Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

Trade and China

The “China Inc.” Challenge to Global Trade Governance by Mark Wu (Harvard International Law Journal)

In this very long read, Wu advances the case that the unique economic and legal system of China makes it unsuitable for the country to participate in the WTO’s framework. Given the size and importance of the Chinese economy, that creates an existential threat for the WTO itself. [Link; 64 page PDF]

What’s Really Driving the Trade Deficit With China by Michael Pettis (Bloomberg)

We like to think of goods and services – consumption – as more important than capital. But for international balance of payments questions, it’s usually very much the other way around. [Link]

Monetary Plumbing

Taper Tranquility Not Tantrum Greets Fed Bond-Reduction Plan by Matthew Boesler (Bloomberg)

Unlike the market reaction to the winding down of new quantitative easing purchases, the market has digested the discussion of reinvestment halting with much more aplomb. [Link]

The Federal Funds Market since the Financial Crisis by Ben R. Craig (Federal Reserve Bank of Cleveland)

An excellent overview and reference piece for understanding the basic plumbing of the financial system, which also has a significant impact on the implementation of monetary policy. [Link]

Money Markets at a Crossroads: Policy Implementation at a Time of Structural Change by Simon Potter (Federal Reserve Bank of New York)

More along a similar vein, as NYFRB EVP (and money market maestro) Simon Potter gives an excellent overview of recent developments in funding markets and how they impact the execution of monetary policy. [Link]

Fed Approves Deposit Accounts on Behalf of Asset Managers by Katy Burne (WSJ)

A new tool designed to facilitate the flow and availability of collateral at central counterparties has gained approval from the Federal Reserve. [Link; paywall]

Cybersecurity

Your Tax Refund Is Selling Cheap On the Dark Web by Suzanne Woolley (Bloomberg)

For less than $100, it’s possible to purchase all the information necessary to defraud someone of their tax refund. [Link]

Spreadsheet Suffering

Morgan Stanley made an error analysing Snapchat, and it shines a light on some big flaws in Wall Street research by Matt Turner and Rachael Levy (Business Insider)

A 10 figure EBITDA error wasn’t enough to get MS to change its price target on SNAP. [Link]

Coal

Trump declares end to ‘war on coal,’ but utilities aren’t listening by Valerie Volcovici, Nichola Groom and Scott DiSavino (Reuters)

While less regulation may benefit some existing coal power plants and mines, it’s unlikely that the lighter touch from the Trump administration will lead to higher coal demand: structural factors including cheap natural gas, state laws, and legal challenges to the regulatory rollback are all key reasons utilities have chosen to build gas instead of coal plants, putting a cap on demand.[Link]

Battery Transport

Tesla Has Something Hotter Than Cars to Sell: Its Story by James B. Stewart (NYT)

Eschewing cash flow estimates, Tesla investors cannot resist the story the company tells; and it could continue selling that story for a long time. [Link; soft paywall]

Boeing and JetBlue just invested in a tiny electric-jet startup that could revolutionize air travel by Benjamin Zhang (Business Insider)

The US’s largest exporter and an upstart airline have shelled out to get in early on a startup that proposes to build planes that run on batteries. As a side note: the fact that both JetBlue and Boeing have venture capital arms is indicative of…something. [Link]

Asia

The Rise of the Asian Middle Class and Its Effects on Demand, Skills & Growth by Adam Carstens (Medium)

An exhaustive analysis of the source of the next generation or two of consumer spending, including implications for state and local governments in the US as well as businesses. [Link]

Consulting

The Management Myth by Matthew Stewart (The Atlantic)

An old but instructive article on the benefits – or more frequently, harms- brought to firms that outsource management to third parties. [Link]

Modern Frustrations

Apple Pay Promised to Make Plastic Obsolete. Then Came Wary Shoppers, Confused Clerks by Tripp Mickle (WSJ)

Apple Pay has been slow to catch on, with fewer than 20% of iPhone users trying the service and a longstanding confusion at the point of sale. [Link; paywall]

The Matchmaker Who Flirts on Dating Apps for You by Allie Jones (NY Mag)

Online dating apps makes it much easier to find a date, but of course like any other activity, some people would rather outsource their streamlined text based flirting to someone else. [Link]

Investors

Joel Greenblatt’s Talk at Google (Market Folly)

Notes (and a full video) of a talk Gotham Capital founder Greenblatt gave to employees at Google. [Link]

Diversification, Adaptation, and Stock Market Valuation by Jesse Livermore (Philosophical Economics)

What if high valuations are simply a reflection of better risk management due to falling costs of diversification? [Link]

Caution Signals Are Blinking for the Trump Bull Market by Robert J. Shiller (NYT)

The finance professor and originator of the CAPE ratio (who also called the housing market’s overvaluation in the mid-2000s) has some words of caution on the high levels of equity prices. [Link; soft paywall]

Big Trades

The Corporate Debt Bonanza Is Helping Employers Shore Up Pensions by Katherine Chiglinsky and Claire Boston (Bloomberg)

Companies are issuing debt to add capital to underfunded pension schemes, winning on two legs of the trade as the cost to insure underfunded pensions has risen. [Link]

Uncovering the Secret History of Wall Street’s Largest Oil Trade by Javier Blas (Bloomberg)

Inside the Hacienda hedge: Mexico’s annual forward sale or options hedge of production from its oil fields, designed to reduce volatility and lock-in prices it receives for each barrel. [Link]

Tipoff From JPMorgan Sends Traders Hunting for Obscure Ukraine Debt by Natasha Doff and Marton Eder (Blooomberg)

Following a report from JPM analysts, GDP warrants linked to economic growth in the Ukraine jumped by about 20%. [Link]

Lighter Faire

Seinfeld: 5 storylines you never saw by Dan Snierson (Entertainment Weekly)

We love a good “Serenity Now!”, and these five storylines that never were are likely to get you smiling. [Link; auto-playing video]

An Excavation Of One Of The World’s Greatest Art Collections by Oliver Roeder (FiveThiryEight)

A quantitative and qualitative deconstruction of the enormous art collection housed on the east side of Central Park. [Link]

Have a great Sunday!

Each month, Bespoke runs a survey of 1,500 US consumers balanced to census.  In the survey, we cover everything you can think of regarding the economy, personal finances, and consumer spending habits.  We’ve now been running the monthly survey for more than two years, so we have historical trend data that is extremely valuable, and it only gets more valuable as time passes.  All of this data gets packaged into our monthly Bespoke Consumer Pulse Report, which is included as part of our Pulse subscription package that is available for either $39/month or $365/year.  We highly recommend trying out the service, as it includes access to model portfolios and additional consumer reports as well.  If you’re not yet a Pulse member, click here to start a 30-day free trial now!

Our Consumer Pulse Report has seen some interesting movements relative to the March jobs report.  Ahead of the much weaker than expected report, we saw some moderation in full-time employment after seeing some choppiness for the last few months.  Similarly, part-time employment has pulled back slightly after seeing series highs in January.  As the reported jobless rate nears “full employment” levels, our surveys saw the unemployment rate step up to 8.3% from the relatively low sub-7% level post-election.  We would note that there does tend to be an upward bias to the “not employed, looking for work” series in Q1 of the year (March is a common time for the series to increase), but that the current move up does appear unusual even accounting for some seasonality.

To track additional consumer sentiment trends, click here to start a 30-day free trial to our Pulse service now!

Each month, Bespoke runs a survey of 1,500 US consumers balanced to census.  In the survey, we cover everything you can think of regarding the economy, personal finances, and consumer spending habits.  We’ve now been running the monthly survey for more than two years, so we have historical trend data that is extremely valuable, and it only gets more valuable as time passes.  All of this data gets packaged into our monthly Bespoke Consumer Pulse Report, which is included as part of our Pulse subscription package that is available for either $39/month or $365/year.  We highly recommend trying out the service, as it includes access to model portfolios and additional consumer reports as well.  If you’re not yet a Pulse member, click here to start a 30-day free trial now!

Our Consumer Pulse Report tracks a few different metrics across the home improvement space.  One of those involves whether consumers tackling a project are doing it themselves or hiring an outside contractor.  Recently, the percentage of do-it-yourselfers has declined to a series low while the percentage of consumers hiring someone has increased to a series high.  Although a full two-thirds of consumers are still doing home improvement projects themselves, it is worth noting that this shift is representative of the elevated levels of spending on discretionary items and confidence towards personal finances. The increase in hiring outside help suggests that consumers are likely spending on more complicated projects and/or have enough disposable income to not be bothered doing it themselves.

To track additional consumer sentiment trends, click here to start a 30-day free trial to our Pulse service now!

The rise of Amazon (and e-commerce more generally) has led to fears that retail employment is going by the wayside. That could be a problem: more than 10% of US nonfarm payrolls are found in retail jobs. But as the chart below shows, the share of Americans working in retail relative to total employment has been trending lower on a secular basis for almost 30 years after peaking at 12.2% in 1989. In other words, even if e-commerce is hurting retail jobs, it would be in the context of a labor market that was already shifting away from that kind of employment for two decades before online sales started to eat into demand for retailers.

As you’ll note in the chart above, retail employment has recently hit a rough patch. Below we show the two-month change in retail employment over the last ten years. As shown, the 60,600 job losses in retail for the last two months ending in March are the worst for the industry since the last recession. We would note, however, that Nonstore retailers (the category of monthly retail sales which capture the online-only e-commerce industry, including Amazon) are up to 35% of total “traditional” bricks and mortar retail sales. When comparing them, we stripped out categories less vulnerable to Amazon: food, eating/drinking places, auto and auto parts, and gasoline. The traditional retail industry has been dealing with an onslaught of competition for years without a significant impact on job creation. So is Amazon to blame for the last months of retail job destruction?

It’s not clear to us that traditional retail is responding only to losing market share. For instance, as shown in the chart below, the categories we consider “traditional” retail are still seeing YoY sales growth; true, that sales growth weakened dramatically through December of 2016, and that could be in part responsible for the weak jobs numbers the last couple of months. But it’s hard to imagine an industry seeing growing final demand (as indicated by the sales growth) just up and slashing workers. There’s no way to be sure, but at this point we think blaming Amazon for the most recent two retail industry jobs prints is a bit unfair. More likely: weather effects, random statistical noise, tighter labor markets, better opportunities in other industries, and a struggle to find high productivity workers led to the last two prints.