Investors Can’t Decide How They Feel About Inflation

And Uncertainty Is Never Loved By The Market

This week marked incredible volatility for both equity and crypto markets as investors handled a slew of economic data pointing to rising consumer prices and labor shortages amidst lowering unemployment filings and indications that the economic recovery is continuing to gather steam.

Quick Updates From Around The Market

🛢📈 The Colonial Pipeline was closed due to a ransomware, cyber attack, crippling gas supply chains on the east coast of the US. This pushed national gas average prices to above $3 for the first time since 2014.

🚫💵 14 States have opted out of Federal Unemployment Aid, which will impact over 1 million people. Most will lose the $300 a week federal supplement, with unemployed individuals losing their aid entirely.

💸💸 Softbank posted an incredible $45.88 billion in net profit last quarter and CEO Masayoshi Son doubled down, explaining that he anticipates even more companies in the Vision Fund will be going public soon as he has been pushing portfolio companies to seek exits.

👩‍⚖️💰 On Wednesday Amazon won their appeal against the European Commission. This allowed them to avoid 250 million euros in taxes (~$300 million) which they allegedly owed to Luxembourg.

Inflation Fears Gather After Unprecedented Stimulus

Investors were prepared for the consumer inflation report to be higher than usual, however, did not expect a 4.2% increase that was reported. Previous predictions claimed that the inflation would be around 3.6% at the highest. The difference has caused investors to be scared that the Fed may not be able to contain the inflation. This is the highest pace of inflation since September 2008.

Investors had braced for high inflation since the Fed has been warning of a series of high inflation due to the economy reopening and since last year’s comparison is so abysmal. The Vice Chairman of the Fed, Richard Clarida said that the 4.2% spike was surprising, however, he reiterated that this jump is only temporary. The Fed has said that they are fine with inflation that is around 2%, which is their target and that they will tolerate minor bumps on the way. However, the concern is that inflation gets too high and the Fed will be forced to raise interest rates.

This would then be bad for the stock market as more people would shift towards bonds, discounted future earnings would decline in value with a higher discount rate, and the fear of hyperinflation — where prices run away and the Fed can’t control it — is still real for some investors (albeit, a select few).

Because despite this week’s decline, not all investors are as concerned by the inflation. Some believe that it will not be too long lived as the pandemic hit businesses hard and forced them to decrease their prices. This then would help account for the rapid inflation that has occurred and should be a sign of it slowing down. In April Airline fares, motel/hotel rooms, and car rental prices all drastically increased with jumps of 10.2%, 8.8% and 16.2% respectively.

Labor Shortages Persist Despite Falling Unemployment

As the country starts to reopen and more people are going back to work, we’ve encountered somewhat of a paradox… There’s a labor shortage. The shortage is acutely apparent for many restaurants are having trouble finding workers despite the massive spike in demand due after reopening. With demand continuing to increase as the CDC adjusts their mask mandate, economists are scrambling with a few theories of why this could happen.

The US Chamber of Commerce says $300 in additional weekly unemployment benefits serves as a disincentive to go back to work. In response to this, 14 states have rejected federal benefits for their constituents. This argument pushed by conservative states is largely misleading because unemployment filings continue to decline, and if the hospitality were living off the $1,200 federal stimulus which is roughly $6.90 an hour for a 40-hour work week. That’s why some states are taking the opposite approach with return-to-work bonus. Montana is giving out $1,200 if you can get a job!

Another major change to unemployment benefits that states are making is that they are requiring people to be searching for work to qualify for benefits — a rule which we abandoned during Covid. Frustrating for many, the new rule requires that a person on unemployment to accept any job offer which is a “suitable” job. Obviously suitability is debatable and can leave overqualified individuals in horrible positions.

Another reason that economists believe could cause the labor shortage is the lack of child-care. Many workers have children that they need to take care of, however, due to the pandemic there is very little options to care for their children. Especially if parents are trying to ensure their health and not get sick. Some economists say that this could be causing some families that typically have two members working switch to having someone stay home and care for their child, which highlights why schools became such a hotly contested political item in the past year.

Because it’s not about schools or our kids. It’s about their parents contributing to the economy.

Bitcoins Unsteady Future As Tesla Turns

Elon Musk took a change in stance on accepting Bitcoin for Tesla cars after big investors criticized the environmental impact of Bitcoin mining. It is absolutely beyond belief that Elon Musk was unaware of the environmental impact when he first invested Tesla’s cash, but market manipulation is a finicky game. Although the SEC Enforcement Division isn’t very active on Twitter, we have to imagine they’re looking at Tesla’s $100 million profit on the sale of Bitcoin which increased in value after they announced purchasing Bitcoin as a reserve currency and taking the cryptocurrency as payment.

Elon’s lack of due diligence before investing over $1 billion is not advisable, but he’s only the visionary (aside from the 2 original Tesla founders whom Elon Musk sued to take control of the company).

The actual investment into Bitcoin was placed by Tesla’s Master of Coin, Zach Kirkorn, and here’s what he and Elon Musk, self-proclaimed Technoking, learned about Bitcoin this week:

Cryptocurrency needs to be “mined”, and this digital process happens with massive computing power solving complex equations . This process requires so much energy that the amount of power used currently is the equivalent of the amount of energy Sweden or the Netherlands used in 2019. Whenever there is a halving event, reducing the supply of future Bitcoins to mine, the price increases which attracts more miners with more powerful machines consuming more energy.

China currently accounts for 70% of all Bitcoin’s mined and they’ve been extremely reluctant to make any changes to address their surplus of cheap fossil fuels.

The total emissions from Bitcoin mining is estimated to be between 22 and 22.9 million metric tons of carbon dioxide per year, which is due in large part to the fact that fossil fuels — particularly coal — are the the cheapest source of power.

This pollution has become a major problem for large mining areas where everyone is trying to evaluate lower impact mining or transition to green energy alternatives. Some attempts have even been made to use the heat produced from mining for other things like agriculture or heating, however, these attempts are limited. With Bitcoin up nearly 500% in the past year, very few miners are concerned with the environment — they’re in the process of getting rich.