Geopolitical Developments: Americans Workers Are Driving Another Nail Through The Heart Of The American Left
The bizarre context of being in a declining GDP economy while workers are in short supply and refusing to resume their pre-pandemic jobs has left most global investors in utter confusion. Consequently the rallies lack conviction and the norm of a quick and dramatic bear market has given way to a long drawn out decline reminiscent of 40 years ago. The volatility risk premium is pointing to a range-bound market over the next few days, while my technical reading of key stocks in the S&P 500 is neutral. Yesterday's cross-asset action brought one positive factor for US stocks. Inflation expectations are stabilizing based on measures of Treasuries and TIPS. Expect the S&P 500 to be range-bound over the next few days before declining steeply as July comes to a close.
The Great Resignation is an economic turning point because it accelerates the trend toward automation of everything routine. Corporations are becoming increasingly indifferent to human talent because they’ve been shocked at seeing worker disengagement, which is arguably worse than militancy since there is less upside. Workers at the median and under it are too frustrated to revert back to the pre-pandemic work-life balance, consequently many have simply refused to come back or worse, have come back on a superficial and temporary basis. This shows up most flamboyantly in ghosting and more pervasively in declining predictability and standards. This in turn has caused firms to get ahead of this trend and even try profiting from it, by substituting automation for humans.
Hospitality Net notes “Without drilling into any specific statistics from 2021 (as this is the making of another article altogether), the broad trend from the past year shows that short-term rentals (Airbnb, Vrbo, Homestay, onefinestay, Sonder, Homes & Villas by Marriott and their ilk) grew in overall market share to comprise roughly a third of all stays for the United States. Besides the immediate demand for contactless travel due to COVID-19, key benefits include variety, flexible room configurations and a direct appeal to the modern tempo of travel.”
“In a deflationary world propelled forward by rapacious technology, the hotel with the fewest expenses wins because such businesses are able to charge less while sustaining profitability or, alternatively, only somewhat undersell the market while diverting lots of cash back into R&D and marketing. For this, the only way forward is replacing labor with cheaper SaaS costs. For what can and should be done in 2022, getting rid of transactional conversations means applying technologies to automate nearly everything, freeing up existing staff to perform other tasks (like having convivial chats with guests) or reducing their numbers wherever possible. Obviously, this applies more to the limited and select service side of things and not so much for upscale, resort, convention or luxury properties where ‘high touch’ service is a hallmark reinforcement of branding.”
I suspect leftwing politicians and many workers will write off this trend as something only large firms carry out. Reuters quotes a Microsoft executive as stating “U.S. companies are facing a "new era" in which fewer people are entering the workforce and pressure to pay higher salaries may become permanent.“ But if an esteemed and leading firm like MSFT feels this sea-change then small businesses must feel its effects more disturbingly. Automation will combine with high inflation to permanently erode living standards and that spells long-term trouble for America, and short-term trouble for Biden and House Democrats who are powerless to do anything for the workers they claim to cherish.
Yesterday I sold my position in the levered ETF SPXU. Consequently my current positions are a large cash position, Goldman Sachs (GS), 3M (MMM), Pfizer (PFE), Starbucks (SBUX), Titan Machinery (TITN) and the levered ETF UPRO.