What we’re reading (1/29)
“Are We In Another Housing Bubble?” (Paul Krugman, New York Times). “[T]he case for a bubble isn’t nearly as compelling as it was in 2005 or 2006. That doesn’t mean that all is well. Real estate people I know tell me that there’s still a feeling of unhealthy frenzy, and people who paid high prices for small-town houses may regret it once supply chains get unsnarled and more houses get built. But this time is different.”
“A Market Crash Will Depend On Which Bit Of The Equation Investors Got Wrong” (Financial Times). “Of the 29 business cycles in the US since 1881 only a few have ended in [periods of exterme valuations], according to Professor Russell Napier. But, while each has had its own peculiarities, the basic driver has been much the same: the ability of investors to believe absolutely in something that always turns out to be impossible. Namely that, thanks to some ‘marvels’ of technology, corporate profits will stay high (and probably rise) indefinitely and that interest rates will also stay low indefinitely. In most cycles investors do not think this. They assume cyclical normality — that fast economic growth will lead to capacity constraints and then to inflation and rate rises, something that would slow both economic growth and crimp corporate profits — bringing down valuations.”
“ARK Short Sellers Make $999 Million To Eclipse All Gains In 2021” (Bloomberg). “Rising bond yields and a hawkish pivot by the Federal Reserve have laid waste to the kind of speculative tech stock beloved by ARK in recent months, dragging down [Cathie] Wood’s funds and creating a bonanza for anyone betting against her. While a small bounce in U.S. stocks brought some temporary relief on Friday, her flagship ARK Innovation ETF (ticker ARKK) has still tumbled more than 25% year-to-date.”
“US Equity Factors Post Wide Range Of Losses So Far In 2022” (The Capital Spectator). “Although all the primary US equity factors are posting losses so far in 2022, in line with the broad market, the declines vary by a substantial degree. The market’s overall beta risk, in other words, has been minimized or exacerbated, suggesting that building portfolios based on factor offers investors more control over risk management compared with conventional diversification strategies.”
“Hedge Fund Melvin Lost $6.8 Billion In A Month. Winning It Back Is Taking A Lot Longer.” (Wall Street Journal). “At the worst point in January 2021, Melvin Capital Management was losing more than $1 billion a day as individual investors on online forums such as Reddit banded together to push up prices of stocks Melvin was betting against. ‘We were in a terrible position. Stared death in the face,’ Mr. Plotkin told employees in a Zoom meeting late that month. ‘But we’ve made it through.’ The damage, though, was severe. Melvin’s loss that month was 54.5%, or roughly $6.8 billion, one of the swiftest and steepest declines for a hedge fund since the financial crisis of 2008.”
