Yes, Passive Investing Has Exploded. But Here’s Why Fears of a Bubble are Overblown

https://fortune.com/2019/09/14/passive-investing-stock-market-bubble-etfs/

The tidal wave of money pouring into index funds and ETFs has always been a concern to the asset management industry. Sporting rock bottom fees and yielding often superior returns, these fund vehicles have become something of an existential threat to asset managers.

Now those concerns are morphing from career risk to market risk. Michael Burry, the hedge fund manager who became famous from the Michael Lewis book The Big Short (and was later played by Christian Bale in the movie version), recently compared index funds to the toxic CDOs he made so much money shorting when the real estate bubble blew up. Burry claims the flows into index funds are distorting stock and bond markets, and when those flows reverse “it will be ugly.”

As long ago as 1991, legendary hedge fund manager Seth Klarman dismissed indexing as just another Wall Street fad. “When it passes,” he said, “the prices of securities included in popular indexes will almost certainly decline relative to those that have been excluded. When the market trend reverses, matching the market will not seem so attractive. The selling will then adversely affect the performance of the indexers and further exacerbate the rush for the exits.”

So these comparisons are nothing new from big-name traders. Still, individual investors ought to pay close attention when they read headlines about famous investors calling for a crash coming—especially when it involves funds so many people are now invested in. But the concerns about a bubble in passive investing are overblown. Here’s why:

No rip-off fees, no problem

It’s odd that some people think it’s somehow a bad thing investors are shifting money into funds that:

  • save them money in fees
  • are more tax-efficient
  • have lower turnover and trading costs
  • beat the majority of actively managed funds over the long-term
  • are simpler and easier to understand than most investment strategies

It’s also bizarre to classify as a bubble the idea that more investors are actively avoiding the search for alpha by thinking and acting in a long-term perspective. It’s like worrying about McDonald’s sales if we were all to swear off junk food.

Wouldn’t it be more worrisome if investors were piling into the opposite scenario—into funds with high fees that are tax inefficient and routinely underperform simple market averages over time?

The tail is not wagging the dog 

There’s a lot of fuss around mutual funds and ETFs. But, truth be told, ownership of the stock market goes far beyond these two vehicles. Vanguard founder John Bogle provided a breakdown on index ownership in his latest book:

Yes, U.S. index funds have grown to huge size, with their holdings of U.S. stocks doubling from 3.3% of their total market value in 2002, to 6.8% in 2009, and then doubling again to an estimated 14% in 2018. Other mutual funds now hold an estimated 20% of corporate shares, bringing the mutual fund total to almost 35%, the nation’s most dominant single holder of common stocks.

So, index funds represent less than 15% of share ownership in public companies. And, according to former Vanguard CEO Bill McNabb, indexing in stocks and bonds globally represents less than 5% of global assets.

Given that, it’s not at all provocative to wonder: Why aren’t people more worried about active managers then? Surely, they’re just as likely—if not more—to torpedo the markets. No?

Vanguard and iShares have experienced massive growth over the past two decades, seeing trillions of dollars worth of inflows. But this doesn’t mean indexing is a brand new phenomenon. It’s just being packaged in a cheaper wrapper now.

Professional money managers have been closely tracking their benchmarks for decades now. The upshot? These index funds and ETFs are quickly becoming benchmarks of their own for active fund managers. Furthermore, very few actively managed funds deviate much from those benchmarks because being different eventually leads to under-performance. And that’s what gets you fired in the asset management business.

Career risk may be one of the greatest market inefficiencies, one people seldom talk about. And because career risk is an enduring reality, closet indexing will be with us for some time.

Pensions and other large institutional investors add to the phenomenon. They have been creating their own index funds in-house for years. We’re just seeing a shift from the institutional practice of closet-indexing to a brimming marketplace for ETFs and other index funds as investors have wisened up.

Isn’t it a good thing investors are shifting away from expensive closet index funds?

Active funds literally own the market

When you buy an index fund of the total stock market, you are literally buying the stock market in proportion to the shares held by all active investors. If you sum up the collective holdings of active managers, what you essentially get is a market-cap-weighted index. Index fund investors are simply buying what the active investors have laid out for them.

Plus, we have to remember that not every cent flowing into index funds is going directly to the S&P 500 or a total market fund. Most of the money is going there but there are also index funds for small caps, mid caps, value, growth, sectors, themes, and everything in-between.

Many of the worries about indexing really boil down to career risk in the asset management space. By taking themselves out of the game through the direct purchase of index funds, there are now fewer suckers at the poker table for the pros to take advantage of.

Isn’t it a good thing then that most small investors have decided not to bother competing with the professional active managers who, it turns out, largely trade with one another?

Price discovery is a cop-out

Don’t feel sorry for the active management community. It will never completely go out of business. It’s far too lucrative and tempting for type-A personalities to prove themselves.

But people worry that as index funds continue to gain market share, the price-discovery mechanism could become fragile. This is nonsense. There’s plenty of price-discovery going on in the markets. In fact, you could probably make the case there’s too much of it these days.

Fifty years ago or so, for example, the entire trading volume of listed stocks on the New York Stock Exchange was 3 million shares. Today, Apple has an average trading volume of roughly 26 million shares a day. Facebook turns over more than 16 million shares a day, on average. The biggest stock market ETF (SPY) averages nearly 70 million trades a day.

Active managers will always set the prices, no matter how many there are. Charley Ellis wrote in his book, The Index Revolutionthat indexing accounts for less than 5% of trading, with the remaining 95% or so done by active investors. This will always be the case, no matter the amount of money flowing into index funds.

Here’s the NYSE volume by year:

Mind you, I’m not complaining about the increase in volume. This is a good thing because it lowers trading costs and decreases bid/ask spreads.

But what’s a more worrisome trend for individual investors—people who have decided to trade less, or people who have decided to trade more?

Yes, index funds are free-riders, but so what? 

Cliff Asness wrote a wonderful piece for Bloomberg a few years ago about the idea of index investors being free riders:

The use of price signals by those who played no role in setting them may be capitalism’s most important feature. That most of us and most of our dollars don’t have to pick stocks, or to price air conditioners, is a great benefit and taking advantage of it makes us honest smart capitalists, not commissars.”

Yes, index investors are free riders, but this is the way most markets work. We don’t go to the grocery store to bid on prices of oranges against one another to set an equilibrium. The market does that for us.

It’s also worth pointing out the success of indexing doesn’t mean all active management is inherently useless or bad. In fact, Vanguard itself still a ton of money in active funds. Here’s the breakdown of assets in index funds for the firm (also from Bogle’s book):

The trend is easy to spot, but the firm still has more than $1 trillion in actively managed funds. They just happen to manage their active funds using strategies that employ low turnover, long holding periods, and lower than average fees.

Wouldn’t it be a net positive then for the end investor should the surge in indexing force the asset management industry to adapt?

Liquidity is not a problem for index funds

One of the big worries is what happens if everyone who has piled into these funds in recent years decides to reverse course and rush to the exits all at once? There will always be investors that panic when markets fall, regardless of the type of fund they’re invested in.

When an index fund investor sells, they’re technically selling their holdings in direct proportion to their weighting in the index. So the market impact is muffled. It’s worth repeating: index fund investors are simply owning stocks in the proportion that all active investors own stocks.

Plus, index funds never lever up your holdings. They never receive a margin call. They don’t put 30% of your holdings in Valeant Pharmaceuticals. And no index fund has ever closed up shop to spend more time with the family.

Why then would index funds or ETFs be any different than any other fund type or security in that respect?

People love attaching a narrative to ups and downs of the markets. Index funds have been the perfect scapegoat in a market that has gone up for 10 years, and pretty much outperformed every other strategy. This won’t last forever. But the next time the market tanks, it will have more to do with investors than index funds.

Do you know what did not cause the Great Depression, or the Japan stock market crash ,or the 1987 crash, or the 1973-74 bear market? Index funds. Index funds also weren’t around for the South Sea Bubble on the 1700s.

Do you know what did cause these historic bubbles and crashes? Human nature.

Could the stock market itself become a bubble yet again? Of course. There will always be bubbles.

Are index funds perfect? No. They give you all of the upside of the stock market. And all of the downside. And, indexes can go nowhere for years on end just like individual stocks. They can become overpriced and underpriced. They own the good stocks and the bad stocks.

But that’s nothing new. That’s the stock market for you.

This passive bubble talk is silly. Wake me up when index funds control 90% of the stock market.

Ben Carlson, CFA is the Director of Institutional Asset Management at Ritholtz Wealth Management.

More must-read stories from Fortune:

—Deutsche Bank CEO on European Central Bank: “Negative rates ruin the financial system”
September is historically the worst month for stocks. Will 2019 follow the pattern?
—Why the next recession may feel very different than 2008
—Here’s what it would take to get to “win-win” with China on trade
”Zombie” companies are on the rise–and they could pose a threat to the U.S. economy
Don’t miss the daily Term Sheet, Fortune’s newsletter on deals and dealmakers.

Supreme Court’s Asylum Decision: Who Will Be Impacted

https://fortune.com/2019/09/12/supreme-court-asylum-vote-decision/

Bolstering President Donald Trump on one of his signature issues, the U.S. Supreme Court cleared his administration to enforce a new rule designed to sharply limit who can apply for asylum at the U.S.-Mexico border.

The justices said Wednesday the administration can apply the policy while a legal challenge goes forward. A series of lower court rulings had put the rule on hold.

“BIG United States Supreme Court WIN for the Border on Asylum!” Trump said on Twitter.

Justices Sonia Sotomayor and Ruth Bader Ginsburg dissented. They said the rule “topples decades of settled asylum practices and affects some of the most vulnerable people in the Western Hemisphere — without affording the public a chance to weigh in.”

The justices in the majority gave no explanation, following the court’s frequent practice when acting on emergency filings.

In a statement on Wednesday night, the White House said the decision means that “the administration can implement important, needed fixes to the broken asylum system. This greatly helps build on the progress we’ve made addressing the crisis at our southern border and will ultimately make American communities safer.”

Donald J. Trump@realDonaldTrumpBIG United States Supreme Court WIN for the Border on Asylum! apnews.com/a817cf3affb04f…

Sent via Twitter for iPhone.

View original tweet.

The policy affects people who travel to the U.S. through Mexico from Central America. People crossing the southern border won’t be able to seek asylum unless they previously applied for protection from one of the countries they passed through.

The administration told the Supreme Court the rule “alleviates a crushing burden on the U.S. asylum system by prioritizing asylum seekers who most need asylum in the United States.”

The American Civil Liberties Union, representing four nonprofit organizations, sued to challenge the rule, which it said would virtually eliminate asylum at the southern border.

“Allowing the ban to go into effect would not only upend four decades of unbroken practice, it would place countless people, including families and unaccompanied children, at grave risk,” the ACLU argued in court papers.

U.S. District Judge Jon Tigar had blocked the Trump administration’s approach. Tigar, who sits in Oakland, California, said the rule couldn’t be squared with U.S. immigration law and the system Congress established for asylum applications.

An appeals court temporarily trimmed that order so that it applied only in California and Arizona, the two border states within the court’s jurisdiction. But that decision left room for Tigar to restore the nationwide scope of his ruling, something he did on Monday.

The White House statement called his decision an “egregious ruling.”

In December, a divided Supreme Court refused to let Trump start automatically rejecting all asylum claims by people who cross the southern border illegally. The policy would have effectively required all asylum claims to be made at official ports of entry.

The vote in that case was 5-4, with Chief Justice John Roberts joining the court’s liberal wing in the majority.

The new case is Barr v. East Bay Sanctuary Covenant, 19A230.

More must-read stories from Fortune:

Will gaffes hurt Biden’s chances of a 2020 win? Strategists are divided
—These are the 2020 senate races to watch
Facebook and Google met with U.S. intelligence about 2020 election
MSNBC climate change forum will give a voice to those denied the DNC debate stage
—Is Biden preparing to lose in Iowa? His campaign says the caucus isn’t a must-win
Get up to speed on your morning commute with Fortune’s CEO Daily newsletter.

Why One of Asia’s Richest Men Is Buying a British Pub Business Right Before Brexit

https://fortune.com/2019/08/24/li-ka-shing-ck-asset-greene-king/

Li Ka-Shing, one of Asia’s richest men, has long been revered for his timing. So what does it say about the future that his flagship real estate fund is pouring windfall gains from Hong Kong real estate into a struggling U.K. pub landlord?

CK Asset Holding, the flagship property company of Li Ka-Shing and his heirs, said this week it had agreed to buy Greene King, a venerable brewer based in Suffolk in southeast England, for 4.6 billion pounds ($5.5 billion).

That came after a month in which political unrest in Hong Kong wiped nearly $3 billion off the market value of Li family’s assets. (No wonder the 91-year-old patriarch took out full-page ads in local newspapers last week calling on both sides for calm.) By coincidence, it was the same month that the British pound had its lowest daily close against the dollar in 34 years, as foreign exchange markets priced in the growing likelihood of a disruptive no-deal Brexit.

At first glance, then, a good time for the concerned to get out, and a good time for the brave to get in.

However, those trying to sell the tale as a simple story of recycling flight capital are at risk of over-simplifying. Li, worth some $30 billion as of June, started to reduce his risk in Hong Kong over 30 years ago by re-domiciling his principal holding company in Bermuda well before the U.K. handed its colony back to China in 1999. In 2015, when he restructured his business empire, he set up new holding companies in the Cayman Islands, likewise well beyond the reach of the Chinese Communist Party.

Heading west

The Lis have appeared to move their money westwards more quickly since 2014. That was the year when Hong Kong’s population flocked to the streets to protest reforms to the city’s electoral law, which gave Beijing the right to screen candidates for the Legislative Council. Within a year, the family sold off chunks of its retail and electricity holdings to Singaporean and Qatari sovereign wealth funds, bought U.K. rolling stock company Eversholt Rail, and bid $14 billion for mobile network operator O2, controlled by Spain’s Telefonica, hoping to merge it with its own telecom assets that operate under the ‘3’ brand. EU antitrust regulators blocked that deal, however.

At the same time, the Lis were looking to exit some of their most valuable assets in Hong Kong and China. CK Asset sold the Century Link building in Shanghai for just under $3 billion in 2016, and then The Center in Hong Kong for $5.15 billion in 2017, the biggest ever single-property real estate sale at the time.

UBS HQ at 5 Broadgate
5 Broadgate, home of UBS’s new headquarters in London, is one of Li Ka-Shing’s recent investments. (Simon Dawson—Bloomberg via Getty Images)

Simon Dawson—Bloomberg via Getty Images

Last year, CK redeployed $1.3 billion of that on 5 Broadgate, a piece of prime commercial real estate in the city of London that houses Swiss bank UBS. With the Greene King deal, much of the rest of the windfall has now also found a home.

Unsurprisingly, the Lis play down any suggestion of deserting their homeland. (CK did not return Fortune‘s request for comment.) Presenting CK Asset’s first-half results earlier this month, Victor Li, who now runs the business his father founded, reminded analysts that CK was still the biggest Hong Kong-based investor in the Chinese mainland.

However, he acknowledged that “the Hong Kong property market will continue to be volatile and cyclical.” He stressed that the company wants a steadier, recurrent revenue profile, from which it can pay out dividends more reliably.

Betting on Britain

But does a British brewer and landlord, on the eve of what could be the biggest external shock to hit the economy in decades, really fit that bill? The country seen its pub count decrease by 11,000 in the last decade, according to the Office for National Statistics. Profits across the industry are under pressure from rising minimum wages and changing consumer habits. Brits are drinking less, and when they do drink, it’s increasingly at home.

Beer Production At Greene King Plc's Brewery Ahead Of Results
U.K. pubs, like those in the Greene King chain, are facing pressure from higher minimum wages and changing consumer habits. (Chris Ratcliffe—Bloomberg via Getty Images)

Chris Ratcliffe—Bloomberg via Getty Images

“Stable cash flow is not what I’m seeing,” says Nick Burchett, a portfolio manager with Cavendish Asset Management in London, a Greene King shareholder. “If we get a hard Brexit and it starts hitting people’s pockets, the first thing to go is the meal out at the pub for the whole family.”

Whatever one’s views on Brexit, the fact is that CK is paying a pre-Brexit price for a post-Brexit asset. The last time the Greene King stock traded at the offer price of 850 pence was in the week before the U.K. voted to leave the EU in June 2016. Since then, shares have fallen some 40%, as British equities have fallen out of favor with international investors, and the U.K. has gone from being the fastest-growing economy in the G7 to the slowest.

But, as Burchett points out, the deal can still easily add up from CK’s perspective, especially as a real estate play rather than a brewing and hospitality one. He argues that many of the company’s pubs have “little pockets of land” around them that could easily be redeveloped profitably. As long ago as 2016, CK had bought over 136 of the company’s pubs on a sale-and-leaseback basis.

“They obviously like what they see and think there’s a lot of value embedded in the balance sheet,” Burchett told Fortune.

Another way of explaining the premium paid would be that U.K.-focused assets (not least sterling) are simply oversold, even when accounting for Brexit risks. Greene King was trading at a discount to the book value of its real estate when CK made its offer. The same was true of EI Group, another pub operator, when private equity investor Stonegate snapped it up for 3 billion pounds (including debt) a month ago. Tellingly, Marston’s, another brewing-cum-hospitality group, has risen 16% since CK’s move on its rival.

Either way, with the scheduled Brexit deadline barely two months away, Li Ka-Shing won’t have to wait long to see whether he’s still got it when it comes to timing his big bets.

More must-read stories from Fortune:

Vietnamese egg coffee is taking North America by storm–but what is it?
—In Tesla-crazy Norway, the electric vehicle revolution is already here
Greta Thunberg is shunning transatlantic flights. Should you?
—Some Apple laptops will be banned from flying, FAA says
—Listen to our audio briefing, Fortune 500 Daily
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.

Apple Card Review: A (Mostly) Rewarding Way to Pay

https://fortune.com/2019/08/22/apple-credit-card-review/

I spent a few days hopping around New York City last week, trying to keep my wallet in my pocket. It wasn’t that I was on a tight budget. But I was testing the Apple Card, the new credit card from Apple, and according to its reward program, that’s the most lucrative way to shop.

Introduced back in March, the Apple Card is now generally available to anyone with an Apple mobile device who wants to apply.

If you use the Apple Card via the wireless, contactless Apple Pay system that is becoming increasingly popular with iPhone owners and businesses alike, you get a fairly generous return on every purchase of 2% cash back, no strings attached. That’s a bonus which lines up with the best credit cards around, from major issuers like JP Morgan Chase and Bank of America.

So when I grabbed a cup of coffee and a cookie at a cute bakery on the Upper West Side, for example, paying with the Apple Card through my iPhone earned me an almost immediate refund of 11 cents on my $5.63 purchase. (The cookie was good, too.) Later, after traipsing around on a hot summer day, I picked up a $2.87 bottle of water at CVS, also using wireless Apple Pay. Along with the hydration, I scored 6 cents cash back.

A big difference between this credit card and its competition is that unlike other rebate cards, the Apple Card’s cash reward appears almost immediately after the purchase is processed. To access these funds, you simply open the Wallet app on your iPhone, which is the home of Apple Card itself, showing your current balance, recent transactions, and other info updated in almost real time. The Wallet app also displays your “Daily Cash Balance.” These funds can be spent like a debit card on purchases using the digital Apple Pay Cash card, sent to a friend via Apple Pay, or even used to partially pay off the balance on your Apple Card.

There’s another, better benefit to using the Apple Card: Paying for purchases from Apple using the digital credit card earns 3% cash back. For example, my family’s $5 per month New York Times cooking app subscription now brings back 15 cents each month. And the $120 a year I pay for a family iCloud storage plan earns $3.60 in rewards. And if I decide finally to upgrade my aging MacBook Pro with the rumored 16-inch model coming later this year (please revamp the keyboard, Apple!), the cash back perk will be even more substantial—$90 on a $3,000 purchase, for example. There’s no other way to get such high rebates on purchases directly from Apple (though some cards affiliated with retailers like Target and Amazon will give 5%, if you’re buying Apple hardware sold at those outlets).

Taking a swipe at other cards

When using the Apple Card at establishments that aren’t set up for app-enabled, contactless payments, things get markedly less magical. To start, you have to pull the (admittedly cool looking white, titanium) Apple Card out of your wallet—and that can be a drag. Then, the rebates drop to just 1%, lagging competing cards.

A fair counterpoint, however, to the meager 1% cash back on physical card swipes is that Apple also forgoes fees that other cards charge. Apple Card has no annual, over-limit, late, or foreign exchange fees. And that’s great, because those can add up. For instance, imagine if I spent $1,000 over the course of a month on a competing card to get $20 cash back, instead of the $10 I’d get from swiping my Apple Card. Every other credit card I know of charges late fees—and one $35 late fee would quickly wipe out that $20 cash back reward, and then some. Foreign exchange fees can also add up quickly (though there are other credit cards, particularly those affiliated with airline rewards programs, that also forgo forex fees).

Assessing whether the Apple Card makes financial sense for you, therefore, requires making assumptions about how much you spend with Apple (including all your iTunes purchases and subscriptions), how often you’re able to use mobile payments, and how often you typically trigger the fees that Apple doesn’t charge.

For me, it certainly makes sense for all my Apple purchases and when I’m paying via mobile. But Apple also just added Uber as 3% rebate partner—a perk for its cardholders—and future partnerships like this could make the Apple Card more attractive at more businesses.

Even when you’re not rebate hunting or avoiding fees, the Apple Card feels like a futuristic, if long overdue upgrade to spending on plastic in the 21st century.

The application process, within the Wallet app on an iPhone or iPad, takes just a few minutes and, if you’re approved, the card is added as an option in Apple Pay immediately. The white, titanium physical card is optional, but came via FedEx within a few days after I requested one. Activating the card was as simple as holding it near my phone with the Wallet app open.

activating an apple card with an iphone

Every transaction quickly appears listed in the Wallet app on my iPhone, with a categorization (like “transportation” or “food and drink”) along with the rate of cash back I received (3% for spending with Apple, 2% for mobile payments, and 1% for everything else). Tap on any transaction, and Apple shows on a map exactly where you made the purchase. For some stores, like that CVS where I got the water, there’s even a deeper link, with all kinds of info about the business, like the phone number, hours of operation, and customer reviews. Apps for my other credit and bank cards aren’t nearly so nimble.

With a couple of teenagers out in the wild using our family credit card, it can be hard to identify who spent what where, with the typically meager information provided by the credit card company, so the geo-location info is fantastic. Of course, I can’t yet opt to switch the whole family to the Apple card—there’s no option yet to add additional cardholders to my account (a feature available with every other card I’m aware of).

Another potential perk: Apple has committed to not share cardholders’ spending data with marketers, a promise partner Goldman Sachs has also agreed to.

But there is a downside to that privacy policy. As a result of refusing to share data, information that goes into the Apple Card doesn’t come out. That means there’s no way to see it on the web or share it with other financial apps, like Mint or Personal Capital, that can help you budget and track spending across multiple bank and credit card accounts. There also doesn’t appear to be any way to generate an annual report, a helpful tool for tax preparation, though Apple could always add that feature later.

Another thing that could be added to the Apple Card later is discoloration, apparently. A close reading of the card’s care instructions has prompted concern that its white, titanium material may lose its luster when housed in leather wallets, or after rubbing against other cards. But after my initial week of Apple Card use—mostly through the app, which provides the best incentives—I can report that my “plastic” remains pristine.

With version 1.0 of the Apple Card, it’s a little hard to square the product with Apple CEO Tim Cook’s assertion of “the most significant change in the credit card experience in 50 years.” But for people who spend a lot with Apple, it’s a solid addition to your wallet—at least your mobile one.

More must-read stories from Fortune:

A rare tech company where women dominate
—Walmart CEO: VR training helped save lives in the El Paso shooting
—Can Apple afford to make its streaming video service free?
—How to compete with technology in the age of automation
Disney’s streaming service won’t be available on the most popular streaming devices
Catch up with Data Sheet, Fortune‘s daily digest on the business of tech.

How the Best Elder Care Companies Are Fighting the Talent Shortage

https://fortune.com/2019/08/22/elder-care-talent-shortage/

Laurence “Larry” Gumina’s toughest day as CEO was also a proud one for him. And one that revealed the true heart of his organization. As leader of Ohio Living, the largest nonprofit of its kind in his state, Gumina recalls receiving a fateful call one Saturday night in 2016.

Four lightning bolts had ignited flames at one of his retirement communities. Home to nearly 100 elderly residents, the building was engulfed in fire.

On the two-hour drive to the site, Gumina feared the worst. How many would be hurt? Would his elderly residents suffer casualties—or fatalities?

But when he arrived, he learned that two 17-year-old employees had evacuated everyone, carrying some elderly residents on their backs. Despite no major injuries, there was plenty of work to do. Ohio Living employees drove to the site to help coordinate replacement medicines, arrange temporary housing, and make sure residents were doing OK.

“I saw the staff in action,” Gumina recalls. “They were calm, they were focused. They were empathetic. They were spot on.”

The icing on the cake was that residents reciprocated the kindness.

“Some of those residents were consoling us. They’d lost the picture of their husband next to their bed,” Gumina says. “I remember a resident coming up to me and saying, ‘It’s OK’ What resilience.”

Such is the culture at Ohio Living. It’s an organization where even teenage employees feel empowered to jump into action, staffers pitch in during a crisis, and its elderly customers step up to comfort the CEO.

A Great Place to Work for All”

This story of Gumina’s toughest day at work shows what can happen when a corporate culture blends deep appreciation of its employees with a mission of caring and quality services for older adults.

With more than 3,200 employees representing all generations and many ethnicities, Ohio Living has invested in being a great place to work for all its staff—no matter what they do for the company.

It’s not surprising, then, that Ohio Living has earned a spot on the second annual Best Workplaces in Aging Services list. Activated Insights, the senior care division of Great Place to Work, just announced this year’s ranking in partnership with Fortune.

Over the past year, Great Place to Work and Activated Insights surveyed more than 223,000 employees across nearly all 50 states to measure the workplace experience in areas including respect, fairness, and leadership competence. Our methodology also captures how consistent an organization’s culture is across demographic groups and job levels.

Last year was the first-ever ranking of the best workplaces in the aging services industry. It revealed great variability in the employee experience at different companies and job sites. The highest-scoring location had a Trust Index employee score more than four times greater than the lowest-scoring location. Since then, the variability has not changed.

Addressing the differences in workplace culture within the aging services field is critical. Better cultures translate into better care outcomes: Our research shows that higher Trust Index scores means better care for patients and elderly individuals.

It also means better business. Great Place to Work research has found that consistently great cultures enjoy three times the revenue growth of less-inclusive peers.

Healthcare’s hidden challenge

Each year, the U.S. spends over $3 trillion annually on aging services. What is often not reported is how the aging population drives much of this spending. The Kaiser Family Foundation reports that the population over age 55 accounts for well over half of every dollar spent on healthcare.

Moreover, the quiet crisis brewing in aging services is a severe workforce shortage to care for the aging population.

Because of the difficulty in attracting and retaining people, innovation in this critical field is hindered. High turnover and a shortage of talent attracted to the aging services industry plague efforts to improve healthcare overall. It is well documented that having the same providers who know you yields better care.

Ohio Living has nearly 25 percent lower employee turnover than the industry average. During a recent state inspection of an Ohio Living facility, the government auditor asked for the personnel files of new leaders who had started working at the facility since her last visit. She shook her head in disbelief when she heard that nobody had left: It is that rare in her time as an inspector.

Better for care and better for business

Gumina believes in creating “an environment where our colleagues want to come to work every day”—and has many examples of how Ohio Living’s lower employee turnover translates into better care.

One example is in quality measures. Like many aging service providers, Ohio Living’s 12 skilled nursing facilities go through extensive licensure review for an annual grade by the Federal government. Of a 5-star perfect score, Ohio Living sites averaged 4.8. By comparison, nationally, fewer than 5% of multi-site organizations achieve this level of quality scores.

Gumina also sees culture as central to his healthcare innovation strategy: “When you create that environment [where] people stay and people flourish, you get strong outcomes.” His view dovetails with Great Place to Work research. We have found that when everyone feels invited and inspired to contribute ideas—what we call an “Innovation By All” culture—organizations see better business results.

An example of “Innovation By All” at Ohio Living involves the Toledo market. In contracting with a local provider who had organized what’s called an ACO (accountable care organization), the Ohio Living Toledo team created an innovative program to offer free home health care to any discharged patient among a group of 14,000 patients served by the ACO’s 350 physicians and eight hospitals. 

Remarkably, hospital readmission rates for these ACO patients dropped to under four percent, a remarkable feat compared to the Ohio hospital readmissions average of 17 percent.

Under ACO payment terms, the physicians shared in Medicare profits from these avoided readmissions. These physicians were so pleased with the demonstrated outcomes that they recommended Ohio Living to more patients.

Ohio Living’s gamble of giving free care has paid off handsomely. Gumina reports that this Toledo business unit has more than doubled in revenues, averaging over 20 percent in organic growth per year.

Yet even when talking about organizational performance, Gumina focuses on the people. “We solidified long-standing relationships with these physicians,” he says. “But most importantly, we kept people home safely and securely.”

The impressive results stem from deep investments into recognizing each person for their contributions.

It’s a philosophy of embracing employees so warmly that they’ll be ready for any future four-alarm fires facing the organization.

“It’s the people who make the difference,” Gumina says. “When we have talent come into this organization, we want to wrap our arms around them.”

Read the full list of the Best Workplaces in Aging Services.

Dr. Jacquelyn Kung is CEO of Activated Insights, a Great Place to Work company. Ed Frauenheim is senior director of content at Great Place to Work, Fortune’s research partner for its Best Workplace lists, including the Best Workplaces in Aging Services. Frauenheim also is co-author of A Great Place to Work For All.

How the U.S. Is Building an Unprecedented Mountain of Debt

https://fortune.com/longform/united-states-federal-national-debt-over-time/

Piling up debt in times of tumult is a strategy with a long, successful history in the U.S. When confronted with wars or cataclysmic downturns, the government borrows heavily—driving up debt relative to U.S. GDP—and rebalances after good times return. But a decade after the most recent crisis-driven borrowing binge, the Great Recession, U.S. debt continues to soar. According to the Treasury Department, federal borrowing is set to hit $1.23 trillion in 2019 on top of $1.34 trillion in 2018. Absent major legal or policy changes, the Congressional Budget Office projects the debt-to-GDP ratio will rise into uncharted territory in decades to come.

Sources: Congressional Budget Office; Treasury Department

A version of this article appears in the September 2019 issue of Fortune with the headline “Building a mountain of debt.”

More must-read stories from Fortune:

Fortune Change the World 2019: See which companies made the list
—America’s CEOs seek a new purpose for the corporation
—Someday, Apple may make your new iPhone out of pieces of your old iPhone
—Change the World 2019: Companies to watch
Q&A: Walmart CEO Doug McMillon on automation, the tragedy in El Paso, and more
Subscribe to Fortune’s CEO Daily newsletter for the latest business news and analysis.

Plunge in 30-Year Treasury Bonds Spells the End of America’s Golden Age, to Some

https://fortune.com/2019/08/16/30-year-treasurys-plunge/

On Friday, the yield on a 30-year Treasury bond briefly dropped below 2% for the second time in history. The first was on Thursday.

No big damage was evident, but some were reminded of an icy economic wind: the decades-long downward trend of 30-year bond yields. The 2% mark aside, the trend may be a sign of the end of the American Dream, predicated on the idea that ongoing growth will create social mobility and let your children do better than you.

Come on now. Really?

“Yes,” said Lisa Shalett, chief investment officer for Morgan Stanley Wealth Management. “We can talk about things that are technically influencing it, but the trend line is an extraordinarily sad and depressing state of affairs.”

Since 1990, the yield of the 30-year bond—except for a 4-year period when the Treasury took it off the market—has seen a straight-line descent from a high of more than 9% to current rates around 2%.

The trend is a picture that some major money advisors have been trying to explain to their clients for years now. A combination of factors seems to herald a point where overall long-range growth is virtually nonexistent.

How bonds get priced

The U.S. Treasury Department doesn’t dictate yields. Instead, it makes bonds of a given denomination and maturity term available at auction. Bids set the final price, with “par” being the face value, and the yield. A classic example of supply-and-demand determined pricing, the more buyers, the more competition there is for the bonds. The more competition, the more people have to pay to get the bond and the less the Treasury needs offer in yield.

“We would think the steady state for the 30-year bond would equal the natural interest rate plus inflation expectations plus the liquidity and risk premium,” said Rich Higgins, an assistant professor of economics at Colgate University.

The natural interest rate is the one an economy organically exhibits from the combination of population increase, availability of natural resources, and productivity and efficiency improvements that technology bring.

To the natural interest rate, add inflation—an overall additional change in how an economy grows that can occur from many factors—and the liquidity and risk premium that people want for leaving money tied up for 30 years.

The definition explains why a sub-2% 30-year bond yield is worrying. The Federal Reserve targets the maintenance of a 2% long-term inflation rate. Subtract that from the yield and you’re losing money in real terms.

Why yields have been dropping

The easiest classical economics explanations for falling yields tend to focus on the years since the Great Recession. A global chase for money and returns has seen the U.S. as a safe haven in a world teeming with negative interest rates. The more institutions and people vying for a set number of bonds, the higher the price and the lower the yield.

“When you look at the flow data, all of the money is going into bonds and very little is going into equities,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management. During this year alone “there’s been a huge trend of investors selling equities and buying bonds,” she said.

Additionally, inflation has stayed at bay. “We haven’t seen any upward pressure on wage growth at all,” Roland said.

The economy, by an important measure, has been slowing, further reducing inflation pressure. The Conference Board’s Leading Economic Index, which declined 0.3% in June after no change in May and a 0.1% increase in April. “The latest tick for last month showed a year-over-year increase of 1.5%,” Roland said. “That compares to 7% in the fall.”

Adding psychology

But that still doesn’t explain the longer view. What does is the human psychology of expectations. “You can look at long-run productivity gains, long-run growth, and have an idea of what they’ll be,” said Rebecca Neumann, professor and director of undergraduate studies in economics at the University of Wisconsin—Milwaukee. “Then the expectations play in.”

There is even a theory in economics that “expectations of inflation drive interest rates,” Neumann said. Many people in the current economy don’t remember times of double-digit inflation and interest rates. Increasingly, they expect low inflation because that is what they’ve always seen, creating price increases and lower expectations of salary growth that helps cap inflation. The last time inflation was over 10% was in 1981. People under 39 weren’t even alive then, let alone aware of how it can go.

Changing demographics play in ways other than memory. “About 20 years ago we put out research we called the race to zero based on long-term demographic trends,” said Michael Collins, a senior portfolio manager for fixed income at global investment management company PGIM. “Interest rates are really correlated to growth, which is correlated to the growth of the labor market.”

But labor markets have been shrinking in Japan for 20 years and in Europe for 10. Now they’ve begun to in China and the U.S. Prices tend to drop as average age increases, according to Collins, which is anti-inflationary.

The message isn’t one that many take kindly to. “People look at us like we’re crazy,” Collins said.

The ultimate result of low interest rates has what Shalett sees as a potentially inescapable implication.

“Economists can talk about money flow and people are buying the 30 year to hedge against stocks or they’re running away and escaping negative yields in other countries,” Shalett said. “But the reality is that someone buying a 30-year bond today that a 2% dividend—which is supposed to include some growth, inflation, and some risk—is willing to accept a 2% yield as a good investment. That means they aren’t all that excited that there are a lot of good investments out there that are going to return 4%, 5%, 10%, 20%. When you have bond prices that low and staying there, that’s a sad state of affairs.”

It may be the end of growth as we’ve come to expect it. But don’t call this the new normal. We’re living through the new abnormal.

More must-read stories from Fortune:

—What people get wrong about artificial intelligence and China
—Will Apple will absorb tariffs on Chinese-made products?
—Is it “only human” to feel anxious about money? Talking finance with Sophia the Robot
—The currency that’s quietly emerged as Asia’s safest bet
—Listen to our audio briefing, Fortune 500 Daily
Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.

Tiny Luxembourg Is Having a Big Brexit Moment

https://fortune.com/2019/08/10/brexit-luxembourg-business/

If you haven’t found time to revisit Luxembourg—a tiny European state governed by a Grand Duke—in fifteen years, you may not recognize it now.

For decades, the country’s capital, called Luxembourg City, was a sleepy medieval city whose tranquil streets were home to a secretive finance industry.

But now its roads regularly resemble a jammed metropolitan highway—signs of a finance industry resurgence that has become far more visible.

“My dad’s generation is particularly bitter about this,” says Nathalie Weiss, a marketing manager at Vodafone, who grew up in the country. Her father is frustrated with the overcrowding on the roads, but she’s delighted with the renaissance, she admits. And in any case—she doesn’t expect an imminent slowdown.

“Especially with developments like Brexit, that doesn’t look like it’s going to happen any time soon,” she says.

As Britain prepares to leave the EU, companies are jostling to ensure that business is not disrupted. Many are choosing Luxembourg as a base within the bloc, putting the country on track to be a relocation runner-up, alongside places like Ireland, France and Germany, which all have vastly larger populations.

Old town of Luxembourg at night
The fortress and the old city center of Luxembourg are on the list of UNESCO World Heritage sites. (Nicolas Economou/NurPhoto via Getty Images)

Nicolas Economou—NurPhoto via Getty Images

The country offers companies a lucrative ecosystem. But the companies offer Luxembourg something, too—a chance to be a fully-fledged financial capital, just years after unflattering revelations about its tax system, known as the “LuxLeaks” scandal, drew a furious global backlash.

Birth of a finance hub

The Grand Duchy of Luxembourg, as it is officially called, is a small constitutional monarchy sandwiched between Germany, France and Belgium, with a Grand Duke instead of a king.

Home to about 600,000 people in an area slightly smaller than Rhode Island, it is best known for its imposing medieval castles, multilingual citizens (they speak French, German and Luxembourgish), and historically secretive finance industry.

Until the 1960s, steel production dominated the country’s economy. But when the EU introduced rules in the 1980s making it easier for asset managers to sell mutual funds to retail investors, the government embraced the changes more quickly than larger financial hubs did, sowing the seeds for the growth of a globally influential finance hub.

Notre-Dame Cathedral In Luxembourg
Notre-Dame Cathedral in Luxembourg. (Nicolas Economou/NurPhoto via Getty Images)

Nicolas Economou—NurPhoto via Getty Images

That embrace, however, coupled with an infamous system of tax loopholes, led to a reputation of a tax haven for multinationals and the super-rich. In 2014, the “LuxLeaks” revelations identified hundreds of companies, many of them household names like Amazon and FedEx, as receiving massive tax breaks.

Amazon in a statement at the time said that it had “received no special tax treatment from Luxembourg” and that it is “subject to the same tax laws as other companies operating [there].”

A FedEx spokesman at the time said the logistics company serves hundreds of countries and territories and is often required to establish legal entities in many of them, and had not used its entity in Luxembourg to reduce its tax base.

Following the backlash, the country adopted strict new rules on banking secrecy, and the finance industry has tried to reinvent itself as a thriving, transparent center for capital markets in a post-Brexit world. It’s starting to reap the benefits: today some of the world’s best-known tech companies, including eBay, Skype, and Paypal, have their European headquarters in Luxembourg and others are relocating to the country almost every month.

All the while, Luxembourg has remained a major asset management hub: the country is the second-largest market outside of the U.S., with an estimated 4 trillion euros ($4.5 trillion) worth of assets domiciled in the country.

A continental runner-up

The U.K.’s 2016 vote to exit the European Union later this year could mean that British financial firms lose their “passporting rights” that allow companies in EU member states to service clients across the bloc.

Luxembourg Grand Ducal Family Celebrates National Day 2019
Grand Duke Henri of Luxembourg, center, rules Luxembourg in place of a king. (Photo by Patrick van Katwijk/Getty Images)

Patrick van Katwijk—Getty Images

Many banks have already chosen hubs like Dublin, Frankfurt, Paris, and Amsterdam to secure a foothold in the EU post-Brexit, but Luxembourg’s capital is outstripping rivals many times its size.

According to an analysis published earlier this year by think tank New Financial, 275 firms in the U.K. have already moved or are moving some of their business, staff, assets, or legal entities from the U.K. to the EU in preparation for Brexit. Around 250 of those companies chose specific “post-Brexit hubs” for their EU business.

While Dublin ranked No. 1 with around 100 relocations, Luxembourg scored a solid second with some 60 relocations—nearly a quarter of the Brexit-related moves.

The Brexit shift has mainly bolstered two traditional areas of the finance industry: asset management and insurance, where the Duchy already has a well-established global presence.

Statistics released by the Luxembourg financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), showed that Luxembourg gained 10 authorized investment fund managers in 2017—the most recent official data available—bringing it to a total of 306 entities.

In its annual report published in March, the Luxembourg insurers’ association said that it had welcomed 15 new corporate members, including London’s Hiscox and RSA, growing its total membership to 84 companies. In 2017, U.S. insurer AIG said that it would be setting up a subsidiary in Luxembourg as a direct response to Brexit.

The country has also snagged a major player in the e-payments field: Alipay, the online payments business of China’s Alibaba. Already licensed in London, Alipay received an electronic money license in Luxembourg in January. Though the company didn’t directly cite Brexit as a reason for the move, many analysts at the time noted that it was likely driven by the U.K.’s expected exit from the bloc.

“ManCos” and taxes

What’s lured business to Luxembourg in the Brexit era? The country has its advantages: extensive existing finance infrastructure and tax conditions that are favorable compared to some peers, along with good connections to other transit hubs, a cosmopolitan feel, and English-language schools.

A major draw for asset managers has been the prevalence of Luxembourg’s third-party management companies or “ManCos,” which are regulated special purpose vehicles that enable businesses outside the EU to easily launch Europe-domiciled mirrors of funds managed in other parts of the world.

According to a study by professional services firm PwC, Luxembourg is today home to over 300 ManCos, a number that has increased 4.5% over the last year.

Though the country has historically been plagued with a reputation for being a tax haven, its standard rate today is broadly in line with—or even higher than—many other European hubs. For example, the combined Luxembourg City corporate tax rate is about 25%—lower than France’s roughly 33%, but far higher than Ireland’s standard 12.5% rate. Nonetheless, the Tax Justice Network, a group campaigning for tax transparency, in May published a report putting Luxembourg sixth in a ranking of 64 countries based on the ease of cutting corporate tax bills. Luxembourg’s No. 6 spot doesn’t mean its tax rate is the sixth-lowest in the world, but it does suggest that Luxembourg offers more loopholes than other countries for multinational firms trying to keep their tax bills to a minimum.

‘Bursting at the seams’

As the country looks to establish itself as a post-Brexit hub, it does face come constraints. One is the end of banking secrecy laws that underpinned much of its finance industry in the wake of the LuxLeaks revelations. New laws that went into effect in 2017 have made it easier for authorities to identify illicit cash flows and tax evasion.

Critics have said those changes might dent Luxembourg’s appeal, but government officials argue that tightening regulations and conforming to international standards will only bolster the country’s place in the global financial landscape in the long run.

Nicolas Mackel, head of Luxembourg for Finance, the country’s agency for the development of the industry, argues that the shift has increased Luxembourg’s credibility as a finance center for major companies and made its finance industry more stable.

“As a financial institution looking to relocate, you simply go where it makes sense to go,” says Mackel. “Luxembourg is a real hub for stability and that’s what businesses value.”

Luxembourg City’s size is another barrier to consider. Like other small cities that have experienced rapid growth, it is now facing the prospect of too few schools and home prices that are too high.

Nicki Crush, director at the International School of Luxembourg, says that her school has experienced an overall increase in international applications, including from the U.K. “But at this point ISL has no plans to increase its infrastructure,” she said.

In 2018, the average sale price for a home rocketed 11%, while the cost of renting soared 16% for houses and 10% for apartments, according to property portal atHome.lu.

Meanwhile, the population of Luxembourg is expected to exceed one million by around 2061 or 2062, a jump of more than 66% from today’s levels, according to the EU’s statistics agency. Brexit could intensify the situation. Even though many companies have already implemented their relocation plans, some are still waiting for more clarity before casting a decision.

Many residents say drastic action is needed for the country to maintain its competitiveness amid the demographic swelling. One proposal is to release land not originally zoned for housing and to create higher density developments like high-rise buildings.

“Luxembourg is simply bursting at the seams,” said Charles, a local taxi driver who declined to give his last name. “It’s all good and well to be known as a post-Brexit haven. But if we can’t even sort out the basics like traffic and housing then no one will want to live here. That’s just the way it is.”

More must-read stories from Fortune:

Vietnamese egg coffee is taking North America by storm–but what is it?

Energy company earnings suffer in the gas glut era

—The U.S.-China trade war is forcing prunes to rebrand as a superfood

—The currency that’s quietly emerged as Asia’s safest bet

—Listen to our audio briefing, Fortune 500 Daily

Catch up with Data Sheet, Fortune‘s daily digest on the business of tech.

Why Business Confidence is Plummeting: the ‘Chaotic’ Environment Makes Planning Problematic

https://fortune.com/2019/08/09/business-confidence-plummeting/

It’s hard to find an optimist these days.

Business confidence, measured by the Business Confidence Index (BCI), decreased some 1.3% in June from the same month last year. And according to the index, June’s 99.82 reading is just below the 100-mark, indicating a pessimistic bent.

Those numbers reflect uncertainty over how trade may affect expenditures and supply chain dynamics. Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, told Fortune in a note that trade concerns are “paramount to souring business confidence,” and could “hasten the downturn” if they escalate.

There are a few main causes for concern.

Growth in the U.S. services sector slowed to three-year lows for July, as business orders reflect the anxiety many are increasingly feeling toward the overall economy. And to make matters worse, slowing manufacturing growth has bled into non-manufacturing sectors as well. According to the Institute for Supply Management’s (ISM) report released Monday, July U.S. non-manufacturing index growth decreased from 55.1 in June to 53.7 (the lowest reading since August 2016), and non-manufacturing business activity also decreased by 5.1% from June readings.

“For an economy that is so heavily dependent on the service sector, this is a particularly troubling release,” Ian Lyngen, head of U.S. interest rates strategy at BMO Capital Markets, wrote in a note.

And Lyngen is right—the services sector comprises 70% of the U.S. economy, and slowed growth signals corporations are concerned about trade and could continue being cautious in the face of China uncertainty. And “while buoyant until recently, further weakness in services sector PMI readings could yet portend further downside risks to the U.S. economy,” Peter Donisanu, investment strategy analyst at Wells Fargo Investment Institute, told Fortune in a note.

The culprit: uncertainty

The “chaotic environment makes planning for businesses problematic,” according to Robert Johnson, professor of finance at Heider College of Business, Creighton University. He told Fortune in a note that’s what leading to lower hiring numbers and less spending. He also suggests that the tariffs “put pressure on corporate earnings and the likelihood of a corporate earnings recession has also increased.”

While employment data is still relatively strong, payroll gains have slowed since last year, and many experts suggest it may be due to questions over trade.

“If you’ve got companies that get concerned about where the future is leading, they’ll get cautious on their hiring plans, and that will lead to a rise in unemployment and consumers will start to pull back,” Dec Mullarkey, head of investment strategy for SLC Management, tells Fortune.

To boot, capital expenditures (or capex), grew only 2% last year and is expected to grow only 3% in 2019, according to the S&P Global Ratings’ Global Corporate Capex Survey. These weaker expenditures are “thin gruel after years of stimulus and means that capex will not offer much help in sustaining the current economic cycle,” writes S&P Global’s Gareth Williams. And SLC’s Mullarkey believes companies aren’t going to spend on capex until there is a clearer path forward with China.

Additionally, Morgan Stanley suggests that, since two-thirds of the goods to be tariffed in the latest levy are consumer goods, the new tariffs could “lead to a more pronounced impact on the US as compared to earlier tranches,” Morgan Stanley chief economist Chetan Ahya said in a note to investors. “Trade tensions have pushed corporate confidence and global growth to multi-year lows.” And according to a recent report, Morgan Stanley suggests economic growth and weak earnings are already being impacted by waning business confidence.

As corporations weigh how to act, Bankrate.com’s chief economic analyst Mark Hamrick believes the latest trade escalation “shifts the point of strain … on the shoulders of the consumer,” Hamrick told Fortune.

However, while growth is slowing, it is still considered expansionary (as any reading above 50 indicates). With services sector growth just barely above that 50-level mark at 53.7, the expansion continues…albeit showing signs of strain.

More must-read stories from Fortune:

—What people get wrong about artificial intelligence and China

Apple will absorb tariffs on Chinese-made products, analyst says. Apple stock says something different

—Is it ‘only human’ to feel anxious about money? Talking finance with Sophia the Robot

—The currency that’s quietly emerged as Asia’s safest bet

—Listen to our audio briefing, Fortune 500 Daily

Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.

‘We Will WIN Anyway.’ Trump Calls Federal Reserve Incompetent

https://fortune.com/2019/08/07/trump-fed-cut-interest-rates/

President Donald Trump stepped up his relentless assault on the Federal Reserve in a series of Wednesday morning tweets that renewed his demand for “bigger and faster” interest-rate cuts.

“Incompetence is a terrible thing to watch, especially when things could be taken care of sooo easily. We will WIN anyway,” he said. “It would be much easier if the Fed understood, which they don’t, that we are competing against other countries, all of whom want to do well at our expense!”

Donald J. Trump@realDonaldTrump“Three more Central Banks cut rates.” Our problem is not China – We are stronger than ever, money is pouring into the U.S. while China is losing companies by the thousands to other countries, and their currency is under siege – Our problem is a Federal Reserve that is too…..

Sent via Twitter for iPhone.

View original tweet.

Concerns over an escalating trade war between the U.S. and China have shaken financial markets and increased bets the Fed will follow a quarter-point cut it made last week with further easing in coming months. The benchmark S&P 500 index was down 1.6% as of 9:55 a.m. in New York and the 30-year Treasury yield closed in on an all-time low.

Read more: World Economy Edges Closer to a Recession as Trade Fears Spread

“They must Cut Rates bigger and faster, and stop their ridiculous quantitative tightening NOW. Yield curve is at too wide a margin, and no inflation!” Trump said. The Fed last week ceased its gradual shrinking of the balance sheet, which the president calls quantitative tightening.

He also called attention to three central banks that cut rates earlier Wednesday — India, New Zealand and Thailand, though he didn’t name them in the tweet — and said, “Our problem is not China – We are stronger than ever” before returning to his familiar complaint against the U.S. central bank.

Donald J. Trump@realDonaldTrump….proud to admit their mistake of acting too fast and tightening too much (and that I was right!). They must Cut Rates bigger and faster, and stop their ridiculous quantitative tightening NOW. Yield curve is at too wide a margin, and no inflation! Incompetence is a…..

Sent via Twitter for iPhone.

View original tweet.

“Our problem is a Federal Reserve that is too proud to admit their mistake of acting too fast and tightening too much (and that I was right!)”

The Fed lowered rates on July 31 for the first time since 2008 in a move aimed at sustaining the record-long U.S. economic expansion amid uncertainties stemming from the trade dispute and weakening global growth. Those tensions jumped up a notch when Trump announced the next day that he was prepared to widen tariffs against China on Sept. 1, and Beijing retaliated.

Donald J. Trump@realDonaldTrump….terrible thing to watch, especially when things could be taken care of sooo easily. We will WIN anyway, but it would be much easier if the Fed understood, which they don’t, that we are competing against other countries, all of whom want to do well at our expense!

Sent via Twitter for iPhone.

View original tweet.

Chairman Jerome Powell called the cut a “mid-cycle adjustment” rather than the start of a long campaign of easing, though he later clarified that he did not mean to imply that meant only the one move. Investors took the view that deeper Fed easing was needed and U.S. stocks fell.

The Fed, for its part, is pushing back against the notion that the outlook is so grim, pointing to the lowest unemployment in about 50 years. St. Louis Fed chief James Bullard, speaking in Washington on Tuesday, said that “U.S. monetary policy cannot reasonably react to the day-to-day give-and-take of trade negotiations,” and reiterated that, at the moment, he only has one more quarter-point cut for his 2019 forecast.

Trump’s latest attack repeats a series of complaints for this president, who has broken with almost 30 years of White House tradition of staying publicly silent on the central bank out of respect for its independence. The four still-living former Fed chairs issued a joint plea in a Wall Street Journal op-ed this week to maintain the central bank’s independence from short-term political pressures.

More must-read stories from Fortune:

—Why the U.S. labeled China a currency manipulator

—How Trump’s plan to import Canadian drugs would work

What you need to know about 8chan, the controversial site tied to the El Paso shooting

—After the El Paso shooting, a call for stronger protections for Mexicans in America

—Listen to our audio briefing, Fortune 500 Daily

Get up to speed on your morning commute with Fortune’s CEO Daily newsletter.