Bond Investors May Believe Biden's Inflation Pledge - The New York Times

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Has the president found a corner of the market that has faith in his pledge to contain rising prices?

Ups and downs

A big part of President Biden’s pitch for his $1.85 trillion social and climate policy plan is that it would lower inflation. That would be welcome, after the latest government data showed that consumer prices rose 6.2 percent, the highest inflation in more than 30 years. Critics say that generous stimulus measures are to blame for rising prices, and more spending will make inflation even worse.

But the White House believes that provisions in the spending plan, like providing money for child care to help parents re-enter a tight labor market, could help lower prices. “If anything, these measures push back on inflationary pressures,” Jared Bernstein, a member of Biden’s Council of Economic Advisers, told The Times.

The White House is having trouble making its case. As a general rule, government spending tends to bolster economic growth, and, as a result, inflation. Republicans and centrist Democrats have pointed to already high inflation as a reason to scale back or nix the Biden administration’s proposed plan. A wide range of economists, including a forecasting firm the White House regularly cites, believe that Biden’s plan will increase inflation, at least over the next year, The Times’s Jeanna Smialek and Jim Tankersley report.

But the bond market isn’t pricing in runaway inflation. The difference between the interest rate on a typical government bond to the yield on similar bonds that offer protection against inflation, called the break-even rate, is a gauge of investors’ expectations for inflation. Right now, that rate for five-year Treasury bonds is 3.1 percent, or about half October’s actual rate of inflation. The rate for 10-year bonds is even lower, at 2.7 percent. (Mind you, those rates are still above the Fed’s target of 2 percent average inflation over time.)

What does it mean? Bond investors have generally bet that inflation will rise over time. Just before the pandemic, the five-year break-even rate was 1.6 percent, and the 10-year was higher, at 1.7 percent. A decade ago, it was 1.8 percent and 2.1 percent. Directionally, that bond investors now expect high inflation to moderate over time, despite Biden’s big spending plans, means that either bond investors are skeptical the bill will pass, that they think the Fed will act to contain inflation if passes, or that they are buying what Biden is selling.

HERE’S WHAT’S HAPPENING

J.&J. unveils a breakup plan. Days after G.E. said it would split itself up, the health products giant is following a similar route by spinning off its slower-growing consumer productions business from its pharmaceutical and medical device operations. Separately, Toshiba also said it would break itself into three businesses.

AstraZeneca will begin making money from its coronavirus vaccine. The drugmaker has signed its first deals to sell doses for a profit, though it will still sell to low-income countries at cost. This moves AstraZeneca closer to rivals like Pfizer and Moderna, whose vaccine revenues have been significantly higher.

Climate reparations take center stage at COP26. As the U.N. climate summit nears its end, negotiations have focused on whether richer countries should compensate poorer ones for climate damage and help pay for their transition to low-emission economies. One issue of concern for the U.S. is shielding wealthier nations from legal liability.

Britain’s economy limps through the pandemic. The country’s G.D.P. rose just 1.3 percent in the third quarter, as the government cited supply-chain shortages as well as migration and trade changes resulting from Brexit. Other data shows the British economy underperforming other countries, while suffering worse inflation.

Alibaba’s big shopping event shows a huge slowdown. Sales during the Chinese e-commerce giant’s Singles Day rose 8.5 percent over last year, to nearly $85 billion worth of merchandise, down from a 26 percent year-on-year jump in 2020. Possible contributors include supply-chain shortages and keeping a lower profile as Beijing cracks down on the company.

What C.E.O.s really think about returning to the office

A year and a half into the pandemic, C.E.O.s are grappling with flexible and hybrid office arrangements, now and in the future. They want to appeal to employees who relish more autonomy about where they work, but are reluctant to give up too much control. Several bosses spoke with The Times’s David Gelles about how, or whether, to get workers back to the office.

On what workers want …

“Why should I, as an employer, care as long as you can get the work done and you’re highly productive?” said Arvind Krishna, IBM’s C.E.O. He no longer worries about when workers show up to the office for work, so long as they are productive.

On the benefits of returning to the office …

“We’re going to be able to do a better job if we’re together,” said Chris Merrill, the C.E.O. of the asset management firm Harrison Street. “It’s very, very important for the younger people to be together. That is where they learn. That is where they grow. That is where you’re going to create upward mobility.” Employees of the firm have been back at the office five days a week since Labor Day.

On the benefits of working remotely …

“We basically just listened to the work force, and everybody said remote work was working really well,” said Hayden Brown, the C.E.O. of Upwork. The technology company’s Chicago headquarters has opened, closed when the Delta variant surged and recently reopened for workers to go in — if they want to.

“These people are exhausted and really need to have a life — and that’s why they are quitting.”

— Claudio Antonini, a career coach for investment bankers, on Wall Streeters joining the wave of people quitting their jobs. Antonini said his clients were fed up with being unable to date or have social lives, while some were simply job-hopping in response to huge paychecks being offered by banks to attract staff.

What we learned about Musk’s stock sales

Elon Musk sold billions of dollars worth of Tesla’s stock this week, and, befitting his unorthodox style, he did it while generating as much intrigue (and controversy) as possible.

The background: Last weekend, Musk polled his Twitter followers about whether he should sell 10 percent of his roughly $200 billion in Tesla stock. The verdict: Yes. Tesla’s stock promptly dropped on Monday and Tuesday. On Wednesday, Musk disclosed that he had sold, in various transactions, 4.5 million shares worth about $5 billion. Of those, about a million shares were sold based on a prearranged plan from September, months before the Twitter poll, to cover taxes on the exercise of nearly 2.2 million options that were set to expire next year. (He still owns roughly 20 million options that will expire in August.)

What we learned: First, Musk did indeed have a big tax bill coming, and he sold $1.1 billion worth of shares to satisfy those obligations. Second, the Twitter poll that resulted in Tesla’s shares dropping 16 percent looks to have cost Musk tens of millions of dollars because he sold at a lower price. Third, the poll also cost the I.R.S. because it cut Musk’s capital gains on the stock he acquired through options.

The legal and policy implications: Shareholders may raise questions about manipulation, given that Musk’s Twitter poll appeared to send Tesla’s stock tumbling before a preplanned stock sale. But a case for securities fraud would be tough because Musk was one of the losers in the trade (and he is unlikely to sue). This all began with Musk making a point about proposed taxes on unrealized capital gains, and the subsequent twists could strengthen President Biden’s argument about taxing the ultrawealthy in different ways.

In the papers

Some of the academic research that caught our eye this week, summarized in one sentence:

The proportion of women graduating with economics degrees in recent years has stagnated, and that affects the way policies are made. (Rigissa Megalokonomou, Marian Vidal-Fernandez and Duygu Yengin)
A.I. is good for autocrats — and autocrats are good for A.I. (Martin Beraja, Andrew Kao, David Yang and Noam Yuchtman)
Women face more stress at work because they are better at keeping to deadlines than men. (Ashley Whillans et al.)

Is the Supreme Court good for business?

Elizabeth Pollman of the University of Pennsylvania says that the Supreme Court under Chief Justice John Roberts has been “pro-business” in the classic sense, issuing decisions that tend to limit corporate liability and expand rights. But this can go against the growing importance of environmental, social and governance issues to investors, employees and executives themselves, creating tension as the notion of what’s good for business shifts, she told DealBook, expanding on arguments she made this week in the Harvard Law Review.

E.S.G. “has gone mainstream,” she said, with investors demanding that companies disclose everything from climate impacts to work force diversity to political spending. More shareholder proposals on E.S.G. issues won approval this past proxy season than ever before, yet the court last term tended to go against this trend, Pollman wrote.

The court decided in favor of nonprofits challenging California’s demand to disclose the identities of big donors. This runs counter to growing demands for transparency on political spending, especially so-called dark money.
The court also found in favor of Cargill and Nestlé USA in a case brought by formerly enslaved children in Ivory Coast who were forced to work on farms that supplied the companies. Amid a push for companies to be more aware of who they are doing business with, “how do we actually enforce human rights on the supply chain?” Pollman asked.

The S.E.C. may be headed for a showdown at the court. The docket so far this term is light on corporate law and heavy on contentious constitutional issues (guns, abortion, religion). But the S.E.C. has indicated it will issue a new rule on climate-related disclosures soon. It is likely to be challenged and go to the Supreme Court, Pollman believes.

THE SPEED READ

Deals

“Facebook is quietly buying up the metaverse” (Recode)
How the collapse of Archegos is upending the investment banking industry. (FT)
A founder of MoviePass has bought back the failed movie ticket subscription business in hopes of relaunching it. (Insider)
Taylor Swift released a rerecorded version of her album “Red,” further undercutting the $300 million sale of her masters to Shamrock Capital. (NME, FT)

Policy

Speaker Nancy Pelosi reportedly dismissed a proposal to tax billionaires’ unrealized capital gains as a P.R. stunt. (WaPo)
The Democratic spending bill is actually likely to cut wealthy Americans’ tax bills. (Politico)
Despite Facebook’s changes to its ad policies, political campaigns can still track users on the platform. (NYT)
Top clerics in Indonesia said cryptocurrency wasn’t compliant with Islamic law and should be banned for Muslims. (Bloomberg)

Best of the rest

Thanksgiving air travel looks set to surpass prepandemic levels. (The Hill)
In Singapore, getting treated for Covid while unvaccinated could cost you about $18,000. (Bloomberg)
“Dream of Buying a Home Gets Harder for Single Mothers” (NYT)
Manhattan no longer ranks in America’s top 20 most expensive ZIP codes. (Insider)

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