What we’re reading (7/13)
“Robert Shiller Warns That Urban Home Prices Could Decline” (CNBC). More from Nobel Laureate Robert Shiller (of Case-Shiller Home Price Index fame). Per Shiller, the “benefits of city living,” such as restaurants, museums or theater shows, are increasingly questionable, especially in a climate elevated asset prices across the board.
“Bridgewater Loses Claims It Brought Against Ex-Employees Who Launched Hedge Fund” (Wall Street Journal). Besides being the biggest hedge fund in the world and popularizing the unique managerial philosophy known as “radical transparency” (a nice euphemism for all kinds of authoritarian labor practices), “bwater” is also known for asserting trade secrets misappropriation against ex-employees when they branch off to do their own thing. This time, Bridgewater lost.
“Nasdaq Sinks 2%, And Broader Stock Market Ends Negative In A Stunning Monday Reversal In The Final Hour of Trade” (MarketWatch). Things got a little spicy out in Silicon Valley on Monday afternoon.
“Tesla Stock Is More Than 100% Overvalued, Warn Top Wall Street Analysts” (Observer). We don’t exactly have a lot of confidence in Wall Street analysts here at Stoney Point, but we also don’t expect Tesla to find its way into our Prime picks any time soon.
“Kanye West at 2% In First National Poll Since Announcing Presidential Run” (Spin). To be “radically transparent,” not exactly sure if this is fake news or not. But if you’re on the long-volatility side of the market, things could be looking up for you.
“How Dollar Stores Became Magnets For Crime And Killing” (ProPublica). Dollars stores are having a day—but, allegedly, on the backs of poor communities.
What we’re reading (7/12)
“Wall Street’s Earnings Forecast: Cloudy With a Chance of Turbulence” (Wall Street Journal). S&P 500 constituents have been pulling guidance (their advice to the Street on upcoming earnings results) as a result of the Covid pandemic, resulting in the widest dispersion in analysts’ estimates since before Lehman went down in 2008.
“Get Ready For an Awful Earnings Season” (CNN Money). Speaking of earnings reporting, CNN is reporting that “analysts predict that earnings for the S&P 500 plummeted nearly 45%, which would be the biggest drop since a 69% plunge during the depths of the Great Recession in the fourth quarter of 2008. Revenues are expected to have fallen more than 10%. Retailers, energy companies and industrial firms likely reported the biggest declines in sales and profit.”
“Not An Earnings Care In The World — At Least Not Yet” (The Briefing). Another hot take on the upcoming earnings season. The author points out the irony in earnings likely to have fallen off a cliff while the S&P 500 keeps going up. Recall, though, it’s not earnings that matters for share prices, per se, but rather cash flows, and future cash flows at that. If you slash capex and headcount at the same time your earnings are going down, the overall hit to cash flow may not be all that bad.
“Hedge Funds Duel In Bankruptcy Court Over McClatchy Newspapers” (Dealbook). A couple of hedge funds are vying to take control of one of the “nation’s largest and most decorated newspaper chains” in its Chapter 11 restructuring proceedings.
“The Tech Stock Rally Is Getting Scary. Why There’s No Way To Escape It” (Barron’s). Per Barron’s: “Like an Escher drawing hanging in a student’s dorm room, the stock market has begun to look rational and irrational simultaneously. Nowhere is that more obvious than in the Nasdaq Composite. The tech-heavy index has gained 18% this year, after practically ignoring the explosion of Covid-19 cases in places like Florida and Texas. It ended the week with three consecutive highs, and for good reason[.]”
What we’re reading (7/10)
“How Is Rent The Runway Still in Business? Founder Moved Quickly, Cut Deep” (Wall Street Journal). Rent the Runway went hard in terms of scaling back in the face of COVID. Per the Journal “[t]he company’s costs were slashed by 51%, and half the workforce was furloughed or laid off.” Apparently, the cuts are paying off (for the shareholders, it should be noted, obviously not for the furloughed).
“Stocks Generate Big Gains and Bigger Questions” (New York Times). The Times isn’t buying the rebound: “[a] powerful rally during drastically deteriorating economic conditions has left the market richly valued and facing great uncertainty.”
“Supreme Court Rules that About Half of Oklahoma is Native American Land” (NPR). In a 5-4 decision (Gorsuch, Sotomayor, RBG, Kagan, and Breyer in the majority), SCOTUS ruled that “about half of the land in Oklahoma is within a Native American reservation.” Huge implications for past and future state criminal cases in regions (including much of Tulsa) occurring in now-explicitly Native American lands.
“When Wall Street Analysts Scream ‘Buy,’ the Smart Money is Already Way Ahead of Them” (MarketWatch). Wall Street analysts (the ones that write research reports in equity research groups at major investment banks and independent research shops) tend to be “followers [rather] than leaders.” Hulbert (the author) points out some good reasons why. Another possible reason he doesn’t mention: the analysts want to stay on executives “good sides” so they get that next call to go golfing or to Tahoe or to Art Basel, et cetera. This ought to be obvious to anyone who’s read an earnings call transcript that starts off with the effusive “before I get to my question, just want to say, really great quarter guys, really impressive” or similar congratulatory nonsense.
“Could the United Kingdom Become an Emerging Market?” (CNN Money). According to CNN, “[s]ome analysts on Wall Street are beginning to wonder whether a volatile currency, declining global clout and a reliance on foreign investors could relegate the United Kingdom to ‘emerging market’ status.” Awfully silly conjecture, in our opinion. See the previous article: said “analysts” are often terribly wrong.
What we’re reading (7/9)
“Palantir, One of Silicon Valley’s Oldest Startups, Files to Go Public” (Wall Street Journal). For half a decade, the data analytics company co-founded by Peter Thiel and credited with helping the U.S. kill Osama bin Laden has “teased the market” with potential stock offering. Now, the company has announced it has submitted draft registration papers with the Securities and Exchange Commission to do just that.
“Understanding the Pandemic Stock Market” (Project Syndicate). A thoughtful article by Nobel Laureate Robert Shiller. Per Shiller: “stock-market movements are driven largely by investors’ assessments of other investors’ evolving reaction to the news, rather than the news itself. That is because most people have no way to evaluate the significance of economic or scientific news. Especially when mistrust of news media is high, they tend to rely on how people they know respond to news. This process of evaluation takes time, which is why stock markets do not respond to news suddenly and completely, as conventional theory would suggest. The news starts a new trend in markets, but it is sufficiently ambiguous that most smart money has difficulty profiting from it.”
“Wirecard May Have Laundered Money In Addition To Making It Up” (Dealbreaker). Besides the saga of the $2 billion that doesn’t exist, which has now been widely discussed in the media, apparently some of the non-made-up money passing through Wirecard may have been laundered. Sounds like the FBI is in on the action, which (allegedly!) involves a German national living in Florida operating an unlicensed money-transferring business serving illicit online gambling profiteers.
“Once You’re Out of the Market, It’s Tricky Getting Back In” (New York Times). Time in the market beats timing the market, as they say: “…instead of abruptly abandoning stocks when they decline, shrewd investors will view market drops as an opportunity to buy — and have the financial wherewithal to withstand short-term losses. But many people act against their own interests[.]” It’s all fake losses until you sell, right?!
“Producer Price Index: What To Know In Markets Friday” (Yahoo! Finance). U.S. producer prices (a measure of prices based on prices received by producers for their products rather than the prices paid by consumers, like the CPI) fell off a cliff at the start of the Covid-19 pandemic, but they’ve been coming back.
What we’re reading (7/8)
“How the Second Half of 2020 Could Be Even ‘Messier’ Than the First” (New York Daily News). The incremental $600 weekly unemployment benefit under the CARES Act expires and TBD if Congress will extend it. Mortgage delinquencies are rising fast and protections for borrowers/renters are running out. And then, among other worrying economic trends, you have additional social volatility ahead in election season. Looks like it will be as important as ever to have a sound stock-selection approach.
“China is Storing an Epic Amount of Oil at Sea. Here’s Why” (CNN). China has 73 million barrels of oil floating on 59 different vessels—three-quarters of global oil demand. Apparently, for the same reason wildcatters far and wide were getting into the oil game in 1H 2020: unprecedentedly low crude prices.
“Sequoia Capital Sails Through Fundraising to Close on $7.2 Billions” (Wall Street Journal). It usually gets tougher for asset managers to raise capital when the portfolios of the typical investors (“Limited Partners” or “LPs”) in those funds have taken a nosedive, but it seems that has not been the case for top venture funds like Sequoia recently. Apparently, LPs care about experience, and have some vague notion that experience and resilience are correlated (even though they are not as a well-document empirical fact in nature, and probably also in business, as this article we discussed a few days ago points out).
“Goldman Sachs Created a New Metric to Measure How US-China Tensions Impact Stocks, and Said That There's Still Money to be Made from the Conflict” (Business Insider). GS kindly made a “relations barometer” to help “investors” bet on and profit from the unraveling of the U.S.-China relationships. Seems like a very “vampire squid” thing to do…
“Here is Pedophile Billionaire Jeffrey Epstein’s Little Black Book” (Gawker). Dershowitz, Clinton, Courtney Love, Alec Baldwin, Ted Kennedy, David Koch, Courtney Love. It’s a big book. Take a look yourself here.
What we’re reading (7/7)
“How Investors Should Approach America’s COVID Uptick” (Fisher Investments). The epidemiological trends/developments obviously matter for markets/stocks (these developments affect all kinds of valuation inputs pertinent to measuring the present value of future cash flows). But political economic developments matter hugely too, and the policy response to the ongoing virus trends are very hard to predict.
“Our Cash-Free Future Is Getting Closer” (New York Times). Credit card companies, banks, digital payment processing platforms stand to benefit.
“Behind Oil’s Rise Is a Historic Drop in U.S. Crude Output” (Wall Street Journal). Productive wells still being shut and the very recent uptick in crude prices isn’t enough to turn U.S. producers back to profitability.
“Tesla Deliveries Beat Leads Analysts to Lift Price Targets” (Bloomberg). TSLA got a bump from analysts raising price targets after the company beat vehicle delivery expectations for the Model 3 and Model Y.
“Markets Soar, Even As Coronavirus Cases Explode” (The Hill). Lots of new COVID infections, but death toll not rising at the same clip. “Despite the coronavirus news, markets appear convinced that a full steam economic recovery is underway.”
What we’re reading (7/6)
“Are Stock Investors ‘Irrationally Exuberant’ Again?” (Wall Street Journal). Objective measures of investor sentiment suggest the market today is nowhere near as frothy/bubbly/irrationally exuberant as it was during the internet-stock boom. The article looks at the number of IPOs/average first-day returns, the extent to which companies are raising equity versus debt capital (in a bubbly market, you should see more equity raises), performance of dividend-paying versus non-dividend-paying stocks, and the average closed-end-fund discount (note: this last one relates to the NAV discount/premium concept we talked about in a prior post on transaction costs).
“ETFs Tracking the Work-From-Home Boom: Just a Fad or Here to Stay?” (CNBC). We actually think “here to stay” (not because we think the particular ETFs mentioned in this article are necessarily winners, we just think working-from-home in general ought to, and will, become more prevalent).
“This is the Simple Reason You Can’t Believe the P/E Ratio for the Russell 2000 Right Now” (MarketWatch). A pretty interesting article that points out why you need to look under the “hood” of how ratios and financial metrics reported by third-parties are calculated. Specifically, some research firms exclude index constituent companies with negative earnings when computing the average price-to-earnings (“P/E”) ratio for the overall index, thereby understating the true ratio (the “E” in the denominator should be lower than they report, making the true overall P/E ratio higher). We’re drawing an additional conclusion here: investors should exercise great caution in using simple ratios (like price-to-earnings, market value-to-book value, etc.) as proxies for assessing whether a company or index is a good “value” investment. We explicitly try to capture the “value” concept in our model, but we don’t use these simple proxies to do it.
“J.P. Morgan Launches Two Actively Managed Equity ETFs—What You Need to Know” (CNBC). We already commented on this “actively managed ETF” thing when Fidelity launched its own vehicles a few weeks ago (see here). And we’re equally dismayed now to see others getting in on the action. We look forward to looking at how these funds perform going forward and comparing them to SP’s Prime and Select picks.
“Nation’s 30-Year-Olds Pool Money To Buy 2-Bedroom Bungalow Together” (Onion). A nice little real estate update: “Admitting they would never be able to afford a place without sharing expenses, the nation’s 30-year-olds announced Friday that they had pooled all their resources to buy a 1,100-square-foot, two-bedroom bungalow together. ‘It may not seem like much for a few million people, but we can finish the basement and maybe add another bedroom, plus it’s nicer than all our old places,’ said Zach Bartley, 30, who noted that the house had some plumbing issues and a really outdated kitchen, but that it still felt nice to finally own a piece of property.”
What we’re reading (7/5)
“And the No. 1 Stock-Fund Manger Is…” (Wall Street Journal). Morgan Stanley’s Dennis Lynch nabbed some big gains in the last 12 months. Per Lynch: “Our strategy has been to collect a portfolio of unique companies that have a strong competitive position and offer big growth opportunities over the long term. We don’t try to make any shorter-term predictions.” That’s a sensible strategy, but it’s awfully broad and could describe hundreds of companies. When it comes to stock selection, the devil is in the details, and we’ll go ahead and go out on a limb and say Mr. Lynch is very unlikely to replicate his performance next year—tough to do it when your strategy is “trust our subjective judgment, we pick good stocks” instead of “we apply a bias-free model to stocks in a broad universe and rigorously test that model against the available historical data.” Like monkeys randomly clacking on a typewriter, with enough monkeys and enough time, eventually one will clack out the Iliad.
“With Department Stores Disappearing, Malls Could Be Next” (New York Times). Malls still exist?
“Keep Running!” (Collaborative Fund). This is a really important article, and one we may devote an entire blog post to because the concept it articulates is fundamental to the way we value stocks and fundamental to why we think Wall Street broadly systematically mis-values stocks (side note: we aren’t total Wall Street outsiders—we cut our proverbial teeth there and know how IB analysts are trained and, by extension, how almost the entire hierarchy at many long-short equity hedge funds was trained to value stocks). The punch line: probability of extinction/bankruptcy (both in nature and in business) is basically independent of age—there is no “safe” age at which you can feel comfortable the business is sufficiently “on top of it” to be inoculated from big risks. Alternative punch line for the finance crowd: if the return on new invested capital in your model is not assumed to converge to the cost of capital because of competitive pressures, you’re modelling stocks wrong.
“How Well Has Socially Responsible Investing Performed? (Charles Schwab). Socially responsible investing (SRI) is definitely “in.” But, according to Schwab, and despite the insistence by some that SRI funds actually outperform other funds, their performance is pretty much the same. But that may be good enough with the added utility that comes from actually feeling good about your investments (unlike your airline investments, which definitely don’t fit the SRI bill in our opinion on account of (1) consuming fossil fuels with reckless abandon and (2) treating their customers like shit).
“John Paulson, Who’s Effectively Been Running A Family Office For Years, Makes It Official” (Dealbreaker). Paulson & Co. is returning all external capital and converting to a family office. Paulson struck gold in the 2008-09 crisis. Another example of “old”-style investment funds—that rely on winning once or twice without providing investors any basis to think they can do it consistently—making way for newer, better uses of capital
June 2020 performance update*
We’ve crunched the numbers for June. On the whole, June was a relatively flattish month compared to the absurd rise in equities in May. The S&P 500-tracking “SPY” ETF gained about 2.02* percent during the month, compared to over 8 percent in the prior month. Likewise, our subscribers-only Prime picks were up 0.28 percent after gaining almost 13 percent in May and our (literally) free Select picks were up 2.27 percent after gaining over 11 percent in May. Check out the details for our Prime and Select picks in June on our performance page.
All told, after only two months publishing our picks, both our Prime picks and our Select picks are both outperforming the S&P 500-tracking “SPY” ETF by over 288* basis points to date. Let’s process that for a second: if you put $10K to work in either of our Prime picks or our Select picks two months ago, you’d be almost* $300 richer than you would have been just buying “the market”; and if you’d put $100K to work following either sets of picks, you’d be almost* $3,000 richer than you would have been buying the market—in only two months.
We’re amped for July. Stay tuned on Twitter (@StoneyPointCap) and, of course, check out our latest picks here.
*Restated on Sep. 3, 2020 to correctly account for contribution of SPY June dividends to SPY’s June total return. Prime and Select returns unaffected.
Prime and Select Picks v. SPY*
(May 4 - June 30, 2020)
What we’re reading (7/4)
After a two-day holiday hiatus, some fresh finds:
“U.S. Treasury Reaches Loan Agreements with Five Major Airlines” (Wall Street Journal). Airlines starting to tap into major “loans” from taxpayers. Uncle Sam is requiring warrants, equity, or senior debt in exchange.
“How the Black Death Made the Rich Richer” (BBC). “The sudden loss of at least a third of Europe’s population didn’t lead to an even redistribution of wealth for everyone else. Instead, people responded to the devastation by keeping money within the family. Wills became highly specific and wealthy businessmen, in particular, went to great lengths to ensure that their patrimony was no longer divided up after death, replacing the previous tendency to leave a third of all their resources to charity. Their descendants benefited from a continued concentration of capital into a smaller and smaller number of hands.”
“The Mystery of High Stock Prices” (New York Times). Steve Rattner argues the Fed’s massive intervention in capital markets in the last few months is driving the disconnect between stock prices and economic fundamentals. He points out that the S&P 500’s dividend yield is currently higher than the current yield on AAA corporate bonds.
“We’re Forecasting a Strong Long-Run Economic Recovery” (Morningstar). A bit of an alternative view to the last article. According to Morningstar, “[w]hile many investors are wondering if the market is exhibiting irrational exuberance, we think the rebound has been broadly warranted, as we forecast a strong long-run recovery in the U.S. economy.” Markets price future cash flows, so “high” forward-looking stock prices are not irreconcilable with weak current/backward-looking economic fundamentals.
“‘Black Wall Street’: The History of the Wealthy Black Community and the Massacre Perpetrated There” (CNBC). Fascinating (brief) history of Black Wall Street in Tulsa and the community there before the massacre of 1921.
What we’re reading (7/1)
“The Mixed Case for Private Equity in Retirement Plans” (Wall Street Journal). New labor department guidance allows 401(k) plans to offer private equity in diversified retirement plans, opening up a huge source of capital for PE funds and, potentially, other alternative asset managers. The downside: extra fees.
“These 5 Giant Stocks Are Driving the U.S. Market Now, But Watch Out Down the Road” (MarketWatch). Per a Dimensional Fund Advisors study, dominant stocks tend to lose steam eventually. From a “corporate lifecyle” standpoint, that completely makes sense.
“A Viral Market Update X: A Corporate Life Cycle Perspective” (Musings on Markets). Speaking of the corporate life cycle, this recent, thorough post by the “Dean of Wall Street” (NYU finance professor Aswath Damodaran) comprehensively lays out the connection between the life cycle theory and the market turbulence of late. What we’re seeing, according to Prof. Damodaran, is “a redistribution of value from older, low growth, more capital intensive companies to younger, high growth companies.”
“Hidden Wine Cave, $110 Million Parking Bill: Energy Collapse Wasn’t Only Thing That Sank Chesapeake” (CNBC). Chesapeak’s bankruptcy followed a “financial mess that included no budgets, a massive wine collection and a nine-figure bill for parking garages, sources told CNBC’s David Faber.” You’ll be pleased to know Stoney Point’s model has some bells and whistles to weed out companies like this.
“AQR Boasts Multiplicity Of Factors For Terrible Performance” (Dealbreaker). We like AQR. As pioneering factor-investing firm that does quantamental-type stuff it’s one of the hedge funds in the equities world we don’t endeavor to destroy. But apparently their value factor isn’t working out so well (lately). Could just be anomalous. Could be how they measure “value.”
New Prime + Select picks available
The new Prime and Select picks for July are available starting now, based on a model run put through this morning (June 30). As a note, we’ll be measuring the performance on these picks from Wednesday, July 1, 2020 (tomorrow, at the open price) through Friday, July 31 (at the closing price). If you’re following the strategy perfectly, you’d want to close out your June positions by end-of-trading today, and re-balance at start-of-trading tomorrow (though some members do all of their re-balancing in one fell swoop).
You can check out the latest picks here here.
What we’re reading (6/30)
“Be Careful When Declaring an Asset Class Is Dead. It Might Just Come Roaring Back” (Institutional Investor). A new practitioner study points out that “‘pundits, prognosticators, and even investment boards’ are quick to [incorrectly] declare an asset class or investment strategy broken based on backward-looking data.”
“The (Near) Cashless Society Arrives” (Axios). ATM use is down 32 percent and active credit card use in e-commerce is up 30 percent per Visa. 63 percent of consumers say they’re using less cash. So-called “contactless cards” are purportedly the next big thing in payments.
“‘Black Swan’ Author Says That if Investors Don’t Use a ‘Tail Hedge’ He Recommends ‘Not Being in the Market’: ‘We’re Facing a Huge Amount of Uncertainty’” (MarketWatch). Taleb told CNBC that investors need to be especially worried about a potential “black swan” event right now. But if said black swan event is predictable now, ex ante, isn’t is not a black swan event by definition?
“Chesapeake Pushed Into Bankruptcy by Plunging Energy Prices” (Bloomberg). This is ostensibly a story about energy markets, but it is also a story about prudent investments behave broadly. The combination of (1) highly leveraged investments in (2) highly volatile assets without (3) strong liquidity safeguards is (4) a very deadly mix. Don’t borrow to buy risky assets unless you have the reserves to service your debt through downturns. That goes for buying a home, for managing your own portfolio, et cetera.
“If You Get An IRS Letter That Says Your Tax Payment Is Overdue, Don’t Panic” (Washington Post). Confusing, but good to know.
What we’re reading (6/29)
“Robeco Hires Trio of Specialists in Hong Kong” (Finews.Asia). Among a few other senior hires, Dutch asset manager Robeco hires new director of client portfolio management to work on asian-focused quant equity strategies. Punchline: the “smart money” is continuing to build out its quant investing capabilities. We think there’s much more of this to come.
“The Market Partied Like it Was 1932” (New York Times). NYT points out that there is only one other instance in the history of U.S. stock markets when the market was down at least 20 percent one quarter and then up 20 percent the next—1932, during the Depression. A la Robert Shiller, U.S. stocks experienced dramatic fits and starts in the Depression, and didn’t reach their 1929 peak (and stay there) on a dividend- and inflation-adjusted basis for 20 years.
“‘Flying Blind into A Credit Storm’: Widespread Deferrals Mean Banks Can’t Tell Who’s Creditworthy” (Wall Street Journal). Banks have pulled way back on consumer lending in recent months, apparently in part because they can’t tell who is creditworthy (missed payments not showing up on credit scores because credit reporting is prohibited by the coronavirus stimulus bill in my cases).
“Trust the Experts! Lessons From the Front Lines” (City Journal). A funny take on “expertise” and the the apparent “plummeting confidence” in it. “As a confused friend recently asked: ‘Wasn’t it just a couple of months ago you were all constitutional scholars?’ He added: ‘How’d you all get to be epidemiologists?’”
“Pharmaceutical Giants Have Added $51 Billion to Their Market Value in 2020 as They Scramble to Develop a Coronavirus Vaccine” (Business Insider). A look at how the stocks of Gilead, Moderna, AstraZeneca, Roche, Sanofi, and BioNTech have performed during the pandemic. Could probably impute the probabilities the market is assigning to each of winning the race.
What we’re reading (6/28)
The latest:
“Dollar General is Cheap, Popular and Spreading Across America. It’s Also a Robbery Magnet, Policy Says” (CNN). DG’s stock profits have quintupled and its stock has risen 800 percent since 2010, but apparently it’s a hotbed of armed crime. ‘“It’s a low margin business, so you have to have low labor [costs] to make a profit,” said one of the former executives. “Putting more labor in stores took away from the profit, or you have to raise prices. And there was no appetite to raise prices because it’s a low-price business.”’
“Americans' Paychecks are Getting Smaller, but Their Spending is Soaring. Huh?” (CNN). April spending was down (read: fear), but can only cut so much so month-over-month May was way up.
“‘We Are Definitely Not Out of the Woods” (DealBook). Per Gita Gopinath, Chief IMF economist, “[t]his is a crisis like no other and will have a recovery like no other.” That follows a GDP forecast cut by the Fund, which issues closely-watched global growth projections.
“Credit Card Industry Reins in Balance-Transfer Offers as Banks from JPMorgan to Amex Fear Defaults” (CNBC). Banks have traditionally offered special temporary zero-interest payment periods to credit card customers willing to transfer funds to their bank as a credit card promotion option. These options have been “sharply reduced” lately at the likes of JPMorgan Chase, Citi, BofA, Barclays, and CapOne (Amex dropped it altogether) after they got burned in the last crisis by customers transferring and subsequently defaulting.
“Zuckerberg Loses $7 Billion as Firms Boycott Facebook Ads” (MSN Money). A little more coverage of American enterprises urging a private entity to policy speech on its private platform. Apparently, FB down +8 percent on Friday means Zuck lost 8 big ones. Tough nuggies, Zuck!
What we’re reading (6/27)
Some fresh finds:
“The Hard Truth About Facebook Ad Boycott: Nothing Matters But Zuckerberg” (CNN). Some heavy ad spenders want Facebook to regulate speech on it’s platform with a heavier hand. As an aside, one can’t help but think some of Facebook’s rival media platforms (of the traditional TV and print sort) agree based on their coverage, which, by the way, is a peculiar position for those outlets to adopt—since when does the press want opinion and information to be more, rather than less, tightly restricted? In any case, it’s tough to imagine the reduced ad spend at FB being anything more than opportunistic and temporary. Given COVID, a lot of brands need to cut their ad budgets. The economics of cutting at Facebook, rather than elsewhere, have improved a little recently: given the collective aversion to “wrongspeak” in certain cultural confines at the moment, the pain of cutting at FB is little offset by the value of the virtue signal to said clienteles. As evidence for the proposition that this is really about ad budgets and not about taking a principled stand against misinformation on digital media platforms, note that Unilever also cut its ad spend on Twitter, which is actually on the “rightspeak” side of things here, and TWTR was down just about as much as FB on Friday.
“Can Consumers Sustain A Spending Splurge? (Wall Street Journal). The April boost in personal income “will likely be one-off” as aid programs expire without Congressional approval of new assistance and the improvements in unemployment claims have been “sluggish,” signaling slim prospects for a quick recovery.
“Brokers Will Have to Tell You a Lot More About What They Are Advising You to Buy Starting Next Week” (CNBC). Regulation “Best Interest” goes into effect 6/30, requiring your broker-dealer (the people who buy and sell securities on your behalf) to…get this…”act in the best interest of their clients and to identify conflicts of interest, including financial incentives they may have with the products they are selling.” Seems like this reg probably should have already been in place. Would’ve thought the Panic of 1907 would’ve yielded some rules like this, but I guess it took another 11 decades. In any case, a welcomed development.
“Regulators Unceremoniously Dump Volcker Rule Into Crude Ditch Next to its Author” (Dealbreaker). More on the financial regulatory front: “There’s no time like a financial crisis even worse than the last one to gut the signature regulation stemming from said previous financial crisis, or so it seems to those in charge of enforcing it, who have finalized the demolition of the Volcker Rule at a time when very little else is going [on].”
“Pros And Cons Of D.C. Statehood” (The Onion). On the pro side, “[c]onfers all the benefits of having state bird.” On the other hand, “[s]lippery slope to giving statehood to Delaware.”
What we’re reading (6/26)
Some new reading material for your Saturday:
“Covid-19 is a Puzzle that Wall Street Can’t Solve” (Wall Street Journal). A summary of how different market segments performed in the first half of 2020, which “by many accounts” was “the most tumultuous stretch for financial markets in recent history.” Per the WSJ, 1H 2020 is a story of surprising resilience—and a humbling reminder that sometimes the thing that winds up tipping financial markets over the edge is a black swan event that no Wall Street firm sees coming before it happens.”
“Still Reeling From Oil Plunge, Texas Faces New Threat: Surge in Virus Cases” (New York Times). The “wildcatters” in the Texas oil industry are natural optimists, but “the current crisis is fundamentally different because the pandemic has kept demand suppressed even at low prices.”
“Have Markets Gone Young, Wild and Free?” (Fisher Investments). Brokerages are, indeed, reporting huge numbers of new accounts in 2020, and younger/first-time investors are probably behind lot of these new accounts. But that doesn’t explain the rally in equities since March.
“Consumer Spending Rebounds a Record 8.2 Percent in May Even as Incomes Slide” (Washington Post). Huge increase in consumer spending—the backbone of U.S. GDP—in May. Apparently, autos, recreational goods, and food services are at the heart of it.
“Filling my PC with Beans and Hiring a Repairman to Fix it” (RossCreations). Special recommendation from VIP Prime member (and Stoney Point Capital LLC advisor) Brent in L.A. You’ll watch it again and again.
What we’re reading (6/25)
“Jeff Bezos Just Sold $1.8 billion Worth of Amazon Stock. Here’s Why” (CNN). Apparently, to fund Blue Origin.
“Chuck E. Cheese Hits Ch. 11 Following COVID-19 Closures” (Law360). Bold claim for the CEO of a restaurant that offers, as its central value proposition, a garage band fronted by an animatronic rat: he and the cheezemeisters over at C.E.C. think they have an angle to “delight” families “for generations to come.” We’re not talking about their financial situation (about which we know nothing)—we’re talking about the product itself.
“Wirecard Files for Insolvency After Revealing Accounting Hole” (Wall Street Journal). More on Wirecard — shares down 70 percent.
“Biotech IPOs are Booming — But It’s Not All About Covid-19” (CNN). Interesting article, but doesn’t exactly prove beyond a reasonable doubt that it’s not all about Covid.
“The COVID Shock to the Dollar” (Project Syndicate). U.S. savings rate allegedly going negative.
“Can Older Men Wear Vintage Clothing?” (Wall Street Journal). Yes, according to The Journal. We cautiously agree.
“ServiceNow (Ticker Symbol: NOW) Recently Broke $400 and Is Up 37% in 2020. Meet CEO Bill McDermott, Who Survived A Near-Fatal Accident That Took An Eye (But Not His Vision)” (Forbes). Fascinating interview with Bill McDermott. Shoutout to “rapid ROI”—that’s not just CEO-speak nonsense—it’s key to our own stock-selection model.
What we’re reading (6/24)
A few of the things we’re perusing today:
“‘Crush This Lady.’ Inside eBay’s Bizarre Campaign Against a Blog Critic” (Wall Street Journal). “Security employees allegedly orchestrated deliveries of live cockroaches, pornographic videos and a mask of a bloody pig’s head.” Allegedly! Let’s hope Stoney Point doesn’t ever end up on the wrong side of eBay. With that said, our model thinks their stock sucks (ranked 162 in our universe in May).
“Wirecard: No End to Stock Frauds in China and Europe?” (Real Clear Markets). More on the Wirecard saga. How does $2B disappear?
“Jim Cramer: 2 Worrisome Signs I See With This Market” (Real Money). According to Cramer: “I am thrilled that there are a lot of new traders coming into the market. I am thrilled because I am hoping to try to transform them into investors so this doesn't all end in tears as my great friend Lee Cooperman recently said on my friend Scott Wapner's show. But so far I have not seen much evidence of genuine study time being put in.” He clearly doesn’t know us. And it’s pretty rich for a guy who has spent decades peddling pure puffery and speculation to characterize himself as a builder-of-“investors.”
“Here’s a Scientific Way to Make Better Investment Decisions” (CNBC). Here’s another scientific way to make better investment decisions: subscribe to Stoney Point. Article summary: human perceptions are often skewed by events being (1) vivid and (2) recent. Does not just apply to investing.
“Why Your First Five Years of Retirement Are Critical” (MarketWatch). Per the article, citing a CFPB study, only about half of retirees are able to maintain their pre-retirement lifestyle during the first five years of retirement. Per Stoney Point: the 40 years before retirement are pretty critical too.
“Are Companies More Productive in a Pandemic?” (New York Times). Our opinion: yes. The article: “Companies…are discovering that processes and procedures they previously took for granted — from lengthy meetings to regular status updates — are less essential than once imagined.”
“Retooling Your Investment Portfolio Amid the Turmoil” (U.S. News & World Report). Some common-sense recommendations. We’d add “check out some upstart quantamental strategies” to the list of to-dos too.