Barron’s Weekend Summary: Many of this nation’s biggest challenges—pandemic response, slowing growth, crumbling infrastructure, climate change, and wealth inequality—cannot be managed through monetary policies
* Cover Story:
Many of the United States' biggest challenges—pandemic response, slowing growth, crumbling infrastructure, climate change, and wealth inequality—cannot be managed through monetary policy. Fiscal policy can target systemic issues that influence the economy and enable sustainable growth. The next few weeks should offer more clarity on just how big government might get. Most analysts expect the bipartisan infrastructure package to pass, which will help repair the nation’s water facilities, upgrade transportation systems, and improve broadband and make it more accessible.
* Tech Trader:
-No question, Facebook continues to receive intense criticism from both sides of the political spectrum, along with growing scrutiny from regulators here and abroad. The Washington Post reported last week that a “slew of senators” said Haugen’s testimony could mark a turning point in the push to regulate Big Tech. There is growing buzz that Facebook is having a Big Tobacco moment, that Facebook is proving to be toxic, like cigarettes. But for all the hype, the it’s likely that no substantial changes will take place.
* The Trader:
The reality of rising costs, from labor and raw materials, has begun worrying investors. Just 25% of investors expect corporate profit margins to expand over the next six to 12 months, says an RBC Capital Markets survey, down from 39% in June. Some 36% now expect margins to contract, up from 19%. The respondents are also becoming more pessimistic about the market—28% now describe themselves as bearish, up from 14%. The worst may not be over yet, writes Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets. “The results of our own survey support our belief that the unwind in institutional investor sentiment that’s been underway hasn’t fully played out yet, which may contribute to further volatility in the broader U.S. equity market in the near term,” she explains.
-It isn’t all bad news for tech investors: DataTrek founder Nicholas Colas notes that analysts have slashed their forecasts for Alphabet (GOOGL) and Amazon.com (AMZN), while keeping their forecasts for Apple (AAPL), Microsoft (MSFT), and Facebook (FB) unchanged. That gives tech stocks a low bar to jump over when it becomes time to report earnings in a couple of weeks. “The funny thing about all these estimates is that in every single case, they are lower than what these companies reported” in the second quarter, Colas explains. “That’s likely too pessimistic.”
* Features:
-The dual-electric motor, all-wheel drive Ford F-150 Lightining truck Barron’s rode in went from zero to 60 miles per hour in barely 4.5 seconds. It’s feels odd for a truck that weighs 6,500 pounds to be quicker than many sports sedans, but it is. The acceleration can induce butterflies if passengers aren’t ready for the torque. It feels like riding in a sports car.
* Europe:
-Ireland will raise its tax rate for large multinationals from the long-held 12.5% to 15%, joining a global effort to overhaul corporate taxes and potentially dealing a blow to the Big Tech companies that use Ireland as a base of international operations. The tax increase will apply to companies with revenue in excess of €750 million ($868 million), impacting 56 Irish multinationals employing 100,000 people and 1,500 foreign companies based in Ireland with some 400,000 workers, the Irish government said. The new rules should take effect in early 2023.
-Sweden’s SKF (SKEF.B Sweden) makes parts for Tesla, Nio, and other electric-vehicle manufacturers. But SKF shares have been dragged down with others in the sector over fears delays in getting some raw materials will have an impact on manufacturing and demand for products.
Shares of SKF - which designs and manufactures bearings, seals, and lubrication systems for the mining, heavy industry, construction, agriculture, and transportation industries—have tumbled 16.1%, to 205 Swedish kronor (about $23), in the past six months.
* Emerging Markets:
-Enormous flows of trade, investment and critical technology also link the People’s Republic of China and Taiwan. But these could either put a brake on Beijing’s “reunification” ambitions, or provide an alternative weapon to fulfill them. For some years after both countries entered the World Trade Organization in the early 2000s, Taiwan’s technology and capital seemed matched in heaven with China’s low labor costs and production discipline. Manufacturers like Foxconn Technology (ticker: 2354. Taiwan) created millions of jobs on the Mainland to supply Apple and other global electronics powers. Taiwan Semiconductor Manufacturing (TSM) provided the micro-brains for burgeoning Chinese telecoms providers like Huawei and Xiaomi.
* Commodities:
-It’s tempting to think of Russia and Gazprom as the “Saudi Arabia of gas,” and assume they could ease the market if they wanted to. That would be tempting but not quite right. “Once oil is out of the ground, it can be shipped anywhere in the world for about a dollar a barrel,” says Ronald Smith, senior oil and gas analyst at Russia-based BCS Global Markets.
* Streetwise:
This week, Jack Hough observes that If stock investors seem antsy, perhaps it’s because a long stretch of easy earnings growth for U.S. companies is coming to an end. Meanwhile, there’s an historical footnote: Four American technology giants could soon pass Saudi Aramco to become the world’s most prosperous companies, beginning with one in a matter of weeks.