries, which, in reality, paints a blurry picture.

• Productivity means different things in different jobs. A call center worker’s productivity may be measured by the number of calls they answer and the number of customer issues they solve.
  

• In contrast, a programmer might be measured by how much useful code they create for a project, which already gets messy — every company might define “useful code” differently.

Why it matters:

Nonetheless, corporate leaders don’t mind cherry-picking studies as part of a broader trend “trying to kill remote work,” according to Ed Zitron, the CEO of a tech & business public relations agency.

• He thinks these firms blame declining financial results on “lazy workers sitting at home in pajamas” rather than owning their poor managerial decisions.

Vibes, not data: As Zitron argues, these decisions don’t appear to be data-driven. Instead, execs seemingly push in-office work for the vibes.

• The gaming company Roblox saw its CEO reverse its flexible work model after the “first post-quarantine, in-person group gathering” where he “came away with spontaneous to-do’s and ideas to put in motion, something that hadn’t happened during the past few years of video meetings.”
  

• And Nike suggests its four-day-a-week in-person policy highlights “the power and energy that comes from working together in person.”
  

• At Meta, workers must be in the office three days a week but can’t find the space or privacy to work effectively, prompting employees to call the pivot away from formerly pro-remote policies a “mess.”

Others see return-to-office efforts as “soft layoffs” to trim pandemic-era hiring excesses, enforcing inflexible policies that cause some employees to quit, saving the company from having to lay them off with severance benefits.

Read more

QUICK POLL

Yesterday, we asked: When should retailers start promoting Christmas shopping?

—Half of you say mid- to late-November. One-fourth of respondents said the first week of November or now. About 20% of you said retailers should wait until December.

—Wrote one reader: “The madness of Xmas is just too much. The music is irritating. The stores are overwhelming.”

See you next time!

That's it for today on We Study Markets!

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