Wall Street Breakfast: Forgive The Students

Forgive the students

Reports suggest that the White House will make a long-awaited announcement on student loan forgiveness today, and is leaning toward a plan to cancel up to $10K of debt per borrower for individuals who earn less than $125K per year. Any cancellation would come at a time when the U.S. unemployment rate has fallen to 3.5%, and is even less among college graduates with a bachelor’s degree, with the rate averaging 2.9% in July. The Education Department has also canceled around $25B in student loans since Biden took office, but that has only impacted borrowers defrauded by for-profit schools, disabled students and those enrolled in public service loan forgiveness programs.

Thought bubble: The announcement appears to have already been delayed a number of times over whether the motion could provide a boost or detriment ahead of November’s midterm elections. Some economists warn that student debt cancellation could exacerbate price pressures at a time of record inflation, and it could be flagged as a contributor to higher prices. A backlash could also be seen from voters who chose not to go to college because of the cost, don’t have loans or already paid them off.

Sources recently told the Wall Street Journal that Biden has “nonetheless warmed to the idea in recent months as advocates inside and outside the administration made impassioned pleas for him to take action.” While he has gone on record saying he doesn’t believe a president has the authority to cancel student debt unilaterally, Biden would support the passing of a bill through Congress. He has separately ruled out a proposal backed by Massachusetts Sen. Elizabeth Warren and other progressives that would forgive up to $50K in debt per student borrower.

Go deeper: The Biden administration is also expected to address in the coming days whether it will extend the pause on federal student loan payments again. While the Education Department announced its “final extension” back in January, it has since delayed the moratorium twice, citing threats to Americans’ financial stability. The extensions have been costly for financial companies, with shares of SoFi Technologies (SOFI) plunging back in April after cutting its 2022 guidance. Other related stocks include Sallie Mae (SLM), Navient (NAVI) and Nelnet (NNI). (356 comments)

The Office

While Apple (AAPL) looks to get its employees back to the office, other companies are giving up on their brick-and-mortar institutions. Lyft (NASDAQ:LYFT) just announced that it will rent out nearly half of its office spaces in New York City, Nashville, San Francisco and Seattle, as it doubles down on its “fully flexible” work policy. The ride-hailing firm feels the strategy “strikes the right balance between trust and choice” for its 4,000 employees, “helping us do our best work while attracting and retaining top talent.”

Bigger picture: Lyft intends to sublease about 44% of its combined 615K square feet to other businesses, hoping to cut costs as staff continue to work from home. Software giant Salesforce (CRM) and business review site Yelp (YELP) are among other companies that have also said they plan to sell or rent out parts of their offices. Not everyone is on board the trend, however, with Google (GOOGL) announcing recent plans to spend $1B buying real estate in the West End of London, and shell out another $7B on offices and data centers in the U.S.

“Many of our team members opted to work remotely after we shifted to a flexible workplace strategy,” declared Lyft VP Rachel Goldstein. “As a result, we have identified a significant amount of office space that isn’t being utilized the way it previously was.”

Statistic: The average workplace occupancy rate in the top-10 U.S. metro areas is currently 43.5%, down from over 95% before the pandemic began, according to Kastle Systems, which collects daily data on how many workers swipe into office buildings.

Technosplit

Tesla (NASDAQ:TSLA) shares are about to look a whole lot cheaper, but don’t just look at the ticker tape. The electric vehicle maker’s stock is set to be chopped into three after the close of trading today, though the total value of a shareholder’s holdings will remain unchanged, as well as the company’s market capitalization (meaning its S&P 500 weighted value will remain the same). As of Wednesday morning, TSLA’s market price stood at $889, meaning a 3-for-1 split would leave shares at around $290.

Snapshot: While Tesla’s decision doesn’t affect any fundamentals, it does make the stock (or options contracts) more affordable for retail investors or those that don’t want such a holding to be a large portion of their portfolios. The company even alluded to these benefits when announcing the move back in June. “We believe the stock split would help reset the market price of our common stock so that our employees will have more flexibility in managing their equity and make our common stock more accessible to our retail shareholders.”

This isn’t the first time Tesla has split its shares, and likely won’t be the last. In fact, the company executed a 5-for-1 transaction back in August 2020 (shares have doubled since that date). Amazon (AMZN) and Alphabet (GOOGL), the parent of Google, also split their stock 20-for-1 in the past few months, while e-commerce giant Shopify (SHOP) completed a 10-for-1 split this summer.

Next catalyst? While Tesla is up about 30% since the electric vehicle maker announced plans to split its stock in June, it’s still off 26% YTD. Some have pointed to recent catalysts like the Inflation Reduction Act, which renews a $7,500 tax credit for Americans to purchase EVs, though several of its models will not qualify given the price ceiling of $55,000 for sedans and $80,000 for SUVs (think Long Range and Performance Model 3s, and Model S and X). Things are also complicated given the requirements to domestically source “critical materials” for batteries, though the company is likely to recover production this quarter after COVID lockdowns hampered output in Shanghai. (18 comments)

War drags on

It’s been a heartbreaking last six months since Russia launched a full-scale invasion of Ukraine, with the tragic half-year milestone falling out today – on Kyiv’s 31st Independence Day from the Soviet Union. While it’s difficult to determine the exact loss of life, Ukraine says it has lost 9,000 members of its armed forces, while Russia has likely recorded around 15,000 troop fatalities. The tally doesn’t include an untold amount of civilians that have been caught or perished in the crossfire, or have been forced from their homes and communities.

War of attrition: The conflict doesn’t look like it will end anytime soon, though expectations have changed drastically since the beginning of war. Many had assumed that Ukraine and the capital would fall within a matter of days, only to be surprised by the army’s capabilities and Russia’s forced pivot to the eastern Donbas region. Moscow has referred to the battle as a “special military operation” to “denazify” Ukraine, though the assault has only strengthened NATO unity and has even led to a possible expansion of the alliance with historically-neutral Finland and Sweden.

The U.S. has provided $10.6B in military assistance to President Volodymyr Zelenskyy’s government since the beginning of the Biden administration, including 19 lots of weapons taken directly from stocks in the Defense Department. Washington today is set to announce another aid package worth about $3B, to train and equip Ukrainian forces to fight for years to come. Meanwhile, international sanctions continue to remain in place on Russia, though analysts feel the damage will be felt over time and the economy is still a long way away from collapsing.

Elsewhere: The war has led to soaring inflation and a cost-of-living crisis in Europe, but rising energy and food prices have yet to undermine Western unity. The euro has even fallen below parity with the U.S. dollar after Russia’s announcement that it would halt gas supplies via the Nord Stream 1 pipeline for three days at the end of August. Investors are nervous that the move can exacerbate an energy crisis that has weighed on the currency, as well as a European Central Bank that is still hesitant to get too aggressive due to fears about a recession.

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