Inequality in Society Drives Stock-Market Performance

There's a bit of Game-Stop in everything. The so-called meme stocks led by the videogame store put traditional investors to shame in early 2021, achieving 1,000%-plus gains in a few weeks and breaking free of the shackles of ordinary financial analysis. Instead of price/earnings ratios or even the potential addressable market for their products, what mattered for the share price was the ability to attract money from private buyers who got their information from Reddit.

There is a fundamental truth that stocks and other financial assets are just tokens whose price is determined by supply and demand. Most of the time it is demand that matters most, with large amounts of supply -- IPOs and secondary issues -- usually a symptom of excessively high prices.It turns out that one of the biggest drivers of that demand in the long run is how unequal society is.

The argument is pretty simple, as laid out by Jacques Cesar, a former managing partner at Oliver Wyman now leading a research project for the management consultancy: The rich save more and are more willing to take the extra risk of putting their savings into stocks. Mr. Cesar calculates that one household earning $1 million a year would put about 20 times as much into stocks as the total invested by 20 households each with an income of $50,000, based on averages for their income groups, even though their overall income is the same. Raise inequality, and the demand for stocks goes up, and so do prices. This helps explain why there has been an upward trend in valuations over the past 40 years.

Oliver Wyman has constructed a model of demand for stocks that tries to assess the effect of inequality and two other long-running shifts. These are the rise in willingness of pension-fund managers to hold stocks since the 1950s and the easier access to stocks for ordinary investors, both through lower fees and the popularity of funds.

This "demand-weighted income" measure is then compared with household equity wealth to come up with something akin to a slow-moving price/earnings ratio. It had a closer link to future returns than Yale Prof. Robert Shiller's cyclically adjusted price/earnings ratio (CAPE) since 1900.

A price-to-inequality ratio won't replace a simple price/earnings gauge. Inequality data are slow to be produced, so this can't be used as a real-time indicator. Still, the logic of inequality driving more demand for stocks is compelling -- even if it assumes that the supply side, corporate issuance, continues to be held back by management incentives and corporate governance.

The most traditional of traditional finance might push back against all this and say that there is a correct valuation for a stock. I disagree, and think there is no platonic ideal of the PE ratio out there to discover. There are times valuations and risk appetites are out of whack with reality -- as with the dot-com bubble, meme stocks or the simultaneous bubble in clean tech shares -- but the range of reasonableness is large, and the "right" level is a function of supply and demand.

In the short run, supply and demand depend on the balance of fear and greed. In the long run, the more inequality, the better for stocks and other financial assets. And since we can look for turning points in inequality, maybe we can use it to make forecasts.

"Once you understand that inequality and margins are the same thing, to think about the future you can think about either the traditional or nontraditional view," Mr. Cesar says. "And it's easier when you think about the long term to think about inequality and politics."

At the moment it is possible to imagine we are at a turning point in inequality. Major 40-year trends such as globalization and the shift away from U.S. manufacturing appear to be reversing, driven by national-security and supply-chain-reliability concerns, the need to invest in clean energy and the U.S. position as an energy powerhouse. None of that would be good for profit margins, while postpandemic demand for workers has led to much-higher pay rises for low-skilled workers than for the university graduates who were the winners of the past 25 years.

At the same time, there is little prospect of a Franklin Roosevelt-style shift to redistribution, worker power and industrial policy with a political system now balanced close to 50-50 at every election and fiercely partisan.

Mr. Cesar reckons a major shift toward more equality is highly unlikely in the 2024 election. I suspect even without major domestic political changes, the end of many of the big trends of the past 40 years could keep inflationary pressure and interest rates higher, stock valuations lower and the jobs market hotter, pulling toward a little less inequality. That ought to mean lower underlying demand for stocks -- unless another Game-Stop-style surprise brings in a new group of buyers." [1]

1. Banking & Finance -- Streetwise: Inequality in Society Drives Stock-Market Performance
Mackintosh, James. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 30 Nov 2022: B.12.

Mūsų pasaulis skyla į dvi dalis: priėmus sprendimą dėl kainų viršutinės ribos, Rusija kuria „šešėlinį laivyną“ iš senų tanklaivių

"Rusijos naftos kainų viršutinė riba gali labai apriboti Maskvos jūrų prekybą. Dėl to, kaip teigiama Financial Times ataskaitoje, šalis, regis, renka iš eksploatacijos išimtus tanklaivius.

 

Remiantis žiniasklaidos pranešimu, Rusija dideliu mastu supirkinėja senus tanklaivius, siekdama apeiti Vakarų sankcijas naftos prekyboje. Teigiama, kad šalis per metus nupirko apie 100 naudotų naftos tanklaivių, praneša Financial Times, remdamasis laivų brokerio „Braemar“ ir energetikos konsultacijų bendrovės „Rystad“ duomenimis.

 

Taip sukurto „šešėlinio laivyno“ tikslas – apeiti ES ir G7 nustatytą naftos kainų viršutinę ribą ir toliau gabenti žalią naftą į trečiąsias šalis, tokias, kaip Indija, Kinija ar Turkija.

 

Kremlius pabrėžė, kad nesutiks su G7 šalių, Europos Sąjungos ir Australijos Rusijos naftos nustatyta viršutine kainų riba. „Mes nesutiksime su šia viršutine kainų riba“, – šeštadienį sakė Kremliaus atstovas Dmitrijus Peskovas, pranešė Rusijos naujienų agentūros. Jis pridūrė, kad Maskva tokiai ribai ruošėsi iš anksto, tačiau daugiau detalių nepateikė.

 

Šį pirmadienį įsigalios ir ES naftos embargas, ir neseniai sutarta Rusijos naftos kainų viršutinė riba. Pastaroji bando priversti Rusiją parduoti savo žalią naftą pasaulinėje rinkoje už 60 dolerių už barelį viršutinę kainą. Siekdama viršutinės kainos, ES naudoja transportą ir būtinas paslaugas, pvz., draudimą. Briuselio pareigūnų teigimu, Europos laivybos kompanijos eksploatuoja daugiau nei, pusę visų pasaulio tanklaivių.

Principas toks: Rusijos naftos gabenimas į trečiąsias šalis yra draudžiamas – nebent krovinio kaina būtų ne didesnė, nei sutarta viršutinė 60 dolerių už barelį riba. Kitaip tariant, jei bus laikomasi kainos ribos, Vakarų laivybos kompanijos savo laivais gali ir toliau gabenti rusišką naftą į Indiją, Kiniją ar kitas šalis.

Vienas iš būdų išvengti Rusijos priklausomybės nuo Europos laivybos kompanijų – pirkti savo laivus. Anot „Financial Times“, laivų brokeris „Rystad“ apskaičiavo, kad Rusijai reikia daugiau nei 240 tanklaivių, kad galėtų išlaikyti dabartinį eksportą. „Financial Times“ cituojamas „Rystad“ analitikas skaičiuoja, kad jei įsigaliotų sankcijos dėl kainų viršutinės ribos, Rusijai gali trūkti 60–70 tanklaivių. Tai gali reikšti, kad eksportas jūra sumažės maždaug 200 000 barelių per dieną.

„Financial Times“ duomenimis, iki šiol įsigyti laivai yra nuo 12 iki 15 metų senumo ir artimiausiais metais vis tiek būtų buvę atiduoti į metalo laužą. Teigiama, kad tarp įsigytų laivų yra vadinamieji supertankeriai, kurių talpa siekia iki 2 mln. barelių. Kai kurie tikriausiai yra iš Irano ir Venesuelos. Abiem šalims yra taikomos Vakarų valstybių sankcijos." [1]

Kaip bus kompensuoti trūkstami tankeriai? Dėl naftos trūkumo pakils naftos kaina. Rusija gaus dar daugiau pinigų, negu gaudavo iki šiol. Mes mokėsime. Mūsų dyzeliukams žalio dyzelino tai reikia. Kodėl žalio? O, mes visi čia ūkininkai, tai Lietuvoje visas dyzelinas pažaliavo.

Our world splits into two: After decision of price cap Russia builds "shadow fleet" from old tankers

"The price cap on Russian oil could significantly restrict Moscow's sea trade. As a result, the country seems to be banking on decommissioned tankers, as a report by the Financial Times suggests.

 

According to a media report, Russia is buying up old tankers on a large scale in order to circumvent Western sanctions in the oil trade. The country is said to have bought around 100 used oil tankers during the year, reports the Financial Times, citing data from ship broker Braemar and energy consultancy Rystad.

 

The aim of the "shadow fleet" built up in this way is to circumvent the oil price cap decided by the EU and G7 and to continue to transport crude oil to third countries such as India, China or Turkey.

 

The Kremlin stressed that it would not accept the price cap imposed by the G7 countries, the European Union and Australia on Russian oil. "We will not accept this price cap," Kremlin spokesman Dmitry Peskov said on Saturday, according to Russian news agencies. He added that Moscow had prepared in advance for such a cap, but gave no further details.

 

This Monday, both the EU oil embargo and the recently agreed price cap on Russian oil will come into force. The latter is trying to force Russia to sell its crude oil on the world market at a price ceiling of $60 a barrel. For the price cap, the EU is leveraging the transport and the necessary services such as insurance. According to Brussels officials, European shipping companies operate more than half of all tankers in the world.

The principle is: Shipments of Russian oil to third countries are prohibited - unless the price of the cargo is not higher than the agreed upper limit of 60 dollars per barrel. In other words, if the price limit is adhered to, Western shipping companies can continue to bring Russian oil to India, China or other countries with their ships.

One way of avoiding Russia's dependence on European shipping companies is to buy its own ships. According to the Financial Times, ship broker Rystad estimates that Russia needs more than 240 tankers to sustain its current exports. A Rystad analyst quoted by the Financial Times estimates that if the price cap sanctions come into force, Russia could be missing 60 to 70 tankers. That could mean a drop in seaborne exports of about 200,000 barrels a day.

According to the Financial Times, the ships purchased so far are between 12 and 15 years old and would have been scrapped in the coming years anyway. Among the acquired ships are said to be so-called super tankers, which have a capacity of up to 2 million barrels. Some probably come from Iran and Venezuela. Both countries are themselves subject to sanctions by Western states."

 

How will the missing tankers be compensated? A shortage of oil will cause the price of oil to rise. Russia will receive even more money than it has received so far. We will pay. Our diesel cars need green diesel. Why green? Oh, we are all farmers here, so in Lithuania all diesel has turned green.