THIS WEEK: Delta Worries; First Amendment; Sportive Anachronisms.
The market sold off hard on Monday due to renewed worries about the pandemic, in particular the fast-spreading Delta variant. Are these concerns well-founded? Yes in developing countries where vaccination rates remain low. No in the United States and other developed countries where vaccines have been widely available.
The question then is: to what extent are US companies impacted by the challenging situation in developing countries? In most cases, the exposure is nonexistent to low. More specifically, if we look at the sectors that were hardest hit on Monday, the reopening plays, we can see that the market over-reacted: cruise operators have little to no exposure and may alter itineraries as they deem necessary; airlines are still dealing with low traffic on international routes but that was true before the recent worries; energy companies are more impacted by OPEC+ decisions and by traffic inside the United States; retail is mainly a domestic sector.
Generally speaking, some individual companies may experience supply disruptions if they source product in countries that are in lockdown. But the overall impact on the stock market will be moderate, a realization that explains Tuesday’s reversal.
Our most likely scenario for the rest of 2021 is a resumption of the theme that prevailed earlier this year: outperformance by 2020 laggards and stagnation or underperformance by 2020 leaders. Because of the large weight of the tech sector, this may result in ho-hum gains for the broad indices. The main concern on the horizon remains an inflation surprise. This is incongrous with this month’s crash in the 10-year yield but we expect the yield to rise back towards 2%.
Teasing the belief that all censorship is bad, Twitter this week suspended “conservative” firebrand Marjorie Taylor Greene for a mere twelve hours for allegedly posting coronavirus misinformation. As expected, howls of first amendment violations rose from the right.
Our own view is that tweets are digital billboards and that Twitter has every right to enforce a code of conduct when it leases out its billboard space. The problem of course is that Twitter does not literally lease out its space since it is nominally free to users. We argued elsewhere that Twitter should charge certain types of users, those for whom Twitter is a vehicle for self-promotion or for the advertising of a product or service. These users include larger corporations, politicians and celebrities with large followings, some media etc. See our attempt to identify potential paying users in the graphic below. The horizontal axis refers to a user’s tweeting frequency; the vertical to how essential Twitter has become to that user. As pointed out to us after the first publication, some popular bloggers would also fall in the green box.
Another first amendment controversy arose when a Roselle Park NJ court ordered a homeowner to remove a “F… Biden” and other anti-Biden signs which she had artfully installed in her front yard. The court deemed the signs to be obscenity and a violation of a local ordinance. This seems a sensible decision. Most people would not want for example retail signage on Main Street that includes offensive words or graphics. First Amendment casuists took another angle and quoted this from a precedent case: “we cannot indulge the facile assumption that one can forbid particular words without also running a substantial risk of suppressing ideas in the process.” As with all argument based on precedent case law, this statement may have been a propos in the precedent case, but is wide off the mark here. There is no risk of suppressing an idea in this process.
Sports are a source of excitement and inspiration for hundreds of millions of people around the world. But not all is necessarily perfect in the world of spectator sports. Many of the rules and habits adopted long ago seem outdated in our brave present. We wrote previously on how modified soccer rules could attract a larger following in the United States. Not everyone was a fan of these proposals, to put it mildly. And we would not distribute them in person to a crowd of English football fans.
There are milder idiosyncrasies in other sports. For example, why are tennis stars still referred to through their nationalities? Their countries had no role in their success: there were no budgetary outlays from the Serbian or Swiss ministry of sports to help train Novak Djokovic or Roger Federer. In some cases, the connection to official nationality is nebulous as for example with Naomi Osaka who plays under the Japanese banner. Osaka was born in Japan but she moved to the United States at the age of three.
Official reference to nationality seems therefore unwarranted. Of course, there is no harm from tennis commentators mentioning casually that Djokovic was born in Serbia. But there is no reason for the national flag to be next to a competitor’s name.
Can we say the same about Olympic athletes? Rankings of medal counts by country are good for national pride in the larger and richer countries. But it is already known that China with over a billion people is going to win more medals in Tokyo than a small country with a similar GDP per capita. In the winter Olympics, rich countries with snowy mountains (Norway, Austria) will win more medals than desert countries. Rather than identify competitors by nationality, it would be more interesting to the data geeks among us if there was disclosure of private vs. public funding for each athlete. Then we may decide how much credit should fall to the mother country, allowing for the fact that private funding (via sponsor deals) is more available in some countries than others. Otherwise, athletes could just appear under their own names, enjoying their own individual success.
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