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| Work remotely from a beach in the tropics? The formerly-years-away-now-realized dream to untether workers from the workplace via the internet has transformed portions of corporate America and is surely here to stay. [Image ©guruXOX / Adobe Stock. Modified for The Ignorant Investor: www.theignorantinvestor.com] |
And with that, July is long gone! Vaccination efforts are in full effect across the United States and its territories around the world. Pfizer, Moderna, and Johnson and Johnson remain available in clinics and local pharmacies. And the US came up with a truly capitalist approach to help prod the unvaccinated towards becoming vaccinated: pay them (The Ignorant Investor thinks this is a brilliant way to save time and energy while pushing forward with general reopening- no sarcasm intended).
July Stock Market Review
As for stock market indexes, the Nasdaq and S&P 500 saw strong gains for the month of July, pushing them to record territory even as market breadth continued to narrow. Looking under the hood, we can see how several of the strongest performing sectors for 2021 were brought into check while the entire reopen trade experienced weakness.
And was that weakness warranted? Well, the Covid-19 Delta Variant certainly did throw a wrench into things! New health and travel guidelines started to creep back into vogue around the globe as nations weighed a return to old restrictions (the CDC reversing earlier decision to recommend masks as no longer needed: now, again, they are highly recommended for indoor areas) and an introduction to new restrictions (vaccinated individuals are the only ones wholly free to travel in this post-covid world as decided by Canada, parts of Europe, and some Asian nations. To be fair, the US is considering a similar rule as well).
The fact of the matter is that even amid fantastic quarterly earnings reports, markets were experiencing weakness as analysts fretted over peak this and peak that (earnings, economic growth) just as the government looks to wind down monetary stimulus (fiscal stimulus likely to continue in the form of the infrastructure bill, with another $3.5 trillion spending bill up in the air). Meanwhile, the S&P 500 valuation remains elevated by most metrics against historic norms, so some trepidation at these levels - especially when bond yields swoon – comes with the territory.
Finally, to wrap up forward-looking market concerns we must examine inflation. As mentioned in previous posts by The Ignorant Investor, inflation remains a wild card. The Fed has done a remarkably good job overseeing the economy over the years by sticking to its two nominal mandates: 1) maximize USA employment, and 2) keep prices relatively stable (ie inflation in check). Difficulties begin to occur when readings for these two mandates diverge. In recent months, inflation numbers have skyrocketed to near multi-decade records while unemployment remains stubbornly low. Anyone shopping at the grocery store for steak or buying a laptop online will notice that prices seem high these days. Despite the Fed sticking to the “inflation is transitory” theory, The Ignorant Investor suspects that inflation may actually be here to stay, and the US central bank may be forced to begin tapering very soon- and perhaps *gasp* adjusting its rate forecast.
Covid too, will pass. Covid’s effects on the employment landscape? Not so much.
The USA’s outlook has improved significantly now that the country is (somewhat) vaccinated with about 50% of the population receiving both doses. Not only are vaccines plentiful enough that anyone can get their “jab” down the street at the local pharmacy, but people can breathe a sigh of relief as life gradually returns to normal. Wait, normal? Employees now familiar with the increased freedom of working from home are now facing the troublesome inconvenience of returning to office life. The genie is out of the bottle, however, and a telling Bloomberg News survey (read the full article at Bloomberg) showed that workers are in earnest, with about 39% of respondents indicating a willingness to quit without some work flexibility offered by their employer. Indeed, management and workers both are locked in a complex, introspective struggle to determine what “normal” will potentially look like going forward.
Companies across the industrial spectrum have largely been responsive and appear to be formulating new policies that offer some flexibility for employees to Work-From-Home (WFM) while maintaining wariness towards Work-From-Anywhere (perhaps video conferencing with an employee based on a beach in Bali would be detrimental to NYC office moral?). This so-called hybrid approach would allow workers to divide working days between home and the office. Of course, the implications are quite significant and the stakes high for all parties involved and affected, including (not exclusively):
- Employers concerned about everything from worker productivity to company culture
- Employees seeking better work life balance and lower costs away from major cities
- Industries that support the traditional work-at-office lifestyle or the new work-from-home lifestyle (childcare, commercial real estate, commuter transport, etc)
- High/low tax cities and states as employees and employers become more relocation-flexible
While this trend will likely result in a systemic change to the employment landscape, it is also important to note that some professional trades can better adapt to this kind of work (Amazon software developers for example) than others (say investment bank JP Morgan *cough* which intrinsically requires in-person business interactions). Such a transition will take time and be nuanced as all players adapt. Additionally, many highly skilled professional employees may decide to avoid WFH aspects of a job altogether for greater professional visibility or social reasons.
Let’s look at this scenario from the point of view of the employee (since the employee is the driving force behind this change). One fundamental challenge of working from home is the amount of self-discipline required to maintain productivity over time in a comfortable space. This primary challenge is probably matched only by the need to set up personal/professional boundaries: ‘Am I truly working from home, or am I now living at the “office”?’ The Ignorant Investor has had significant work flexibility for many years now yet can still occasionally struggle with this exact question. Other questions from the employee perspective include:
- As an ambitious young professional, how are my soft skills and negotiating skills progressing through occasional conference calls? Do I miss spontaneous meetings in the office?
- Am I creating the deep, influential networks that I need to propel my career forward in later years? Limited networking opportunities can be a headwind to a successful career.
- What is my status? Are my visible on-site coworkers gaining the attention of and promotions from the boss? Remote workers can be remarkably efficient yet easily overlooked and forgotten.
For reference, many of these observations come from The Ignorant Investor’s conversations with working professionals in various fields. One stark example of post-Covid migration plans are several private funds actively leaving storied New York City for tax-friendlier locales with no plan on returning. The pandemic was apparently an excellent proving grounds for working remotely in some corners of the financial world.
Now why does all this matter? Surely these rambling notes must have some deeper meaning to them, meaning that an investor could take hold of and profit from? And the answer is a resounding yes. Should this transition to WFH prove to be more than transient, then opportunities abound in one group of companies. Should it prove to be transient, then opportunities abound in another group.
With WFH looking to be at least a partial systemic change to the US employment landscape, one might – in close consultation with an investment advisor – consider creating quality buy lists across some of these potential themes (note that within this space there is plenty of overlap among public companies).
- Cloud-based solutions
- Virtual work technology (virtual workstations, etc)
- Messaging, sharing and collaborative communication systems
- Security solutions (cybersecurity, content delivery networks, etc)
Notable Stories from June and July
Regulatory reform or asserting control? US-listed Chinese companies have seen heavy losses in recent weeks
The stock market has always been viewed in Asia with a semblance of wariness and admiration. Wariness for those old enough to remember past steep declines, and admiration from the younger crowd familiar with only the steady gains of recent years (“The stock market? That’s gambling!” a remarkably successful Asian businessman once told The Ignorant Investor). And Chinese companies, for their part, have all the while jostled and competed to raise foreign capital in the US stock market, even while sometimes playing fast and loose around facts, disclosures, and regulations.
Indeed, The Ignorant Investor has been somewhat puzzled by lack of US SEC regulatory action of late (especially after Didi neglected to alert US investors of potential risk of *forewarned* Chinese regulatory action). Congress has been unhappy with the situation for several years and intends to reduce the number of misbehaving listed foreign companies (think fraud at Lucking Coffee, etc) and level the playing field with China (US-China tensions *yawn*).
The Chinese government, in the meantime, has decided to crack down on corporate China for the posited reason of re-asserting control over raucous and unruly private enterprises and bringing about more accountability, stability, and security through “reform” (whatever this broad term might imply). This has resulted in US investors losing hundreds of billions of dollars as the US-listed stocks* of these Chinese companies fell sharply amid heavy selling resulting from uncertainty on the length and scope of these crackdowns.
The Ignorant Investor is content to watch this play out from the sidelines until more clarity is provided from both sides of the pond and would urge wariness and caution on the part of investors considering new stakes in US-listed Chinese companies at this time.
Believe it or not, Shell is considering the sale of its Permian Basin oil field assets
Shell is one of those energy majors that has come under withering criticism from environmentalists because the company has “enabled” fossil fuel consumption by producing, processing, and transporting fossil fuels. Beyond minority shareholder discontent (think Exxon), however, the company was also ordered by a European court in May to significantly cut its carbon emissions** by 2030 (twenty years before the company’s own timeline; read about the original court order at The Guardian).
Later, in June, Reuters revealed that Shell is considering a partial to complete exit from the Permian Basin to help meet these aggressive targets (read the original article at Reuters)- an event that would have been considered unthinkable even several years ago. Interesting news to be sure, but why discuss them now? Well, the headlines may have well passed*** but developing a plan to divest up to $10 billion of assets in this premiere US shale field will take time- and we can be certain that Shell’s competitors are waiting on the sidelines to snap up whatever is put on sale. This story isn’t over yet!****
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*Technically, US investors are NOT buying shares in a Chinese company but instead buying shares of an offshore entity that mirrors the performance of the associated Chinese business through a convoluted set of contracts (reduces US regulatory scrutiny from a legal standpoint)
**Note that this usually results in the European energy entity divesting itself of “dirty” Asian assets like coal power plants through sale to overseas energy companies; the European energy company’s carbon emissions therefore appear to improve even though there is NO net effect on global emissions.
***Yes, yes, the downside to posting once every two months is that sometimes a major story gets missed.
****This corresponds closely to an article in The Ignorant Investor’s previous post entitled “The Fight for the Environment (or the war on fossil fuel, take your pick!) is creating opportunity”
