What we’re reading (10/24)
“CNN President Jeff Zucker Faces What Might Be His Last Lap” (Wall Street Journal). “CNN President Jeff Zucker survived plenty of corporate intrigue since telecom giant AT&T swallowed up the cable network’s parent company two years ago. Now that is changing, leaving Mr. Zucker frustrated and his future at the cable news network in doubt. Mr. Zucker, who has overseen CNN for seven years, felt blindsided by a recent restructuring carried out by parent WarnerMedia, and has had friction with its chief executive, Jason Kilar, according to people familiar with the situation.”
“Morning Brew, The Business Newsletter Publisher For Millennials, Is In Talks To Sell Itself To Business Insider” (Recode). “Two college students started Morning Brew five years ago. Now they’re in talks to sell their business newsletter company to Business Insider, according to sources familiar with the two companies. It’s unclear how much Business Insider intends to pay for Morning Brew, which says it will turn a profit on revenue of $20 million this year. But people who have talked to the company’s founders believe they expect to sell it for more than $50 million, and possibly much more; the Wall Street Journal reports that the deal could be worth more than $75 million…The deal would also underscore the media industry’s current fascination with email newsletters, which are a very old distribution model that’s once again in favor. For instance: Axios, the politics-focused startup that launched in 2017, is reportedly on track to do $58 million in revenue this year, largely on the backs of its popular newsletters.”
“The Republican Antitrust Lawsuit Against Google Is A Progressive Dream” (Reason). “[T]he complaint—filed Tuesday in the U.S. District Court for the District of Columbia—employs a loose conception of monopoly and barely bothers trying to offer a theory of consumer harm. The complaint's big beef with Google is basically that it's big, as well as useful, stubbornly popular, and extremely profitable…[t]he lawsuit against Google does not accuse it of conspiring with its competitors or of acting unilaterally to block new entrants into the market. Nor does it cite common political gripes about Google, such as the idea that it's working too many different hustles and needs to be "broken up," or the claim that Google search and YouTube are ideologically biased. Rather, it accuses Google of unfairly dominating the U.S. markets for general search services, search advertising, and general search text advertising, mainly through distribution deals that give Google apps or search preset default status on some browsers and mobile devices.”
“Meet The Woman Who Could Lead The Treasury In A Biden Administration” (CNN Business). “The US election is still more than a week away, but speculation about who might lead the Treasury Department under a Biden administration is already in full swing. Analysts from Washington to Wall Street say a leading contender would be Lael Brainard, a current Federal Reserve governor with years of practical experience for the job. Brainard, who could replace Steve Mnuchin, would be the first woman to serve in the role. Despite some concerns from experts that she might look to impose tougher regulations on big banks, she's not nearly as progressive as Senator Elizabeth Warren, another rumored contender. ‘There could be a tug of war between progressives and more moderate Democrats, but many people would prefer someone with both a deep background in economics and monetary policy,’ said Quincy Krosby, chief market strategist at Prudential Financial. Brainard checks both of those boxes, a variety of experts agree.”
“Increasing The Minimum Wage Would Help, Not Hurt, The Economy” (NBC News). “Business groups have argued that raising the minimum wage forces business owners to fire workers, a claim echoed by Trump in the debate. The reality is more complex: The evidence of job loss is inconsistent, and the benefits are accrued by some of the country’s most vulnerable populations. In terms of reducing income and wealth disparities, a rising minimum wage is a good thing. ‘The benefits in terms of reducing inequality — getting money into people's pockets, stimulating the market — are very well proven,’ said Till von Wachter, professor of economics and director of the California Policy Lab at the University of California, Los Angeles. ‘The best evidence is that judiciously set minimum wages make a lot of sense. They raise earnings, reduce individual and family poverty, and have no measurable negative effects on employment,’ said David Autor, an economics professor at MIT and co-chair of the MIT Task Force on the Work of the Future.”
What we’re reading (10/23)
“Stocks Typically Climb, Regardless Of Who’s In The White House” (Wall Street Journal). “Stocks tend to go up regardless of which party controls Washington. From 1929 through 2019, one party controlled both chambers of Congress and the presidency in 45 of those years. The S&P 500 on average rose 7.45% during those years, according to Dow Jones Market Data. The index was up 30 times and down 15 times. In the other 46 years when there was a split government, the index climbed 7.26% on average, rising 29 times, falling 16 times and remaining unchanged once.”
“Recession Risk Grows [In Europe] As Covid-19 Cases Continue To Surge” (CNN Business). “The world's top economies took huge steps in recent months to recover from the worst recession in a generation. Now, with coronavirus cases surging again, that progress could be reversed. What's happening: Business activity has fallen back into decline in Europe, according to the latest reading of the Purchasing Managers' Index from IHS Markit, which tracks the manufacturing and services sectors. Earlier this week, both Spain and France — which are deep into the second wave of the pandemic — surpassed 1 million recorded coronavirus cases.”
“Uber And Lyft Face Setback In Case To Reclassify Workers, But It’s Far From Over” (CNBC). “Uber and Lyft must comply with a preliminary injunction requiring them to stop classifying drivers as independent contractors pending further action, an appeals court ruled Thursday. But the order won’t take effect right away and an upcoming ballot measure could still undermine the entire case.”
“A Chasm Deepens In America’s Credit Markets, Swallowing Smaller Firms” (Bloomberg). “Times are tough at SeaWorld, home of killer whales and bottlenose dolphins. But they’re even tougher at GeckoParx, a few hours down the Florida Turnpike. Both amusement parks were forced to close temporarily when the coronavirus pandemic struck. Despite setback after setback, SeaWorld Entertainment Inc. — a publicly traded corporation — easily secured something that every business needs: credit. It borrowed almost $730 million in the capital markets. And smaller GeckoParx? It’s shutting its doors after burning through nearly all of its money.”
“Are We Trading Our Happiness For Modern Comforts? (The Atlantic). “One of the greatest paradoxes in American life is that while, on average, existence has gotten more comfortable over time, happiness has fallen…[t]here are several possible explanations for this paradox: It could be that people are uninformed about all of this amazing progress, that we can’t perceive progress very well when it occurs over decades, or that we are measuring the wrong indicators of ‘quality of life.’ I suspect the answer is all three. The last idea, however, is especially important to understand in order to improve our own happiness. There’s nothing new about the idea that consumption doesn’t lead to happiness—that concept is a mainstay of just about every religion, and many philosophical traditions as well. Arguably, Karl Marx’s greatest insight came from his theory of alienation, in part defined as a sense of estrangement from the self that comes from being part of a materialistic society in which we are cogs in an enormous market-based machine.”
What we’re reading (10/22)
“I Should Have Worn A Mask” (Wall Street Journal). Op-ed in the WSJ from Chris Christie today: “For seven months I was very careful about mask wearing, social distancing and hand washing. As someone with asthma, I knew I faced heightened risk. Then, at the Rose Garden nomination event for Judge Amy Coney Barrett, and during debate preparations with President Trump, I let my guard down and left my mask off. I mistook the bubble of security around the president for a viral safe zone. I was wrong. There is no safe zone from this virus.”
“Weekly Jobless Claims Slump To The Lowest Level Since The Pandemic” (CNBC). “New filings for jobless claims in the U.S. totaled 787,000 last week, the lowest total since the early days of the coronavirus pandemic. Economists surveyed by Dow Jones had been expecting 875,000 for the week ended Oct. 17. The total reflected a decline of 55,000 from the downwardly revised 842,000 from the previous week. The last time the weekly claims total was lower was the 282,000 on March 14, just before an avalanche of layoffs that occurred in conjunction with efforts to combat the virus.”
“Asset Managers in $300bn Drive To Build Private Lending Funds” (Financial Times). The “shadow banking system” is coming out of the shadows a bit, it seems: “Asset managers are seeking to raise almost $300bn to plough into private lending deals with groups such as Goldman Sachs and Oaktree hoping to lure investors away from frothy public markets. Publicly traded debt and equity securities have surged in price this year after central banks and governments across the world unleashed trillions of dollars worth of stimulus to dull the economic blow from the pandemic. Managers argue that private credit — including funds set up to lend directly to companies — is one area that has not yet become saturated. It has also benefited from post-financial crisis regulations that pushed banks to tamp down lending to riskier clients.”
“Airlines Don’t Deserve Another Taxpayer-Financed Bailout” (Los Angeles Times). “Congress and President Trump, having doled out $25 billion in payroll grants plus a similar sum in low-interest loans to the airline industry in April, are seeking a second bailout, possibly as part of a general stimulus bill. The urge to rescue the airlines flows from good intentions, but it is not a smart way to help the economy and it will reward CEOs for serial mismanagement and self-enrichment.”
“Turkey Farmers Fear That, This Year, They’ve Bred Too Many Big Birds” (Washington Post). “The coronavirus pandemic will interrupt 50 years of steadily increasing turkey consumption, threatening to change holiday traditions forever. Social distancing and travel challenges will mean more, smaller holiday gatherings this November — thus smaller home-cooked turkeys on the table, fewer holiday restaurant reservations and, in an increasing number of households, no turkey at all.”
What we’re reading (10/21)
“Google’s Exclusive Search Deals With Apple At Heart Of U.S. Lawsuit” (Wall Street Journal). “Inside Google, they called the scenario “Code Red,” so stark was the prospect of losing the search engine’s lucrative pipeline from Apple Inc.’s iPhone. Now that possibility is officially on the table. Google’s partnership with Apple is at the heart of the U.S. Department of Justice antitrust lawsuit claiming that the Alphabet Inc. unit misused its power in an anticompetitive manner, potentially threatening a major revenue stream for both tech giants.”
“When Start-Ups Go Into The Garage (Or Sometimes The Living Room)” (New York Times). “It is the folksiest of Silicon Valley origin stories: Tech start-up makes it big after a wide-eyed entrepreneur builds a prototype in his garage. But Colin Wessells could never have imagined that a pandemic would force him back into the garage just to keep his company going. Dr. Wessells, 34, is one of the founders and the chief executive of Natron Energy, a start-up building a new kind of battery. In March, when social distancing orders shuttered his company’s offices in Santa Clara, Calif., he and his engineers could no longer use the lab where they tested the batteries. So he packed as much of the equipment as he could into a sport utility vehicle, drove it home and recreated part of the lab in his garage.”
“Complacency Warning? ‘Election Premium’ In Currency Markets Collapses Much Like It Did In 2016” (MarketWatch). “Poll-watching currency traders are growing more relaxed about the prospect for market volatility in the aftermath of the Nov. 3 presidential election, according to the options market. Are they getting too relaxed? The ‘election premium,’ derived from measures of implied volatility via the FX options market, has largely collapsed as Democratic challenger Joe Biden holds a wide lead over President Donald Trump which is seen reducing the chances of a muddled or contested election outcome that could spark market turmoil, said Olivier Korber, a currency strategist at Société Générale, in a Tuesday note. But a similar collapse in the ‘election premium’ in the runup to the 2016 election…means traders could be getting ‘complacent,’ he warned.”
“Mortgage Demand From Homebuyers Falls For The Fourth Straight Week” (CNBC). “Homebuyer demand is incredibly strong compared with last year, but there appears to be a slight pullback this month. A drop in buyer demand caused total mortgage application volume to fall 0.6% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.”
“Are Inventors Or Firms The Engines Of Innovation?” (Management Science). “In this study, we empirically assess the contributions of inventors and firms for innovation using a 37-year panel of U.S. patenting activity. We estimate that inventors’ human capital is 5–10 times more important than firm capabilities for explaining the variance in inventor output. We then examine matching between inventors and firms and find highly talented inventors are attracted to firms that (i) have weak firm-specific invention capabilities and (ii) employ other talented inventors. A theoretical model that incorporates worker preferences for inventive output rationalizes our empirical findings of negative assortative matching between inventors and firms and positive assortative matching among inventors.”
What where reading (10/20)
“The Justice Department Files Long-Awaited Lawsuit Against Google” (New York Times). “The Justice Department accused Google of maintaining an illegal monopoly over search and search advertising, in the government’s most significant legal challenge to a tech company’s market power in a generation. In a lawsuit, filed in a federal court in Washington, D.C., on Tuesday, the agency accused Google, a unit of Alphabet, of using several exclusive business contracts and agreements to lock out competition.”
“Goldman Sachs To Pay $2.8 Billion, Admit Wrongdoing To Settle 1MDB Charges” (Wall Street Journal). “Goldman Sachs Group Inc. will pay the U.S. government about $2.8 billion and admit wrongdoing in a Malaysian bribery scandal, settling charges stemming from its work with a corrupt government investment fund. A Goldman subsidiary tied to the misconduct in Asia is expected to plead guilty this week, according to people familiar with the matter. The bank’s parent company will admit fault but won’t face prosecution under the agreement, the people said, avoiding a guilty plea that could have crippled its ability to do business.”
“Pelosi Says Dems And White House Are Moving Closer To A Stimulus Deal, Downplays Tuesday Deadline” (CNBC). “House Speaker Nancy Pelosi said Democrats and the White House have moved closer to a coronavirus stimulus deal ahead of her latest call with Treasury Secretary Steven Mnuchin on Tuesday afternoon. The California Democrat downplayed the importance of a deadline she had set to strike an agreement before the end of the day, signaling she would keep talks going. To have legislation ready before Election Day, lawmakers would have to come to a deal and write a bill before the end of the week, she added.”
“Securing Posterity” (Works In Progress). Interesting argumentative essay on risk, growth, and stagnation in the new online journal Works in Progress. “To the extent that we [society] are at a crossroads between continued growth with—potentially risky—innovation on the one hand, and stagnant decadence in the name of comfort and safety on the other hand, those concerned for posterity should respond with a unified voice: we choose growth.”
“Travis Kalanick Finds New Industry To Put Out Of Business” (Dealbreaker). “Having helped rid the world of the scourge of taxis (and a fair number of cab drivers along with them), Uber founder and former CEO Travis Kalanick has been on the lookout for other industries to disrupt into extinction. Luckily for him, the global pandemic has served up the restaurant business right on a plate. Or, rather, a plastic tray.”
What we’re reading (10/19)
“Coronavirus Tanked The Economy. Then Credit Scores Went Up.” (Wall Street Journal). “Millions of Americans lost their jobs and skipped debt payments this year. You wouldn’t know it looking at consumer credit scores. While the coronavirus was pummeling the U.S. economy, Americans’ credit scores—a metric used in nearly every consumer-lending decision—were rising. The average FICO credit score stood at 711 in July, up from 708 in April and 706 a year earlier, according to Fair Isaac Corp.”
“CVS To Hire Thousands Of Pharmacy Techs As It Prepares For More COVID-19 Cases, Rollout Of Vaccine” (CNBC). “CVS Health said Monday that it wants to immediately hire 15,000 employees to prepare for an expected rise in Covid-19 and flu cases this fall and winter. More than 10,000 of those will be full-time and part-time licensed pharmacy technicians who can help dispense medications and administer Covid-19 tests.”
“Lockdowns In Europe Are A Warning To The United States” (CNN Business). “The coronavirus is surging again in Europe, forcing harsh new restrictions in London and Paris as governments carefully weigh their next steps. That's bad news for the region's economic recovery — and puts the United States on notice ahead of a difficult winter.”
“For Long-Term Investors, Small Things Like Presidential Elections Don’t Matter” (New York Times). “In a year of serial crises, solace for many people has come from an unlikely source: the stock market. Despite periodic jitters and a horrendous downturn earlier in the year, the stock market has been a surprisingly sturdy refuge. Though there is heartbreak almost everywhere else you look, most of the time stocks rise anyway. Through Friday, the S&P 500, a benchmark for the shares of big American companies, was up almost 8 percent this year. And this stock market prosperity in a time of general desperation isn’t an outlier. With important exceptions, the stock market has generated rich returns for decades, regardless of the outcome of portentous events, including presidential elections.”
“The Smart Money Just Reversed Bets Against Tech Stocks In A Huge Way” (MarketWatch). “The 33rd anniversary of the “Black Monday” stock-market meltdown is upon us, and if hedge-fund managers are scared of history repeating itself, you certainly wouldn’t know it from the massive overhaul in their positions they’ve undertaken over the past week…After establishing one of their biggest short positions in U.S. tech stocks in more than a decade earlier this month, hedge-fund managers poured their money into Nasdaq futures at a near-record rate, according to Commodity Futures Trading Commission data cited by Bloomberg.”
What we’re reading (10/18)
“Joseph Sullivan III Helped Create Chicago Options Exchange” (Wall Street Journal). “Mr. Sullivan, who was a Wall Street Journal reporter before moving to the Chicago exchange, was assigned to look into the feasibility of plywood futures. That idea flopped, but he embarked on a much more promising project: creating a new exchange to trade stock options, then an obscure corner of the financial markets. It took more than four years for Mr. Sullivan and colleagues to overcome skepticism and resolve all the technicalities. In 1972, he became president of the new Chicago Board Options Exchange. Trading began April 26, 1973, in what had been a smoking lounge next to the vast commodity trading floor…Mr. Sullivan, who had respiratory ailments and had apparently recovered from a bout with Covid-19 in August, died Oct. 2 at his home in Knoxville, Tenn. He was 82.
“Few People Are Flying. What Is An Airline To Do? Lots Of Fine-Tuning.” (New York Times). “Every airline is struggling, but each struggles in its own way…[w]hen the virus devastated travel in March and April, United took hundreds of planes out of circulation. Since July, it has brought back more than 150, including those flown by regional carriers, but about 450 are still stashed away.”
“Inflation Is Totally Out Of The Control Of Central Banks” (The Market). An interview with Nobel Laureate and the “father of modern finance” Eugene Fama. One quote getting a lot of attention: “[e]very day we hear a story about the movement of stock prices. But the story is different each day. So basically, these stories are made up after the fact. But when we look at it systematically, we don’t see a big effect of Fed actions on real activity or on stock prices or on anything else. That’s why I use to say that the business of central banks is like pornography: In essence, it’s just entertainment and it doesn’t have any real effects.”
“Warren Buffett Plowed $5 Billion Into Bank of America During The Debt Crisis. Here's The Story Of How The Investor Helped The Bank And Made A Fortune In The Process” (Business Insider). Funny introduction to this story: “Buffett was taking a bath in late August 2011, reflecting on his investments in American Express and Geico during difficult periods for both companies, when he had the idea to bet on Bank of America, Fortune reported. The investor tried to get through to the bank's CEO, Brian Moynihan, but was initially blocked by a call-center worker. ‘Warren asked to speak to me and of course they don't transfer everybody who calls the call centers to the CEO's line,’ Moynihan told David Rubenstein in a Bloomberg interview last year.”
“China’s Gulags” (The Economist). “‘IS THERE A God?’ Answer yes, and you will get a beating. As we report this week, that is just one of the humiliations inflicted on Uyghurs, a disaffected, mostly Muslim ethnic minority of 12m people in the far west of China. A handful have carried out terrorist attacks, but none since 2017. The Chinese state has in effect locked them all in a vast open-air prison. Many are in detention centres. Even those outside must attend indoctrination sessions. Evidence suggests that hundreds of thousands of children have been separated from their parents. Women have been forcibly sterilised. This persecution is a crime against humanity.”
Mid-October 2020 performance update
At the end of last month, I mentioned that I would be including a second comparison portfolio in Stoney Point’s performance updates (besides the SPY ETF). That second comparison portfolio would be based on a recommendation from the “Bogleheads”—that is, devotees of the investment philosophy embodied by the so-called “index” mutual funds introduced to investors by Jack Bogle and Vanguard decades ago. In particular, I mentioned that I would be including a comparison portfolio proffered by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf in The Bogleheads’ Guide To Investment (a book blessed by Jack Bogle himself, in as far as he wrote the forward) as “A Young Investor’s Asset-Allocation” and considered appropriate for a typical young investor. Per Larimore, et al., that portfolio comprises (1) domestic large-cap stocks, (2) intermediate-term bonds, and (3) domestic mid-cap stocks (I swapped out #3 with international stocks last month to capture some advice from other corners of the Bogle-sphere, see, e.g., here).
I think it’s worthwhile to say a little more about the Bogleheads’ index-investing philosophy and, in particular, why I’m including it as a comparison portfolio for Stoney Point’s Prime and Select models along with the S&P 500. In a nutshell, I interpret the Bogleheads’ investment philosophy to encapsulate, broadly speaking, the basic premise of passive index fund investing: that the most efficient portfolio is a perfectly diversified “market” portfolio. (Here, the notion of a portfolio being maximally efficient refers to maximizing expected excess returns for a given level or volatility, i.e., risk, or, equivalently, minimizing risk for a given expected excess return). Put simply: it’s really hard to beat the market, and most professional investment managers fail to do that once you include fees, especially over long periods of time. It’s worth noting that this premise is generally consistent with some of the earliest and most influential asset pricing theories and is also supported by a huge empirical literature finding that investors are often better off paying low fees and getting the “market return” than paying higher fees to some manager who probably can’t beat the market anyway.
But don’t take my word for it, here’s what the Bogleheads themselves say in the introduction to their book, describing Vanguard founder Jack Bogle:
What Jack Bogle has made possible for the individual investor is truly extraordinary. Thanks to his creation of no-load, low-cost, tax-efficient mutual funds, millions of investors enjoy significantly greater returns on their investment dollars than they otherwise would have. His introduction of the first index fund for retail investors was labeled Bogle’s Folly by its detractors. Today, that same fund, Vanguard’s 500 Index fund, is the largest mutual fund in the world. Thanks to Jack Bogle, more of each investor’s money is put to work for them instead of going into the pockets of brokers, fund managers, or the taxman. For the everyday investor this translates into items such as nicer homes for families, college educations for children, more enjoyable retirements for seniors, and more money to be passed on to loved ones and causes they care about. Although a few other investment fund families have joined the low-cost revolution, it was Jack Bogle who sounded the bugle and led the charge, and it’s Vanguard that continues to lead the way.
So why am I including the Bogleheads portfolio in the performance updates going forward? Clever readers may have noticed I’m using the term “comparison portfolio” instead of “benchmark” in this post to describe the portfolio. I may not always clearly make that distinction in future posts (so please forgive me in advance!), but I’m doing it now to convey the technical point that I’m not claiming the Bogleheads portfolio will be of comparable riskiness to Prime and Select portfolios. As I mentioned in the September performance update and discuss further below, the Bogleheads portfolio includes a 20 percent allocation to bonds, which by itself might reasonably lead to an expectation that the portfolio will be less risky and generate lower returns over the long term than either the Stoney Point portfolios or the S&P 500 (which are all-equity portfolios). The Bogleheads portfolio is, however, arguably a salient and plausible alternative investment portfolio for readers of this site, so it’s worth considering how Stoney Point’s portfolios stack up against it. Such is my aim going forward. It will simply be important to recall that the Bogleheads portfolio is likely less risky than the Stoney Point portfolios and the S&P 500 and therefore should, in principle, generate lower returns. To the extent that’s true, comparing the returns of the Bogleheads portfolio to these portfolios can seem a bit unfair to the Bogleheads, so, in the interest of transparency and clarity, we’ll be presenting some information periodically about how all of these portfolios compare on a risk-adjusted basis using Sharpe ratios.
One other quick, but important note about all this: at the end of last month I mentioned that I may play a little bit with the asset allocation for the “Bogleheads” portfolio. It wasn’t immediately clear what Larimore, et al. were recommending for a specific implementation of the “Young Investor’s Asset-Allocation” portfolio, as they only listed broad asset classes. Taking another look at the Larimore, et al., book, however, they do in fact offer a recommended portfolio for a “[y]oung [i]nvestor” based on specific Vanguard index mutual funds: a portfolio comprising an 80 percent allocation to Vanguard’s Total Stock Market Index Fund (VTSMX) and a 20 percent allocation to Vanguard’s Total Bond Market Index Fund (VBMFX). Going forward, I’m going to be using that portfolio as my representation of the Bogleheads’ expert recommendation, with one modification: mutual funds only trade once per day after the market close, unlike stocks and ETFs, so instead of VTSMX and VBMFX, I’m going to use their ETF analogues, VTI and BND, respectively, which will enable me to look at market-open and intraday pricing. Looking at market-open prices will be important because I’ll calculate the performance of the Bogleheads portfolio assuming re-balancing back into an 80-20 allocation at the beginning of each month (at the open price) for comparability with the re-balancing frequency of the Prime and Select portfolios.
Without further ado, below are some mid-month performance charts (current as of the close on October 16) so you can see what the structure of these tables will look like going forward.
Stoney Point Prime Performance
(10/1/20-10/16/20)
Stoney Point Select Performance
(10/1/20-10/16/20)
What we’re reading (10/17)
“Tech’s Influence Over Markets Eclipses Dot-Com Bubble Peak” (Wall Street Journal). “Technology companies are set to end the year with their greatest share of the stock market ever, topping a dot-com era peak in the latest illustration of their growing influence on global consumers. Companies that do everything from manufacturing phones to operating social-media platforms now account for nearly 40% of the S&P 500, on pace to eclipse a record of 37% from 1999, according to a Dow Jones Market Data analysis of annual market-value data going back 30 years.”
“More Volatility Is Likely Ahead As Rising Cases, Lack Of Stimulus Overshadow Strong Earnings” (CNBC). “Another volatile week may be in store for traders as coronavirus cases rise in the U.S. and Europe while Democrats and Republicans remain at an impasse over new fiscal aid. The Dow Jones Industrial Average and S&P 500 fell for three straight days this week. That slide was the longest losing streak for the averages since mid-September. The two market benchmarks eked out slight gains on Friday to snap their losing streak.”
“The ‘MAGA’ ETF Is Trailing The Market For One Major Reason” (CNN Business). “With less than three weeks until Election Day, President Trump is trailing Joe Biden in the polls. And an ETF whose ticker is the acronym for Trump's famous campaign slogan is lagging the market, too. The Point Bridge GOP Stock Tracker ETF (MAGA), which trades under the symbol MAGA, is down 8% this year -- in sharp contrast to the benchmark S&P 500, which is up 7%.”
“Earnings Were Supposed To Lift The Markets. What Happened?” (Fortune). “Global stocks and U.S. futures are moving in opposite directions with the latter pointing to a weak open. COVID and labor market jitters are weighing heavily on investor sentiment as the stimulus talks bog down. Earnings beats, so far, are failing to lift risk appetite.”
“Will New York Go For Another Wall Streeter As Mayor"?” (Dealbook). “The veteran deal-maker Ray McGuire announced Thursday that he was stepping down as Citigroup’s vice chairman to join the crowded race for New York City mayor. His fellow finance executives sing his praises, but it’s unclear whether that helps or hurts his bid to run a city whose voters have shifted away from the centrist politics of leaders like Mike Bloomberg toward the progressive views of Representative Alexandria Ocasio-Cortez.”
What we’re reading (10/16)
“Morgan Stanley Powers Through Coronavirus Recession With Higher Profit, Revenue” (Wall Street Journal). The banks seem to be doing OK. “Morgan Stanley on Thursday said its quarterly profit rose 25% from a year ago, another big U.S. bank to skate unscathed through the rockiest economy in years. Profit of $2.72 billion, or $1.66 a share, was higher than a year ago and beat analysts’ forecasts. Revenue rose 16% to $11.66 billion.”
“Walmart CEO Doug McMillan To Congress: Get A Stimulus Deal Done” (CNBC). “Walmart CEO Doug McMillon on Thursday called on Congress to work together and pass a stimulus deal to help American families and small businesses. ‘For both sides, I think what they need to keep in mind is that there are Americans that need them, that don’t really care about politics, aren’t really tied up in this election and they just need some help,’ he said, in an interview on CNBC’s ‘Squawk Box.’”
“Amazon Just Had Its Biggest Prime Day Ever. But This Year, It’s Not Hyping That Up” (CNN Business). “Each year Amazon has held Prime Day, the retailer has touted that the savings event shattered prior Black Friday or company sales records. But this year, Amazon took a different tack in its annual announcement on results from the shopping event, playing up how small businesses benefited from Prime Day instead. The change comes as Amazon faces intense scrutiny from lawmakers about its power over independent merchants that sell goods through its website and other tactics that critics argue stifle competition.”
“‘Young And Dumb’ Traders Have Created A ‘Total Nightmare’ In The Stock Market, Fund Manager Warns” (MarketWatch). Cole Smead at Smead Capital Management thinks Millennials are dumb. But—reminder!—the market is just the aggregation of tens of thousands of individual investors’ assessments. The “wisdom of the crowd”-type thinking suggests that when the market is doing one thing and you’re doing another, you should be very cautious in assuming it’s the market that’s wrong, instead of you.
“Flashy Global Law Firm Accused Of Bilking Trusting Nebraska Senior Citizen” (Dealbreaker). “There’s no older or more successful trick in the fraudster’s playbook than selling something worthless and/or nonexistent to a credulous senior. And so when the fast-talking cosmopolitan lawyers at Jones Day were charged with selling off a German pipe maker about to go belly-up, they (allegedly) knew exactly who to turn to [Warren Buffett]].”
What we’re reading (10/15)
“Goldman’s Pandemic Hot Streak Continues in Third Quarter” (Wall Street Journal). “Goldman’s quarterly profit of $3.62 billion on revenue of $10.78 billion was better than stock analysts had forecast and sharply higher from a year ago. Since then, the global economy has crashed, political turmoil has continued and interest rates have dropped to near zero—all things that should dent Wall Street profits. And yet the nation’s biggest banks remain profitable. Their securities-trading desks have, remotely, hummed back to life. Big corporate bankruptcies have leveled off. Depositors haven’t pulled their money.”
“A Horrifying Covid Chart Still Frightens Months Later” (Bloomberg). “In late June, I highlighted what I deemed a "horrifying" chart showing massive growth in new infections in the U.S. relative to the European Union. A key explanation for the discrepancy was that many U.S. states were moving forward with reopening despite high case counts, while many European countries had waited to ‘crush the curve’ and ensure infections were lower before loosening restrictions. Now, almost four months later, that same chart remains very scary — but in a different way. For the first time since March, the EU is reporting more new Covid-19 cases on a population-adjusted basis than the U.S.[.]”
“Your Portfolio Is Not As Diversified As You Think, Unless You Are Utilizing This Powerful Strategy” (MarketWatch). “With historically low interest rates, investors are cramming money into stocks, especially in large-cap technology companies including Microsoft Corp. and Facebook Inc. A simple way to diversify by asset class while cutting risk and benefitting from long-term stock gains is to own convertible bonds.”
“Capital Is Pumping Into ETFs” (Dealbreaker). “Through the first nine months of the year, investors have plowed $488 billion into ETFs compared with $349 billion during the same period in 2019, according to data provider ETFGI.”
“United Posts Another Huge Loss After Pandemic Guts Demand For Air Travel” (CNN Business). “United Airlines posted its third huge quarterly loss of the year, saying it is ready to ‘turn the page’ and prepare for a recovery from the worst financial crisis ever faced by the airline industry. The carrier posted a $2.4 billion loss excluding special items, slightly less the $2.6 billion it lost on that basis in the second quarter but a bit above analysts' forecasts. Its net loss of $1.8 billion also exceeded the previous quarter's loss.”
What we’re reading (10/14)
“Joe Biden Keeps Everyone Guessing On Wall Street Regulation” (Wall Street Journal). “Fifteen years ago, Joe Biden defended credit-card companies during a testy Senate exchange with Elizabeth Warren over legislation curtailing consumers’ ability to shed their debts in bankruptcy. This March, he adopted her argument entirely. Mr. Biden spent 36 years as a senator from the credit-card and corporate mecca of Delaware, where he built relationships and a voting record that provided ammunition for his opponents during a bruising Democratic presidential primary. Now, he is edging left on a range of issues from student debt to stock buybacks, leaving both progressives and Wall Street Democrats guessing whose side of the financial-regulation fight he is on.”
“The Man Who Speaks Softly—And Commands A Big Cyber Army” (Wired). “Over the next 15 years [after September 11, 2001], as America waged the resulting war on terror, Paul Nakasone became one of the nation's founding cyberwarriors—an elite group that basically invented the doctrine that would guide how the US fights in a virtual world. By 2016 he had risen to command a group called the Cyber National Mission Force, and he was hard at work waging cyberattacks against the Islamic State when the US suffered another ambush by a foreign adversary: the Kremlin's assault on the 2016 presidential election.”
“Walmart Divides Black Friday Deals Into 3 Separate Events That Kick Off Online” (CNBC). “For shoppers who can’t part with Black Friday traditions, Walmart said Wednesday that it still plans to have in-store events featuring deep discounts. Yet the holiday sales days will come with pandemic-related precautions. Stores will open at 5 a.m. local time. Customers must line up single-file before they enter. Stores will limit the number of people inside. Employees will distribute sanitized shopping carts. And some, dubbed health ambassadors, will greet shoppers and remind them to put on a mask.”
“COVID-19 Has Changed The Housing Market Forever. Here’s Where Americans Are Moving” (Forbes). “Thanks to the COVID-19 pandemic, more deep-seated, tectonic-sized questions beyond markets and interest rates are being asked this time around that no one really has the answers to yet—like will people feel safer living in the south and southwest where they can spend all year social distancing outside? What if companies let workers work remotely for the rest of their lives? Why go back to retail shopping when I’m already ordering everything online? What’s the point of living “downtown” if half of the restaurants, bars, and museums never open back up?”
“Corporate Taxation And The Distribution Of Income” (National Bureau of Economic Research). Interesting new paper. Here’s the abstract: “Higher corporate taxes reduce corporate business operations, replacing them with operations by noncorporate businesses that are risky and have undiversified ownership. This shift contributes to income dispersion, with effects so large that higher corporate taxes can increase income inequality even when the corporate tax burden falls entirely on capital owned disproportionately by the rich. Estimates suggest that the riskiness of U.S. noncorporate business increases by 12.3% the aggregate income of the top one percent, and that income dispersion created by a higher U.S. corporate tax rate offsets more than half of the distributional effects of reducing average returns to capital.”
What we’re reading (10/13)
“One Of The Year’s Worst Short Bets Defies Scathing Reports And An SEC Investigation” (Wall Street Journal). “No stock has been more heavily attacked by activist short sellers this year than GSX Techedu Inc., a New York-listed Chinese tutoring company. So far, GSX has come out on top. After quintupling this year, it is one of the world’s most valuable education businesses, with a market capitalization of $27.3 billion. ‘Shorting this, it has been just a nightmare,’ said Richard Smatt, a mathematics professor at Flagler College in St. Augustine, Fla., who said he is sitting on tens of thousands of dollars in unrealized losses on GSX.”
“Three Rockefellers Say Banks Must Stop Financing Fossil Fuels” (New York Times). “One hundred years ago, as a deadly influenza gripped the world and the stock market dropped precipitously, our great-grandfather John D. Rockefeller Jr. began investing in New York banks to diversify the family’s business away from fossil fuels in the midst of the economic uncertainty…The similarities today are striking. A pandemic has killed more than a million people across the world and shows no signs of abating, and unease surrounds the economy. But that anxiety is not merely a consequence of the pandemic. The long-term outlook for the economy is clouded by a warming climate and its foreseen consequences.”
“Tesla’s Debt Close To Investment Grade After S&P Upgrade” (MarketWatch). “S&P Global Ratings on Monday raised its Tesla Inc. debt ratings to BB-, from B+, leaving the Silicon Valley car maker’s bonds two notches from investment grade. ‘Improved execution, increasingly efficient production, and global expansion continue to strengthen the company’s competitive position,’ S&P said.”
“Invesco Is Launching A New Nasdaq ETF To Capitalize On The Tech Craze” (CNBC). “The Invesco QQQ Trust (QQQ) started tracking the NASDAQ-100 Index in 1999. Since then, it’s become the fifth-largest ETF listed in the U.S., with $135 billion in assets under management. Now Invesco is looking to capitalize on the interest in technology and growth stocks by offering a new ‘junior’ QQQ.”
“U.S. Inflation Gauge Increases At Slowest Pace In Four Months” (Bloomberg). “A key measure of U.S. consumer prices rose in September at the slowest pace in four months, signaling little threat of accelerating inflation as the economy recovers. The consumer price index rose 0.2% from the prior month after a 0.4% gain in August. Compared with a year earlier, the gauge increased 1.4%, after August’s 1.3% rise.”
What we’re reading (10/12)
“Nobel Prize In Economic Sciences Is Awarded To U.S. Academics” (Wall Street Journal). “U.S. academics Paul R. Milgrom and Robert B. Wilson shared the Nobel Prize in Economic Sciences for new insights into how auctions work, and how different auction designs can help buyers and sellers meet their goals…[b]oth winners are professors at Stanford University.” In a great summary of Milgrom’s work, GMU professor Tyler Cowen writes, “[b]asically Milgrom was the most important theorist of the 1980s, during the high point of economic theory and its influence… [a] very good choice and widely anticipated, in the best sense of that term.”
“New Questions About Leon Black’s Ties To Jeffrey Epstein” (Dealbook). “Shortly after Jeffrey Epstein was arrested last year on sex-trafficking charges, Leon Black, Apollo’s billionaire C.E.O., was asked about his decades-long ties with the financier. Mr. Black played it down, but The Times reports that the two had a far deeper relationship than previously known, in which Mr. Black paid tens of millions to Mr. Epstein over a decade.”
“Southwest Pilots’ Union Bristles At 10% Pay Cut Proposal” (CNBC). “Southwest Airlines pilots’ union is pushing back on a company proposal to cut pay by 10% to avoid furloughs through the end of next year, the latest wrinkle in the Dallas-based carrier’s efforts to cut costs in the pandemic. Southwest is trying to preserve its record of never having furloughed workers in its nearly 50 years of flying, but its CEO Gary Kelly warned earlier this month that it would seek concessions from the labor unions that make up the bulk of its workforce.”
“Wall Street Layoffs A Matter Of When, Not If, Sources Say” (New York Post). “With the markets near all-time highs, IPOs booming and dealmaking such as Morgan Stanley’s purchase of Eaton Vance picking up, it would seem like layoffs would be the last thing that big banks and investment houses are weighing. But those who run Wall Street never let a serious crisis go to waste. Cutting jobs is exactly what every major firm is looking at as the pandemic continues to ravage the US economy.”
“A Farewell To The NBA Bubble After Three Grueling And Exhilarating Months” (Washington Post). “The bubble opened with an overwhelming rush of media interest that mostly consisted of morbid curiosity and rubbernecking. I did countless interviews about my seven-day quarantine inside a hotel room, and everyone asked about what would happen if someone got sick or died. Once it became clear that the NBA’s stringent health protocols were working, the ambulance chasers moved on. Now, physical and mental exhaustion reign, and it has become clear that the bubble was meant for die-hards.”
What we’re reading (10/11)
“Investors Are Betting Corporate Earnings Have Turned A Corner” (Wall Street Journal). “Investors are entering third-quarter earnings season with brighter expectations for corporate profits, a bet they hope will propel the next leg of the stock market’s rally. Profits among companies in the S&P 500 are still expected to decline sharply from last year, but analysts have been lifting their estimates over the course of the quarter—a move that goes against the norm. Typically, earnings expectations decline as a quarter progresses.”
“HSBC Calls Start Of A ‘Great Rebalancing’ As The Global Economy Enters A Flatter Stage Of The Recovery” (CNBC). “A ‘great rebalancing’ of investor portfolios away from core government bonds and a ‘coupon clipping environment’ for markets are coming into view in the fourth quarter, according to HSBC Global Asset Management. In its quarterly outlook report, HSBC characterizes the global economy as entering the second, flatter, phase of a two-stage ‘swoosh-shaped’ recovery in which growth is set to moderate.”
“The Baby Boomer Bond Dilemma” (New York Times). “Today’s record low bond yields could not come at a worse time for many baby boomers. Owning U.S. Treasuries, the undisputed safest bond for retirees, means signing on for next to nothing in earnings for the next five to 10 years. That’s because the current yield of a Treasury bond is a solid estimate of future annual returns, and Treasuries that mature in 10 years or less currently have yields below 1 percent.”
“The US-China Trade War And Global Value Chains” (University of Minnesota). Interesting new paper from Yang Zhou at the University of Minnesota finding that “the [Trump] trade war costs China $35.2 billion, or 0.29% GDP, costs US $15.6 billion, or 0.08% GDP, and benefits Vietnam by $402.8 million, or 0.18% GDP.” According to Tyler Cowen at George Mason University, “[t]hose numbers should not come as a surprise, they do indicate that both countries are worse off, but they also show that a lot of the bargaining power does in fact reside on the side of the United States.”
“‘I’m Terrified, Frankly.’ Meet The People Who Are Counting On Another Stimulus Bill” (MarketWatch). “Most of the stimulus checks have long been disbursed and the supplemental federal benefits ended in July. Extra $300 unemployment benefits from the Federal Emergency Management Agency recently ended too. The September jobless rate was 7.9%. That’s off the double-digit rates of the spring after the pandemic’s initial shockwave. But September marked the smallest gain in employment since state economies started reopening; 700,000 people left the workforce because jobs are scarce.”
What we’re reading (10/10)
“How Citadel CEO Ken Griffin Built a $1 Billion Private Property Portfolio” (Wall Street Journal). “In the early 1900s, the country’s wealthiest businessmen including William Randolph Hearst and John D. Rockefeller built sprawling, gilded estates. Living at that kind of boundless scale fell out of favor with subsequent generations, however, and these kinds of estates were either subdivided or turned over to the state or to preservationists. Now, hedge-fund multibillionaire Ken Griffin appears to be mounting a single-handed campaign to bring that level of extravagance back into vogue. Over the past five years or so, Mr. Griffin, an ambitious 51-year-old businessman who started his initial trading business from his Harvard University dorm room as a freshman, has developed a reputation among real-estate insiders as the luxury market’s whale, racking up a string of purchases that tally up to over $1 billion.”
“How Big Tech Became Such A Big Target On Capitol Hill” (CNBC). “After a 16-month investigation into competitive practices at the largest U.S. tech companies, Democratic congressional staffers laid out their findings this week in a 449-page report. They concluded that Apple, Amazon, Facebook and Google enjoy monopoly power that needs to be reined in, whether that means breaking the companies up, blocking future acquisitions or forcing them to open their platforms.”
“Airline Miles Programs Sure Are Profitable. Are You The Loser?” (New York Times). “[A]s carriers have made their case to legislators in recent months, some have also been pitching banks — using their customers’ faith in free travel as a kind of collateral…[T]hey and their lenders think they have customers, over 100 million of us in each program, right where they want us. Take it from a Delta securities filing from last month, which called the foundational aspect of frequent-flier programs ‘the fundamental aspiration of earning a free flight.’ Because of our desire for freebies, Delta added, it can ‘manage costs by modifying inventory levels and value.’ In other words, the airline can raise the prices of trips and upgrades, in miles, at any time. And it believes it can do so with relative impunity from a passenger revolt or from intense protest by American Express cardholders.”
“The New Black Friday: Amazon, Target, Best Buy And Others Kicking Off Holiday Sales” (Washington Post). “Some of the nation’s largest retailers will begin rolling out Black Friday sales this weekend — earlier than ever and the latest sign of how the pandemic is reshaping the biggest shopping season of the year.”
“A Columnist Makes Sense Of Wall Street Like None Other (See Footnote)” (New York Times). “In financial news — a medium not known for cultivating eccentric or literary voices — there’s no other writer quite like Mr. Levine, a former Goldman Sachs banker whose deadpan style mixes technical elucidation and wit.”
What we’re reading (10/9)
“Trump Raises Coronavirus Stimulus Offer To $1.8 Trillion, Then Says He Wants Bigger Bill Than Dems Or GOP” (CNBC). “The White House on Friday took a new coronavirus stimulus offer to Democrats, believed to cost $1.8 trillion, as the sides work to strike a deal before the 2020 election. The plan would mark an increase from the $1.6 trillion the Trump administration previously proposed. House Democrats passed a $2.2 trillion bill earlier this month, and the sides have struggled to find a consensus in between those figures.”
“Stocks Close Higher To Finish Best Week In Three Months” (Wall Street Journal). “The S&P 500 rose Friday, closing out its biggest weekly advance in three months as investors welcomed signs pointing to a decisive result in next month’s U.S. presidential election. A week that started with President Trump in the hospital being treated for the new coronavirus and former Vice President Joe Biden widening his lead in national polls finished as the best stretch for the index since the week of July 2.”
“What The Harvard Endowment’s Below-Average Grade Can Teach You About Index Funds And Your Investments” (MarketWatch). “Harvard’s University’s endowment’s return lagged the U.S. stock market — again. For the fiscal year ending June 30, Harvard’s endowment produced a 7.3% return, versus a 7.5% total return for the S&P 500. This marks the 12th year in a row in which the $42 billion portfolio fell behind the benchmark index. Also, as you can see from the accompanying chart, the endowment has lagged the S&P 500 over each of the 3-, 5-, 10- and 20-year horizons.”
“Swiss Quant Start-Up Vestun Opens Up Systematic US Equity Hedge Fund To External Money” (Hedgeweek). “Chayan Asli, Vestun’s founder and CEO, believes that relying on signals generated from statistical rules and back-testing history is not sustainable for delivering consistent long-term market outperformance. ‘Nowadays, everyone has access to the same financial datasets and machine learning models. If everyone uses the same smart systems with the same recipe for success, it will undermine the competitive advantage obtained by using computer-driven models to invest.’”
“Just 59 Americans Own More Wealth Than Half The Country, Data Shows” (New York Post). “The poorest 50 percent of Americans, or roughly 165 million people, collectively owned about $2.08 trillion in wealth in the second quarter of 2020, according to Federal Reserve data released last week. That’s less than the net worth of the nation’s 59 richest billionaires, who have a combined fortune of about $2.09 trillion, Bloomberg’s Billionaires Index shows — a number that’s grown this year despite the COVID-19 crisis kneecapping the global economy.”
What we’re reading (10/8)
“Stocks Look To Be Setting Up For A Year-End Rally Despite Election Worries And Lack Of Stimulus” (CNBC). “Even with election year volatility and no stimulus package in sight, it looks like the stars are aligning for a fourth quarter stock market rally. Technical analysts say they see underlying trends that signal strength and further gains, including broader groups of stocks participating, like small caps. The small cap Russell 2000 was up 5.6% week-to-date, compared to a 2.8% gain for the S&P 500.”
“Morgan Stanley To Buy Eaton Vance for $7 Billion” (Wall Street Journal). “Morgan Stanley said it is buying fund manager Eaton Vance Corp. for $7 billion, continuing the Wall Street firm’s shift toward safer businesses like money management. The deal comes just days after Morgan Stanley completed its $11 billion takeover of E*Trade Financial Corp., and is another leg in a decadelong turnaround project for Chief Executive James Gorman, who has closed risky trading operations and doubled down on wealth and asset management.”
“A New Activist Playbook” (Dealbook). “It isn’t often that an activist investor wants a company to spend more money on itself and less on shareholder payouts. But that’s precisely what the hedge fund billionaire Dan Loeb is pushing Walt Disney to do with its Disney+ streaming service.”
“What Takeovers Of Fund Managers Tell You About Markets” (The Economist). “Could a roll-up work in fund management? The question is often asked, only to be dismissed: you would have to be unusually daring (or smoking roll-ups of the jazz variety) to consider taking on such a challenge. So a few eyebrows were raised when it emerged last week that Trian, a hedge fund led by Nelson Peltz, a veteran agitator for corporate change, had taken stakes of almost 10% in two asset managers, Invesco and Janus Henderson. Asset management is undergoing significant change, noted Trian in its regulatory filings. Firms with scale and a breadth of products are better placed to succeed. So Trian has in mind ‘certain strategic combinations’ to generate value from its newly acquired stakes.”
“While Millions Lost Jobs, Some Executives Made Millions In Company Stock” (New York Times). “The pay gains are a result of the sharp rise in the stock prices of these companies, which investors are betting are well positioned to grow during the pandemic. Another reason these stock awards have appreciated so much is that some of the grants were made when the stock market was close to its lowest point for the year. Of course, many executives are also sitting on gains on stock they got in earlier years. But the surge in wealth also highlights how the compensation of senior executives is designed to give them enormous windfalls, which they have gotten even during one of the sharpest economic downturns in decades.”
What we’re reading (10/6)
“Dow Swings 600 Points After Trump Rejects Stimulus Plan” (CNN). “Stocks took a dive Tuesday afternoon after President Donald Trump said he ordered an end to stimulus negotiations until after the November election. The Dow (INDU) swung more than 600 points following the announcement and closed down 1.3%, or 376 points. The S&P 500 (SPX) tumbled 1.4%, and the Nasdaq Composite (COMP) finished down 1.6%. ‘I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business,’ Trump tweeted.”
“Despite Trump’s Move, Markets Are Still Expecting Stimulus And A Sizable One If Democrats Sweet” (CNBC). “Whoever wins the presidential election is likely to seek an infrastructure program next year, but if Democrats win the presidency and Congress, the program could be bigger and come faster.”
“GE Says It Has Received A ‘Wells Notice’ From SEC Relating To Accounting Investigation” (Wall Street Journal). “Federal securities regulators have warned General Electric Co. of a civil-enforcement action over…the company’s accounting for reserves related to an insurance business it has been trying to wind down for years. A Wells notice is a letter saying the SEC staff is recommending that the commission bring an enforcement action against the recipient and offers an opportunity to argue why the action shouldn’t be taken. It often serves to cap investigations that can drag on for years, as the final step before formal litigation begins.”
“A Quant Who Won Big In The 2008 Crisis Is Back With A 45% Gains” (Bloomberg). “The pandemic roller coaster is reviving the fortunes of a long-suffering quant trader who last won big in 2008. After shedding assets amid lackluster returns through much of the decade’s stock bull run, Roy Niederhoffer’s Diversified Fund has gained 45% this year through September—set for its best year since a 57% return notched in the global financial crisis. With a systematic program riding wild swings across futures markets, the virus mayhem is giving bragging rights to the 27-year-old fund which has long struggled in one-way bull regimes. Just last year, it lost 27%.”
“Luxury Real-Estate Market Surges In The Hamptons” (Forbes). “Nobody knew what was in store at the onset of the Covid-19 pandemic in March, but when schools and offices shut down and the threat of the virus in New York City was greater than ever, many wealthy families beelined to their Hamptons homes. Always a sought-after destination between Memorial Day Weekend and Labor Day Weekend, the Hamptons is relatively quiet in March and April and is nearly vacant in the winter months. With Covid-19 still a looming threat, many city dwellers are taking advantage of the seclusion in the Hamptons and renting in the off-season this winter and even up to a year.”
What we’re reading (10/5)
“JPMorgan Probe Revived By Regulators’ Data Mining” (Wall Street Journal). “Investigators probing whether traders at JPMorgan Chase & Co. rigged silver prices seven years ago decided there was no case to bring. Last week, the same agency hammered the megabank with a $920 million fine…[the settlement] shows the advances government has made in using data to uncover market manipulation, said James McDonald, enforcement director of the Commodity Futures Trading Commission. The data needed to uncover the eight-year market manipulation scheme came from Chicago-based CME Group Inc…The volume of data—including trades, orders and other messages flooding into CME’s computers—is so massive the CFTC couldn’t store or use it when Mr. McDonald began seeking it in 2017, he said. Five years of complete CME trading data amounts to 1.7 terabytes, or 127 million pages of information[.]”
“Walmart Signs Trio Of Drone Deals As It Races To Play Catch-Up With Amazon” (CNBC). “Over the past month, Walmart has announced three deals with drone operators to test different uses for the drones…[d]rones, once seen as futuristic or a novelty, have gained traction as a potentially mainstream way for retailers to deliver purchases to their customers. Growing e-commerce sales have intensified pressure on retailers to speed up deliveries and use quick turnaround times as a differentiator. More Americans have gotten used to drones, as they have seen them in the sky or bought a hobby drone of their own. And pandemic-related trends, such as shopping from the couch instead of the store aisle and limiting contact with strangers, could broaden their appeal, too.”
“The Owner Of Regal Cinemas Is Closing Its U.S. Theaters, With 40,000 Jobs At Stake” (New York Times). “The plight of the entertainment industry deepened on Monday as the British company Cineworld, which owns Regal Cinemas in the United States, said it would temporarily close all 663 of its movie theaters in the United States and Britain. The move was expected to affect 40,000 employees in the United States and 5,000 in Britain.”
“The Crypto State? How Bitcoin, Ethereum, And Other Technologies Could Point The Way To New Systems Of Governance” (City Journal). “Throughout history, world powers—Spain, the Netherlands, France, Britain—have found themselves routinely replaced by more dynamic rivals. Today, many speculate about whether the United States will cede place to China as the global superpower. What if this is the wrong way to look at the question, though—and what if we’re living through a more radical transition? What if all contemporary states are in the process of being replaced by a new kind of “state,” as different from existing governments as they themselves differed from ancient empires or primitive tribes? […] In an essay published in 2017, Mark Zuckerberg offers a philosophy of history to explain the rise of Facebook. The arc of that history moves from tribes to cities to nations—and now to something beyond.”
“The Sackler Family’s Plan To Keep Its Billions” (New Yorker). “Many pharmaceutical companies had a hand in creating the opioid crisis, an ongoing public-health emergency in which as many as half a million Americans have lost their lives. But Purdue, which is owned by the Sackler family, played a special role because it was the first to set out, in the nineteen-nineties, to persuade the American medical establishment that strong opioids should be much more widely prescribed—and that physicians’ longstanding fears about the addictive nature of such drugs were overblown. With the launch of OxyContin, in 1995, Purdue unleashed an unprecedented marketing blitz, pushing the use of powerful opioids for a huge range of ailments and asserting that its product led to addiction in “fewer than one percent” of patients. This strategy was a spectacular commercial success: according to Purdue, OxyContin has since generated approximately thirty billion dollars in revenue, making the Sacklers…one of America’s richest families.”