Will Inflation Last Into 2023? Global CEOs Say Yes, While Key Price Indicator Hits Record Level

Inflation is worrying chief executives globally, according to a survey released Thursday by the Conference Board, a business research group, and data shared by the U.S. Bureau of Labor Statistics on Thursday backs their concerns.

Key Facts

Some 55% of CEOs expect higher prices to last until mid-2023 or beyond next year, according to the survey.

Rising inflation is the second-most common external business worry for CEOs, trailing only disruptions caused by Covid-19, after being just the 22nd most cited concern in Conference Board’s 2021 poll.

Supply chain bottlenecks were the most common explanation for the rising prices among CEOs, and 82% of respondents said their businesses were impacted by rising input costs, such as raw materials or wages.

The poll was conducted between October and November of last year among 917 CEOs in the U.S., Asia, Europe and South America.

Big Number9.7%. That’s how much the Producer Price Index, a measure tracking the prices manufacturers pay for goods, rose in 2021, the highest year-over-year increase since the Bureau of Labor Statistics began calculating the statistic in 2010. The PPI is considered a forward-looking indicator for consumer prices, meaning that the highest inflation U.S. consumers have faced in four decades could climb even further.

Tangent

The Conference Board survey found that the U.S. has faced unique labor issues during the pandemic. Labor shortages were considered the top external threat to business by U.S. respondents as a record number of Americans quit their jobs, but were not higher than third on the list of CEOs from other countries.

A primarily remote workforce is also a mostly American phenomenon: More than half of American CEOs said that they expect 40% or more of their workforce to work remotely after the pandemic, compared with just 31% of CEOs from Europe and 17% of CEOs from Japan.

Further Reading

Inflation Surge Is on Many Executives’ List of 2022 Worries (Wall Street Journal)

Inflation Spiked Another 7% In December—Hitting New 39-Year High As Fed’s Price Concerns Rattle Markets (Forbes)

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I’m a New Jersey-based news desk reporter covering sports, business and more. I graduated this spring from Duke University, where I majored in Economics and served as sports editor for The Chronicle, Duke’s student newspaper.

Source: Will Inflation Last Into 2023? Global CEOs Say Yes, While Key Price Indicator Hits Record Level

The Critics:

The 48 professional forecasters surveyed by the National Association for Business Economics were asked when the so-called core inflation rate (which leaves out food and energy prices) might return to the 2% range that the Federal Reserve targets (and that was commonplace before the pandemic).1 Right now the rate—as measured by the year-over-year change in the Bureau of Labor Statistics’ Personal Consumption Expenditures price index—is 4.1%, the highest since 1991.23

Most respondents said it would take at least until the second half of 2023, including more than a third who forecast 2024 or later. Since the survey was conducted in mid-November—before the omicron variant of COVID-19 was identified—it doesn’t account for how that news might impact their outlook.

The Federal Reserve has determined that roughly 2% is a healthy middle ground for inflation, one that enables a strong economy without hurting people’s buying power too much. The longer inflation stays hotter than that, the more likely the Fed is to do things to put a lid on it,4 like raise the benchmark federal funds rate. That rate influences all kinds of other interest rates, impacting the cost of borrowing on credit cards, mortgages, and other loans.5

Inflation has been double that 2% sweet spot because of the pandemic’s disruptions to supplies and the labor market. It’s hard for businesses to manufacture and transport enough goods to satisfy consumers’ unusually voracious demand for stuff.

Personal income grew 0.5% in October compared with the month before, as wage increases more than made up for declines in unemployment benefits from the government following the expiration of pandemic-era relief programs, the Bureau of Economic Analysis said Wednesday in its monthly report on income and spending.1

People were inclined to spend the extra pocket money, as inflation-adjusted spending accelerated for a third month, rising 0.7%. They also saved less of their disposable income—7.3%, compared with 8.2% in September—staying within pre-pandemic norms and a far cry from April 2020, when the saving rate hit 33.8%.23

All that extra money didn’t go as far as it might have, though. The report also showed core inflation (not including food and energy) rising to 4.1% from a year ago, compared with 3.7% in September, hitting its highest level since 1991. That was in line with what forecasters at Moody’s Analytics had expected, possibly signaling that elevated inflation isn’t going away anytime soon.

“Inflation is no doubt a headwind, but in October at least, it was not enough to stop consumers from spending,” economists at Wells Fargo Securities said in a commentary.

Crypto Prices Tumble Again After $300 Billion Sell-Off—How Low Can Bitcoin Go?

The price of bitcoin fell to a three-month low Saturday, continuing a slide that began Wednesday when the Federal Reserve sparked a broad sell-off by cautioning it may move more quickly than previously expected to reverse policy meant to bolster the economy during the pandemic, and experts forecast the latest crypto market drawback is likely to go on for weeks.

Bitcoin fell as much as 3% to below $41,000 by 1:45 p.m. ET, according to crypto data website CoinMarketCap, bringing its losses to more than 12% since the Fed warned it may move more aggressively to remove pandemic-era stimulus as it looks to combat high levels of inflation.

In a weekend email, analyst Yuya Hasegawa of cryptocurrency broker Bitbank cautioned he expects the world’s largest cryptocurrency could continue falling until the broader market, which has similarly struggled since the Fed’s Wednesday announcement, digests the likelihood of the Fed hiking interest rates as soon as March.

Hasegawa said bitcoin could fall as low as $40,000 in the near term, but that the government’s consumer price index report due out next Wednesday could bring a rebound if it shows inflation spiked more than expected, stoking the inflationary fears that have lifted bitcoin to new highs as recently as November.

On Thursday, crypto billionaire Mike Novogratz, the CEO of financial services firm Galaxy Digital, told CNBC the selloff could push bitcoin down another 8% from current prices to as low as $38,000—a level unseen since early August.

“I’m not nervous in the medium term but we’re going to have a lot of volatility in the next few weeks,” the staunch bitcoin bull said told CNBC, before pointing to booming institutional adoption as a bullish indicator for the nascent space.

Novogratz wasn’t alone among billionaire crypto investors cheering bitcoin on during its latest sell-off: “So. much. money. patiently waiting to [buy the dip] in bitcoin,” Barry Silbert, the founder and CEO of crypto firm Digital Currency Group, wrote on Twitter Saturday afternoon.

Bitcoin was far from alone in falling Saturday afternoon. Over the past 24 hours, ether, binance coin and sol were down 5%, 6% and 3%, respectively—pushing losses to roughly 20% apiece over the last week.”Bitcoin remains vulnerable to a breach of the $40,000 level, and it could get bad for ether if it breaks the $3,000 level,” Oanda Senior Market Analyst Ed Moya wrote in a Friday email. Ether prices clocked in at about $3,034 on Saturday.  “The long-term outlook is still bullish for both the top two cryptocurrencies, but the short-term is looking ugly.”

Despite bitcoin’s bouts of intense volatility, Goldman Sachs co-head of global foreign exchange Zach Pandl wrote in a note to clients this week that the cryptocurrency could top $100,000 in the next five years. Pandl said he expects bitcoin’s share of the crypto market, currently about 41%, “will most likely rise over time as a byproduct of broader adoption of digital assets” and that the cryptocurrency will increasingly compete with gold as a hedge against inflation.

$1.9 trillion. That’s the value of all the world’s cryptocurrencies Saturday afternoon, down more than $300 billion, or 14%, since Wednesday and more than $1 trillion below an all-time high of $3 trillion in November. Over the last five years, bitcoin prices have skyrocketed about 4,300%.

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I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business journalism and economics while working for UNC’s Kenan-Flagler Business School as a marketing and communications assistant. Before Forbes, I spent a summer reporting on the L.A. private sector for Los Angeles Business Journal and wrote about publicly traded North Carolina companies for NC Business News Wire. Reach out at jponciano@forbes.com. And follow me on Twitter @Jon_Ponciano

Source: ‘Looking Ugly’: Crypto Prices Tumble Again After $300 Billion Sell-Off—How Low Can Bitcoin Go?

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SEC Issues New Guidance on Measuring Cost of ‘Spring-Loaded’ Stock Awards

The Securities and Exchange Commission on Monday issued new guidance on how companies should recognize and disclose compensation costs associated with spring-loaded awards, which are stock options or other awards granted to executives shortly before market-moving news is announced.

The U.S. securities regulator advised companies to fully consider the impact that significant nonpublic news could have on the value of spring-loaded awards when measuring the related cost. The guidance is related to options and other stock awards companies issue just prior to unveiling a sunny earnings forecast, a major acquisition or other information that could cause the awards to gain value.

Companies have for years relied on this practice, often to dole out speedy profits to executives, assuming the announcement lifts the stock price. Investors have long considered it misleading, and the SEC monitors related activity for potential securities violations. Spring-loaded options tend to be priced the same day that companies grant them.

“It is important that companies’ accounting and disclosures reflect the economics and terms of these compensation arrangements,” SEC Chairman Gary Gensler said in a statement. “This gets to the SEC’s remit to protect investors.”

The guidance follows events involving Eastman Kodak Co. ’s stock last year. Rochester, N.Y.-based Kodak’s stock surged in July 2020 to its highest level in six years shortly after the company and a federal agency announced the company was set to receive a $765 million loan to help make drugs to protect against coronavirus.

Kodak handed out options to executives the day before the loan was officially announced. Those options, some of which vested the day they were granted, soared in value with the stock. Executive Chairman Jim Continenza stood to reap more than $95 million from the stock increase if he had exercised options at then-current prices. He did not exercise his options at the time. The company has not been charged with securities violations. Eastman Kodak did not immediately respond to a request for comment.

The SEC said its staff has observed many instances of companies spring loading non-routine stock awards, a practice that merits “particular scrutiny” from executives at public companies tasked with handling compensation and financial-reporting governance issues. Under the guidance, the SEC said companies should consider whether it’s appropriate to adjust the current share price or the expected volatility for the share price when estimating the cost of its share-based payment transactions.

The regulator provided examples of scenarios in which soon-to-be-public companies and businesses accounting for certain financial instruments could measure the cost of these awards. For example, public companies cannot retrospectively apply their method of estimating the costs to awards it granted while they were private. That’s because it would require companies to make estimates of a prior period, which could vary widely from estimates it previously would have made, the SEC said.

SEC accounting guidance differs from rules in that it is interpretations and practices that the corporate-finance division and office of the chief accountant adhere to in overseeing disclosure requirements.

 Some top executives in recent years have manipulated stock prices to increase their option compensation, including through spring loading and other awards practices, according to academic research by three finance professors published last year tracking 1,500 publicly traded companies from 2007 to 2012.

Spring loading continues to be widespread because companies still have an incentive to release bad news before an options grant and good news after, said Robert Daines, professor of law and business at Stanford University and one of the study’s researchers along with Grant McQueen of Brigham Young University and Rob Schonlau of Colorado State University.

“The stock price is artificially low for a relatively long period of time right around their grant in a predictable way,” he said, referring to spring loading.

The SEC guidance around spring loading doesn’t go far enough, said Paul B.W. Miller, emeritus professor of accounting at the University of Colorado at Colorado Springs. Like other U.S. accounting standards on share-based compensation, it doesn’t convey the true value transferred to companies’ employees, he said.

“Any answer that fails to present the full value of the options as compensation expense when granted is unsuitable,” Mr. Miller said.

Source: SEC Issues New Guidance on Measuring Cost of ‘Spring-Loaded’ Stock Awards – WSJ

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Will Cryptocurrency Face a Quantum Computing Problem?

“If current progress continues, quantum computers will be able to crack public key cryptography,” writes CNET, “potentially creating a serious threat to the crypto world, where some currencies are valued at hundreds of billions of dollars.” If encryption is broken, attackers can impersonate the legitimate owners of cryptocurrency, NFTs or other such digital assets.

“Once quantum computing becomes powerful enough, then essentially all the security guarantees will go out of the window,” Dawn Song, a computer security entrepreneur and professor at the University of California, Berkeley, told the Collective[i] Forecast forum in October. “When public key cryptography is broken, users could be losing their funds and the whole system will break….”

“We expect that within a few years, sufficiently powerful computers will be available” for cracking blockchains open, said Nir Minerbi, CEO of quantum software maker Classiq Technologies. The good news for cryptocurrency fans is the quantum computing problem can be fixed by adopting the same post-quantum cryptography technology that the computing industry already has begun developing.

The U.S. government’s National Institute of Standards and Technology, trying to get ahead of the problem, is several years into a careful process to find quantum-proof cryptography algorithms with involvement from researchers around the globe. Indeed, several cryptocurrency and blockchain efforts are actively working on quantum resistant software…

A problem with the post-quantum cryptography algorithms under consideration so far, though, is that they generally need longer numeric encryption keys and longer processing times, says Peter Chapman, CEO of quantum computer maker IonQ. That could substantially increase the amount of computing horsepower needed to house blockchains.

The real quantum test for cryptocurrencies will be governance structures, not technologies, says Hunter Jensen, chief technology officer of Permission.io, a company using cryptocurrency for a targeted advertising system… “It will be the truly decentralized currencies which will get hit if their communities are too slow and disorganized to act,” said Andersen Cheng, chief executive at Post Quantum, a London based company that sells post-quantum encryption technology.

A quantum attack algorithm permutes and combines the wave functions of the qbits in a way to arrive at the right answer being the most likely. Run it a few times and the most likely answer will be the most common.

We know of two primary algorithms, Shor’s and Grover’s. Grovers reduces the complexity of a dictionary lookup to the square root of the normal complexity. So effectively halves the key size. Shor’s solved the dlog and factoring problem efficiently breaking RSA and ECC public key systems.

The approaches to making post quantum secure algorithms for Grover is to increase the key size. The approach for public key systems involves coming up with new public key systems based on other mathematics for which you can show there is no permutation or combination of the qbit wave functions that will yield and answer.

That part is a solved problem and there are many such algorithms, however the other problem is you have to show that your quantum secure algorithm is also secure from conventional cryptanalysis and this is where many promising algorithms (E.G. ones without ridiculous key sizes) have failed. The others will never make it anyway because they require silly amounts of data to be sent back and forth. Check out the NIST post quantum cryptography contenders for the current leaders in the pack.

Ignore any idiot telling you to just double encrypt – it doesn’t solve the public key problem and a block cipher is a bijective mapping. A bijective mapping applied to another bijective mapping is just another bijective mapping which will not upset Grover’s algorithm much. The problem space is in the realm of public key cryptography.

Source: Will Cryptocurrency Face a Quantum Computing Problem? – Slashdot

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Future of College Will Involve Fewer Professors

At a large private university in Northern California, a business professor uses an avatar to lecture on a virtual stage. Meanwhile, at a Southern university, graduate students in an artificial intelligence course discover that one of their nine teaching assistants is a virtual avatar, Jill Watson, also known as Watson, IBM’s question-answering computer system. Of the 10,000 messages posted to an online message board in one semester, Jill participated in student conversations and responded to all inquiries with 97% accuracy.

At a private college on the East Coast, students interact with an AI chat agent in a virtual restaurant set in China to learn the Mandarin language. These examples provide a glimpse into the future of teaching and learning in college. It is a future that will involve a drastically reduced role for full-time tenured or tenure-track faculty who teach face to face.

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I forecast this future scenario and other trends in my 2021 book “Human Specialization in Design and Technology: The Current Wave for Learning, Culture, Industry and Beyond.” As a researcher who specializes in educational technology, I see three trends that will further shrink the role of traditional college professors.

1. The rise of artificial intelligence

According to a 2021 Educause Quick Poll report on AI, many institutions of higher education find themselves more focused on the present limited use of AI – for tasks such as detecting plagiarism or proctoring – and not so much the future of AI.

AI’s use in higher education has largely been concerned with digital assistants and chat agents. These technologies focus on the teaching and learning of students.

In my view, universities should broaden their use of AI and conduct experiments to improve upon its usefulness to individual learners. For example, how can colleges use AI to improve student learning of calculus or help students become stronger writers?

However, most universities are slow to innovate. According to a 2021 poll, some of the challenges to acquiring AI included lack of technical expertise, financial concerns, insufficient leadership and biased algorithms.

Rensselaer Polytechnic Institute and Massachusetts Institute of Technology are leading the way with new uses of AI. In an immersion lab staged as a food market in China, Rensselaer virtually transports students learning Mandarin Chinese into this market to interact with AI avatars. MIT has devoted millions of dollars to faculty research in AI. One of MIT’s projects – called RAISE, for Responsible AI for Social Empowerment and Education – will support how people from diverse backgrounds learn AI, and human learning in general.

Professors from the baby-boom generation are retiring, and I expect some of their jobs will not be filled. In many cases, these coveted positions will be replaced by part-time and temporary faculty. I believe the rising use of AI will contribute to this trend, with universities relying more on technology than in-person teaching.

2. Erosion of academic tenure

Tenure is a status that grants professors protections against being outright fired without due cause or extraordinary circumstances. However, the pandemic became a means to dismiss, suspend or terminate tenured faculty. For example, the Kansas Board of Regents in January 2021 voted to allow emergency terminations and suspensions – including for tenured faculty – to alleviate financial pressures placed on universities by the pandemic.

News reports continue to show a steady decline in the number of tenured faculty positions. According to an American Association of University Professors report, the proportion of part-time and full-time nontenure-track faculty grew from 55% in 1975 to 70% in 2015. Conversely, the proportion of full-time tenured and tenure-track faculty fell from 45% to 30% in that period.

Universities used the pandemic as a reason to override and diminish the power of shared leadership with faculty. That included voiding faculty handbooks, regulations and employment contracts.

Ultimately, the pandemic was an opportunity for universities to downsize unproductive faculty and keep “active practitioners.”

3. The flipped classroom

The flipped classroom provides students with opportunities to view, listen and learn at their own pace through video instruction outside the classroom. It has been around since at least 2007.

This teaching approach is similar to the way people learn from one another by watching videos on YouTube or TikTok. However, in college the flipped classroom involves prerecorded faculty lectures of course content, whether that be on the causes and effects of the Civil War or the origins of white rice. In class, students build on the professor’s prerecorded lecture and work on activities to assist discussions and expand knowledge.

The classroom becomes a place for social interaction and understanding course content. The flipped classroom maximizes instructional time for the professor and students because the lecture comes before the course’s in-class session.

As an example of the operation of a flipped classroom, a professor records a video on a subject area. This allows the same video to be viewed by one student or thousands of students. A human teaching assistant, avatar or chat agent conducts all in-class activities, tests and group work. No additional professors are needed to teach multiple sections of the same course. Professors, in this example, serve a limited role and ultimately will be needed less.

These trends illustrate a profession that I see as being on the cusp of radical transformation.

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Source: Future of college will involve fewer professors

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