Brief: The coronavirus crisis has hurt earnings, spending, and caused never-before-seen unemployment levels in the U.S. But a new survey from advisory firm Willis Towers Watson finds that most companies are planning to give employees raises and bonuses next year. Willis Towers Watson surveyed U.S. industries about their 2021 compensation plans and found that companies are projecting salary increases of 2.8% on average — across all levels of employees, hourly and salaried. According to the survey, this year saw a 2.7% increase, slightly below the projected 3%. The standard over the past decade has been around 3%. This year 14% of companies elected not to plan pay increases, and many industries are tightening their belts this year. The financial services industry, Reuters reports, expects to see bonuses slashed and job cuts with only investment bankers doing well as companies scramble to raise money. However, Willis Towers Watson's findings indicate that only 7% of companies plan to forgo raises next year, which the company calls "an indication that many organizations are projecting a turn toward normalcy in 2021…
Brief: A Joe Biden and Kamala Harris victory in the US presidential election will be “disastrous”, veteran investor Mark Mobius has warned. Mobius, who left Franklin Templeton after more than 30 years in 2018 to set up Mobius Capital Partners, told Financial News that US President Donald Trump’s stance of lifting coronavirus lockdowns will kickstart economic recovery. “It [a Biden-Harris win] would be disastrous,” said Mobius. When asked whether a Trump win would boost the stock market, Mobius said: “Yes, definitely. His goal is to get people back to work, reduce unemployment and generally boost the economy.” Trump is somewhat losing ground to Biden, the former US vice president. Fifty per cent of US registered voters say they would vote for Biden if the election were held now, while 41% back Trump, according to the latest Wall Street Journal/NBC News poll. The coronavirus crisis has battered the world’s largest economies that froze into lockdown over the past couple of months. Last week, the UK stumbled into the “largest recession on record” because of the pandemic, which has killed nearly 47,000 people in the country. “Unless they [Britain] are able to end the shutdown policies and also end the erratic policy moves, the recession will continue and economic recovery will be difficult,” Mobius said. Meanwhile, the US economy shrank at a 32.9% annual rate between April and June — the country’s deepest decline since the government began keeping records in 1947.
Brief: Jim Momtazee, a former dealmaker at U.S. buyout firm KKR & Co Inc (KKR.N), has launched his own firm to pursue private equity deals in the healthcare sector. Momtazee, who spent 21 years at KKR and led its Americas healthcare team for a decade, said in a statement he formed Patient Square Capital together with Maria Walker, a former partner at consulting firm KPMG. The move comes as the outbreak of the novel coronavirus has strained some healthcare providers, while spurring growth in some sectors such as telemedicine and vaccine production. Patient Square Capital plans to look for deals across the healthcare industry, including technology-enabled services, biopharmaceuticals, the pharmaceutical value chain, medical devices, diagnostics, providers, digital health and consumer health, the statement said. “We’re going to be broad-based in our focus on all aspects of healthcare, bringing depth of knowledge, scale, expertise, and long-term view to our investments,” Momtazee told Reuters in an interview. Prior to leaving KKR last year, Momtazee worked on some of the buyout firm’s biggest healthcare deals, including the $33 billion take-private of U.S. hospital operator HCA Healthcare Inc (HCA.N), as well as the acquisition of contract research firm PRA International for $1.3 billion in 2013.
Brief: In mid-July, investors representing nearly $1 trillion in assets joined with a bipartisan group of former legislators, regulatory agency heads, investors and other leaders to call on the Federal Reserve and other financial regulators to address and act on climate change as a systemic risk. They wrote: "We call on you to immediately consider whether decisions being made right now could inadvertently exacerbate the climate crisis. Additionally, we ask you to implement a broader range of actions to explicitly integrate climate change across your mandates. Such actions are needed to protect the economy from any further disruptive shocks." The ongoing response to the COVID-19 pandemic has underscored the critical importance of financial regulators — particularly the Fed — in keeping the economy stable and resilient in the face of systemic disruptions. Yet, as the Fed has pumped trillions of dollars into keeping our markets afloat through efforts like the Main Street Lending Program and by broadening the tent of corporate bond purchases, there are growing questions about the climate impacts of these decisions and the embedded financial risks that they expose our markets to.
Brief: America is in bad shape. While the rest of the world seems to be moving past the Coronavirus, the US is still experiencing record deaths nationwide. Americans continue to struggle just to get bills paid, while Washington debates semantics surrounding mail-in voting. The disconnect between Main Street and Wall Street continues to grow larger, to the point that when (not if!) the stock market bubble pops, it will be nothing short of disastrous for the large majority of the population. Let’s start with what we know. President Trump recently signed four executive orders aimed at Coronavirus-related economic relief. Most notable are the orders that extend unemployment benefits and the federal eviction moratorium. Firstly, Trump’s unemployment order specifies USD44 billion in funding to extend enhanced unemployment benefits to a USD400 weekly payment for those already collecting state benefits. How soon this will be implemented or how many people stand to benefit remains unclear, as states must both request the assistance and have a system in place to deliver it. There are a myriad of issues concerning this requirement, most important being the fact that state systems are objectively not prepared for the volume that such benefit distribution would entail. Associations representing states have estimated that it will take at least five months to enact changes of this scale.
Brief: The U.S. stock market looks like “Wile E. Coyote, running off the edge of a cliff,” according to asset manager GMO’s James Montier. According to Montier, the U.S. stock market has priced in all the good news it possibly can, which suggests little upside for value investors right now. This is a reversal from his and colleagues’ previously bullish position on the markets in March. “There is no margin of safety in the pricing of U.S. stocks today,” Montier, who works in asset allocation at GMO, wrote in a new white paper, adding that the U.S. stock market “appears to be absurd.” The rally narrative is that investors are linking the Federal Reserve’s balance sheet expansion and the equity markets, Montier wrote. By performing quantitative easing, the Federal Reserve would lower the bond yield, and as a result, drive up the stock market, as the thinking goes. Montier is skeptical, however, of a “clear link” between bond yields and equity valuations. Quantitative easing hasn’t previously lowered bond yields. He pointed to 10-year bond yields during three recent quantitative easing programs: January 2009 to August 2010, November 2010 to June 2011, and September 2012 through October 2014. During each of those time frames, yields rose.