Category: zerohedge

The honeymoon between Tesla and China continue to sour as the Global Times, China’s closest major media organization to the state, published a horrifying image of a Tesla vehicle rear-ending a truck in Shaoguan, South China’s Guangdong Province on Friday, “killing the electric car’s driver on the spot.” 

Tesla can’t catch a break in China. If state media wanted to protect the US car company, they would’ve ignored the report; instead, they’re drumming up bad press for Elon Musk. This follows CCTV broadcaster calling for an investigation last month into Tesla’s brake failures following other incidents where the electric cars have plowed into things. 

A #Tesla rear-ended a truck in Shaoguan, South China’s Guangdong Province on Friday, killing the electric car’s driver on the spot, media reports said. The cause of the accident is under investigation. pic.twitter.com/QtYcjF7fWk

— Global Times (@globaltimesnews) May 7, 2021

The CCTV commentary “said the regulator could invite third-party testing agencies that both the customer and Tesla can trust to test the vehicles,” according to Reuters. At the same time, it has been reported that one of China’s largest insurers has temporarily stopped providing services for new Tesla owners after the incident.

Friday’s accident is shocking. An alleged video of the crash was posted online – shows the vehicle made no attempts to stop as it slammed into the rear of a moving truck. Here’s a GIF of the crash if Twitter police decide to censor the video. And since LiveLeak bit the digital dust, finding this video elsewhere could be challenging due to censorship. 

Global Times said the crash is still under investigation via the Saoguan public security bureau. Tesla officials told China News Service they’re waiting on vehicle data – from there – they will determine if Autopilot was engaged. 

Tesla’s image is deteriorating in China as state media continue to publicize braking failures. The risk here is Musk’s Chinese fairy tale could eventually come to an end. In late April, we noted that Chinese state media suggested that the automaker’s sales could be “doomed.”

For more on Tesla fatalities and Tesla accident deaths, visit TeslaDeaths.com. 

Global Times’s report comes one day before Musk will host Saturday Night Live on Saturday evening.

Just yesterday, we showed that only a few quarters after banks effectively shut down, refusing to give out C&I, credit card or auto loans and mortgages to virtually anyone as a result of record Draconian credit standards, credit standards saw a complete U-turn and as of April, lending standards for credit cards and autos were the loosest on record.

This was not lost on US consumers who after suffering through a miserable 12 months in which they dutifully repaid their credit card debt like total idiots who acted responsibly (instead of doing what US corporations are doing and loading up on even more debt to ensure they all get bailed out during the next crisis), in March aggregate consumer credit surged by $25.8BN, smashing expectations for the 2nd month in a row (as a reminder February was the biggest beat on record) and barely slowing down from last month’s massive $26.1BN increase.

And while non-revolving credit – i.e., student and auto loans – continued its relentless ramp higher, increasing by $19.4BN in March, the most since June of 2020…

… it was the second consecutive surge in credit card debt in March that made all the difference because after 10 of 11 months of paydowns, revolving (i.e. credit card) debt surged by $8BN in February followed by $6.4BN in March. The combined two month total was the highest since October 2018!

This latest shift in spending patterns, means that things are now indeed back to normal, and that with consumers now spending not just using their debit cards (which is where the stimmy checks arrive) but their credit cards, Americans are once again highly confident about the future, and are spending far beyond their means, as they always tend to do.

By now everyone – except a very special group of idiots residing at the Marriner Eccles building and their media propaganda lackeys – is aware that inflation in the US is soaring to the point where some such as BofA, are speculating that the US is facing a period of “transitory” hyperinflation (if BofA is right it would be remarkable, as it would be the first ever case in human history of “transitory” hyperinflation that does not result in a monetary reset).

Those most aware of the soaring prices – in addition to those who have to pay them – are corporations themselves, who as we profiled earlier this week, have been hit with surging input costs and have been quietly and not so quietly passing them on to consumers.

As Goldman notes, rising prices and the implications of rising input costs for profit margins was among the primary topics of discussion in many of the just concluded Q1 earnings calls, including those of ALLE, AVY, CAG, CARR, CAT, CHD, CL, CLX, CMG, CTAS, F, FAST, FBHS, FCX, GPC, GWW, HAL, IEX, IP, KHC, KMB, KO, LKQ, LW, MAS, MHK, NWL, ORLY, PH, PNR, SHW, SNA, TAP, TFX, TXT, WHR.

But it’s not just inflation. As Goldman writes in its latest quarterly Beige Book publication, in which the bank gathers anecdotal evidence of fundamental and thematic trends from the earnings transcripts of S&P 500 companies, there were three other themes in addition to inflation, namely the COVID recovery; buybacks; and labor trends (incidentally, of the companies that have already reported which is 85% of total S&P 500 market cap, 70% beat estimates by 1 standard deviation or more vs. the 15 year average of 48%).

Here is a snapshot of Goldman’s key observations:

• COVID recovery. Many firms are optimistic that pent-up demand will drive upcoming growth, while others have already seen notable strides in recovery.

• Inflation. Companies discussed their varying approaches to profit margin protection in the face of rising costs. Many firms are relying on price increases to combat inflation. Meanwhile, other firms indicated they will prioritize cost-management strategies to preserve margins.

• Buybacks. As a result of stellar earnings results and the strong economic outlook, many companies have increased or reinstated share repurchase programs.

• Labor market. Firms are having difficulty finding labor, particularly in transportation and hospitality. In response, some companies plan to ramp up hiring or bring recalled employees back to work sooner than expected. Few companies commented on the potential implications of a minimum wage hike, and sentiment varied on this topic.

There was one bonus theme: cryptocurrency. According to Goldman, a handful of companies discussed cryptocurrency in earnings calls this quarter, and following strong public interest, some companies (mostly within Financials) are already offering services that provide exposure to cryptocurrency or accepting it as payment, either through internal platforms or through third party cryptocurrency ventures.

We go down the list of observations, starting with…

Theme 1: The COVID recovery

The US economy is recovering from the pandemic on almost all fronts, with Goldman economists’ latest recovery tracker showing the unemployment rate falling to 6.0% and consumer spending rising to 105% of pre-pandemic levels. Furthermore, 40% of the US population has already received at least one vaccine dose, which should support the gradual reopening trend shown below. All of these factors contribute to Goldman economists’ view that US GDP growth should peak at 10.5% this quarter.

This improvement in economic and business outlook has been a common theme in management earnings commentary. Many firms are optimistic that pent-up demand will drive upcoming growth, while others have already seen notable strides in recovery. In particular, companies in COVID-sensitive sectors, such as travel and real estate, are confident that demand will return once lockdown restrictions are lifted. New consumer trends have also emerged, such as changes in spending behavior, which may persist even post-pandemic

Pent-up demand

• Delta Air Lines, Inc. (DAL): Pent-up demand is also evident, with domestic leisure bookings 85% recovered to 2019 levels and leisure markets more than fully restored. Beyond our own bookings, we see encouraging data points in the broader economy. This includes accumulated savings, restaurant dining, credit card spend, hotel occupancy rates, web search data on travel and corporations announcing more concrete office reopening plans.

• McDonald’s Corporation (MCD): There’s pent-up demand that we’ve seen when we are able to get a market open or even last year when we had some reopenings that then resulted in closures not too long thereafter as the second and third wave came about… there’s nothing that gives us any concern that as we reopen that we’re going to see the same pent-up demand come back and get the European business moving forward.

• Domino’s Pizza, Inc. (DPZ): And with COVID loosening up certainly in some places, not as much in others, as it loosens up, it really gives those franchisees the opportunity to release some of that pent-up demand for unit-level investment and growth.

• Comcast Corporation (CMCSA): We’re also encouraged by the trends we’re seeing across NBCU. Our Parks segment broke even, excluding Beijing, for the second consecutive quarter, driven by remarkable attendance at Universal Orlando. We can see firsthand the pent-up demand for high-quality entertainment and family fun outside of the home, and we remain incredibly bullish on the Parks business.

• Lamb Weston Holdings, Inc. (LW): I expect at the end of the calendar year, based on some of the data we look at, we’re projecting Foodservice to be back to pre-pandemic levels. And as we’ve seen markets in the U.S., not all of them opened up and just lift restrictions, we’ve seen them approach or get pretty darn close to pre-pandemic levels. Now we need some time to work through overall, the consumer behavior of going back to eat restaurants over a longer period of time. But that gives me confidence that there’s some pent-up demand for the restaurants in our Foodservice segment. And I think we’ll get back to pre-pandemic levels by the end of the calendar year.

• IQVIA Holdings Inc (IQV): Excluding that fast-burning work that we had in the first quarter, the R&DS business grew mid-double digits and the TAS business grew high single digits, excluding the COVID-related work. The rest of the year, obviously, will be higher than that, again, because we have the trailing impact of COVID we think well into ‘22 and the pent-up demand that needs to be caught up. So all of that helps build momentum.

Signs of recovery

• American Airlines Group, Inc. (AAL): Small business demand, which was roughly 17% of our system revenue has been improving steadily as vaccination rates have increased and as markets reopen. An increasing number of our largest corporate accounts are coming back to the office and indicating that they’ll be traveling in the third quarter and confirming in-person board meetings, conferences and events for this year.

• Alaska Air Group, Inc. (ALK): As momentum with vaccine has picked up and travel restrictions have eased, there has been a strong return of leisure demand. We have seen passenger employments move from being down 65% in January to down 35% in April. Today, sustained future bookings are roughly 80% of pre-COVID levels.

• American Express Company (AXP): We are seeing a faster pace of spending recovery in the U.S. versus other regions. The total volumes from our U.S. consumer and SME customers are recovering faster than other customer types and were up 1% versus 2019 levels in the month of March, even with the continued drag of T&E spend not yet fully recovering.

• Archer-Daniels-Midland Company (ADM): We continue to see strong demand. I think that as some restaurants and some places are reopening, we started to see food services coming back a little bit. To be honest, we saw that across the company, not only in soybean oil. I would say March orders were significantly better than January and February. And I think we see that continuing in April.

• Colgate-Palmolive Company (CL): If you start with Asia, the categories are coming back, although still not back to where we were pre-COVID due to some of the store closures that we continue to see across Asia, particularly China and Southeast Asia coming back in terms of a category development standpoint.

• Starbucks Corporation (SBUX): We are seeing recovery though in those metropolitan areas. I think that’s going to take a little longer for businesses to bring employees back to work and sort of reshift those traffic patterns. But I think very, very positive progress on dayparts and continued progress in terms of both in dense metropolitan located stores.

• General Electric Company (GE): Healthcare equipment and services continue to be a strength. We saw increased demand as global procedure volumes recovered to pre-pandemic levels.

• Las Vegas Sands Corp. (LVS): March, we started to experience a pretty meaningful rebound in visitations versus January and February. And as you’ve seen from the figures released by MGTO, that has continued on a similar momentum in April with visitations reaching post-pandemic highs in the mid of April.

• AvalonBay Communities, Inc. (AVB): We expect a more rapid recovery in move-in rents over the next couple of quarters as people are called back to the office, urban universities announce on-campus learning and the quality of the environment improves when retail, restaurant, entertainment and other services reopen for in-person experiences. We’re starting to see some of that demand already, which is reflected in our asking rents.

• American Electric Power Company, Inc. (AEP): As we look towards the future, we are seeing our communities starting to rebound from the shadow of the pandemic. Job growth and electric consumption show continued improvement, supporting our view that the economy within our service territory will continue to rebound.

New consumer trends

• Amazon.com, Inc. (AMZN): Grocery has been a great revelation during the post-pandemic period here. I think people really value the ability to get home delivery. And we’ve seen that as numbers go up considerably pre and post-pandemic.

• Cboe Global Markets Inc (CBOE): The biggest observation we see is the change in the size of the contracts that are coming into the SPX complex. Those really large trades that we saw before the pandemic have been replaced with smaller order size… and then in the super short-dated and low premium contracts, huge uptick in what we’ll put in a category of traditional retail.

• Conagra Brands, Inc. (CAG): The adoption of remote work provides a structural increase in the demand for frozen food compared to pre-COVID levels. Importantly, some aspects of the remote workforce adoption are expected to be permanent.

• Clorox Company (CLX): The key takeaway is versus pre-pandemic levels, cleaning behaviors are still significantly elevated. We’re seeing that in their buying habits.

• Automatic Data Processing, Inc. (ADP): Despite the pandemic hopefully fading, there will be increased levels of government activity around employment and incentives…that’s a good environment for ADP and for our downmarket business because most small businesses don’t have the time or the inclination to really focus on these things and to take care of these things.

• Alphabet Inc. (GOOGL): Consumers are spending more time online. They’re buying more online. They were willing to try new brands, and they’re eager to support local businesses, SMBs.

• Carrier Global Corp. (CARR): People are much more in tune with having safe indoor environment. So to make it visible to them and then how you ultimately use AI and ML to anticipate and correct any deficiencies with indoor environments, is a trend that will withstand the test of time.

• American Express Company (AXP): You saw more cash-back cards being acquired. There was a 35% jump in premium cards that we saw in this particular quarter, and acquisition of Platinum and Gold cards was well above pre-pandemic levels.

• LyondellBasell Industries NV (LYB): With government stimulus supporting the U.S. economy and limited options for travel, leisure and public dining, consumers remodeled homes and purchased appliances, home entertainment and vehicles that drove recovery for the industrial economy.

• Weyerhaeuser Company (WY): Feedback from our customers indicates a shifting trend from small do-it-yourself projects to larger professional remodels. We expect repair and remodel demand to remain strong throughout 2021 as project backlogs continue to expand.

• U.S. Bancorp (USB): If you end up looking at some of the other categories, the significant amount of stimulus on the consumer side has allowed consumers to be paying down debt.

Theme 2: Input cost and price inflation

“Inflation was the word on everyone’s lips during 1Q reporting season”, according to Goldman, confirming what we already reported. Input costs have risen increasingly sharply in recent months for manufacturing and services firms (Exhibit 4, Exhibit 5). Rising costs are particularly noticeable upstream in the supply chain, with PPI raw materials costs up 9% in March, compared with just a 1% rise in the finished goods component (Exhibit 6). Not helping, Goldman’s commodities strategists are bullish on the outlook for 2021, forecasting a further 13.5% rally across the commodities complex in the next 6 months. In particular, they expect the biggest jump in oil demand ever will lead Brent crude oil to appreciate over 15% in the coming 2 quarters. At $69/bbl, Brent trades 656% above its April 2020 trough. Despite this, S&P 500 margins expanded in nearly every sector in 1Q 2021 driven by Consumer Discretionary, Communication Services, and Materials.

Companies discussed their varying approaches to profit margin protection in the face of rising costs and, as Goldman notes, “many firms are relying on price increases to combat inflation.” Meanwhile, other firms indicated they will prioritize cost-management strategies to preserve margins. Companies’ expectations about the timing of inflationary risk varies. Our economists expect the most noticeable cost increases will be caused by near-term disruptions to supply chains and should not persist into 2022 (Exhibit 7). A subset of companies indicated that inflation has either proven transitory, manageable, or an ancillary concern.

Corporate responses to inflation

Pricing

• Coca-Cola Company (KO): As an overarching principle around the world, we typically look to take pricing in line with inflation. And I would expect that, that principle will continue to be adhered to as we move into the back half of ‘21 and even into ‘22.

• Carrier Global Corp. (CARR): In the current guide [incremental headwinds from inflation] went up by another $70 million or so, so $70 million. And our current guide assumes that we’re offsetting that with about $70 million of incremental pricing.

• Pentair plc (PNR): While inflation remains high, we have instituted a number of selling price increases across the portfolio that we expect to help mitigate inflation in the second half of the year.

• Mohawk Industries, Inc. (MHK): We have raised prices across all product categories and have announced additional increases where material inflation has continued to expand.

• LKQ Corporation (LKQ): We expect to see continued inflation related to freight, labor and cost of goods sold. That said, as witnessed throughout 2020 and in the first quarter of this year, we have a number of levers that we can pull to help offset these inflationary risks, including price.

• Textron Inc. (TXT): There’s no question that inflation is out there. We’re seeing it in a number of cases, but I think what our strategy has been is to try to keep pricing ahead of inflation, and we’ve been successful doing that.

• Allegion PLC (ALLE): This guide incorporates pricing actions to offset direct material inflation as well as reflecting our supply chain capability to mitigate industry challenges on supply and electronic component shortages.

• Caterpillar Inc. (CAT): As we do buy steel forward, we have about a 3- to 6-month full contract normally on steel purchases. So we do expect material cost to move from positive to negative as we move forward. However, we are pricing accordingly. And with geo mix as well becoming favorable, we hope to be able to offset the two. Obviously, there is continued risk, obviously on material inflation as we look out.

• Colgate-Palmolive Company (CL): Consistently across all emerging markets, we’ve been able to take strong pricing given the strength of our businesses, and that really started back in 2020. And you’ve seen a competitive environment is obviously having to offset a lot of the raw material inflation that we’ve seen taking pricing, which has allowed the emerging markets to take a little bit more value in their categories.

• O’Reilly Automotive, Inc. (ORLY): We saw a little bit higher [inflation] than expected here in the first quarter, although we expected that to ease in the back half of the year. To the extent it doesn’t, we are going to remain rational in our pricing, and we would expect the industry to also remain rational.

• Fastenal Company (FAST): We are experiencing significant material cost inflation, particularly for steel, fuel and transportation costs. This did not have a material impact on the first quarter of 2021. Price contributed 60 to 90 basis points to growth and the impact of price cost on margin was immaterial. However, we are instituting broad and material pricing actions in the second quarter of 2021 that will likely lift pricing contribution over the course of the year. Customers never like higher prices, of course, but they are busy in seeing increases throughout the supply chain. …The environment today is receptive.

• IDEX Corporation (IEX): We’ve maintained our historical price cost spread. Where we have seen some businesses, the inflation has ramped up here more quickly. They’ve gone out proactively with incremental prices or surcharges to our customers. So our commercial teams are actively working with their supply chain teams to make sure that we have the ability to continue that spread as we progress through the year.

• Church & Dwight Co., Inc. (CHD): Our outlook for the quarter on gross margin was down 50 basis points. The entire variance was related to the spike in commodities and tight transportation market. The good news is, for the back half of the year, we expect margin expansion behind the pricing and promotional actions we laid out in the release as well as we start to lap some of the higher inflation and tariffs that we experienced in the back half of 2020.

• Avery Dennison Corporation (AVY): To begin the year, supply chains have remained tight, and input costs have been increasing. As a result, raw material and freight inflation were above our initial expectations, and we have continued to see costs rise as we enter the second quarter. We now expect mid- to high single-digit inflation for the year, with variations by region and product category. As we typically do, we will address this through a combination of both product reengineering and pricing.

• Kraft Heinz Company (KHC): In emerging markets, in general, acceptance of pricing is better, right, because inflations are more normal on the local economies. In developed markets, what I can tell you is we’ve already successfully closed negotiations with all our key retail partners, and especially in key countries like France, Germany. And we managed to achieve the pricing and premiumization behind the brands that we needed.

Cost-cutting

• Conagra Brands, Inc. (CAG): We will also leverage our capabilities beyond just pricing to offset margin pressure, including overall mix management, cost savings measures such as our ongoing supply chain realized productivity programs, and the optimization of our fixed cost leverage.

• Clorox company (CLX): In recent months, we’ve also seen a significant resin price inflation. To manage those rising costs, we have announced a pricing action on this brand effective in July. As we’ve mentioned, we’ll manage inflationary pressures holistically using all the tools in our toolbox.

• Cintas Corporation (CTAS): We’ve got great efficiency in our business. And so many times, we’re able to offset [inflation] with current initiatives that we have within the business. But if we can’t, we certainly can look to pricing changes into the future. …We have not liked that idea in the last year. We did not think it’s the right thing to do, — and it’s been 2 years really since we’ve done it. But if we see inflation peak, that’s an opportunity that we will certainly have to consider.

• Kraft Heinz Company (KHC): As a matter of practice, we do not forecast pricing. …We see a lot of levers for us to manage inflation through revenue management, through savings.

• Fortune Brands Home & Security, Inc. (FBHS): We’re going to offset [inflation] with a combination of cost actions, and where necessary, price over the balance of the year. I think you should expect that across all 4 quarters.

• International Paper Company (IP): We expect margins to improve, even as we manage through the impact of higher input costs for recovered fiber, energy and transportation. In addition, we expect productivity and other cost initiatives to offset general inflation.

• Freeport-McMoRan, Inc. (FCX): As time goes by and copper prices rise, we’ll have to deal with inflation. But we have such strong margins, we have a great supply group team that works with our suppliers to offset costs wherever we can. We’re working really aggressively to do that.

• Halliburton Company (HAL): As certain components of our input costs rise, we are working with our suppliers and our customers to adjust our gross pricing in line with cost inflation we are seeing in the market. While improving U.S. economic activity and winter weather disruptions led to increases in sand, chemicals, cement additives and raw materials costs, Halliburton’s purchasing power and technology have allowed us to procure and deliver these materials in a cost-efficient manner such that both Halliburton and our customers are more competitive.

• W.W. Grainger, Inc. (GWW): We’re seeing some inflation in the market. We took some pricing actions earlier in the year. We continue to work with our supply base on any increases. We have a pretty rigorous cost process that we work with our suppliers on based on facts. And from an outlook perspective, if we continue to see any more inflation that we feel — and deem is needed to be passed on to customers, we feel confident in our ability to do that. And that is why from an outlook perspective, we are targeting price cost neutrality for the year.

• Newell Brands Inc (NWL): We expect the combination of productivity, pricing, overhead savings and incremental volume leverage as a result of better top line growth to more than cover the increase in inflationary pressure.

• Molson Coors Beverage Company (TAP): The increase in cost per hectoliter was driven primarily by inflation, including higher transportation and packaging material costs, volume deleverage and mix impact from premiumization partially offset by cost savings.

Varied guidance on timing

• Allegion plc (ALLE): We anticipate that these challenges will persist for the balance of the year, and we will continue to monitor and adapt to changing market conditions.
• Whirlpool Corporation (WHR): The global material cost inflation, in particular, in steel and resins will negatively impact our business by about $1 billion. We expect cost increases to peak in the third quarter.
• Sherwin-Williams Company (SHW): We expect to see significant raw material inflation in our second quarter, which will be the highest of the year. The pace at which capacity comes back online and supply becomes more robust remains uncertain.
• Lamb Weston Holdings, Inc. (LW): Finally, while the pandemic-related effects on our supply chain were the primary drivers of our cost increases, we also realized higher costs due to input cost inflation in the low single digits. We expect that rate will begin to tick up in the coming quarters as edible oil and transportation costs continue to increase.
• Masco Corporation (MAS): We expect raw material inflation in this segment to peak in the third quarter.
• Conagra Brands, Inc. (CAG): We expect the rate of inflation to continue to accelerate over the next few quarters.
• Kimberly-Clark Corporation (KMB): In terms of input cost inflation that is ramping in the first quarter and the second quarter, we expect that it will peak and then moderate and, in some cases, come down a bit in the second half.
• Teleflex Incorporated (TFX): But overall, I would say that total direct-indirect labor is sub-5% in terms of inflation. The other area that we are seeing heightened inflation rates is in our freight. In particular, our sea freight is up significantly, where it’s up 20% this year. And I think if you follow what’s going on, there just isn’t capacity. So collectively, as we look at all of the different inflation components in manufacturing, we’re up around 3% for the year, is our current expectation.

Inflation as a minor issue

• Sherwin-Williams Company (SHW): This whole area of raw material inflation is a transitory issue for us. It’s not new for us. We’ve demonstrated an ability to manage through this many times in the past, and we’ll get through this as well. …We have been highly proactive in managing the supply chain disruptions to minimize the impact [of inflation] on our customers.

• Chipotle Mexican Grill, Inc. (CMG): I think everyone’s kind of waiting to see what happens in terms of demand and if there are any disruptions with supply chain. We’re not seeing any that we’re worried about right now.

• Genuine Parts Company (GPC): There was minimal impact of price inflation in our first quarter sales, and this is true for gross margin as well.

• Snap-on Incorporated (SNA): Now who’s to say how the inflation would play out across the country in a lot of different commodities. But I think — I would tell you this, I think we would be going to be one of the last to be affected by it.

• Ford Motor Company (F): It feels like we’re seeing inflation in variety parts of our industry kind of in ways we haven’t seen for many years. On the other hand, it feels like it’s all due to a lot of one-timers as the economy comes out of lockdown. So I think it’s a bit too early to declare the run rate of where it’s going to be. It’s just too hard to tell from my standpoint.

• LKQ Corporation (LKQ): As it relates to inflationary risk, we remain cautious near term. But as we progress through the year, we are expecting a continuing pandemic recovery, which would benefit each of our operating segments.

• Parker-Hannifin Corporation (PH): I was waiting for somebody to ask a question around material cost and pricing. I’m looking at a commodity chart right now, which has got trends year-over-year, quarter-over-quarter, going back to the last big inflation period. It’s a sea of red. But the thing I would say about our team is we saw this coming early on as we did this. And as you know, we’ve got really 2 great internal processes inside the company. It’s how we track our PPI, which is our input cost, and how we track our selling price index to make sure that we always maintain this margin-neutral kind of role.

• Fortune Brands Home & Security, Inc. (FBHS): We’ll show a measure of margin improvement. It will be tightest during Q2, in part just because freight really surged again kind of at the very end of last year and in Q1. And we’re going to be doing things to expedite components and other products for our customers. We’ll be absorbing some unique levels of freight inflation in the second quarter. But we do expect to make margin progress in the second quarter and make margin progress for the full year.

Theme 3: Buyback bonanza

As a result of stellar earnings results and the strong economic outlook, many companies have increased or reinstated share repurchase programs. In Goldman’s updated uses of cash forecasts, the bank projects a 35% increase in share buybacks for 2021 and a 5% increase for 2022. According to the GS buyback desk, and as we showed previously, buyback authorizations have surged YTD…

… which is evident in management discussions. Commentary suggests that the main drivers of this increase are excess cash on balance sheets and positive sentiment on the back of strong financial performance.

Excess cash on balance sheets

• JPMorgan Chase & Co. (JPM): We’re buying back stock because our cup runneth over. We’re earning a tremendous sum of money, and we really have no option right now.

• Netflix, Inc. (NFLX): We don’t intend to build up a bunch of excess cash on the balance sheet… and we think that share buybacks are a way to return value to shareholders in a way that is responsible steward of capital, but also maintain a level of balance sheet flexibility for us to continue to be strategic.

• CSX Corporation (CSX): $3 billion of cash is not something that we’re looking long term to keep on the balance sheet, and we’ll move away from that.

• Pool Corporation (POOL): We believe share repurchases remain our best use for excess cash, balanced with our desire to keep a relatively conservative balance sheet, so expect more of this to come in the year ahead.

• Biogen Inc. (BIIB): We still do have a meaningful amount of cash with $3.4 billion on hand at the end of the quarter. And we remain very committed to share repurchases.

Improving outlook is a confidence boost

• Apple Inc. (AAPL): Given the confidence we have in our business today and into the future, our Board has authorized an additional $90 billion for share repurchases.

• Travelers Companies, Inc. (TRV): In recognition of our strong financial position, confidence in our business… our Board also authorized an additional $5 billion of share repurchases.

• Hartford Financial Services Group, Inc. (HIG): With the expectations for strong financial performance and capital generation driven in part by the improving macroeconomic environment, we have increased our share repurchase authorization by $1 billion.

• Otis Worldwide Corporation (OTIS): Our strong performance allows us to create more value for our shareholders… we’re now in a position to increase our planned share repurchases for the year to $0.5 billion after completing $300 million in the first quarter.

• Comerica Incorporated (CMA): With more confidence in the path of the economic recovery, we plan to resume share repurchases in the second quarter.

• Celanese Corporation (CE): We want to make sure that the shareholders benefit from this increased earnings outlook we’re seeing from this year, and so we reflected that as buybacks.

• Omnicom Group Inc (OMC): Given the continuing improvements in our operations, strong liquidity and credit profile, our Board has approved the resumption of our share repurchases beginning in the second quarter.

Plans to opportunistically repurchase shares

• Lockheed Martin Corporqtion (LMT): We saw in the first quarter where our stock was trading, we thought it was grossly undervalued, and we went into this accelerated share buyback plan and deemed to be very successful. And we will opportunistically, in the next 3 quarters, buy back stock where it makes sense.

• Conagra Brands, Inc. (CAG): Given our confidence in the longer-term value creation opportunities of our business, we opportunistically repurchased approximately $300 million of shares in the quarter. Our decision to repurchase shares demonstrates our willingness to capitalize on occasions when we believe we’re undervalued.

• Chipotle Mexican Grill, Inc. (CMG): We also restarted our buyback program in late February when our stock price softened… and we expect to continue to opportunistically use excess free cash flow to repurchase our stock.

• Cabot Oil & Gas Corporation (COG): This excess free cash flow is anticipated to be earmarked for additional capital returns, including opportunistic share repurchases, especially given the recent equity underperformance and/or incremental supplemental dividends as we have provided in the last few years.

• Tyler Technologies, Inc. (TYL): And as it relates to share repurchases, again, we’re opportunistic.

Theme 4: Post-pandemic labor trends

In addition to inflation, companies are contending with a range of labor-related challenges as they emerge from the pandemic, largely as a result of the Biden’s decision to reward workers for doing nothing. As Goldman notes, “firms are having difficulty finding labor, particularly in transportation and hospitality. In response, some companies plan to ramp up hiring or bring recalled employees back to work sooner than expected.” Goldman economists expect over 6 million cumulative job gains by the end of the year as low-wage workers are re-employed in hard-hit industries (Exhibit 10). Few companies commented on the potential implications of a minimum wage hike, and sentiment varied on this topic.

Post-recession labor market challenges

• J.B. Hunt Transport Services, Inc. (JBHT): Final comment from me on the availability of professional drivers for our asset-based businesses and our carrier providers is under unusual pressure currently. While we have faced driver hiring issues at varying degrees of difficulty during previous tightening cycles, we see the current pressure being meaningfully more pronounced and likely prolonged.

• Fifth Third Bancorp (FITB): And then on the other side of the equation, labor shortages, in particular, as it relates to the skilled trades. And the by-product of that is we’re not seeing the inventory building that you might otherwise expect to see yet.

• Allegion plc (ALLE): However, completion rates have been lagging starts due to labor and supply shortages, which should improve as we move further past the pandemic.

• Huntington Bancshares Incorporated (HBAN): In the last 4, 5 weeks, I’ve had about 50 CEOs in small meeting virtual conversations. Universally, they talk about inability to get adequate labor, very high turnover and clear wage inflation at the low end. A consequence of that will be more investment by many of them into automation all the way through, including packaging.

• Union Pacific Corporation (UNP): There are some challenges on the trade side, certainly some labor issues at the terminals. And then you look at the trucking capacity to even go long haul, there’s tightness there. And so what we’re focused on here is what we can control.

• TE Connectivity Ltd. (TEL): Labor cost is not a major issue on the inflation side, but labor availability in certain places that are still being more impacted by COVID continues to drive some inefficiencies, and there’s no doubt whether that’s in Mexico or in Central Europe.

• Regions Financial Corporation (RF): Probably the biggest challenge they face is workforce and hiring people to work. Heard a number of stories, sort of anecdotally over the last 2-plus weeks, about restaurant service being slow in so many places because restaurant owners are having difficulty bringing their workforce back.

• Pool Corporation (POOL): I think the labor market has been tight for quite some time. So there are certain positions that are in short supply for virtually every business drivers, for instance. In the construction trade, though, I mean labor has been tight for quite some time. There’s certainly been some inflation on that side, but I haven’t heard of crazy increases. So I don’t know that even the inflation that they’re seeing on labor would act as a throttle on demand at this point.

• Pentair plc (PNR): Labor continues to be a challenge, and it’s something that we need to address. It’s — in many places of the business, it’s a challenge, to be totally honest. But we — our guidance should not be impacted by that, but it’s certainly on our radar screen.

• Lennar Corporation (LEN): To manage for these disruptions in the supply chain of materials as well as to be the builder of choice in a continually constrained labor market, we employ the following strategies and processes.

• Dover Corporation (DOV): Operationally, it is getting kind of difficult out there in terms of sourcing raw materials, labor availability, a variety of different things out there.

• Darden Restaurants, Inc. (DRI): I think our greatest challenge right now is staffing. It’s staffing, trying to attract people to come to work. That’s why we’re strengthening our employment proposition, which is already strong. We’ve got to staff it. We’ve got to train people. We’ll train people now and in a very high-volume environment.

• Citizens Financial Group, Inc. (CFG): Labor, bringing people back to work, which, frankly, when we talk to many of our corporate customers has been a gating factor. It’s hard to actually fill out their needs, and we’re trying to be helpful on that with some initiatives around workforce development.

• Genuine Parts Company (GPC): I know the challenges some of our suppliers are up against with raw materials, with the global supply chain, labor issues. When that comes back up to more normal levels, that’s just going to be increased upside for our business.

No major labor challenges

• PPG Industries, Inc. (PPG): Labor for PPG is not a huge piece of our business. What I would put into your model is traditional 2% to 3% kind of number.

• Regions Financial Corporation (RF): We’ve been able to keep expenses generally flat while providing increased compensation every year for the teams that remain with us. Investing significantly in our business, hiring additional bankers and other associates who are working actively in our technology function and risk management and other parts of our business.

• CSX Corporation (CSX): Walking down the expense line items, labor and fringe was up 2%, driven by higher incentive compensation as well as inflation and other costs.

• Old Dominion Freight Line, Inc. (ODFL): On the labor inflation standpoint, we gave our wage increase in September of last year. We would not expect — or we’re seeing the effects of that, and that was part of that overall core inflation of 4% to 4.5%. So that was probably, all in, 3% to 3.5%.

• Omnicom Group Inc (OMC): In the midst of the pandemic, our key strategic objectives served us well. These strategies are centered around hiring and retaining the best talent, driving organic growth by evolving our service offerings, improving operational efficiencies and investing in areas of growth.

• PepsiCo, Inc. (PEP): In terms of labor pressures, right now, in the U.S., it’s actually okay. We haven’t seen a lot of labor inflation, and we’re able to get employees reasonably well right now. So how that’s going to play going forward remains to be seen as the economy picks up. But at least, as for right now, we’re doing fine on that front.

• Chipotle Mexican Grill, Inc. (CMG): In the last year, what we’ve seen with labor inflation has — it’s been more modest than it had been in the last 5 years. In the last 5 years, we’ve seen inflation in kind of the mid-single-digit range. And with some of the dislocations going on with COVID, actually, the labor inflation dropped to the low single digits. But we expect — I think most people expect that’s going to tick back up.

Hiring, training, or bringing back employees

• American Airlines Group, Inc. (AAL): What we’re doing rather than hiring new flight attendants is bringing flight attendants back from leave earlier than their leave would have extended. So having them come back off of leaves than they would have otherwise. Once we get through that, we’ll need to hire, but we’re not there yet.

• Southwest Airlines Co. (LUV): Roughly half of our recalled employees will return in second quarter and some training will be required for those employees that we recalled as we prepare for them to go back to work.

• Adobe Inc. (ADBE): We talked about in Q3 that we’re going to start to ramp hiring, and so we have done that.

• United Airlines Holdings, Inc. (UAL): As we announced earlier this month, we recently restarted the process of hiring pilots and have already announced plans to bring on over 300.As demand continues to rebound, we expect to train more than 5,000 pilots overthe next decade.

• Accenture Plc Class A (ACN): We increased hiring approximately 50% both year-over-year and since last quarter, and we’ve onboarded over 100,000 people virtually over the last 12 months with new innovative approaches.

Minimum wage

• First Republic Bank (FRC): We’re pleased to have recently increased our company-wide minimum wage to $30 per hour, up from $25, which we instituted in 2018.

• Domino’s Pizza, Inc. (DPZ): The final thing I’d say about labor that will present an ongoing challenge, not just for Domino’s, but for others across the industry, is the — just the changes in minimum wage around the country. As that moves differentially from one market to another, certainly, it puts pressures in some places and not in others.

• Chipotle Mexican Grill, Inc. (CMG): Now the way to think about this is our minimum wage — or our average wage right now is $12 for our crew, it’s $13 for all of our hourly employees. We’re not that far off of, like, for example, a $15 number. But let’s say, for example, that there’s going to be an across-the-board 10% increase in our wages, that would have an impact on our margins of, call it, 150 to 200 basis points. And that would — to offset that with menu pricing, that would take a 2% to 3% price increase. So all of that is very, very manageable. And we feel like if there is going to be significant increased inflation because of market-driven or because of federal minimum wage, we think everybody in the restaurant industry is going to have to pass those costs along to the customer, and we think we’re in a much, much better position to do that than other companies out there.

• Bank of America Corp (BAC): We reported $57 billion in expense for the year 2015, 6 years ago, even though all the investments we have made in technology and the build-out of branches in new markets, new sales resources and just having more customers, more activities, the inflation in health care and real estate and other costs, moving our teammates’ starting wages from $15 to $20 an hour during that time period.

Emerging Theme: Cryptocurrency

This quarter, Goldman identified an emergent theme in company commentary which will garner much more attention in coming quarters: Cryptocurrency. From Bitcoin to Dogecoin, a number of cryptocurrencies have appreciated sharply in recent months. Bitcoin has outperformed S&P 500 since the start of 2020 (+695% vs. +29%) and investors, managements, and governments all took notice. Goldman recently created a screen of 19 stocks withblockchain and cryptocurrency exposure. In aggregate, the indexed performance ofthese companies track the price of Bitcoin well.

A handful of companies discussed cryptocurrency in earnings calls this quarter. Following strong public interest, some companies are already offering services that provide exposure to cryptocurrency or accepting it as payment, either through internal platforms or through third party cryptocurrency ventures. Most of these firms are concentrated in the Financials sector, providing investors with the ability to trade and hold digital currencies. Some companies are still analyzing potential opportunities in this growing space but anticipate future involvement.

• Mastercard Incorporated (MA): We have several new crypto partnerships approved for launch this quarter, including a partnership with Gemini, a leading crypto platform here in the U.S., to launch a first of its kind cryptocurrency rewards credit card that allows consumers to receive crypto rewards on everyday purchases. … And over in Spain, Crypton, a crypto exchange launching a Mastercard Crypto Card. On central bank digital currencies, we continue to engage with central banks around the world, and our virtual testing platform is helping them design features, similar issuance and evaluate interoperability with existing payment systems. In partnership with the Central Bank of Bahamas and Island Pay, we launched the world’s first CBDC-linked payment card, enabling people to pay for goods and services using fiat currency anywhere Mastercard is accepted.

• Morgan Stanley (MS): We’ve allowed, within our Wealth Management platform, qualified investors to get access through 2 specific passive funds that give access to the crypto currency… and as we continue to see more or stronger interest, we’ll continue to try to work with the regulators and others to provide services that we think are appropriate.

• Bank of New York Mellon Corporation (BK): We recently announced the establishment of a new digital assets unit, which is building a multi-asset platform that will allow us to custody traditional as well as digital assets, including cryptocurrencies in a new and creative way. The growing client demand for digital assets and improved regulatory clarity presents an opportunity for us to extend our current service offerings over time through this emerging field.

• Cboe Global Markets Inc (CBOE): We know market participants are looking for exposure in crypto. We’ve talked in the past, we’re trying to build an ecosystem. So we start with access to market data, that’s the CoinRoutes agreement. From there, you know we have a VanEck bitcoin trust ETF in front of the SEC.

• CME Group Inc. (CME): That continued with… Ether futures, micro Bitcoin futures… the main point is that we are constantly finding ways to assist our clients with the world’s most diverse product offering across all the critical global asset classes.

• Northern Trust Corporation (NTRS): We’ve partnered with Standard Chartered in a venture called Zodia, which will provide that crypto custody.

• Visa Inc. (V): We’re going to now be able to support digital currencies as an additional settlement currency on our network.

• Nasdaq, Inc. (NDAQ): We are partners with several crypto markets on their surveillance and their technology.

• S&P Global, Inc. (SPGI): We haven’t launched any products yet, we’re close to.

• First Republic Bank (FRC): We do not lend to crypto companies clients, however, they can invest in crypto-related funds through their brokerage accounts.

• MSCI Inc. (MSCI): Then there is the cryptocurrency… we’re definitely looking into that… we haven’t come up yet with the right products or the right indices. We’re analyzing that importantly.

• State Street Corporation (STT): We’ve got a number of initiatives in place to figure out how we can establish a leadership position there.

• Blackrock, Inc. (BLK): We are investigating how we could create different products if there’s client demand related to crypto.

• Conagra Brands, Inc. (CAG): You should be on the lookout for additional crypto-themed activations in the future

NASA’s Ingenuity Mars helicopter is preparing to explore a new region of the Red Planet today on its fifth scheduled flight (3:26 p.m. EDT, or 12:26 p.m. PDT), with flight data coming in around 7:31 p.m. EDT (4:31 p.m. PDT). 

Off to new places! The #MarsHelicopter is slated for its fifth flight on May 7, with data coming down at 4:31pm PT (7:31pm ET). The rotorcraft will take off at Wright Brothers Field and will land elsewhere this time, which is another first for Ingenuity. https://t.co/JxLNz7UADw pic.twitter.com/zOGo1j7srt

— NASA JPL (@NASAJPL) May 6, 2021

If all goes well, the 4-pound helicopter will climb 16 feet, then retrace flight four, heading south 423 feet. But instead of heading back to home base, the aircraft will soar to an altitude, a new height record, of 33 feet, where it will take color (as well as black-and-white) photos of the Red Planet. This flight is expected to last about 110 seconds and will be a one-way trip. 

“But instead of turning around and heading back, we’ll actually climb to a new height record of 33 feet (10 meters), where we can take some color (as well as black-and-white) images of the area,” Josh Ravich, Ingenuity mechanical engineering lead at NASA’s Jet Propulsion Laboratory in Southern California, wrote in a blog post Thursday. 

“After a total flight time of about 110 seconds, Ingenuity will land, completing its first one-way trip,” Ravich added. “When it touches down at its new location, we will embark on a new demonstration phase — one where we exhibit what this new technology can do to assist other missions down the road.”

Ingenuity landed with NASA’s Perseverance rover on Feb. 18 and deployed two months later from the belly of the land-based robot. The helicopter has already completed four flights in three weeks and plans more daring flights as an aerial exploration scout. 

More developments will come this evening when NASA Jet Propulsion Laboratory will announce how the flight went on its Twitter account. 

From the gas pump to the grocery aisle, Americans have been suffering from “sticker shock” for the first time in years. While the Fed continues to insist that inflationary pressures will be “transitory”, sell-side banks like Bank of America are raising the prospect of economically debilitating “stagflation”. But even though President Biden on Friday refused to acknowledge the increasingly obvious role that expanded unemployment benefits are playing in keeping Americans out of the labor market, labor shortages are having a very real impact on firms that produce packaged food products and other consumer goods.

According to WSJ, labor shortages, supply constraints, high freight costs and exploding commodity prices that are conspiring to make it difficult for vendors to fill customer orders on time. As a result, some of America’s biggest retailers and distributors are resorting to fining their suppliers for late or incomplete orders, creating even more inflationary pressures.

Wal-Mart’s and Sysco’s insistence on fining suppliers that are already struggling isn’t helping to alleviate the situation. But the companies need to ensure they can meet their customers’ demands in a hyper-competitive market, and see few other options.

“The supply-chain challenges are still there,” said Henk Hartong, chief executive officer of Brynwood Partners, which owns Hometown Food Co., the maker of Pillsbury cake mixes and Buitoni pasta. He said wheat costs have soared and shipments for ingredients including vitamin C for Sunny D are running behind: “It’s not just one thing, it’s everything.”

Walmart told suppliers last fall that it would require orders to be 98% full and on time. Suppliers that didn’t comply would be charged 3% of the cost of missing items, according to a September letter from the retail giant viewed by The Wall Street Journal.

“We must improve product availability,” Walmart’s letter said. Spokeswoman Tara House said Walmart wants to save customers time and money by having the products they want online and in stores.

Food-distributor Sysco in February alerted suppliers to fees it would begin assessing in April for partial orders, billing discrepancies and missing data such as nutritional information, according to correspondence viewed by the Journal. Fees went into effect in April. Sysco also told suppliers it expects them to put its orders ahead of those from other customers.

“We believe all our supplier partners subject to these policies have the capabilities to meet them,” Sysco spokeswoman Shannon Mutschler said, adding that this will help restaurant customers as they reopen.

As they weigh their response to these added costs, makers of popular packaged-food products told WSJ that, right now, they’re choosing to eat these additional costs. But pretty soon, they might need to pass them on to customers in the form of higher wholesale prices, which will inevitably lead to more price hikes borne by consumers.

Wise Pies is paying as much as $4,000 to ship a load of its pizzas, President Season Elliott said, compared with around $1,800 in August. Cheese prices have also almost doubled. Wise Pies is using more contractors to make and deliver some of its pizzas, which hurt profit but helped meet demand from distributors and retailers. The company hasn’t raised prices.

“We all want the same thing: to avoid out-of-stocks,” Ms. Elliott said.

Thang Nguyen-Le, CEO of ramen-noodle brand Simply Food, said he is facing fines for delays and worries retailers could switch to competitors if he can’t deliver. He is paying for refrigerated shipping containers and air shipments, though his products don’t require either.

“We’ve got to keep up shelf space even if it’s at a loss,” he said.

A dairy distributor pointed out that high commodity prices are creating shortages that beget even more shortages as they ripple out through the supply chain.

Utah-based distributor Nicholas and Co. was struggling to source milk and cream, so Nicole Mouskondis, the company’s co-CEO, tried to arrange to buy milk from a dairy farmer with excess supplies. But a shortage of resin after winter storms closed chemical plants in the Southern U.S. left milk processors unable to procure the plastic jugs needed to bottle it.

“There’s a domino effect,” said Ms. Mouskondis, whose company supplies restaurants including Subway and Panda Express.

Fines being imposed by retailers are forcing suppliers to find ways to adapt. Some have started ordering even more raw materials, but this in turn can exacerbate shortages. Or for some products, like blue cheese, that require months to make, producers are coming back to them saying that there’s nothing they can do to increase supplies in the near term.

Suzanne Rajczi, CEO of New York-based distributor Ginsberg’s Foods, said she is over-ordering many goods to improve her chances of having products her customers request. She is struggling to source blue cheese, for example, because cheese makers last year reduced inventories of varieties like Gorgonzola and Roquefort, which take months to age. “I can’t make blue cheese any quicker,” Ms. Rajczi said.

Earlier, a top official from the Chamber of Commerce said that it’s time for the US to end its expanded unemployment benefits, warning that “we need a comprehensive approach to dealing with our workforce issues and the very real threat unfilled positions poses to our economic recovery from the pandemic.”

With so many Americans sitting out of the labor force as they wait for their benefits to run out, confident that jobs will still be there for them when that time comes…

…how can President Biden still insist that it’s not having the effect of artificially reducing the labor pool?

Now that Germany has broken with the US over the question of whether to back a waiver for COVID vaccine IP that’s been proposed at the WTO, pharmaceutical giants like Pfizer that were planning on COVID-19 vaccines becoming a permanent revenue stream are seeing their opportunities for profit threatened. The proposal would require the support of other major developed nations to pass, and it’s unclear whether it will or not. But if it does, pharmaceutical companies who see their IP compromised would have limited options for recourse.

Matthew Howell, an IP attorney at Alston & Bird in Atlanta told Bloomberg that companies like Pfizer and Moderna might sue the US to recover some of their losses. Since manufacturing the vaccine is done in the US, the companies could take certain avenues for compensation in American courts. But that would likely only cover a fraction of their potential losses.

Other countries would offer few avenues for these companies to profit on their vaccine IP (even though most vaccine-makers promised not to profit off the jabs during the length of the pandemic, though judging by Pfizer’s most recent earnings, that period has already passed).

“Under the law they can get just and reasonable compensation for the use of their patented inventions” by another company in the US, as long as the government “provides authorization and consent for that use,” Howell said. However, when trying to make up for losses from an international manufacturer producing the vaccine overseas, the lawsuit avenue isn’t available.

“A lot of conduct outside the country wouldn’t be covered,” Howell said.

Lobbyists are already stepping up their claims that scrapping IP protections wouldn’t actually help developing countries vaccinate their populations more quicky.

“This change in longstanding American policy will not save lives,” said Stephen Ubl, the president and chief executive officer of PhRMA, the biopharma industry’s lobbying group. “This decision does nothing to address the real challenges to getting more shots in arms, including last-mile distribution and limited availability of raw materials.”

The US’s decision is still new, and much about the White House’s approach isn’t yet known. While Biden’s Trade Representative Katherine Tai has confirmed that the administration will support the waiver, it’s not clear whether the US might seek to limit the waiver to just the rights to produce the vaccine. Some WTO members, like India – a co-sponsor of the proposal along with South Africa – also want access to manufacturing and distribution, which they say would help them speed up their own rollouts.

“The pharmaceutical industry has legitimate concerns about India’s proposal, because the manufacturing and distribution innovations aren’t just limited to producing the Covid vaccine,” said Polk Wagner, a professor of intellectual property at the University of Pennsylvania.

“I don’t know how they would legally stop this moving forward, because it just becomes a decision by the World Trade Organization,” said Ellen ‘t Hoen, director of Medicines Law & Policy, a legal research group based in the Netherlands.

Circling back to the prospect of litigation, another source quoted by Bloomberg pointed out that patent litigation can take years to resolve through American, or international, courts.

But as pharmaceutical companies move to protect their IP, the question of optics will likely be more important.

Then there are the optics. She pointed to a lawsuit filed more than two decades ago in South Africa challenging cheaper AIDS drugs, an effort that the companies dropped under pressure.

“They can always take all kinds of legal action all over the planet,” she said. “But they’ve already acknowledged that what they did in 1998 in South Africa was a colossal mistake.”

Public perception aside, complex patent litigation can take years to wind its way through the courts with firms willing to spend millions on protecting their properties.

“The outcome of any litigation is years away, and if there were any it would be as between the drug companies and it’s unlikely to be around pandemic supplies,” said Stephen Reese, head of Clifford Chance’s intellectual property practice in London. “More likely it’ll be protecting the platform technologies that these vaccines are developed on.”

Looking ahead, representatives of the Swiss government said that they’re taking time to consider the US’s decision to support the waiver as the country mulls whether to follow suit.

“The US has changed its position within the WTO and we have a new situation. I am aware that the government is looking at the new situation and that means, we have to wait and see what the Swiss government will decide based on the new situation. The decision will be taken in Berne and we have to wait for that,” Switzerland’s Ambassador to India Ralf Heckner told PTI in an interview on Friday.

Like the US and Germany, Switzerland is home to many biotech companies who rely on IP protections as “the lifeblood of their industry,” as one supporter put it. At least two Swiss companies are involved in producing COVID vaccines, a government representative said. The industry will be waiting with baited breath to hear more from Switzerland as the government now must make a critical choice.

Senator Joe Manchin, a moderate Democrat from West Virginia, is on course for a major battle with progressive Democrats over whether the party should push to expand Medicare eligibility as part of the Biden administration’s so-called ‘human infrastructure’ agenda (since very little of it goes actually goes towards ‘infrastructure’ as traditionally defined).

On Thursday, Sen. Elizabeth Warren (D-MA) said she wants to lower the age of eligibility from 65 to 55, a priority shared by Sen. Bernie Sanders (I-VT) as part of the $1.8 trillion American Families Plan, according to The Hill.

“I would like to see us start out by lowering the age of Medicare down to 55,” Warren said during a Washington Post Live event, adding that “lowering the age of Medicare, which by the way is on table right now and something we’re all talking about.”

“I would also like to see us right now attack the cost of prescription drugs, added Warren.

Sanders, meanwhile, says he’s been in direct discussion with President Biden about similar priorities, telling The Hill last week: “What I think needs to be done is that Medicare needs to be expanded to include dental, hearing aids and eyeglasses,” adding that it’s “very important” to lower the age of eligibility for Medicare.

Alas for Warren, Sanders and the rest of the progressive Democrats, Manchin – a centrist Democrat – blocks their path given the party’s ultra-slim majority in the Senate.

“No, I’m not for it, period,” Manchin told the Washington Post last week.

More from The Hill:

The internal Democratic debate over expanded Medicare will only intensify as Senate Majority Leader Charles Schumer’s (D-N.Y.) plan for moving Biden’s infrastructure agenda comes into focus. 

Pressure to include significant health care reform proposals in an infrastructure package will ramp up if there’s any doubt about moving a third legislative package through the budget reconciliation process later in the year to advance any priorities left out of Biden’s American Jobs Plan and American Families Plan, which together carry a price tag of $4.1 trillion.

“Whether it will end up in the final package, we will see. But Bernie Sanders and Elizabeth Warren and lots of others are pushing to include both of these things,” said Roger Hickey, co-founder of the progressive Campaign for America’s Future, referring to proposals for expanding Medicare and lowering the cost of prescription drugs.

“We think it’s important and we’re pushing as hard as we can, and it will just strengthen the whole package,” he said, noting Medicare expansion is “popular in West Virginia with people who voted for [Manchin].”

A key consideration is how many times Schumer will use budget reconciliation this year to bypass a Republican filibuster. If he plans to use three reconciliation vehicles to pass separate parts of Biden’s infrastructure agenda with simple majority votes, there might be an opportunity for Medicare expansion and other health care priorities to pass separately from Biden’s two-part infrastructure agenda.

Meanwhile, Democrats are gaining little traction with the White House in terms of clarity on where they sit over Medicare eligibility. During the 2020 campaign, Biden said that he supported lowering the age to 60, but hasn’t mentioned it since taking office. During his joint address to Congress last week, the president declared that “health care should be a right, not a privilege, in America,” and suggested that hundreds of billions of dollars could be saved by giving Medicare the power to negotiate lower prices on prescription drugs.

Another proposal, the “Medicare-X Choice Act” introduced by Sens. Tim Kaine (D-VA) and Michael Bennett (D-CO) in February, would create a public health insurance option for uninsured individuals, small businesses and families which would reimburse doctors at Medicare rates using the same facilities covered by the program.

In a fiery Friday sermon on the occasion of “Quds Day” — an Iranian Islamic holiday that commemorates the expected “liberation of Jerusalem” and which falls every year on the last Friday of Ramadan — Iran’s supreme leader Ayatollah Ali Khamenei called Israel a “not a country, but a terrorist base”.

The Islamic Republic’s top cleric and leader also asserted that Israel’s “downfall” is “imminent” and that it remains every Iranian and Muslim’s duty to fight it. “Israel is not a country, but a terrorist base against the nation of Palestine and other Muslim nations,” Khamenei said in the live televised remarks.

“Fighting this despotic regime… is everyone’s duty,” he added. For over the past week the rhetoric coming from Iran’s top leaders has grown more noticeably threatening and bellicose towards Tel Aviv and Washington (or rather even more than usual), including the release of at least two state media clips depicting the imagined destruction of the Capitol Building in Washington and the Dimona nuclear reactor in southern Israel. 

The confrontational uptick in anti-US and anti-Israeli messaging is likely intended as a warning to stave off more sabotage attacks, such as the April 11 Natanz nuclear sabotage incident widely blamed on Israeli intelligence, at a sensitive moment that nuclear talks are said to be progressing in Vienna. It’s been no secret that Tel Aviv is seeking to do everything possible to derail the talks, in order to stall and prevent US reentry into the 2015 JCPOA nuclear deal.

Concerning the Vienna talks, in which Iran and the United States are engaged indirectly via shuttle diplomacy, a fourth round began Friday as there’s been widespread reports that the Biden administration is readying a major rollback in sanctions. While Iranian leaders vowed to not let things drag on (as they have concrete and so far unwavering demands of a complete rollback in sanctions as a condition to talk with the US directly), Russia has weighed in to urge that the talks continue for “as long as necessary”:

The talks began in early April and Russian delegate Mikhail Ulyanov tweeted following Friday’s meeting that “the participants agreed on the need to intensify the process.”

“The delegations seem to be ready to stay in Vienna as long as necessary to achieve the goal,” he wrote.

But the clock is ticking in terms of the building pressure of potential Iran-Israel conflict. For example, Israel’s military has struck targets inside Syria for two consecutive days and is unlikely to sit idly by while Tehran issues its latest threats.

Burning of an Israeli flag in Tehran’s Palestine Square for #QudsDay today: #Iran pic.twitter.com/ykevLmpLCg

— Jason Brodsky (@JasonMBrodsky) May 7, 2021

Israel has also been sending high-level delegations to Washington in order to persuade the Biden White House to impose as strict a requirements as possible on the Iranians – again likely in the hopes that a deal cannot be reached, given the Israelis see the “weak” JCPOA deal as a “sure” path to an Iranian bomb.

Authored by Jonathan Turley,

We have been discussing the termination of public employees and others for their postings on social media or public displays.  The latest case is out of New Jersey where former Hopewell Township police officer Sara Erwin was fired recent over a June 2020 posting on Facebook in which she referred to Black Lives Matter (BLM) protesters as “terrorists.” 

There remains an uncertain line of what political or social views are tolerated and what are barred on social media.  Indeed, Sgt. Mandy Gray was suspended and demoted for simply liking the June 2020 post.

Gray was the first female officer hired in Hopewell Township and became the first female sergeant in 2019, according to NJ.com.

Erwin insists that she posted the statement after she and her colleagues were faced with violent protests and family members who were traumatized by images on television of officers being attacked. Erwin reportedly wrote i:

“Last night as I left for work I had my two kids crying for me not to go to work. I don’t think I’ve ever felt the way I did last night. And then I watched people I know and others I care about going into harms way. I love my police family like my own. So when you share posts and things on Facebook I’d really appreciate if you’d THINK before doing so. I’ve seen so many black lives matter [sic] hashtags in these posts. Just to let you know — they are terrorists. They hate me. They hate my uniform. They don’t care if I die.”

Hopewell Township Mayor Julie Blake and the town’s council made the decision to fire her in an unanimous vote to accept the recommendations of a hearing officer.

As will come as little surprise to many on this blog, my default is in favor of free speech.

My concern is the lack of a consistent rule. For example, would the town have fired Erwin if she said the same thing about another group like the Proud Boys or the NRA?

I can understand the objection to the posting. BLM is a group committed to fighting police abuse and regularly engages in protests. For an officer to express such bias against BLM can exacerbate tensions in such protests. However, officers also have a right to be able to express themselves. The balance of those interests should, at a minimum, have favored a reprimand rather than a termination for Erwin. If not, the town should establish a clear standard as to what public employees are allowed to express on political and social issues. This includes whether certain groups can be criticized but not others.

Twitter recently censored criticism of a BLM founder and we have been discussing the targeting of professors who voice dissenting opinions about the Black Lives Matter movement, police shootings, or aspects of the protests around the country from the University of Chicago to Cornell to Harvard to other schools. Students have also been sanctioned for criticism BLM and anti-police views at various colleges. Even a high school principal was fired for stating that “all lives matter.”  Each of these controversies raise concerns over the countervailing statements against police or Republicans or other groups.

The action taken by Hopewell Township raises more questions than answers on where this line is drawn in terms of free speech.

In his latest weekly Flow Show note, BofA’s CIO Michael Hartnett looked at the historical record and correctly predicted that today’s job print would be a “highly risk-on event” as the past 12 reports, 10 have seen the S&P jump on average 1% on day of release.

Perhaps more importantly, Hartnett predicts that going forward, wages will be more important than payrolls in the coming months and  that Average Hourly Earnings monthly prints of more than 0.3% MoM will likely provoke fresh upgrades to 2022 inflation forecast.

Which would be troubling: according to rates markets, using the 5-year forward breakeven curve, we find that 5-year inflation is expected to peak at 2.7% in Jan’22 (up from 2.0% just 6 months ago), and this number is likely to only go up.

So how should one trade this surge in inflation over the next 8 months? According to Hartnett, there are two ways:

• The Secular, or 1-2 year view: higher inflation = higher yields = real > financial assets, commodities > bonds, RoW stocks > US, small>large cap, value>growth.
• Tactical, or 1-2 quarter view: peak Positioning, Policy, Profits (“3Ps”) + rising Rates, Regulation, Redistribution (“3Rs”) = low/negative stock/credit returns next 3-6 months…optimal barbell = long inflation & long quality.

Focusing on the “peak liquidity” aspect first, Hartnett points to the recent crash in new economy stocks relative to old economy (e.g. AARK vs BRK) which he says “is reminiscent of the 2000/01 post-bubble price action.”

On the other end of the tech spectrum, FAAMG stock upside has been impeded by positioning & valuation (market cap of FAAMG = 3rd largest country by GDP)

The good news is that the Fed is determined to stoke Wall Street exuberance & Main St inequality – as shown in the chart below Fed has been tech’s best friend for past 10 years…

… and ignore future systemic risk consequences;

However, the bad news is global tapering has begun as big 4 central banks’ QE is set to fall from $8.5tn in ‘20 to $3.4tn in ‘21 to just $0.4tn in ’22, and in Q2/Q3 “the stronger the macro the quicker & bigger the taper.”

Hartnett then looks at “peak profits” noting that China bonds are outperforming stocks YTD, while in in Q2 30-year Treasurys are outperforming Nasdaq (after a disastrous Q1 for bonds). At the same time, the cyclical oil outperformance vs gold largest in over 60 years.

But the clearest indication of the coming topping in profits comes from BofA’s Global EPS model which says peak global EPS growth ≈ 36% in April…

… and the SOX semiconductor index, which tracks ISM closely, and has failed to hit a new high, i.e. >3300…

… will then shift to markets via peak OMX, DAX, Nikkei, KOSPI in coming months as global reopening = peak EPS revisions.

One final point from Hartnett on debt and yields: the IMF chart showing public debt as share of GDP since 1880 and bond yields in developed economies is a timely reminder to the CIO that big increases in yields driven not by debt per se (see Japan) but rather the success of debt in facilitating strong economic growth & inflation.

In other words, if the trillions in debt-funded stimulus injected by Biden do in fact translate into a non-transitory boost to GDP growth, then all bets are off. Said otherwise, it will be extremely ironic if the Biden stimulus plan works… and the US economy implodes as yields soar.