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    Federal Reserve Rolls Out Tough Trading Restrictions After Scandal

    The Federal Reserve on Friday adopted a new set of ethics rules meant to prevent questionable financial market trading activity by top officials, a sweeping response to a scandal that has rocked the central bank since late last year.Fed officials traded in individual stocks, real estate securities and stock funds in 2020, a year in which the central bank rolled out a range of pandemic response programs that placed officials’ day-to-day decisions at the core of what happened in financial markets. Three high-ranking policymakers resigned earlier than they had planned after news of the trading broke last year and early in 2022.Jerome H. Powell, the Fed chair, acknowledged in the wake of the revelations that he and his colleagues were not “happy” with what had happened and said they would revamp the central bank’s ethics rules to prevent a similar situation in the future.The new rules, which were previewed in October, aim to fulfill that promise. They prevent senior officials from purchasing individual stocks or funds tracing business sectors, the Fed said, and they ban investments in individual bonds, cryptocurrencies, commodities or foreign currencies, among other securities.Senior Fed officials must now announce that they are buying or selling a security 45 days in advance, and that notice will not be retractable. Investments must be held for at least one year under the new guidelines.The Fed’s 12 regional bank presidents will be required to publicly disclose securities transactions within 30 days, the way that its seven board members in Washington already do. They must post financial disclosures on their bank websites, something they now do only sporadically.The fresh set of rules will apply to a wide array of personnel with access to sensitive information, from reserve bank first vice presidents and research directors to high-ranking staff members and people designated by the chair.The Fed will also extend its financial trading blackout period — which typically applies in the run-up to Fed meetings — by one day after each meeting. That will align it with the period in which Fed officials are not allowed to give speeches.Most of the restrictions will take effect on May 1, although the new rules on the advance notice and preclearance of transactions will take effect on July 1.Financial disclosures released in late 2021 showed that Robert S. Kaplan, the former Federal Reserve Bank of Dallas president, had made big individual-stock trades, while Eric S. Rosengren, the Boston Fed president, had traded in real estate securities. Mr. Kaplan resigned in September, citing the scandal; Mr. Rosengren resigned simultaneously, citing health issues.Richard H. Clarida, then the Fed’s vice chair, sold and then rapidly repurchased a stock fund on the eve of a major Fed decision, corrected financial disclosures showed. Mr. Clarida also resigned slightly earlier than planned, though he did not cite a reason. More

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    Inflation and Deficits Don’t Dim the Appeal of U.S. Bonds

    Markets have been in upheaval. The Federal Reserve is taking steps to cool off the economy, as questions loom about the course of the recovery. And headlines are proclaiming that government bond yields are near two-year highs.But the striking thing about bonds isn’t that yields — which influence interest rates throughout the economy — have risen. It’s that they remain so low.In the past year, with consumer prices rising at a pace unseen since the early 1980s, a conventional presumption was that the demand for bonds would slump unless their yields were high enough to substantially offset inflation’s bite on investors’ portfolios.Bond purchases remained near record levels anyway, which pushed yields lower. The yield on the 10-year Treasury note — the key security in the $22 trillion market for U.S. government bonds — is about 1.8 percent. That’s roughly where it was on the eve of the pandemic, or when Donald J. Trump was elected president, or even a decade ago, when inflation was running at a mere 1.7 percent annual rate — compared with the 7 percent year-over-year increase in the Consumer Price Index recorded in December.If you had run that data past market experts last spring, “I think you would have been hard-pressed to find anybody on the Street who’d believe you,” said Scott Pavlak, a fixed-income portfolio manager at MetLife Investment Management.Because the 10-year Treasury yield is a benchmark for many other interest rates, the rates on mortgages and corporate debt have been near historical lows as well. And despite a binge of deficit spending by the U.S. government — which standard theories say should make a nation’s borrowing more expensive — continuing demand for government debt securities has meant that investors are, in inflation-adjusted terms, paying to hold Treasury bonds rather than getting a positive return.The major reasons for this odd phenomenon include long-term expectations about inflation, a large (and unequally distributed) surge in wealth worldwide and the growing ranks of retiring baby boomers who want to protect their nest eggs against the volatility of stocks.And that has potentially huge consequences for public finances.“If governments ever wanted to engage in an aggressive program of spending, now is the time,” said Padhraic Garvey, a head of research at ING, a global bank. “This is a perfect time to issue bonds as long as possible and proceed with long-term investment plans — and as long as the rate of return on those plans is in excess of the funding costs, they pay for themselves.”Weighing the Fed’s RoleBecause the government debt issued by the United States is valued, with few exceptions, as the safest financial asset in the global market — and because this debt is used as the collateral for trillions of dollars of systemically important transactions — the monthly and weekly fluctuations of key U.S. Treasuries, like the 10-year note, are watched closely.There are rancorous debates about the added role that the emergency bond-buying program conducted by the Fed since March 2020 — which included hundreds of billions of dollars in U.S. debt securities — has played in keeping rates down. Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.Some of the central bank’s critics concede that the Fed’s aggressive measures (which officials are dialing back) may have proved necessary at the start of the pandemic to stabilize markets. But they insist its program, another form of economic stimulus, continued far too long, egging on inflation by increasing demand and keeping rates low — an equation that hurt savers who could benefit from higher returns to hedge against the price increases.Still, most mainstream analysts also tend to identify a broader gumbo of coalescing factors beyond monetary policy.Several major market participants attribute these stubbornly low yields in spite of a high-growth, high-inflation economy to a widening sense among investors that a time of slower growth and milder price increases may eventually reassert itself.“While inflation has surged, they do not expect it to be persistent,” said Brett Ryan, the senior U.S. economist at Deutsche Bank. “In other words, over the long run, the post-pandemic world is likely to look very similar to the prepandemic state of the economy.”Long-run inflation expectations are still relatively anchored at an annual rate of about 2.4 percent over the next 10 years. This indicates that markets think the Fed will prevent inflation from spiraling upward, despite the huge increase in debt and the supply of dollars.Lots of Cash in Search of HavensOne potent element driving down rates is that from 2000 to 2020 — a stretch that included a burst dot-com bubble, a breakdown of the world’s banking system and a pandemic that upended business activity — global wealth in terms of net worth more than tripled to $510 trillion. The resulting savings glut has deeply affected the market, particularly for government bonds.The vast majority of wealth has accumulated to borderless corporations and a multinational elite desperate to park that capital somewhere that is safe and allows its money to earn some level of interest, rather than lose value even more quickly as cash. They view lending the money to a national government in its own currency as a prudent investment because, at worst, the debt can be repaid by creating more of that currency.The downside for these investors is that only so many stable, powerful countries have this privilege: This mix of exorbitant levels of wealth and a scarcity of safe havens for it has whetted, at least for now, a deepening appetite for reliable government debt securities — especially U.S. Treasuries.“To have truly risk-free returns and storage of your dollars, where else are you going to put them?” asked Daniel Alpert, a managing partner of the investment bank Westwood Capital.As the principle of supply and demand would suggest, the combination of high demand and low supply has helped keep Treasury bond prices high, which in turn produces lower yields.Demographic changes are affecting bond trends, too. As they approach or reach retirement, hundreds of millions of people across developed economies are looking for safer places than the stock market for their assets.Even in an inflationary environment, “there’s just this huge demand for yield in fixed income from people,” said Ben Carlson, the director of institutional asset management at Ritholtz Wealth Management. “You have all these boomer retirees who have money in the stock market and they’re doing great, but they know soon they’re not going to have a paycheck anymore and they need some portion of their portfolio to provide yield and stability.”Running Room for Federal SpendingThe U.S. Treasury market has grown to roughly $23 trillion, from $3 trillion two decades ago — directly in step with the national debt, which has grown to over 120 percent of gross domestic product, from 55 percent.But borrowing costs for the American government have trended lower, not higher. Congress issued roughly $5 trillion in Treasury debt securities to finance pandemic fiscal relief, “and we had, effectively, zero cost of capital for most of it,” said Yesha Yadav, a law professor at Vanderbilt University whose scholarship covers the Treasury market’s structure and regulations.Since the 1980s, the federal debt has skyrocketed.Total public debt as a percentage of gross domestic product

    Note: Data through the third quarter of 2021Source: Federal Reserve Board of St. LouisBy The New York TimesBut the cost of paying investors back is at its lowest in years.Interest payments on U.S. debt as a percentage of gross domestic product.

    Note: Data through 2020. Federal interest payments are still projected to be low in 2022.Source: Federal Reserve Economic DataBy The New York TimesThe cost of the interest payments that the U.S. government owes on its debt peaked in 1991 at 3.2 percent of gross domestic product, when the national debt was only 44 percent of G.D.P. By that measure, interest costs now are about half what they were back then.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Why Critics Fear the Fed's Policy Shift May Prove Late and Abrupt

    The Federal Reserve is still buying bonds as prices surge. Some praise the central bank’s continuing policy pivot; others ask if it was fast enough.The Federal Reserve has moved at warp speed by central banking standards over the past six months as it prepares to lean against a surge in prices: first slowing its economy-stoking bond purchases, then deciding to end that buying program earlier and finally signaling that interest rate increases are coming.Some on Wall Street and in Washington are questioning whether it moved rapidly enough.Consumer prices increased by 7 percent in December from the prior year, the fastest pace since 1982, as rapid spending on goods collides with limited supply as a result of shuttered factories and backlogged ports. While price increases were initially expected to fade quickly, they have instead lasted and broadened to rents and restaurant meals.The Fed is charged with maintaining full employment and stable prices. The burst in inflation is causing some to question whether the central bank was too slow to recognize how persistent price increases were becoming, and whether it will be forced to respond so rapidly that it pushes markets into a free fall and the economy into a sharp slowdown or even recession.“The first policy mistake was completely misunderstanding inflation,” said Mohamed El-Erian, the chief economic adviser at the financial services company Allianz. He thinks the Fed now runs the risk of having to pull support away so rapidly that it disrupts markets and the economy. The Fed’s Board of Governors “maintained its transitory inflation narrative for 2021 way too long, missing window after window to slowly ease its foot off the stimulus accelerator.”Plenty of economists disagree with Mr. El-Erian, pointing out that the Fed reacted swiftly as it realized that conditions did not match its expectations. And market forecasts for inflation have remained under control, suggesting that investors believe that the Fed will manage to stabilize prices over the long run. Even so, stocks are shuddering and consumers are watching nervously as the central bank prepares for what could an unusually rapid withdraw of monetary support — ramping up pressure on its policymakers.“The downturn was faster, the upturn was faster: It was an unprecedented event, so not forecasting it properly was not the end of the world,” said Gennadiy Goldberg, a senior U.S. rates strategist at TD Securities. “What matters is what their readjustment is once the forecast has changed.”Jerome H. Powell, the Fed chair, and his colleagues meet this week in Washington and will release their latest policy decision at 2 p.m. on Wednesday.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.The Fed is on track to end its asset buying program in March, at which point markets expect policymakers to begin raising interest rates. Investors expect officials to raise interest rates as many as four times this year, while allowing their balance sheet of asset holdings to shrink. Both policy changes would work together to remove juice from the rapidly recovering economy.The path the Fed is now following differs starkly from the one it was projecting as recently as September, when many Fed officials had not come around to the idea that rates would rise in 2022. Likewise, the Fed began tapering off its bond buying program only in late 2021, so it is now in the uncomfortable position of making its final purchases — giving markets and the economy an added lift — even as inflation comes in hot.The central bank’s critics argue that it should have started to withdraw its help earlier and faster. That would have begun to cool off demand and inflation sooner, and it would allow for a more gradual drawdown of support now.“I don’t think the Fed caused this inflation problem, but I do think they were late to recognize it,” said Aneta Markowska, chief financial economist at Jefferies, an investment bank. “And, therefore, they will have to catch up very quickly.”Sudden Fed moves carry an economic risk: Failing to give markets time to digest and adjust often sends them into tumult. Rocky markets can make it hard for households and businesses to borrow money, causing the economy to slow sharply, and perhaps more than the central bank intended.That is why the Fed typically tries to engineer what policymakers often refer to as a “soft landing.” The goal is to avoid upending markets, and to allow the economy to decelerate without slowing it down so abruptly that it tips into recession.But the economy has surprised the central bank lately.In 2021, Fed policymakers bet that rapid inflation would fade as the economy got through an unusual reopening period and the pandemic abated. They wanted to be patient in removing support as the labor market healed, and they did not meaningfully change their plans for policy after Democrats took the White House and Senate and it became clear that they would pass a large stimulus package.The path the Fed is now following differs starkly from the one it was projecting as recently as September.Stefani Reynolds for The New York TimesAs those dollars trickled out into the economy and the pandemic persisted, though, demand remained strong, supply chains remained roiled, and inflation began to broaden out from pandemic-disrupted products like cars and airfares into rents, which move slowly and matter a lot to overall price increases. Workers returned to the job market more slowly than many economists expected, and wages began to pick up sharply as labor shortages surfaced.That caused the Fed to change course late last year — and to do so fairly abruptly.“Inflation really popped up in the late spring last year, and we had a view — it was very, very widely held in the forecasting community — that this would be temporary,” Mr. Powell said in December. But officials grew more concerned as employment cost data moved higher and inflation indicators showed hot readings, he said, so they pivoted on policy.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Stock Markets Off to Worst Start Since 2016 as Fed Fights Inflation

    Stocks are off to their worst start of a year since 2016 as the central bank pulls back the enormous stimulus programs it began in the early months of the pandemic.After falling for a fourth day in a row on Friday, the stock market suffered its worst week in nearly two years, and so far in January the S&P 500 is off to its worst start since 2016. Technology stocks have been hit especially hard, with the Nasdaq Composite Index dropping more than 10 percent from its most recent high, which qualifies as a correction in Wall Street talk.That’s not all. The bond market is also in disarray, with rates rising sharply and bond prices, which move in the opposite direction, falling. Inflation is red hot, and supply chain disruptions continue.Until now, the markets looked past such issues during the pandemic, which brought big increases in the value of all kinds of assets.Yet a crucial factor has changed, which gives some market watchers reason to worry that the recent decline may be consequential. That element is the Federal Reserve.As the worst economic ravages of the pandemic appear to be waning, at least for now, the Fed is ushering in a return to higher interest rates. It is also beginning to withdraw some of the other forms of support that have kept stocks flying since it intervened to save desperately wounded financial markets back in early 2020.This could be a good thing if it beats back inflation without derailing the economic recovery. But removing this support also inevitably cools the markets as investors move money around, searching for assets that perform better when interest rates are high.“The Fed’s policies basically got the current bull market started,” said Edward Yardeni, an independent Wall Street economist. “I don’t think they are going to end it all now, but the environment is changing and the Fed is responsible for a lot of this.”The central bank is tightening monetary policy partly because it has worked. It helped stimulate economic growth by holding short-term interest rates near zero and pumping trillions of dollars into the economy.This flood of easy money also contributed to the rapid rise in prices of commodities, like food and energy, and financial assets, like stocks, bonds, homes and even cryptocurrency.What happens next comes from an established playbook. As William McChesney Martin, a former Fed chairman, said in 1955, the central bank finds itself acting as the adult in the room, “who has ordered the punch bowl removed just when the party was really warming up.”The mood of the markets shifted on Jan. 5, Mr. Yardeni said, when Fed officials released the minutes of their December policymaking meeting, revealing that they were on the verge of embracing a much tighter monetary policy. A week later, new data showed inflation climbing to its highest level in 40 years.Putting the two together, it seemed, the Fed would have no choice but to react to curb rapidly rising prices. Stocks began a disorderly decline.Financial markets now expect the Fed to raise its key interest rate at least three times this year and to start to shrink its balance sheet as soon as this spring. It has reduced the level of its bond buying already. Fed policymakers will meet next week to decide on their next steps, and market strategists will be watching.Low interest rates made certain sectors especially appealing, foremost among them tech stocks. The S&P 500 information technology sector, which includes Apple and Microsoft, has risen 54 percent on an annualized basis since the market’s pandemic-induced trough in March 2020. One reason for this is that low interest rates amplify the value of the expected future returns of growth-oriented companies like these. If rates rise, this calculus can change abruptly.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    A Fed Official’s 2020 Trade Drew Outcry. It Went Further Than First Disclosed.

    Corrected disclosures show that Vice Chair Richard H. Clarida sold a stock fund, then swiftly repurchased it before a big Fed announcement.Richard H. Clarida, the departing vice chair of the Federal Reserve, failed to initially disclose the extent of a financial transaction he made in early 2020 as the Fed was preparing to swoop in and rescue markets amid the unfolding pandemic.Mr. Clarida previously came under fire for buying shares on Feb. 27 in an investment fund that holds stocks — one day before the Fed chair, Jerome H. Powell, announced that the central bank stood ready to help the economy as the pandemic set in. The transaction drew an outcry from lawmakers and watchdog groups because it put Mr. Clarida in a position to benefit as the Fed restored market confidence.Mr. Clarida’s recently amended financial disclosure showed that the vice chair sold that same stock fund on Feb. 24, at a moment when financial markets were plunging amid fears of the virus.The Fed initially described the Feb. 27 transaction as a previously planned move by Mr. Clarida away from bonds and into stocks, the type of “rebalancing” investors often do when they want to take on more risk and earn higher returns over time. But the rapid move out of stocks and then back in makes it look less like a planned, long-term financial maneuver and more like a response to market conditions.“It undermines the claim that this was portfolio rebalancing,” said Peter Conti-Brown, a Fed historian at the University of Pennsylvania. “This is deeply problematic.”The Fed did not provide further explanation of Mr. Clarida’s trade when asked why he had sold and bought in quick succession. Asked if the Fed stood by previous indications that the move was a rebalancing, a spokesperson did not comment.The correction to the disclosures was released late last month and came after Mr. Clarida noticed “inadvertent errors” in his initial filings, a Fed spokesperson said, noting that the holdings were in broad funds (as opposed to investing in individual stocks). Mr. Clarida did not comment for this article.The extent of Mr. Clarida’s transaction is the latest development in a monthslong trading scandal that has embroiled top Fed officials and prompted high-profile departures at the usually staid central bank.Financial disclosures released in late 2021 showed that Robert S. Kaplan, the former Federal Reserve Bank of Dallas president, had made big individual-stock trades, while Eric S. Rosengren, the Boston Fed president, had traded in real estate securities. Those moves drew immediate and intense backlash from lawmakers, ethics experts and former Fed employees alike.That’s because Fed officials were actively rescuing a broad swath of markets in 2020: In March and April, they slashed rates to zero, bought mortgage-tied and government bonds in mass quantities, and rolled out rescue programs for corporate and municipal debt. Continuing to trade in affected securities for their own portfolios throughout the year could have given them room to profit from their privileged knowledge. At a minimum, it created an appearance problem, one that Mr. Powell himself has acknowledged.Mr. Kaplan resigned in September, citing the scandal; Mr. Rosengren resigned simultaneously, citing health issues. Mr. Clarida’s term ends at the close of this month, which it was scheduled to do before news of the scandal broke.Mr. Clarida’s trades, which Bloomberg reported earlier, also raised eyebrows among lawmakers, including Senator Elizabeth Warren of Massachusetts, who has demanded a Securities and Exchange Commission investigation into Fed officials’ 2020 trading. But many ethics experts had seen the transaction as more benign, if poorly timed, because it happened in a broad-based index and the Fed had said it was part of a planned and longer-term investment strategy.The new disclosure casts doubt on that explanation, given that Mr. Clarida sold out of stocks just days before moving back into them.“It’s peculiar,” said Norman Eisen, an ethics official in the Obama White House who said he probably would not have approved such a trade. “It’s fair to ask — in what respect does this constitute a rebalancing?”It is unclear whether Mr. Clarida benefited financially from the trade, but it was most likely a lucrative move. By selling the stock fund as its value began to plummet and buying it back days later when the price per share was lower, Mr. Clarida would have ended up holding more shares, assuming he reinvested all of the money that he had withdrawn. The financial disclosures put both transactions in a range of $1 million to $5 million.The sale-and-purchase move would have made money within a few days, as stock markets and the fund in question increased in value after Mr. Powell’s announcement. The investment would have then lost money as stocks sank again amid the deepening pandemic crisis.But the fund’s value recovered after the Fed’s extensive interventions in markets. Assuming they were held, the holdings would ultimately have appreciated in value and turned a bigger profit than they would have had Mr. Clarida merely held the original investment without selling or buying.The Fed was aware of the reputational risk around trading as the pandemic kicked into high gear — the Board of Governors’ ethics office sent an email in late March 2020 encouraging officials to hold off on personal trades — but notable transactions happened in late February and again as early as May in spite of that, its officials’ disclosures suggest.Mr. Powell has acknowledged the optics and ethics problem the trading created, saying that “no one is happy” to “have these questions raised.” He and his colleagues moved quickly to overhaul the Fed’s trading-related rules after the revelations, releasing new and stricter ethics standards that will force officials to trade less rapidly while banning many types of investment.The individuals in question also faced censure. They are under independent investigation to see if their transactions were legal and consistent with internal central bank rules. The S.E.C. declined to comment on whether it has opened or will open an investigation into Mr. Clarida’s trades and his colleagues’, as Ms. Warren had requested.While the officials who came under the most scrutiny for their trades have left or will leave soon, the new disclosure could cause problems for the Fed’s remaining leaders — including Mr. Powell, whom President Biden recently renominated to a second term as chair.Mr. Powell will appear before the Senate Banking Committee next week for his confirmation hearing, as will Lael Brainard, a Fed governor, whom Mr. Biden nominated to replace Mr. Clarida as vice chair.Both could face sticky questions about why a Fed culture permissive of trading at activist moments was, until recently, allowed to prevail. Mr. Powell led the organization, while Ms. Brainard headed the committee in charge of reserve bank oversight.Jerome H. Powell and his colleagues moved quickly to overhaul the Fed’s trading-related rules after the revelations.Stefani Reynolds for The New York TimesThe trading scandal has also resurfaced longstanding concerns about whether the Fed is too cozy with Wall Street, and whether its officials are working for the public or to profit from their own actions.If he is asked about the scandal, Mr. Powell is likely to point to the tougher ethics guidelines that the Fed unveiled in October. Mr. Clarida’s apparently rapid transaction would most likely have been trickier under the new rules, which require officials to give 45 days’ notice before buying an asset, and which prevent trading during tumultuous market periods.The updated disclosures do show that Mr. Clarida was “in compliance with applicable laws and regulations governing conflicts of interest,” based on the Fed ethics officer’s assessment. But that alone is unlikely to prevent scrutiny.Regardless of legality, “the public would be concerned if it turned out that he bought shares of the fund before a major announcement by the Federal Reserve potentially affecting the value of his shares,” Walter Shaub, a former government ethics official now at the Project on Government Oversight, said in an email.Mr. Shaub said more information was needed to know if the trade was problematic, including whether Mr. Clarida knew the Feb. 28 announcement was coming — and when he knew that.The Fed previously told Bloomberg that Mr. Clarida was not yet involved in deliberations about the coronavirus response at the time of the trade.But Mr. Clarida was in close touch with his colleagues throughout that week. He had a call with a board member and a regional Fed president on Feb. 26, his calendars show. That is the way the Fed typically lists meetings of the Fed chair, vice chair and New York Fed president — the Fed’s so-called troika, which sets the agenda for central bank policy — on its largely anonymized official calendars.Mr. Conti-Brown said that regardless of how much Mr. Clarida knew about his colleagues’ plans, the February trades were an issue that the Fed needed to explain in detail.“Richard Clarida is a decision maker,” he said. “The deliberations that happen within his brain are what matter here.” More

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    Daimler Truck, a Spinoff From Mercedes-Benz, Starts Trading

    Daimler’s car and truck divisions concluded an amicable divorce on Friday when shares in Daimler Truck began trading separately on the Frankfurt stock exchange.The separation of Mercedes-Benz, the luxury carmaker, from Daimler Truck, which owns Freightliner in the United States, signaled the end of an era not only for Daimler but also the German economy.The spinoff, announced in February, was the final chapter in a transition that began in the 1990s, when Daimler was a sprawling conglomerate that also made trains and passenger aircraft. Along with other industrial empires like Siemens, Daimler has been forced to jettison excess baggage to remain competitive.For car and truck makers, the need to ditch unwieldy corporate structures has become even more urgent as they try to survive the shift to emission-free propulsion. One justification for the spinoff is that it will allow Daimler Truck’s managers to make decisions more quickly.Daimler Truck is betting on hydrogen fuel cells for long-haul trucks, in contrast to competitors like Scania that favor batteries. It is not yet clear which technology will prevail.A few decades ago, many German companies operated on the principle that bigger was better. That might have made sense when capital was harder to come by, said Martin Daum, the chief executive of Daimler Truck, because the more profitable parts of a conglomerate could generate cash for struggling units.“We had globally very inefficient capital markets,” Mr. Daum said in an interview. “That supported the buildup of conglomerates.”“Today, every business that has a compelling idea can raise money,” he said.Whether Daimler Truck has compelling ideas will now be put to the test. The shares opened Friday at 28 euros (about $31.60) and rose as much as 8.5 percent, valuing the company at about $27 billion.The new company is the largest truck maker in the United States by way of its Freightliner brand. Globally, Daimler Truck is also the largest maker of buses. Its other brands include Mercedes-Benz trucks and buses sold primarily in Europe and Fuso trucks sold in Asia.Daimler Truck and Mercedes-Benz luxury cars will remain closely connected. Daimler, the parent company of Mercedes, will retain a 35 percent stake in Daimler Truck. The remaining shares will be distributed to Daimler shareholders.BNP Paribas, Citigroup and Goldman Sachs are serving as listing agents for the spinoff. More

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    Fed Warns Meme Stocks Could Pose Some Risks

    Stocks that experience major volatility as a result of social media attention — often called meme stocks — have not threatened broader financial stability so far but could open the door to vulnerabilities, the Federal Reserve said in a report on Monday.The Fed’s twice-yearly update on America’s financial system included a special section on the meme stock phenomenon. It attributed the trend, in which attention on Twitter, Reddit and other platforms encourages rapid inflows into or out of buzzy stocks, to new trading technologies including mobile apps and to changing demographics, as younger people enter the retail trading market.“Along with the rise in risk appetite and the growing share of younger retail investors, access to retail equity trading opportunities has expanded over the past decade,” the report said.Social media can pump up interest in stocks, and it can also create an echo chamber, one in which “investors find themselves communicating most frequently with others with similar interests and views, thereby reinforcing their views, even if these views are speculative or biased.”Still, internet-inspired pile-ons do not necessarily create conditions that will spur a broad market crash, the Fed’s report suggested.“To date, the broad financial stability implications of changes in retail equity investor characteristics and behaviors have been limited,” the Fed said. The central bank specifically assessed what happened to shares of AMC Entertainment and GameStop in January, noting that activity and volatility in those stocks came alongside high activity on Twitter.While the report concluded that “recent episodes of meme stock volatility did not leave a lasting imprint on broader markets,” the Fed said a few trends “should be monitored.”The report pointed out that young and debt-laden investors may be more vulnerable to stock price swings, especially since they are now using “options,” which allow traders to place bets on whether prices will rise or fall and which can magnify leverage and potential losses.The Fed also warned that “episodes of heightened risk appetite may continue to evolve with the interaction between social media and retail investors and may be difficult to predict,” and that financial firms may not have calibrated their risk-management systems to reflect the volatility and losses that meme stock episodes might trigger.“More frequent episodes of higher volatility may require further steps to ensure the resilience of the financial system,” it said.Looking across a broader range of asset classes and recent trading activity, the Fed’s financial stability analysis generally suggested that the vulnerabilities have moderated compared with earlier in the pandemic — but it did flag high asset prices and a number of lingering risks.Stock prices have increased “notably,” the report said, and prices relative to forecast earnings remain near historical highs. Home prices have climbed, it noted, though mortgage lending standards have not deteriorated too badly. When lenders start to lower their standards, that can make the market more vulnerable.The Fed noted that “corporate bond issuance remained robust, supported by low interest rates,” also pointing out that “across the ratings spectrum, the composition of newly issued corporate bonds has become riskier.”And while many markets show signs of investor optimism, some financial strains from the pandemic shock persist.Some commercial real estate sectors continue to face challenges because “office vacancies are elevated and hotel occupancy rates remain depressed,” the report noted. Plus, “structural vulnerabilities persist in some types of money market funds,” which could amplify a future shock to the system.Money market mutual funds melted down during the pandemic and required a Fed rescue for the second time in a dozen years, and regulators are now looking at how to make them more resilient.The report also warned that life insurers might struggle to raise cash in a pinch.And it delved into climate risks. The central bank is among regulators now trying to understand what risks climate change might pose to banks, insurers and the broader financial system.“The Federal Reserve is developing a program of climate-related scenario analysis,” the report noted. “The Federal Reserve considers an effective scenario analysis program, which is designed to be forward looking over a period of years or decades, to be separate from its existing regulatory stress-testing regime.” More