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So you want the 411 on stagflation…

So you want the 411 on stagflation…

Yet another word that ends in -ation

Srivindhya Kolluru
June 13, 2022

Good morning. The vibes in the Canadian (and global) economy have sort of been off lately...or have they? Figures such as the rate of unemployment and gross domestic product have been reflective of a resilient economy in Canada.

So, what's up with the people (including 66% of Canadians) who think we're in a recession? This Vox story digs into the phenomenon.

In this edition:

🏦 Stagflation 101 🛍 Tobi’s throne

- Vindhya Kolluru, Editor

* Market data as of 8:00 pm ET Sunday, June 12.

ECONOMY

Rising inflation is causing a stagflation scare

Credit: PiggyBank / Unsplash

You’ve heard from us for a while now that we are likely headed into a global recession caused by the perfect storm of the COVID-19 pandemic, the supply chain crisis and the war in Ukraine. In addition to the recession, inflation is high and on the rise, causing the cost of most goods and services to increase at alarming rates. Now, experts are warning that all these economic shocks may lead to stagflation.

What is stagflation?

Stagflation describes a rare mix of slow economic growth, rising inflation and high levels of unemployment. Normally in an economic decline, governments encourage consumers to spend in order to boost economic growth. When stagflation occurs, households are not able to buy more because the average cost of goods rises and lower levels of employment mean that disposable income is low for many households.

The term became widely used in the 1970s when stagflation took hold of the U.S., and other parts of the world including Canada, for a decade caused by a declining post-war economy and a global oil crisis.

(My undergrad macroeconomics professor would be very proud of me right now!)

So, what’s happening in Canada to address it?

Canada’s central bank is pushing forward with aggressive monetary policy to try to fight against inflation. Tiff Macklem, governor of the Bank of Canada, just announced that the policy rate could rise to more than 3% this year to tackle inflation after recently bumping the benchmark to 1.5%. On top of that, Canadian banks have been quick to issue bonds to provide lower risk and flexible investment options during this time of uncertainty. Luckily, experts are saying that even if stagflation becomes a reality, it’s unlikely to be as bad as what happened back in the 1970s and 1980s.

In short, the 2020s continue to be a decade of anomalies.

— Sydney Piggott

On our radar

Over in the media world, Kara Swisher left The New York Times and returned to Vox, and NPR named Juana Summers the co-host of the “All Things Considered” news program.
‘Lush Life’ singer Zara Larsson bought back her back catalogue masters and launched a new record label named Sommer House, which will allow her to own and control the release of her music moving forward.
Peloton has tapped Amazon Web Services executive Liz Coddington to step into the role of the exercise start-up's chief financial officer (CFO). Coddington will replace Jill Woodworth, who has served as Peloton’s CFO since 2018.
Julie Wainwright, the founder and CEO of TheRealReal, an online luxury resale platform, has left the company after 11 years at the helm. Her departure comes at a time when TheRealReal is struggling to become profitable.
Los Angeles-based e-commerce platform Gander, led by 26-year-old Kimiloluwa Fafowora, closed a $4.2 million seed round co-led by venture capital (VC) firms Harlem Capital and Crossbeam Venture Partners last week. Fafowora joins the small (around 250), but growing list of Black women who have raised $1 million or more in VC funding.
Toronto-based 1Password hired Erin Zipes as the first chief legal officer of the password management app. Zipes was previously at Shopify as VP and Assistant General Counsel.

TECH

Power...I must have more power

Credit: Unsplash

Shopify CEO Tobias "Tobi" Lütke gained 40% voting power of the Canadian tech company following a vote by shareholders on June 8 — albeit by a close margin of just ~54% in favour of the decision (Lütke needed at least two-thirds support). Depending on which side of the coin you look at, more voting power for a founder CEO can be a good or bad thing in a public company.

Let’s break it down: Typically, within a public company, one common stock share owned generally translates to one vote during major decisions. However, it’s becoming more common for tech companies or companies with a founder CEO that chooses to take their company through an initial public offering (aka IPO, which takes a private company public to raise capital and allows it to be traded on the stock market) to divide their shares into differing classes (most commonly class A and class B shares); where each class can be given separate voting powers.

Generally, class A shares are available to insiders — such as founders, family members and key founding management individuals — such that these individuals have greater voting power over the remaining shareholders owning Class B (or C or D, etc) shares.

Keeping the decision-making power in the fam

From the company’s perspective, granting more power to the founder CEO, management committee or other insiders allows those running the company the power to still make decisions and can even protect the company from being acquired during times when the price is low or from activist investors (think Twitter and Elon Musk). Many founders of companies hesitate to even take their companies public for fear of losing control of their company being taken over from them.

But critics may say…granting particular individuals more voting power disarms the shareholder from having a say, and can be detrimental if the CEO screws up big time or is mismanaging the company. With public companies, the shareholders are technically the part owners of the company so it should only be fair that for whatever percent of the company one owns, that should give them that same percentage of power to make decisions.

The bottom line: What the right answer comes down to is whether or not the founder CEO, like Lütke, has the company’s right interests in mind (i.e. that greed doesn’t get the best of them). Given that the shareholders who had the power to vote did vote in favour of Lütke retaining 40% power suggests that they believe he is trustworthy.

— Jodi Jillayne Anderson