Is “oversaving” real? | Financial Times

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Was the oversaving argument a big, big conceptual error?

We’ve written a fair amount about the excess savings of US households. The basic story is simple. During the coronavirus pandemic, the U.S. government has sent checks to American families who are stuck at home and spending less. saved up savings. With the lockdown lifted, the funds were quickly consumed, greatly supporting the economy. If all savings are gone, the consumption economy may slow down.

The story is compelling, cottage industry grew around measuring the scale of excesses and the rate of decline.This caused a surprising problem big intellectual we I have written A few months ago:

To derive estimates of excess savings. . . [requires] Assumptions about what the underlying trends in household savings are. In other words, “excessive” savings only makes sense in the context of “normal” savings trends. . . Savings estimates are very sensitive to underlying assumptions, and it is difficult to know which assumptions are optimal.

This level of skepticism may not have been enough. Dom White of Absolute Strategy Research argues that the whole concept is confusing. That’s because excess savings (money created by the government and sent to households) doesn’t go away when you use it.

The easing of fiscal policy has injected an additional amount of bank deposits into the economy. . . As the concept of excess savings suggests, these deposits are not destroyed when they are finished, they are simply transferred to other consumers or businesses. . . We can say that ‘excess savings’ translates into ‘excess income’. And, of course, most of that excess income is then spent, but some is also saved. In other words, spending excess savings creates new savings. Either way, the idea that savings will dry up and spending will slow is downright false.

This is a good point.

But there are ways to rephrase this story into something more meaningful. It’s about looking at the distribution of income and spending trends. When households spend their stimulus checks on things like pelotons and pedicures, much of that money goes to businesses. Some of that money goes back to other households in the form of salaries and dividends, or to other businesses in exchange for raw materials and equipment. But eventually, some of it ends up in someone else’s hands who simply keep it or use it to pay off their debts.

If the money is simply in a savings account and the bank that holds the deposit does not make new loans out of that deposit, the money goes into a kind of coma. On the other hand, when money pays off a debt, money is destroyed. This is the reverse of the process by which lending creates money. If taxes settle debt that cannot be replaced by new debt, the “person” who pays off the debt and destroys the money may be the government. Either way, as White told us in our conversation, “It’s all about whether the money trickles in or out.”

In short, this money started with a broad segment of US households who are more likely to spend money. Ultimately, some of it will end up in the hands of those with lower spending habits.Stimulus funds will likely move from household checking accounts to other parts of the economy do It affects the level of consumer spending. But their impact is much more subtle and complex than the underlying story suggests.

where will it leave us? So we track spending trends the old-fashioned way: listen to company performance, watch credit creation, watch payroll. Everyone, let’s get back to work.

Anecdote from Japan

Japan’s corporate governance reforms, including returning corporate cash to shareholders and spinning off non-core businesses, could revolutionize Japan’s stock market. And the promised reforms contributed to the market’s 20% year-to-date gain. But the reality of the reform remains beyond the reach of investors.

there is Signs of a warm attitude towards shareholders, especially the record level of share buybacks in 2022 and top-down pressure from the Tokyo Stock Exchange. Activists and hedge funds can target companies with the most receptive management teams. But stock market experts alone aren’t enough to keep the rally going.Global asset allocators need to rethink their asset allocation Equity weighted low about Japan. But how can foreign investors assess the change in attitude?

“As a Westerner, it’s a bit naive,” says Nick Schmitz, portfolio manager at Berdad Capital, who spoke to us shortly after returning from a series of shareholder meetings in Japan. Outside of sporadic studies with small sample sizes, “we are left with anecdotes and buyback levels and sell-side charts.”

We asked Mr. Schmitz and Mr. Drew Edwards of GMO, who is also on a long-term research trip to Japan, what they were listening to in the field.

A recent directive from the Tokyo Stock Exchange to publicly listed companies to impose penalties for failing to publicize plans to raise their price-to-book ratios has been widely welcomed by the financial press (including Unhedged). But while it may be a stock price catalyst for foreign investors, some Japanese executives see the TSE’s chief executive as a “self-promoting opportunist,” Schmitz said. said with a laugh. “This CEO noticed [corporate reform] Already happened and after it started I gave the order to take the credit! The TSE’s order ‘may add a little more urgency’ [but largely] It just reinforces what is already happening,” he added.

Edwards said Japan was finally seeing the fruits of its Abenomics reforms in the 2010s, including among senior government officials. Corporate Governance Code “Looking back to my early days in this industry in the early 2000s, it was often difficult to conduct meetings with management, especially if you were a foreign investor and were involved in some way with activists. I did,” he says. But more recently, “I can’t remember the last time we didn’t have a management meeting.”

a record number of companies faced shareholder proposals at shareholder meetings this year. However, animosity towards activists remains. “I have to tell every business I meet that we are not activists, and it immediately gets a friendly attitude,” Schmitz said. “It’s not an overly exaggerated stereotype.”

But for non-activists, management is becoming more and more active in dialogue. Edwards tells a story about Mitsubishi Electric, a company in which he has invested. Mitsubishi Electric is a “proud, traditional and rigorous” electronics manufacturer, he said. However, the company, which has a tradition of pride in quality, High-profile quality control scandal In 2021, after many factories committed inspection fraud. Many of the old top executives resigned in embarrassment, and a new chief executive was appointed with a transformative mandate. Mr. Edwards said his new boss started doing “everything you learned in a first-year MBA class,” including dissolving cross-shareholdings and spinning off unrelated business units. But it was another change that shocked Edwards the most.

“It wasn’t [even] But they ask for our opinion, they ask for our opinion, which has never happened in the past with a company like Mitsubishi Electric. We highlight this as an example of a company that is highly liquid and our trading does not move the needle. However, a similar pattern is also seen in small businesses, where a preeminent position can wield great influence.

Of course, the plural form of anecdote is not data. But change is happening. (Ethan Wu)

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