All this is down to the fact that their parents are trying to cope in the globalised, computerised, “always on” business world in which 40 per cent of Americans work non-traditional schedules driven by algorithmic efficiency. It’s just one of the challenges for a new class of Americans that Quart dubs the “Middle Precariat.” These people, who range from professors to nurses to caregivers to lawyers, aren’t destitute — they have some means, a degree or two, and have made decent life choices. And yet, they are struggling to stay ahead in an economy in which technology is exerting a deflationary effect on everything (including wages) except the things that create a middle-class life — namely affordable housing, education, healthcare and children.
Written in a quick-read, magazine style, Squeezed introduces us to PhDs who are drowning in student debt, journalists who are plunged into near poverty because of the cost of giving birth in hospital, and out of work, middle-aged graphic designers paying thousands of dollars to for-profit universities that won’t get them a job. Quart, the executive editor of the New York-based Economic Hardship Reporting Project, has no unified field theory for this new world. There is no mention of “secular stagnation”, or Peter Temin’s “ dual economy,” or the rise of intangibles, nor any Piketty-esque analysis of the balance of power between labour and capital. But Squeezed does deliver colour, and the stories of a falling down middle class reflect a felt experience of anxiety that is often lost in data-driven tales of recession and recovery.
Unemployment in the US may be at a near 20-year low, but Gallup figures show most Americans work more than 40 hours a week (the average is 47) and 18 per cent work more than 60 hours. Thanks to a lack of adequate social safety-nets, industrial policy, and/or better connection between the public and private sector, more and more responsibility for coping with a fast-changing labour market and more bifurcated economy has been left to the individual.
Quart is particularly sharp on behavioural psychology and the economics of class. In a chapter entitled “The Rise of 1 per cent Television,” she charts the popularity of shows such as Downton Abbey, Keeping Up with the Kardashians, Desperate Housewives, and Billions, all of which constitute a kind of “bling porn” that not only fuels anxiety among the lower 80 per cent of the socio-economic spectrum, but allows the upper 20 per cent to feel a sense of self-righteousness in relation to this profusion of greedy, narcissistic anti-heroes, culminating in our TV president.
Why do we bother trying to keep up in America’s new oligopoly? Why aren’t there more public protests to change it? Because it’s hard for us to give up on the deep American mythology of bootstrapping. If we fail, it’s our fault — not the failure of our system. And this being the US, there is of course a new industry of upward mobility to help us — whatever our budget, class, or level of liberal guilt. Consider Joyce Szuflita, a consultant, who for $500 a pop will help the middle precariat nab a place for their progeny in a state school of choice, since they can’t afford both New York real estate and private education, but want their kids to stay on track for the Ivy Leagues and maintain class privilege.
The fact that you need a consultant to navigate taxpayer-supported education in some American cities says a lot about how rigged the game is. But just as the parents at Dee’s are happy to have options, so I am happy that Szuflita exists: reader, I used her to ease the path to both middle school and high school for my two kids. And yes, I recognise the hypocrisy of this — as, no doubt, do others who have taken a similar path. Perhaps that’s why many in Quart’s book supported Bernie Sanders. We may need a political revolution in this country to avoid being squeezed to death.
Global equity funds suffer record outflows
Alexandra Scaggs and Nicole Bullock
Investors pulled a record amount of money from global and emerging-market equity funds in the past week, when rising trade tensions and a strengthening dollar sent a shockwave through east Asian markets.
Global equity funds experienced a weekly record outflow of $8.1bn, while global emerging-market equity funds had their own record withdrawal of $6bn for the week ended Wednesday, according to data from EPFR.
The withdrawals came in the same week that the White House moved to impose tariffs on $50bn of Chinese imports, and threatened tariffs on $200bn more if Beijing retaliates. Asian markets were jolted on Tuesday in response to the gathering trade war.
“We have had a dramatic shift from rhetoric on trade to action on trade,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors. “The speed with which China and the US are escalating their proposed trade actions is causing investors concern, and they would rather move out of the fire.”
At the same time, the dollar has rallied to its highest level in more than a year in the past week, following an interest-rate increase from the Federal Reserve and signs of relative strength in the US economy.
US equity funds enjoyed inflows of $5.1bn over the week, in stark contrast to the outflows from global and EM funds.
An unusually large $321m block withdrawal from an emerging markets exchange-traded fund in early New York trading on Wednesday likely contributed to the record EM outflows.
“The US has seen better economic momentum this quarter, and growth differentials have widened” with the rest of the world, said Jeremy Zirin, head of Americas investment strategy with UBS Global Wealth Management. “With markets getting more volatile and worried about trade, there’s also a safe-haven component” that was luring investors into US investments, he said.
The strengthening dollar has prompted market volatility this year in countries that rely heavily on dollar-denominated funding, like Turkey and Argentina.
However, one bright spot in emerging markets last week was Saudi Arabia. The country saw a $49m inflow, its third record so far this year, in anticipation of its addition to MSCI’s emerging market benchmark, which was confirmed late on Wednesday.
Bavaria’s strongman has Angela Merkel in his sights
Markus Söder is a master of disguise. Over the years he has posed as Shrek, Marilyn Monroe, Homer Simpson and Luitpold, Prince Regent of Bavaria. Now he is poised to assume his most dramatic role yet — the Merkel-slayer.
Nominally Angela Merkel’s ally, Mr Söder, prime minister of the southern German state of Bavaria, has emerged as her potential nemesis. His Christian Social Union, the Bavarian sister party of the chancellor’s CDU, turned a row about how to deal with refugees at Germany’s border into a political crisis of such ferocity that it could spell the end of Ms Merkel’s 13-year reign.
Known for his populist, tub-thumping politics, carefully honed media image and extravagant carnival costumes, Mr Söder already dominates Bavaria, Germany’s largest state. The asylum battle is fast turning him into a figure of national importance, too.
“This is the end-game for our credibility [as a party],” he told a meeting of CSU MPs earlier this month. Every day, refugees were committing acts of violence. “People have lost their patience,” he said.
The Bavarian strongman would in all likelihood be happy to see Ms Merkel go. But the main reason he has been so prominent in the immigration dispute — which pits the chancellor against Horst Seehofer, the CSU leader and Germany’s interior minister — lies in October’s regional elections in Bavaria.
The CSU has traditionally held an iron grip on the state, enjoying the luxury of governing alone, unfettered by coalition partners. But that exceptional status is now under threat as CSU voters defect in droves to the far-right, anti-immigration Alternative for Germany: in last September’s Bundestag elections, the CSU won only 39 per cent of the vote, 10.5 percentage points lower than in 2013.
“Söder is under enormous pressure,” said Florian Post, a Social Democrat MP from the Bavarian capital Munich. “He risks going down in history as the man who lost the CSU’s absolute majority. And he will do anything he can to avoid that happening.”
Ever since he became Bavarian prime minister in March, Mr Söder has been grabbing national headlines.
In April he provoked outrage by decreeing that crosses and crucifixes be hung in official buildings in Bavaria. He has pledged to hire 1,000 more border policeman and set up mounted police units — or “Bavarian cavalry” — in every big city. He has even spoken of launching a Bavarian space programme.
“He is the kind of person who can bring a beer tent to boiling point,” said Werner Weidenfeld, head of the Centre for Applied Policy Research in Munich. “But all Bavarian politicians are a bit like that.”
Born in Nuremberg in 1967, Mr Söder studied law and later trained as a TV journalist — a fact that explains his mastery of visual imagery. He joined the CSU as a teenager and was elected to the Bavarian parliament aged 27. At 36 he was CSU secretary-general, and a regional minister at 40. But that was never enough.
“His goal was to reach the very top of Bavarian politics and he has been working at that for years,” said Mr Weidenfeld. “He has always been highly ambitious.” Mr Söder’s friends nicknamed him “the secretary of state” when he was still in his 20s.
A big obstacle on his path was Mr Seehofer, then Bavarian prime minister. The personal animosity between the two men was an open secret. In 2012, Mr Seehofer accused Mr Söder of “character weaknesses”, “dirty tricks” and being “consumed by ambition”. In the end, Mr Seehofer stood down as prime minister last year, paving the way for his arch rival to take the crown.
Mr Söder remains a controversial figure in the CSU, with many put off by his pursuit of the limelight. He earned brickbats for his forthright criticism of Ms Merkel’s decision, at the height of the refugee crisis in 2015, to keep Germany’s borders open. As tens of thousands of migrants streamed in, he even suggested erecting frontier fences to stop them.
Since then, a steady drumbeat of terror attacks and violent crimes by refugees has fuelled an anti-immigration backlash, helped the AfD in the polls and allowed Mr Söder to feel that he is on the right side of public opinion. The fact that Germany finds it so hard to deport migrants who turn to crime, for example, “just enrages people and make them feel insecure”, he told the ZDF TV channel.
That partly explains why he has been so outspoken in the current crisis. But the negative fallout could harm him. If Ms Merkel — still one of Germany’s most popular politicians — is forced from power, he might get the blame.
“Söder had been trying for a while now to shake off his reputation as a real troublemaker and malcontent, dating from the conflict with Seehofer, and then this new row breaks out,” said Mr Weidenfeld. “That could be really damaging for him. People do not vote for troublemakers.”
Mr Post agreed. “He’s a very polarising figure,” he said. “He is trying to close the CSU’s ranks but he is dividing Bavaria.”
Eurozone creditors reach ‘historic’ deal on Greek debt relief
Eurozone governments have brokered a long-awaited debt relief deal for Greece, pushing back repayment deadlines on almost €100bn of bailout loans as the country prepares to exit its era of financial rescue programmes.
Finance ministers hammered out the final points of an agreement in more than six hours of talks that stretched into the night in Luxembourg on Thursday. The deal was immediately hailed by governments as a “historic” step after eight years in which Greece has undergone three bailout programmes and suffered the worst depression of any European economy in modern times.
“It is an exceptional moment,” Pierre Moscovici, the EU’s economy commissioner, said after the meeting. “The Greek crisis ends here tonight in Luxembourg.”
The agreement means the repayment of €96bn of bailout loans, about 40 per cent of the total Greece needs to repay the eurozone over the coming decades, will be pushed back 10 years. The earliest repayment deadlines shift from 2023 to 2033.
Other key part of the plan includes increasing the size of Greece’s final instalment of bailout money to help build up cash reserves that can sustain it over the months to come.
A deal had become urgent given the little time that remains until the end of Greece’s bailout programme on August 20, with the euro area keen to reassure investors that the country’s debt is sustainable before Athens returns to relying on the markets to finance spending.
“Greece is turning the page,” said Euclid Tsakalotos, the country’s finance minister. “We have all the building blocks to leave the programme with confidence.”
A compromise was reached after intense negotiations to resolve German reservations about parts of the debt relief package. Hopes for quick agreement on Thursday evaporated when Olaf Scholz, German finance minister, set tough conditions for accepting a significant maturity extension, prompting frantic hours of talks that ended with calls to national capitals asking heads of state to give their blessing to the final compromise.
Berlin was reticent about plans for a large increase in the size of Greece’s final tranche of bailout money from a planned €11.7bn, in the end accepting the amount could be raised to €15bn. This will leave Athens with cash reserves totalling €24.1bn, enough to sustain the country for at least 22 months without it needing to go to the markets.
“The negotiations were difficult,” Bruno Le Maire, France’s economy minister, said. “Discussions are always difficult when the stakes are high.”
Berlin’s firmness reflects domestic pressure on Angela Merkel’s government, notably from her Bavarian conservative coalition partner, the CSU, which has criticised the chancellor for being too willing to use national money to solve eurozone problems.
Deferring repayment of the older bailout loans, including interest, by 10 years, and a parallel decision to extend their maturities by the same amount of time, leaves Greece with very small debt repayments until after 2030, something the euro area hopes will spur investors to buy the country’s bonds.
The 10 year extension was at the higher end of EU officials’ predictions in the run-up to the meeting of what might be politically feasible. Eurozone governments agreed last year that any extension would be between zero and 15 years.
Less sensitive parts of the debt-relief deal, agreed just after the stroke of midnight on Friday morning, included returning to Greece about €1bn of annual profits that euro area central banks make on their holdings of the country’s debt.
The final agreement leaves out plans worked on by governments to link further debt relief for Greece to the country’s economic performance, an idea that was once central to the package but that had become marginalised in recent weeks in favour of focusing on the upfront maturity extension.
A key priority in the talks was to come up with a debt relief plan that could convince the International Monetary Fund that Greece’s debts are on a sustainable path, after years of disagreements between the Washington-based fund and eurozone governments, led by Berlin, over the state of the Greek economy.
Christine Lagarde, the IMF’s managing director, welcomed the deal but said the fund still held “reservations” about Greece’s longer-term debt sustainability.
As a condition for the relief, Athens will be required to maintain a primary budget surplus, which excludes debt repayments, of 3.5 per cent of gross domestic product until 2022, with a target that this will stay at 2.2 per cent on average until 2060.
Finance ministers in their statement left the door open to potentially grant Greece further relief in the long term, saying that they would return to the issue in 2032 — something praised by Ms Lagarde and the European Central Bank.
Mario Draghi, the ECB’s president, said that he welcomed finance ministers’ “readiness to consider further debt measures . . . in case adverse economic developments were to materialise”.
Guggenheim payouts point up internal tensions at the top
The staff awards underscore the tensions that gripped Guggenheim as Scott Minerd, the firm’s chief investment officer, clashed with its co-founder, Mark Walter. Guggenheim, a $250bn asset manager, has denied any disagreement between the two.
In August 2017, the firm allocated $30m to Anne Walsh, Mr Minerd’s top deputy and the chief investment officer of the fixed income unit — $14m for “alleged physical injury/sickness and/or exacerbation thereof”, a $7.5m retention award and $7.5m in attorneys’ fees.
Weeks later, in November, Guggenheim agreed to additional pay awards for the 27 other employees, including Mr Minerd’s chief of staff and favoured members of his fixed income investment team, as well as market strategists, equities specialists and risk managers.
The employees were awarded special phantom stock awards worth a total of $19.7m. The equity grants in the privately held Guggenheim were to vest over three years starting in November 2018.
Guggenheim also agreed to pay 13 of the employees $18.5m in cash bonuses for 2017, 79 per cent higher than in 2016.
According to a benchmarking analysis from Guggenheim’s external pay consultants, the firm’s existing pay package before the retention awards was already competitive with investment managers of similar size and strategy.
Guggenheim said: “The bonuses were determined based upon each individual employee’s contribution and were consistent with industry compensation based upon the high calibre of performance of each employee selected to participate in the programme.
“The programme also provided a minimum guaranteed floor on future bonuses in the form of phantom stock for the next three years for any of those employees who remained at the firm and in good standing (but the amount guaranteed was just a modest percentage of 2017’s bonus).”
The biggest retention award went to James William Michal, a rising star executive on Mr Minerd’s Total Return Bond Fund team. Mr Michal ended up leaving the firm in early 2018 after a company investigation into his behaviour.
In November 2017, Guggenheim agreed to pay Mr Michal a $9.75m package in the form of incentive cash remuneration of $3.75m to be paid in April 2018 and a stock grant valued at $6m. However, he went on medical leave in early February and left Guggenheim shortly thereafter.
In a memo from Ms Walsh to the firm dated February 12, she wrote: “James Michal requested and was granted a medical leave following an issue regarding his deportment at Guggenheim. The issue regarding his deportment was not related to his duties as a portfolio manager. The matter was fully investigated and, upon the completion of the investigation, Mr Michal resigned, with immediate effect. Mr Michal is no longer employed by Guggenheim.”
According to his separation agreement dated February 9, the terms of which have been seen by the Financial Times, Guggenheim agreed to pay Mr Michal a total of $5.75m in three separate payments — $2.5m in 2018 and $2.5m in 2019 if Mr Michal complied with the separation agreement and $750,000 in the second half of 2019 if he continued to comply with the separation agreement. Additionally, $2.7m of vested and unvested stock Mr Michal owned was deemed vested by Guggenheim.
Guggenheim also agreed to pay up to $250,000 to defend Mr Michal against any potential future claim against him in connection with his employment with the company, documents seen by the FT showed.
The separation agreement also said that the document was not an admission of any wrongdoing. Mr Michal forfeited the $6m equity grant he was given in November 2017.
One person familiar with the matter said the payments associated with his separation agreement represented his 2017 remuneration and previously granted equity. Another source said the package he was given facilitated his quick exit.
Mr Michal did not respond to requests for comment.
The phantom stock awards given to the 27 employees were to vest over three years starting in November 2018. However, of the 27 employees, eight requested, and were granted, a “key man” provision that allows their stock awards to vest immediately if Mr Minerd left Guggenheim for any reason.
Guggenheim noted that such a provision was not typically granted and required special approval by the company’s leadership, according to a person directly familiar with the agreement language.
“Allowing an employee to trigger an early payout defeats the purpose of the retention agreement and is most unusual,” said Richard Reice, a partner at New York employment law firm Hoguet Newman.
On May 31, Guggenheim’s global head of sales Alexandra Court announced her resignation after a sabbatical that had begun nearly a year earlier. Ms Court’s restructuring of the US distribution team, as approved by the firm’s leadership, had angered several members of Guggenheim’s asset management division overseen by Mr Minerd. However, the firm praised her contributions to the firm in a press release confirming her resignation.
