A team of researchers in Europe circulated a report earlier this year demonstrating a dramatic increase in the use of climate change-related language on quarterly corporate earnings calls over the last few years. This graph, pulled from their report (see citation in bottom left footnote to read the study yourself) illustrates the development well.
Even more interesting is their finding that increased levels of “climate talk” (the lines charted here) are linked to reductions in greenhouse gas emissions at the companies in question. In other words, increased discussion of the topic is actually related to companies taking action to reduce emissions.
Imagine a home goods store in your town is up for sale. It generated $100,000 in sales over the last year from bath towels and wicker baskets, though this number has been falling each year as fewer people visit the store. The store doesn’t make any money on these sales. It burns cash, actually: roughly $10,000 down the drain over the same time period after expenses. Cash flow had been slightly positive the year before (about +$1,000), but this figure has also been falling every year in an ominous way.
So, the store is up for sale. You’re sitting on a pile of money. What would you pay for it? Would you even want to buy it? Flipping the real estate won’t work: the physical space is leased, and subject to the same rent inflation that’s present everywhere else in the U.S.
You might say to yourself that you’re not interested at all, since the absence of profit won’t provide any return on investment, and you’ll likely lose some or all of the money you invested to purchase it. This is a very reasonable take.
Right now, however, a group of investors is eager to buy the company for around $70,000 (or 70% of the company’s annual sales), despite the stats above.
This hypothetical scenario, of course, is actually playing out right now with the stock of Bed Bath & Beyond (BBBY). After a prolonged period of significant revenue declines (down about 40% from 2019 levels), BBBY shares have rallied back aggressively this summer.
Do you think this move is justified? Do you think the business will capitalize on this opportunity to raise equity and keep the business afloat? Do you think there is an operational turnaround on the horizon? Let us know.
The peak in two-week-notice-giving may be behind us after all. For context, job quitting activity is still remarkably high in the United States. 2.8% of the workforce left their jobs in June 2022, down from a level of just over 2.0% in the years leading up to the pandemic. However, a cascade of quitting employees drove the job quit rate to an all-time (or at least post-2000, when data became available) high of 3.0% only months ago, in November 2021. While the quit rate is still elevated in historic terms, it’s beginning to cool off.
What does this data tell us about the state of the U.S. labor market? For one, a higher quit rate is evidence of a tight labor market, as discussed by the Goldman Sachs economics department in recent interviews. When employees are frequently quitting jobs, they are demonstrating their ability to find better alternatives when they are unhappy in a role. Job quitting makes labor more scarce and (in theory) more expensive as a result.
We’ve written about the U.S. labor market in the past, covering youth unemployment, job turnover in the pandemic, and the constant race between wage inflation vs. cost-of-living inflation.
Let us know in the comments if you think job quits will continue, or if recession fears will drive a flight to job security and longer employment tenures.
The notorious inverted yield curve is back, and it’s notorious for a reason.
Rates (measured by yields on U.S. treasury bonds) have risen steadily over the last several months, which we illustrate in this visual of the yield curve floating higher since February. Growing inflation and expectations of a Fed rate hike in response have pushed yields higher in the market for treasuries.
Of particular interest to investors recently has been the inverted yield curve, in which short-term rates (such as the 2-Year and 5-Year treasury yields) move higher than comparable long-term rates (like the 30-Year yield).
A good deal of markets-related chatter suggests that this shape can foretell a recession, but is this concept supported by evidence? The answer is definitely yes, though the yield curve is by no means a perfect predictor of recessions, or the best one (Estrella and Hardouvelis 1991, Estrella and Mishkin 1998).
For example, incorporating backward-looking 1-year total return of the S&P 500 into a forecasting model in addition to the yield curve tends to yield more accurate recession predictions (Liu & Moench 2016).
Do you think we are headed for a recession? Is the yield curve a reliable indicator of this risk?
Make sure to follow @initiatingcoverage for more economics and macro-related data visualizations and reporting.
Youth unemployment is a global epidemic. According to World Bank data, the worldwide youth (ages 15-24) unemployment rate reached 17.2% in 2020, an remarkable 2.6x higher than the comparable rate for all workers regardless of age. This ratio has increased steadily from around 2.2x only thirty years ago, and spiked to 2.9x during the late 2010s.
As with most global demographic data, stepping down one level of analysis to country-level data adds more detail to the story. In the main graph of this post, we show the ratio of youth unemployment rate to total unemployment rate for every country where World Bank data exists for 2020.
Incredibly, in all countries but two (Kazakhstan and Liberia), young workers face a much more challenging labor market than their older colleagues. In the median country (The Bahamas), the youth-to-total unemployment ratio reaches nearly 2.3x.
Follow @initiatingcoverage for more labor market analysis and visualizations in the future. We’ve written about this topic before (see our posts on employment by college major, and on quitting/hiring activity during the pandemic).
Exports of liquified natural gas (LNG) in the United States have boomed from levels near zero since 2016. The remarkable growth in natural gas production in the U.S. partially explains this trend. December 2021 was a record month for gas production in the country, up about 45% from monthly production levels this time ten years ago, according to EIA data.
Historically low domestic gas prices (at least until spring/summer 2021) led many energy companies to pursue more lucrative alternative markets for their product. LNG was one way to do this. Once converted into liquid form, natural gas can be transported via ocean-going tanker vessels to higher-priced demand hubs all over the world.
The development of Russia’s war in Ukraine have increased American efforts to export LNG, as the EU looks to develop alternative sources of hydrocarbons away from Russia.
Follow @initiatingcoverage for more global energy industry coverage in our data visualization column.
A strong recovery in economic activity, an extended period of monetary policy focused on lowering long-term interest rates, and record levels of private equity dry powder have all converged to create the hottest period of private equity (PE) activity on record. Global buyout-focused PE firms invested more capital in 2021 than in any year previously, and PE as an asset class had its second-best fundraising year ever (behind 2019), according to data shown here from a recent report released by global PE firm Bain & Co.
Other metrics from the report illustrate how broad the boom in deal activity has been: global M&A deal value exploded to $5.9 trillion last year, its highest level since 2005 by far. Buyout-backed exit value also topped the charts, at $957 billion. On the fundraising side, the number of new funds closed (490) also set a record in the 2005+ time period.
The engine of global private equity was white hot in 2021, as evidenced by a wide range of data. Are private markets bound to cool off? Are private company valuations entering bubbly territory?
Let us know what you think in the comments, and make sure to follow @initiatingcoverage for more private equity coverage in our column going forward.
What explains the volatility in cryptocurrency stocks like Coinbase? The answer looks simple, at least recently, and you don’t need to look too far to find it: bitcoin.
Shares in Coinbase, an online marketplace for cryptocurrency trading, have been publicly traded since the company’s direct listing in April 2021, just over a year ago. After initially listing at $250 per share, COIN stock is now down around 70% to $75 per share.
COIN collects a commission on cryptocurrency trades that are executed on its platform: around 1.4% on trades placed by retail investors, and less than 10 bps (0.1%) on the larger trades placed by institutional clients, according to materials from the company. COIN’s revenue model, therefore, is highly dependent on crypto prices.
While Bitcoin represented only 40% of the assets on Coinbase’s platform as of year end 2021, volatility in Bitcoin has been the key driver of movement in Coinbase stock over the last two months. We illustrate this phenomenon in this graph, using closing prices for each trading session over the last two months.
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A quick glance at any major outlet in the financial press shows a significant focus on the crypto market. Many websites now feature a Crypto category in their banner menus at top of page, allocating well-deserved pixels to a developing asset class.
However, crypto is still a fairly small patch of territory in the broader financial markets when measured in total USD terms. In this analysis, we compare the size of the cryptocurrency market (around $1.2 trillion) against other more mature asset classes in the United States: corporate credit, public equities, and U.S. treasuries. There are many others not shown here.
Global crypto is now around the same size as the U.S. leveraged loan market. At its peak size of $2.9 trillion last November, crypto was still smaller than the U.S. municipal bond market, and nowhere near the scale of the public equities market (most of which is comprised of the big-cap S&P 500 names).
Bitcoin and Ethereum dominate the crypto market as well, with nearly two-thirds of the global market cap combined.
Much reporting recently has focused on the economic effects of extended Covid-related restrictions in China. China’s official GDP growth forecast of 5.5% in 2022 is notably below the growth rates seen prior to the pandemic (around +6% to 7% each year from 2015 to 2019, though growth has been slowing over time).
In this analysis, we parse province-level data from the Chinese government to illustrate the geographic pattern in economic activity in the country. As has been noted by analysts in the past, the Chinese economy is fairly bifurcated between the central/southeast portion of the country, and the western/northern regions.
It’s worth noting that the fastest-growing province in 2021 was Hubei, the capital city of which is Wuhan.
Let us know what you think about the future of Chinese economic growth in the comments! Follow @initiatingcoverage for more economic data journalism every day.
