What we’re reading (8/2)
“Families File First Wave Of Covid-19 Lawsuits Against Companies Over Worker Deaths” (Wall Street Journal). “Employers across the country are being sued by the families of workers who contend their loved ones contracted lethal cases of Covid-19 on the job, a new legal front that shows the risks of reopening workplaces.”
“Big Data Has Yet To Hit The Ball Out Of The Park” (RealClearMarkets). A fantastic primer very relevant to what we’re doing here at Stoney Point: “Are big events caused by the same forces that drive day-to-day changes? Or are they reactions to previous and distant big events? Does a sudden dramatic change in an ecosystem result from an unstable system randomly drifting to a crisis point? Or is there some longer-term evolutionary principle at work that builds punctuation into equilibrium via natural selection?”
“Why The S&P 500 May Now Be Easier To Beat And What This Means For Your Investments” (MarketWatch). Apparently, the long-run impact of being added to an index is negative as company’s subsequently make worse decisions about investment, dividends, repurchases, and financing—perhaps related to the significant presence of index funds that buy the whole index without regard to these idiosyncratic, company-specific details. One implication is that there could be an edge from avoiding the index (although worth noting that one of the authors of the actual study “balked” at this idea, noting that it is never easy to “beat the market”).
“Why Facebook’s Ad Business Is Doing Better Than Google’s During The Pandemic So Far” (CNBC). In investor notes and flash reports on Thursday and Friday, “analysts said factors like the amount of revenue coming from direct-response versus brand advertising, exposure to areas like travel and Google’s sheer size gave Facebook’s ad business a leg up over Google during the second quarter.”
“‘America, What a Country'. Michael Dell On His Life And Business” (Dell). An interview with Michael Dell. “‘While 2020 will be seen as a kind of a tragic year with economic disruption and loss of life, there’s a couple of other stories that are going on here,’ Mr. Dell said. ‘One is, it’s kind of amazing how much business and commerce and education and health care and everything else continued while all that was going on. That would not have been the case 15 or 20 years ago.’ And this is just the beginning, he said. ‘I also think that 2020 will be a year of kind of great accelerations,’ he said. ‘We’ve kind of got a glimpse of the future here.’”
July 2020 performance update*
We’ve crunched the numbers for July. The market overall (measured by the S&P 500-tracking “SPY” ETF) was up an unusual amount—5.48 percent from the open on 7/1 through the close on 7/31.
But our picks were up even more. Our subscribers-only Prime picks gained 8.30 percent and our free Select picks gained 5.65 percent over the same time period. You can check out the position-level performance for our Prime and Select picks in July on our performance page.
After three full months publishing our picks, both our Prime picks and our Select picks continue to outperform the “SPY” ETF (an index-tracking ETF we use to proxy the “market”). Our subscribers-only Prime picks, in particular, have outperformed “the market” by about 5.77* percent in the last three months—a magnitude that is not far off from the average performance of the market in an entire year historically.
As an example, if you had put $10K to work in our Prime picks three months ago when we first started publishing them, you’d be almost* $600 richer than you would have been just buying “the market”; and if you’d put $100K to work, you’d be almost* $6,000 richer—in just three months.
You can check out our picks for August here to get in on the action and, if you haven’t already, follow Stoney Point on Twitter for the latest updates (@StoneyPointCap).
*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 - July 31, 2020)
What we’re reading (8/1)
“Amazon, Apple, Facebook Show Dominant Results, Grip On Society” (Wall Street Journal). That is, uh, quite a headline from the typically staid folks at The Journal, but it’s true. Q2 earnings from these three tech behemoths were great. Per a Jefferies analyst cited in the article: “The internet is the connective glue in Apple devices, Facebook ads, the Amazon shipments…[u]ltimately, we think there is a more permanent tailwind behind these big tech companies.”
“Gross Domestic Product, 2nd Quarter 2020 (Advance Estimate) and Annual Update” (U.S. Bureau of Economic Analysis). Notwithstanding the fantastic tech earnings, seasonally adjusted GDP fell over 9 percent in Q2. That’s real GDP by the way (inflation was also down).
“Apple Announces 4-For-1 Stock Split” (CNBC). Every “old” share of AAPL will now equal four “new” shares (each worth 1/4 as much). Importantly, “[s]tock splits are cosmetic and do not fundamentally change anything about the company, other than possibly making the shares accessible to a larger number of investors because of their cheaper price.”
“Permanent WFH: Easier Said Than Done” (CNN). One interesting data point from this article: 43 percent of respondents in a survey of 150 HR execs said they would keep most of their employees remote after the pandemic. My guess is that number is trending up. Once companies start shedding commercial office leases there will be no going back.
“How will A Coronavirus Vaccine Work?” (JSTOR). “Four different ways researchers use the virus’s own structure to train our immune systems to exterminate it.”
August Prime + Select picks available now
The new Prime and Select picks for August are available starting now, based on a model run put through early this morning (July 31). As a note, we’ll be measuring the performance on these picks from the open on Monday, August 3, 2020 (the first trading day of the month) through Monday, August 31 (at the closing price). If you’re following the strategy perfectly, you’d want to close out your July positions by end-of-trading today (Friday), and re-balance at start-of-trading on Monday (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 (7/30)
“Congress Grilled The CEOs of Amazon, Apple, Facebook and Google. Here Are The Big Takeaways” (CNN Money). I watched the whole thing—some good, on-point questions, and a whole lot of totally off-point posturing completely tangential to the central antri-trust questions, as expected.
“Index Giant S&P Faces Potential SEC Lawsuit Over Volatility Guages” (Wall Street Journal). S&P received a Wells notice indicating the SEC plans to bring an enforcement action against S&P for “failing to provide sufficient disclosures on certain volatility-linked indexes in 2018.”
“JetBlue CEO Warns Of ‘Day Of Reckoning’ For Airlines As Coronavirus Continues To Devastate Demand” (CNBC). Continuing coverage the whole airline saga, and coverage that is supportive of our view that the airlines are generally garbage stocks at that. Apparently, the CEO of a major airline actually agrees with us. But note: the issue isn’t just that the “coronavirus pandemic continues to ravage travel demand”—a big part of the issue is that the airlines spent the better part of a decade going on a debt binge and then using said debt to make NPV-negative investments in their own value-destroying stocks.
“As The Pandemic Forced Layoffs, C.E.O.s Gave Up Little” (Dealbook). “Some corporate bosses offered to cut their pay, but most did not. Those who did gave up less than 10 percent of what they received last year.” Nothing like a nice cushy job where your comp goes way up when things go well, and just simply doesn’t go down when they don’t. More on this from our perspective here.
“Tech CEOs Testify Before Congress In Antitrust Hearing” (The Onion). “What’s the big deal? We still have four companies to choose from.”
What we’re reading (7/29)
“Why Google’s New WFH Plan Is A Game Changer” (CNN). According to Mauro Guillén, a Wharton prof. quoted in the article, “[i]f all its people can operate for a year remotely, maybe a year from now they will say: ‘Maybe we don't need all this office space after all.’” The author goes on: “[t]hat could hurt the commercial real estate market in New York City and parts of California, especially if other big companies follow suit.” Agreed. But what the article doesn’t mention is how great that could be for shareholders.
“Why Amazon May Have The Most To Lose From Tech’s Hill Showdown” (Politico). “Jeff Bezos has spent the past five years trying to become a fixture in Washington — hiring President Barack Obama’s press chief, flooding the town with lobbying cash, buying The Washington Post, and even choosing a spot along the Potomac River for Amazon’s second headquarters. But all that money isn’t likely to buy Bezos a break on Wednesday.”
“Where Is All That Gold Being Stored?” (New York Times). Apparently, about half of Americans are thinking about buying gold, and one in six already has since May. If you think widespread social unrest is ahead, that’s probably a good bet, but you’ll have to find somewhere to store all that metal. Enter The Times with a helpful primer.
“Chapter 4: The Big Cycle Of The United States And The Dollar, Part 1” and “Part 2” (Ray Dalio). A two-part chapter covering, in depth, Ray Dalio’s (founder of Bridgewater, the world’s biggest hedge fund) view that U.S. history is evolving along the lines of “the archetypical big cycle of dominant powers.”
“Why Europe’s Top Asset Manager Expects U.S. Stocks To Outperform—And One Reason Is Stock Buybacks (MarketWatch). According to a team at Amundi Asset Management, “[b]eyond the lower investment in innovation, technology and health care inherent in non-U.S. equity markets, structural and economic pressures persist as growth capital expenditures are restrained.” The authors go on, “[t]he combination of world-class universities that develop technology and serve as launching pads for startups to commercialize it, a well-developed venture capital industry, and a cultural willingness to take risk make it difficult for other regions of the world to surpass the U.S.”
August picks available soon
Just a reminder that we’ll be publishing our Prime and Select picks for the month of August at the end of this week. As always, we’ll be measuring SPC’s performance for the month of July, as well as SPC’s cumulative performance, assuming the sale of the July picks at the closing price on the last day of the month (Friday, July 31). Likewise, performance tracking for the month of August will assume the August picks are bought at the open price on the first trading day of the month.
Stay tuned for the new picks and the performance updates.
What we’re reading (7/28)
“Jeff Bezos Has Been On A Collision Course With D.C. For Years—This Week’s Hearing Marks A New Chapter” (CNBC). Anticipated highs are in the mid-90s for Wednesday in the nation’s swampy national capital, but it may get even hotter than that as the Amazon chief steps into the hot seat on Capitol Hill. Expect lots of posturing. It’s an open question as to whether lawmakers even understand, and are therefore likely to ask, the right questions. Either way, should be fun to watch.
“Wall Street Turns A Blind Eye to Atrocities Committed In China” (MarketWatch). The author rightly points out that “[m]utual-fund companies and financial advisers, stuck in the rote mindset of knee-jerk diversification, urge clients to invest more in underperforming Chinese and emerging markets equities...[and] [i]ndex providers have accommodated them by raising the weighting of mainland Chinese stocks in their emerging markets and international indexes.” All of this despite what amounts to the “most extensive ethnic cleansing since World War II” being visited upon the inhabitants of Xinjiang by the Chinese government in real time.
“Fed Extends Emergency Lending Programs By Three Months” (Wall Street Journal). When the economic impact of the covid-19 pandemic started becoming clear, the Fed announced nine emergency lending programs intended to stabilize credit markets and ensure the “plumbing” of the financial system would continue to function in the event of a deepening crisis. Until now, several of those lending facilities were set to expire in September.
“‘Un-Investable’? Airlines Could Double In A Year, Fund Manager Says” (Yahoo! Finance). Anything is possible, but I wouldn’t bet my retirement on it. We still think the airlines are, by and large, garbage stocks.
“DJ D-Sol Delights The Socially-Undistanced Masses” (Dealbreaker). This may come as a surprise for the uninitiated, but the current CEO of Goldman Sachs (David Solomon) moonlights as a DJ under the pseudonym “DJ D-Sol.” A recent show in the Hamptons (of course) is drawing the ire of some in Albany.
What we’re reading (7/27)
“Google To Keep Employees Home Until Summer 2021 Amid Coronavirus Pandemic” (Wall Street Journal). Google CEO Sundar Pichai reportedly made the decision, which will affect nearly all of Google’s 200,000 employees, after an internal debate among executives last week.
“2020 Is The Summer Of Booming Home Sales—And Evictions” (Washington Post). “Nearly 15 million homes sold nationwide in April, May and June, according to new data released this week by the Commerce Department and National Association of Realtors. Meanwhile, 12.6 million renters say they were unable to pay rent last month, according to the latest Household Pulse survey from the U.S. Census.”
“The World’s Biggest Coronavirus Vaccine Study Begins, A U.S. Trial That Will Include 30,000 People To See If The Shots Really Work” (CNBC). Volunteers will get two doses of the of the experimental vaccine developed by the National Institutes of Health and Moderna. Of course, some will get a placebo.
“Credit Suisse Invested $100 Million In Ant, Expects Windfall” (Bloomberg). Credit Suisse apparently put about $100 million into Ant Group—the Chinese fintech company that owns Alipay, the world’s largest mobile and only payments platform—during its last funding round in 2018.
“Gold Prices Hit Record As Dollar Drops” (Wall Street Journal). Futures contracts for delivering gold in August 2020 reached $1,938.10 per troy ounce, surpassing the previous intraday high of $1,923.70 from September 2011. The decline in the dollar is apparently adding to the momentum.
What we’re reading (7/26)
“A Potential Deal For State Pension Reform” (Forbes). State and local governments were exempted from the 1974 Employment Retirement Income Security Act (ERISA) because they were assumed to be “model employers” that wouldn’t shortchange their employees’ pension funds the way their private sector counterparts had. That assumption proved faulty, though, as governments “have used overoptimistic investment return assumptions, taken excessive investment risk, and often failed to make their full annual contributions. Pension trustees often have not acted as true fiduciaries on behalf of pension participants, collaborating with government officials – often the very people who appointed them – to reduce current contribution costs, even if doing so left fewer resources available to pay future pension benefits.”
“Big Tech Funds A Think Tank Pushing For Fewer Rules. For Big Tech.” (New York Times). “Google, Amazon and Qualcomm finance a George Mason University institute teaching a hands-off approach to antitrust regulators and judges.”
“Thinking Of Claiming Social Security Benefits Early? The 2020 Recession Could Offer One Good Reason To Do So” (USA Today Money). There are a lot of “ins” and “outs” when it comes to deciding when to tap into Social Security, but one circumstances in which it could make sense to claim the benefits early is if it allows you to avoid realizing unanticipated market value losses resulting from a downtown occurring right before, or early in, retirement.
“Quantitative Digital Asset Investment Firm Cambrian Asset Management Closes Seed Round” (Cambrian Asset Management). More “smart money” flowing to quant funds. Not surprised at all.
“Stocks And Recessions: Assessing Recent History” (Wall Street Journal). A nice look what history has to say about whether the recent rise in equities foreshadows calamity on the horizon. Caveat emptor: the underlying health crisis causing the recession we’re in is unlike anything we’ve seen before. We (humans) can’t help trying to tease out patterns from history (or, more cynically, impose patterns on history), and are easily able to do it, even when no such patterns exist.
What we’re reading (7/25)
“Does A Raise Or Remote Work Sound Better?” (Wall Street Journal). “In a Stanford survey of 2,500 Americans in June and July, half of respondents said the ability to work from home two to three days a week in a post-Covid world was equal to getting a pay increase of 10% or more. Another 17% said it was like getting up to a 9% raise.” It’s worth noting, as we pointed out this week, the data do not suggest companies would need to slash pay in order to make working from a home a regular thing. By shedding unecessary leasing costs, companies could do both work-from-home and raises.
“The Models Were Wildly Wrong About Reopening Too” (American Institute for Economic Research). The famous May 2020 Imperial College London paper that reportedly predicted a “catastrophic rebound of COVID-19 fatalities” in its reopening scenarios has turned out to be pretty far off the mark in said fatality predictions, even if new infections are increasingly rapidly.
“Investing Should Be Like Gambling. Here’s how not to go wrong” (CNBC). This article throws a bunch of punches at “hyper-gamified” investing platforms (read: Robinhood) but entirely misses the more important point that the strategy the author ostensibly advocates—the traditional investment approach predicated on researching a few companies in depth and valuing them better than the whole market in all its wisdom—has resulted in most investors, “market pros” and amateurs alike, underperforming the market. If you really want investing to be less like gambling, using tested, bias-free stock selection tools might be a better approach.
“A Hedge Fund Bailout Highlights How Regulators Ignored Big Risks” (New York Times). “Tougher regulation in the formal banking sector has pushed risk-taking to the shadowy corners of Wall Street—areas that Dodd-Frank left largely untouched.”
“Ordinary People Invested In Hedge, Private Equity Funds Unsure That More Ordinary People Should Invest In Hedge, Private Equity Funds” (Dealbreaker). “Jay Clayton—in addition to letting as many hedge funds as possible keep as many of their investments as possible secret—is racing to give as many people access to alternative investments as possible, regardless of the wisdom of doing so. Simultaneously, the Labor Department has opened the doors even further, allowing 401(k) plans to include private equity funds.”
What we’re reading (7/24)
“Amazon Met With Startups About Investing; Then Launched Competing Products” (Wall Street Journal). The Journal interviewed more than two dozen entrepreneurs, investors, and deal advisors who said that Amazon appeared to use the investment and deal-making process to acquire proprietary information to help it develop competing products.
“Vanguard Comes To Defense Of The 60/40 Portfolio As It Forecasts Stock Market Returns For The Next Decade” (MarketWatch). Vanguard is forecasting U.S. equities will return four to six percent annually, on average, over the next decade (apparently, similar to a recent Goldman Sachs forecast), which works out to a total return in the range of 48-79 percent (1.04^10 years-1=0.48; 1.06^10 years-1=0.79). That’s pretty much in line with average annual historical U.S. stock market returns, but maybe a little lower, depending on the measurement period.
“The Economy Looks Rough. The Stock Market Doesn’t. Here’s why That May Make Sense” (Intelligencer). Another hot take on this issue. The explanations offered here for why equities continue to be up? (1) Expected out-year corporate profits are arguably higher than before, (2) common measures of stock market performance (S&P 500, DJIA) are relatively heavily concentrated in large, globally operating companies with extensive footprints in countries that have managed the covid-19 pandemic better than the U.S., and (3) interest rates have continued falling.
interest rates have continued falling.
“How Accurate Are Prediction Markets?” (JSTOR). A nice overview of the history and current thinking on prediction markets—the “marketplaces” of prediction that aggregate “bets” on various events (e.g., who will win the 2020 U.S. presidential election) and have been postulated as producing forecasts more accurate than the predictions of supposed experts. The idea is that when you have skin in the game by way of your bet, you may be less prone to the biases to which experts regularly succumb.
“This Man Owns More Land Than Anyone Else In America” (24/7 Wall Street). 2.2 million acres in Colorado, Maine, New Mexico, and Wyoming—about 2x the size of the state of Rhode Island. It’s good to be media tycoon John Malone.
What we’re reading (7/23)
“Goldman Sachs CEO David Solomon On US Economic Outlook: ‘We’re In For A Bumpy Ride’” (CNBC). GS chief sees persistent high unemployment, slower growth, and a weaker dollar ahead.
“Microsoft Reports Record Revenue To Wrap Up A Record-Breaking Fiscal Year” (MarketWatch). MSFT shares apparently up 34 percent this year despite the S&P 500 being up less than one percent amid the covid-19 crisis. Reportedly, the company’s “Azure cloud-computing offering and cloud-software offerings have become more essential as its corporate customers sent employees home to work remotely.”
“Pfizer, BioNTech Get $1.95 Billion Covid-19 Vaccine Order From U.S. Government” (Wall Street Journal). The deal is apparently for about 100 million doses, with an option for 500 million more, assuming in-development vaccines in question get cleared by regulators. No details on pricing per dose, but Americans to receive it free of charge.
“The Amazon Critic Who Saw Its Power From The Inside” (New York Times). The story of Tim Bray, the engineering whiz/polymath and Amazon alum. who resigned in May citing “a vein of toxicity” in the company’s culture and is now calling for anti-trust intervention.
“Overserved” (Epsilon Theory). Hilarious commentary about the ridiculousness of investment marketing materials ubiquitous on Wall Street (in this case, related to SpaceX’s N-Series funding round).
What we’re reading (7/22)
“R.I.P. Cable TV: Why Hollywood Is Slowly Killing Its Biggest Moneymaker” (Variety). You know it. I know it. Cable is dying. This article is a thorough pre-mortem.
“Bill Ackman: ‘We Are Long-Term Bullish On America’ But Betting Against High-Yield Companies” (CNBC). On “Squawk Box,” Ackman said that his hedge fund, Pershing Square Capital Management, is approximately “98% long.” Also said he’s wary of highly levered stocks right now.
“U.S. Existing-Home Sales Roses 20.7% In June” (Wall Street Journal). Low rates and peak homebuying season juiced the market in June: “Demand was strong from apartment renters seeking more space, young families moving to the suburbs and wealthy city dwellers looking for second homes, brokers and economists say. At the same time, the supply of houses for sale remained low, as the pandemic has made potential sellers cautious about letting people tour their homes.”
“Slack Accuses Microsoft of Illegally Crushing Competition” (New York Times). In a complaint reminiscent of the Internet Explorer-related anti-trust issues MSFT stared down back in the ‘90’s, Slack filed suit before the European Commission arguing that “Microsoft has illegally tied its collaboration software, Microsoft Teams, to its dominant suite of productivity programs, Microsoft Office, which includes Outlook, Word, Excel and PowerPoint.”
“Was Citadel Securities Not Supposed To Sit On Client Orders To Fill Its Own?” (Dealbreaker). According to FINRA, over a two-year period until Sept. 2014, Citadel removed hundreds of thousands of large securities orders from its automated platform so that the trades had to be manually reviewed by actual humans. In the meantime, Citadel made the same trades on its own account.
What we’re reading (7/21)
“For Some Stocks, Bad News Is Good News” (Wall Street Journal). “Shares of many technology and pharmaceutical companies have looked like safety plays during the pandemic. Other stocks that have long been considered defensive bets during a downturn, such as those of real-estate and utility companies, have suffered steep losses.”
“This Billionaire [Leon Cooperman] Says The U.S. Stock Market Is Overlooking The Rapidly Growing National Debt” (CNN Money). Another ‘notable and quotable’ personality taking a stab at arguing the market is “overlooking” fundamental economic factors. But before you jump on that bandwagon, consider what you have to believe in order to believe that’s true: that the entire stock market is missing something that you’re seeing?
“The Hidden Risk In Your S&P 500 Index Fund” (MarketWatch). Punchline: the S&P 500, being a capitalization-weighted index, is heavily weighted toward FB, AAPL, NFLX, MSFT, AMZN, GOOG. Recall, from our blog post here that when you have a cap.-weighted portfolio, you’re implicitly adopting a “momentum” strategy.
“Investors Juggle Earnings, Eurozone Recovery Package, and Covid-19 Cases This Week” (Nasdaq). Lot of news set to drop this week. As the article points out, “[w]hen we close the books on July next week, just over 300…S&P 500 names will have reported their June quarter results, which means before too long we will have a firm handle on how second-quarter earnings are shaping up and also the degree to which EPS expectations are changing for the second half of 2020.”
“Good Debt Vs. Bad Debt: Why What You’ve Been Told Is Probably Wrong” (CNBC). The fundamental rule of investing is that a good investment is one in which the payoff on the investment, when adjusted for time and risk, exceeds the cost of the investment. You might call such investments “net present value (NPV)”-positive investments. While main street has historically considered some investments, like getting a college degree or buying a home, “good investments,” as an economic matter, there’s good reason to think there are no categories of investments that are automatically NPV-positive. If there was, someone would be making that investment already, raising the “price” of it, and reducing the net present value for anyone else that comes along next.
What we’re reading (7/19)
“Earnings And Fiscal Debate Could Be Catalysts For Stocks In The Week Ahead” (CNBC). Earnings season is in full swing and Congress will be mulling over a potential new trillion-dollar stimulus.
“Academic Project Used Marketing Data To Monitor Russian Military Sites” (Wall Street Journal). In a neat experiment, researchers at Mississippi State University were able to use commercially available cellphone data to track the whereabouts of Russian officials after they visited a sensitive missile test site in August 2019. Similar data have been used to reveal the locations of sensitive U.S. forward operating military bases.
“Is The ‘Great Rotation’ In The Stock Market Under Way As Coronavirus Cases Surge? Or Is It A False Dawn? Here’s What Experts Think” (MarketWatch). “Value”-styled strategies seems to be beating “growth”-oriented strategies once again.
“Fixing The World’s Most Inefficient Market” (Forbes). “Unlike financial markets, which exchange billions of dollars daily, the labor market is rife with human error, inefficiency, and devoid of the sort of transparency and common language that efficient markets require.”
“What Risk Isn’t” (Of Dollars And Data). In finance, “risk” is taken to mean the standard deviation of returns—that is, the average deviation (up or down from the mean, or average, return). Moreover, risk is generally assumed to be undesirable. As many have pointed out, however, it’s kind of silly to treat above-average returns as undesirable. The author here draws a line between volatility and risk and argues, a la Rumsfeld, that volatility is a known unknown, while risk is an unknown unknown. It might all be semantics though: if returns are normally distributed, above-average returns don’t manifest in isolation; rather, they can only exist in the presence of other periods of below-average returns that are equal in magnitude.
What we’re reading (7/18)
“John Lewis, U.S. Congressman And Civil Rights Icon, Dies” (Wall Street Journal). “John Lewis, the champion of civil rights for Black Americans whose activism brought him from the bloodied streets of Selma, Ala., to the marble halls of Congress, died Friday. He was 80 years old.”
“The Wealthy Loaded Up On Stocks In March—Now They’re Selling, Warns ‘Fortress Bank For Billionaires’” (MarketWatch). UBS’s head of global family offices says a number of its high-net worth clients, including a group of families with an average net worth of about $1.6 billion, bought the dip in March and are now moving the gains out of public markets to illiquid private assets (real estate and private equity).
“These Companies Plan To Make Working From Home The New Normal. As In Forever” (CNN). Facebook, Twitter, Square, Shopify, Box, Slack—big west coast/tech “tilt” on this list. And it makes sense: Zuckerberg built FB from his dorm room, so it’s not shocking he doesn’t see a strong productivity case for making employees show up in person. What will be interesting to see is whether or not the rest of the labor market moves in this direction. Huge cost savings in the form of foregone leasing expenditures to be had if so.
“What Banks Tell Us About Covid-Era Business: ‘Everybody Is, Bluntly, Struggling’” (Wall Street Journal). The Journal rightly points out that banks have “unrivaled visibility” into the health of U.S. consumers and businesses. And the accounting decisions the big banks are making now—setting aside an absolute truckload of cash as provisions for possible loan losses—signal banking executives think trouble could be ahead.
“The Radical Truth Is Bridgewater’s Not Responsible For Its 20.6% Loss” (Dealbreaker). New study (here) finds that unconventional monetary policy (“UMP”) (e.g., central banks buying securities in the open market instead of just moving benchmark rates up and down) is a priced risk factor for the hedge fund industry as a whole and at least 10 common hedge fund strategies in particular. Specifically, the authors’ study of announcements of new UMP actions calls into question “the claim about [hedge funds’] ability to perform ‘through thick and thin’[.]”
What we’re reading (7/17)
“The True Story Of The Heartthrob Prince Of Qatar And His Time at USC” (Los Angeles Times). Multi-hundred-thousand dollar jaunts to Las Vegas, a long-term stay at the Beverly Wilshire for an entire entourage, slush funds, DMV bribery, an organ transplant purchase, and approximately zero time in class—the gripping story of Qatari Prince Sheikh Khalifa bin Hamad bin Khalifa Al Thani’s (KHK’s) time in the City of Angels.
“Twitter Hackers Who Targeted Elon Musk And Others Received $121,000 In Bitcoin, Analysis Shows” (CNBC). BTC transactions are irreversible. But they are also public record. A review of the public ledger reveals the hack, which apparently involved at least one Twitter insider, only netted about $121K.
“Big Blank Checks” (DealBook). Special purpose acquisition vehicles, or “SPACs”—legal entities created to raise capital from public markets with this express purposes of acquiring as-of-yet identified takeover targets—are bigger than ever.
“U.S. Industrial Production Picked Up Again In June” (Wall Street Journal). Factories, mines, and utilities are starting to hum again. The index rose 5.4 percent from May to June on a seasonally-adjusted basis.
“Decade Of The Dollar At Imminent Risk As Uptrend Break Looms” (Bloomberg). Bloomberg says the dollar may be set to depreciate a bit off its long-term rise, but not everybody agrees. Credit Agricole’s FX analyst apparently still thinks the greenback is “the ultimate safe haven.” It’s worth noting the whole premise of Bloomberg’s point may be off—the chart the article itself cites doesn’t suggest a “decade-long uptrend” for USD. Rather, it suggests a pop in 2014, when oil prices fell of a cliff, and a flattening ever since.
What we’re reading (7/16)
“Goldman’s Traders, Bankers Keep Profit Steady While Rivals Falter” (Wall Street Journal). Traders like volatility (especially traders’ on banks so-called “FICC”—or, fixed income, commodities, and currencies—groups). But the piece of the story about GS’s stock price bouncing back better than other banks’ doesn’t necessarily mean GS’s traders’ performances have been stratospheric or anything. In fact, the bounce back may have little to do with the trading desks at all. Unlike the other mega-banks, GS does not actually do all that much actual “banking” (credit origination). Given the economic climate and the worries that a lot of personal and corporate loans are about to go bust, it’s not that surprising that true creditor-banks have been slower to rebound.
“Bank of America Profit Falls 52% As It Prepares For Coronavirus Defaults” (Wall Street Journal). Speaking of the credit origination side of the banking business being under massive pressure, BAC’s profit “tumbled” in the Q2 after the bank “set aside billions of dollars to prepare for soured loans.”
“A Brazen Online Attack Targets V.I.P. Twitter Users In A Bitcoin Scam” (New York Times). “It was about 4 in the afternoon on Wednesday on the East Coast when chaos struck online. Dozens of the biggest names in America — including Joseph R. Biden Jr., Barack Obama, Kanye West, Bill Gates and Elon Musk — posted similar messages on Twitter: Send Bitcoin and the famous people would send back double your money.”
“Dividend Cuts May Mean Rethinking Your Retirement Strategy” (CNBC). 63 S&P 500 constituents cut dividends in Q2. Historically, high-dividend stocks have offered somewhat bond-like characteristics (regular stream of cash flow with relatively low volatility) but in a non-bond asset class (equities). But companies have needed the liquidity in the weaker-cash flow environment brought on by Covid, so they’re paying out less of it.
“Retail Sales Rise For Second Straight Month” (CNN). Retail sales up 7.5 percent month-over-month. BUT, there were also over a million new unemployment claims just last week, symptomatic of the mixed bag that the traditionally salient macroeconomic data has been lately.
What we’re reading (7/14)
“Moderna Shares Jump As Much As 16% After Company Says Its Coronavirus Vaccine Produced ‘Robust’ Immune Response” (CNBC). Big pop in Moderna’s share price after some peer-reviewed Phase 1 clinical data published in the New England Journal of Medicine.
“Arbitrators Rule Bridgewater Had Something To Fear From The Truth, And So Made Stuff Up” (Dealbreaker). More on Bridgewater’s assertion of trade secrets misappropriation against a few former employees that started a hedge fund. The folks at Dealbreaker astutely point out the arbitrators’ findings kind of, sort of imply Bridgewater may not really have any “proprietary practices to charge such lavish fees on that $140 billion” in assets under management.
“Vox Media Preparing Round Of Layoffs As Business Fails To Improve Amid Coronavirus Pandemic” (CNBC). Vox was a full 40 percent off its Q2 revenue target, expects to be 25 percent off full-year 2020. Another sign of the damages COVID has done to ad revenues.
“It’s Time For Investors To Stop Buying Stocks That Are ‘Stunningly Decoupled’ From Reality, Economist [Mohamed El-Erian] Warns” (MarketWatch). Allianz Chief Economic Adviser (formerly of PIMCO and the IMF) is apparently a little bearish on equities. Apparently, even he’s blaming a “new generation” of traders (read: Millennials). But that’s a pretty unsophisticated argument for a guy with such stature and pedigree.
“JPMorgan’s Profit Plunges As Credit Costs Spike On Economic Uncertainty” (CNN). 51 percent “plunge” in Q2 profits as the bank juiced up reserves in anticipation of forthcoming loan losses.