Why are markets ignoring political chaos and merrily pushing upward? Plus P&G fights raiders, and Birkenstock goes ballistic.
Back in the go-go days of the first dot-com bubble, a pair of economic analysts wrote what became that era’s most discredited book: Dow 36,000. With the markets already at historic heights (the Dow reached a peak of 11,700 or so in early 2000, before crashing back to earth later that year), the duo predicted a three-fold rise to 36,000 in just a few short years.
The authors doubled down on their bet by publicly wagering that the index would be closer to 36,000 than 10,000 by the year 2010. The Dow would have had to cross 23,000 for them to have won. Thanks to the great recession of 2009, they lost that bet, bigly.
But just yesterday, the Dow flirted with 22,000, setting another record high amongst a string of record highs and prompting a slew of chin stroking pieces on the state of our financial markets. The New York Times set the tone, pointing out that “the president’s promise to slash regulations and cut taxes — even if unfulfilled — has stoked long-dormant animal spirits among investors. That corporate earnings are excelling and the global economy is growing faster than many expected has only added to the bullish vibe.”
Markets are supposed to hate uncertainty and unpredictability, and those are surely hallmarks of the Trump administration’s early days. Yet the stock market, at least, has shrugged off fear of volatility and charged ahead: This week the Dow Jones index leaped past 21,000.
Is the “Trump bounce” just about anticipation of tax cuts and deregulation? Is it a result of large pools of investment cash desperate for a better return than bonds and banks can offer? Or is the market sending us a signal that the global economy, after a decade of slow growth and low inflation, about to return to the more familiar pattern of the ’80s, ’90s, and aughts, with faster growth and higher inflation punctuated by occasional recessions?
If there is one lesson of this long news-week of business reaction to the Trump immigration ban, it’s that protest can actually work — something Americans once knew but have seemed to forget. Consider:
Yesterday, Uber CEO Travis Kalanick announced that he was quitting the president’s business advisory board in the face of an employee rebellion and a public #deleteuber boycott movement that has cost it a reported 200,000 users (The New York Times). Also, of course, tons of Uber drivers are immigrants. Trump couldn’t have found a more perfect way to infuriate every stakeholder in the Uber ecosystem.
Nordstrom announced that it was dropping Ivanka Trump’s merchandise because of poor sales (Bloomberg). Of course, we can’t know for sure what part the #grabyourwallet boycott that has targetted Trump-related businesses played to drive down those numbers. Maybe Ivanka’s clothing and shoes were just overpriced or underappealing?
Trump cancelled a planned trip to Harley-Davidson’s factory in Wisconsin after an employee tipped off local protest organizers (The Washington Post). The White House said the trip had always been a “maybe.” But the Post found that preparations on the ground for the visit were far advanced.
You can find other examples. The pattern here is important: The most effective collective actions are those that combine outside pressure with internal efforts and then get supercharged by social networks and digital tools.
When I saw the S&P downgrade of ExxonMobil today, my first reaction was similar to Chris Anderson’s — it’s more proof that Big Fossil Fuel is on the decline. But then I recalled the lessons I learned from reading early galleys of Rana Foroohar’s timely and lucidly reported book, Makers & Takers, out next month.
Foroohar explains the destruction wrought by the financialization of our global economy. She pays particular attention to how the world’s largest and wealthiest companies are incented by Wall Street to raise cheap and risky debt to buy back their own shares and issue dividends to shareholders, even as they sit on massive, tax-sheltered hoards of cash. Exxon is not alone in this practice, in fact, one of the worst offenders is Apple — which Foroohar notes regularly borrows at low interest rates so as to buy back shares, pay dividends, and drive its share price up.