Your future likely hinges on the stock market. If you’re invested in an IRA or 401(k), then your retirement savings grow or plummet along with the market. If you’re compensated in company stock, your net worth is tied not just to a salary, but also shareholders’ views of the company.
Two stories this week explain why this fundamental element of our economy is kind of loony. Let’s start with what might end up being the most interesting market story of the year: the incredible rise and fall of Nintendo’s stock thanks to Pokemon Go.
Let’s summarize: On July 6, when the mobile game was released in the U.S., Nintendo shares were trading for $17.63. On July 18, they hit $37.37 — a 112 percent jump in 12 days. Many were hailing Nintendo, which distributed the first Pokemon games, for successfully entering mobile gaming and innovating with augmented reality.
Too bad that investor confidence wasn’t rooted in fact. Investors eventually realized that Nintendo is neither the owner of the Pokemon franchise (that’d be the Pokemon Co.) nor did it develop Pokemon Go (Niantic gets credit for that). Nintendo has stake in both companies, but it was only getting a small cut of the game revenues.
Cue the share-price plummet — Nintendo’s stock closed at $25.01 yesterday.
Pokemon Go‘s effect on Nintendo’s shares show that a stock’s performance can be rooted in emotion rather than logic. So you’d think using a metric as finicky as stock performance to compensate executives might be a bad idea, no?
Au contraire! Companies are increasingly including stock in CEO compensation packages, which Bloomberg opinion writer Barry Ritholtz says is silly. As Ritholtz points out, research has shown external factors have a greater influence on a company’s share price than its own performance. So if a stock-compensated logistics CEO does a less-than-stellar job, she would nonetheless benefit handsomely if the economy is humming and more companies are shipping goods.
There is also risk associated with stock compensation, and workers bear the brunt of it. One of the easiest ways to boost a stock price is to boost earnings per share; if earnings aren’t going up, costs can come down. Ergo, a CEO could quite easily trigger a stock buyback or cut costs through layoffs, which would likely increase her compensation.
So rest easy, dutiful worker, knowing that much of your net worth hinges on emotions and external factors your company has no control of.
Cloud to the Rescue
A quick primer for newcomers to the area: The Pacific Northwest used to make a ton of money from timber (you may have noticed there are trees here), but then stuff like depressed housing starts, non-wood building materials, and environmental regulations pretty well gutted some timber towns.
One such town is Prineville, a small central-Oregon town. But there’s been an economic resurgence thanks to an unlikely ally: Facebook.
Cloud computing has a physical presence, and companies are turning to rural, land-rich locales with cheap power (see Quincy, Washington) to build servers because, well, there ain’t much space to do so in Silicon Valley and Seattle.
So when Facebook needed to build two data centers, it picked Prineville (not having to pay property tax for 15 years helps). The result: a much-needed economic boost to the town. Unemployment in Prineville dropped from 20 percent after the recession to 6.8 percent today. More jobs are to come — Apple’s building a data center there, too.
It sounds like a diversification story, but the tech firms could end up with just as much clout as the extraction industry in these towns. The companies are leveraging it, too. In Cheyenne, Wyoming, Microsoft is lobbying for more clean energy development to power its massive data center there.
Elsewhere on the Web
Are we too wrapped up in the Trans-Pacific Partnership?
If you’re a smartphone expert who lives in Redmond, you might want to look for a new job.
Looks like Nintendo will release a tablet gaming device, and Wired thinks that’s a good idea.
Software startups claim to be world-changers, but it’s the consumer-products startups that are really changing the economy.
Quote of the week: “Tesla has a lot of trouble attracting machine-learning talent. They don’t have a cafeteria, for example.”
Headline of the week: “Uwajimaya’s future CEO had to compete with 18 cousins for the job.”
Wired gets all sciency on food, and it’s great.