What we’re reading (12/10)
“Jobless Claims Surge To 3-Month High, As U.S. Coronavirus Surge Triggers More Layoffs” (MarketWatch). “New applications for U.S. unemployment benefits jumped last week to a nearly three-month, owing to an increase in layoffs after a record surge in coronavirus cases as well as to filing delays after the Thanksgiving holiday. Initial jobless claims surged by 137,000 to 853,000 in the seven days ended Dec. 5, the Bureau of Labor Statistics said Thursday. Economists polled by MarketWatch had forecast new claims to total a seasonally adjusted 720,000.”
“Controlling Half Of The US Food Delivery Market, DoorDash Shares Soar 78% In Stock Market Debut” (USA Today). “DoorDash shares soared 78% as the meal delivery service made its debut Wednesday on the New York Stock Exchange. The shares opened at $182 after the San Francisco-based company priced them at $102 each late Tuesday. The opening price valued the company, which is trading under the symbol DASH, at around $58 billion.”
“Homeowners Are $1 Trillion Richer Thanks To The Pandemic-Driven Housing Boom” (CNBC). “American homeowners are $1 trillion richer as the pandemic-driven housing boom pads their pockets. As prices rise, home equity multiplies. In the past year, homeowners with mortgages, representing about 63% of all properties, have seen their equity increase by 10.8%, according to CoreLogic. That equates to a collective $1 trillion in gained equity, or an average $17,000 per homeowner, the largest equity gain in more than six years.”
“5 Market Structure Trends For Lawmakers To Watch In 2021” (The Hill). “(1) Increased retail investor participation, driven by zero-commission trading…(2) Broader electronification of the markets: HFT goes mainstream…(3) Further deployment of artificial intelligence in trading…(4) Regtech matures to find new compliance efficiencies…(5) Global competition: Asia dominates IPO market; the US needs to promote more IPOs[.]”
“How One Investor Made $200 Million ‘By Accident’” (Dealbreaker). “[Jeremy] Grantham, a retired investment manager, spends his time investing in passion projects and opportunities with an environmental angle. Seven years ago he invested in a company called QuantumScape, a spinout from Stanford University which showed promise in emerging battery technologies. Turned out to be a winner. QuantumScape recently merged with a SPAC (special purpose acquisition company) run by Kensington Capital Partners at a valuation of $3.3 billion. After a 30% share price jump yesterday, the newly merged entity now boasts a market cap of nearly $30 billion.”
What we’re reading (12/9)
“Millions Of Americans Are Heading Into The Holidays Unemployed And Over $5,000 Behind On Rent” (Washington Post). “Millions of Americans who lost their jobs during the pandemic have fallen thousands of dollars behind on rent and utility bills, a warning sign that people are running out of money for basic needs. Nearly 12 million renters will owe an average of $5,850 in back rent and utilities by January, Moody’s Analytics warns. Last month, 9 million renters said they were behind on rent, according to a Census Bureau survey. Economists say the data underscores the deepening financial disaster for many families as the pandemic continues to shut off work opportunities[.]”
“How Pandemic Aid Attracted Hordes Of Gleeful And Gutsy Scammers” (New York Times). “Chris Hurn wasn’t surprised scammers were trying to get government money. An enormous relief effort like the $523 billion Paycheck Protection Program is bound to attract grifters. As thousands of applications for government-backed loans flooded into his firm, Fountainhead Commercial Capital, it reported at least 500 suspicious cases to federal officials, Mr. Hurn said. But what shocked him was the brazen glee of the scammers who got money anyway. At least a dozen times, ‘someone tried to defraud us, got turned down and then followed up to taunt us that they got their loan,’ said Mr. Hurn, Fountainhead’s chief executive.”
“Lowe’s Expects Sales To Rise About 22% In Fiscal 2020 As Turnaround Efforts Gain Traction” (CNBC). “Lowe’s said Wednesday it expects sales to grow by about 22% next year, as its turnaround efforts gain momentum, and it gets a boost from the popularity of home improvement projects during the coronavirus pandemic. Same-store sales are expected to rise by about 23% during the same period, helping it to earn between $7.53 to $7.63 per share, the company said. After adjustments, Lowe’s forecast earnings of $8.62 to $8.72 per share.”
“Airbnb Expected To Price IPO Above $56 To $60 A Share Range” (Wall Street Journal). “Airbnb Inc. is expected to price its shares above its already increased targeted range, according to people familiar with the matter, in yet another sign of exuberance in the IPO market. The expected price indicates Airbnb would be valued at more than $42 billion based on a fully diluted share count and including proceeds of the offering, which is expected to raise in excess of $3.3 billion.”
“Tesla Plans $5 Billion Share Sale Amid Record Run To S&P Debut, $600 Billion Market Value” (TheStreet). “[T]he clean-energy carmaker said it would sell around $5 billion worth of shares as it prepares for its S&P 500 debut later this month. Tesla unveiled the 'at-the-market' offering in a Securities and Exchange Commission that followed data from the China Passenger Car Association showing Tesla shifted 21,604 China-made vehicles in the world's largest car market last month, nearly double the October total and well ahead of the 11,329 sold in September, thanks in part to a resurgence in consumer demand from the COVID-hit economy.”
What we’re reading (12/8)
“Redfin CEO Says The Booming Covid Housing Market Can Get Even Hotter” (CNBC). “The hot housing market during the coronavirus pandemic could heat up further if more homes are put up for sale, the CEO of real estate brokerage Redfin told CNBC on Monday. ‘If we see people get more comfortable letting others into their home, we’re going to see more inventory on the market, and that’s what will drive sales volume,’ Glenn Kelman said on ‘Closing Bell.’ ‘Today, we are definitely inventory-constrained. There aren’t enough homes for people to buy.’”
“Is Goldman Sachs Going To Florida?” (New York Times). “Goldman Sachs is one of Wall Street’s best-known firms, its identity indelibly tied to New York. Yet it may move at least some parts of a major division to Florida, with costs and the pandemic in mind. DealBook has confirmed that the bank has explored moving some of its asset management unit, following a Bloomberg report that executives had scouted office locations and spoken with officials in Florida.”
“Bob Dylan Sells Entire Songwriting Catalog” (Wall Street Journal). “The 79-year-old legendary pioneer of modern rock music, and the only songwriter to win a Nobel Prize for Literature, has sold his entire publishing catalog—more than 600 copyrights spanning 60 years—to Universal Music Publishing Group, according to the company. While terms of the deal weren’t disclosed, the catalog is likely worth hundreds of millions of dollars—rivaled in value and influence only by the Beatles.”
“The No. 1 Investment Mistake Retirement Savers Are Making: Vanguard Study” (MarketWatch). “As it does every year, Vanguard opens the books on its vast book of 5 million retail clients, showing how, on average, they invest. It may be the best single overview of the typical Main Street U.S. investor. Among the various details, one thing sticks out like a sore thumb: What’s known as ‘home country bias.’ […] The typical investor is keeping four-fifths of his or her stock market portfolio in U.S. stocks…[i]t’s irrational. It’s so irrational that financial economists have a name for it, ‘the home equity puzzle,’ and have been trying to explain it rationally for 30 years.”
“The Economics Of Christmas Trees” (The Hustle). “Quarter Pine is one of thousands of Christmas tree farms in America. Collectively, these farms sell 25m-30m real Christmas trees to independent lots, big-box retailers, and garden centers every year. At an average retail price of $75 a pop, these trees make up a $2B+-per-year business. But what are the economics behind that price tag? Who gets the lion’s share of the profit? And how have Christmas tree producers fared with the growing popularity of artificial trees?”
What we’re reading (12/7)
“The November Jobs Report Is A Disaster” (New York Magazine). “U.S. employers added 245,000 jobs to their payrolls last month. Which is terrible news for the American economy. In a normal November, the addition of a nearly quarter-million new jobs would be a sign of economic strength. But 2020 is no ordinary year. The U.S. shed 22 million jobs in the first two months of the COVID-19 crisis. Friday’s jobs report leaves the country with 10.7 million fewer paid posts than it had pre-pandemic — and signals a sharp slowdown in the rate of labor market recovery. In October, the U.S. added 610,000 jobs, and economists had expected to see a 460,000 job gain last month, as holiday hiring partially offset the effects of rising COVID case rates. Officially, the true job gain was roughly half that sum — and truth is actually grimmer than the official, headline number would suggest.”
“Some Small Hedge Funds Reap Big Gains In Tough Times” (Wall Street Journal).”Hedge funds are trailing the U.S. stock market this year. Some of the smallest funds are emerging as some of the best performers, driving greater demand for these types of managers. Funds with less than $1 billion in assets are benefiting from their more manageable portfolios. They can dart in and out of holdings to protect gains or minimize losses amid the market volatility that has characterized this year. They also get more bang for their buck—making investments that require less firepower to affect their overall performance.”
“Kodak’s Stock Soars 70% After Probe Reportedly Finds No Wrongdoing In Government Loan” (CNN Business). “Kodak's stock rocketed about 70% higher in premarket trading Monday after the US government reportedly found no wrongdoing in Kodak's now-halted $765 million loan to help the company produce pharmaceutical ingredients.”
“JPMorgan Warns Of Crowded Trades Amid Markets’ ‘Clear Consensus’” (Bloomberg). “There’s strong consensus in markets right now and investors need to position to hedge against crowded trades, according to JPMorgan Chase & Co. The last time such a strong agreement on strategy existed was in late 2017 and early 2018, and that time period serves as a reminder that such a consensus view rarely plays out in its entirety, strategists led by Nikolaos Panigirtzoglou wrote in a note Friday. Global stocks reached records in January 2018 amid massive inflows, but extended positioning in risk assets became a concern and the next month the “Volmageddon” volatility spike crushed trades that many investors had viewed as a sure thing.”
“‘This is Insanity’: Start-Ups End Year In A Deal Frenzy” (New York Times). “At the onset of the pandemic, warnings of start-up doom abounded. Those largely faded after the initial shock of the coronavirus wore off. Now, as the new reality of remote work, school, shopping and socializing supercharges the adoption of tech products and services, sentiment has flipped even further — to a frenzy of deal making.”
What we’re reading (12/6)
“Here’s When To Invest In Value” (Institutional Investor). “It’s not easy to be a value investor. Between 60 percent and 80 percent of the time, the value premium ‘either does not exist or [is] very low,’ according to a recent study analyzing value performance between 1968 and 2018. It’s only after the overall market becomes either highly overvalued or deeply undervalued that the value premium really materializes…[u]sing a collection of surveys that track investor sentiment about the market, the co-authors found that value premiums were highest after the periods in which [so-called] extrapolators reported extremely positive or negative market expectations. Specifically, they found that the monthly value premium was 1.5 percent after periods of extreme optimism, and 3.5 percent after extreme pessimism.”
“Companies Bet Big On Working From Home” (New York Times). “Work practices may never return to pre-pandemic norms. Or at least that’s the premise behind moves like the one Salesforce is making [in buying Slack], with companies hoping to cash in on the shift by assembling a suite of services to make remote working easier. Slack had a market capitalization of about $17 billion before news of the potential deal broke, and it’s now worth around $23 billion. Until the recent pop, it had recorded relatively muted growth in its share price, perhaps because its videoconferencing tools have lagged rivals like Zoom and Microsoft.”
“Inside The Retreat Of Jamie Dinan’s York, A One-Time Star Hedge Fund” (Wall Street Journal). “The end came in a half-hour Zoom town hall late last month where 61-year-old York founder Jamie Dinan, nearing tears at times, broke the news to his roughly 180 employees that York was essentially getting out of the hedge-fund game, some of the employees said. Like many hedge funds, York’s successes have been tough to find in recent years. Hundreds of funds have closed entirely. Others have cut their notoriously high fees.”
“Why Demand For Oil May Never Again Reach Pre-Pandemic Levels” (NBC News). “Oil ministers from the world’s largest petroleum producers agreed to raise global production by 500,000 barrels a day beginning in January — a move that was viewed by oil analysts as a compromise after a rare rift between Saudi Arabia and the United Arab Emirates, another major producer that historically has aligned with its larger neighbor.”
“FOMO Among Big Investors May Support Bitcoin’s Polarizing Rally” (Bloomberg). “The financial industry was something of a curious onlooker during Bitcoin’s furious, retail-led rally past $19,000 in 2017. There are signs the sector is playing more of role in the cryptocurrency’s latest surge. Licensed crypto exchanges, Bitcoin funds and a regulated futures market give the likes of trend-following quant funds, asset managers and family offices avenues for investment that didn’t exist a few years ago. Mix in this year’s 170% jump in Bitcoin’s price amid a once-in-a-generation pandemic, and it becomes clearer why more institutions might size up the volatile asset.”
November 2020 performance update
A few days ago I mentioned I’d be giving a performance update for November pending our data provider, IEX Cloud (the ICE exchange’s API data service), finishing a major systems upgrade it initiated on December 1. It appears IEX is still sorting out some of the technical details, so I’ll hold off on updating my cumulative total return calcs until that’s final (that’s the line chart with daily returns that I typically include in these performance updates and that you see on our Performance page). I did, however, want to share the details for November, which are below. Prime members can see an unredacted copy of the first chart in our Prime Model Picks page, as usual.
So what happened in November. For those not paying attention on a daily basis, the market had a big month. As the tables below show, SPDR’s S&P 500-tracking SPY ETF was up almost 10 percent—in a single month (the average historical return since 1927 is about 0.9 percent per month). Three drivers seem obvious to me: (1) attenuated market risk as a result of the resolution of U.S. federal elections (not quite resolved, given Georgia runoffs, but almost so) ; (2) the great vaccine news; and (3) renewed stimulus hopes in the waning days of the month.
So the market was up, and the among the stocks that, in aggregate, compose the market, our Prime model simply selected among the best, which is exactly the goal around these parts, and booked a mind-boggling 17.71 percent. Our free Select model hasn’t been on fire nearly as much, but I won’t turn my nose up at an intentionally second-tier model when it churns out 8+ percent over a one-month period.
At this point, astute observers trying to reconcile Stoney Point’s results with the conventional wisdom that it’s better to just hold the market might wonder whether what’s going on here is an overweighting toward prominent tech stocks and whether that means an alternative benchmark, like the Nasdaq 100, would be more appropriate. In my view, that would be a sensible preliminary prior to have. But it’s not what’s going on here.
First, the Nasdaq 100 didn’t really outperform the S&P 500 by much this month. QQQ (Invesco’s Nasdaq 100-tracking ETF) was up 10.26 percent compared to SPY’s 9.65 percent, so exposure to the factors that drive QQQ’s returns (tech stocks) would have a hard time explaining our Prime model’s 17.71 percent return.
Second, a subtler point related to the correlation in QQQ’s return and SPY’s: the overall stock market itself is increasingly weighted toward Nasdaq/tech stocks (including the market’s largest stocks), so in using the S&P 500 one is implicitly imputing tech into the benchmark. On average, Stoney Point’s allocation to Nasdaq 100 stocks doesn’t appear to be substantially different from the overall market’s allocation to those stocks. Specifically, only four of 10 for each of the Prime picks and the Select picks last month were Nasdaq 100 constituents, and none were among the top performers in the bunch anyway. FTI, the 44.77 percent return in the Prime set, is an oil and natural gas services provider. Southwest, in the Select set, is an airline. Every single one of our picks, however, is an S&P 500 constituent (some of which are also Nasdaq 100 constituents). So even if Nasdaq 100 stocks explained the market’s performance, there would still be about 8 percent points of Prime returns left unexplained.
Lastly, the underlying algorithm is based entirely on fundamental data from companies’ financial statements and market prices—there is no industry-specific filter, except the exclusion of banks and other financial-sector stocks, which are another animal entirely. Depending on what’s happening in the market, it could work out that we end up with a big allocation to industrial companies in some months. In other months, it could be consumer durables. More often than not, what I see in the model over time relatively stable exposures to a diverse range of industry effects.
That’s all for now!
Prime Model Performance - Nov. 2020
Select Model Performance - Nov. 2020
What we’re reading (12/5)
“The Puzzle Of Low Interest Rates” (New York Times). “In the evolution of the U.S. economy over the past four decades, one fact stands out as especially puzzling: the large and fairly steady decline in interest rates…It may be tempting to blame the Fed…[but in the long-run] [t]he Fed aims to set interest rates at levels that will produce full employment and stable prices. This level is sometimes called the natural rate of interest. The natural rate is determined not by the central bank but by deeper market forces that govern people’s supply of savings and businesses’ demand for capital. When the Fed sets low rates, it is acting more like a messenger, telling us that the economy needs them to maintain equilibrium.”
“These Investors Are Riding The Bitcoin Wave To New Highs” (Wall Street Journal). “Bitcoin is surging to records, a rally driven in part by the emergence of new investors from passionate individuals to return-starved hedge funds looking to profit from the digital currency’s momentum. The cryptocurrency rose as high as $19,834.93 on Monday, according to CoinDesk, topping the previous intraday record of $19,783.21 set on Dec. 18, 2017. After trading as low as $3,867 in March, bitcoin has nearly tripled in 2020 and is up 90% since early September. It settled Friday at $18,832.76.”
“Elon Musk Will Love This: Tesla Short Sellers Lost More Than U.S. Airline Industry This Year” (CNN Business). “The incredible year for Tesla stock has created a bloodbath for those shorting its shares. According to analysis by S3 Partners, short investors in Tesla— those who placed bets in the market that its shares would lose value — have lost $35 billion on those positions so far this year.”
“Here Are Three Under-The-Radar Market Story Lines That Could Surprise Investors In 2021” (CNBC). (1) “Will a booming recovery test the Fed’s dovish doctrine?” (2) “Will the release of pent-up demand help Main Street more than Wall Street?” (3) “Might we be on the verge of ’90s-style investor excitement?”.
“As U.S. Stock Markets Grow Pricey By Some Measures, Are European Equities Worth A Bet?” (MarketWatch). “By one measure, investor exposure to Europe has trailed that of the U.S. and has only recently started to pick up ground in recent weeks, according to a Deutsche Bank research note, tracking hedge funds and commodity trading advisers which use futures to gain exposure to the market…Bloomberg reported that some $1.7 trillion flowed into Stoxx Europe 600 benchmark in November alone, as the value drift took hold.”
What we’re reading (12/4)
“U.S. Added 245,000 Jobs Last Month As Hiring Slowed” (Wall Street Journal). “U.S. job growth slowed sharply in November, suggesting the labor-market recovery is losing steam amid a surge in coronavirus cases and new business restrictions. Employers added 245,000 jobs last month, less than half the 610,000 jobs added in October, the Labor Department reported Friday. The unemployment rate edged down slightly to 6.7% in November from 6.9% a month earlier.”
“Warren Buffett’s Favorite Market Indicator Nears Record High, Signaling Stocks Are Overvalued And A Crash May Be Coming” (Business Insider). “Warren Buffett's favorite market gauge is flirting with a fresh high, signaling stocks are overvalued and could plunge in the coming months. The "Buffett indicator" divides the total market capitalization of a country's publicly traded stocks by its quarterly gross domestic product. Investors use it as a rough measure of the stock market's valuation compared with the size of the economy.”
“Senate Confirms Christopher Waller To The Fed Board As Judy Shelton’s Path Narrows” (Washington Post). “The Senate on Thursday confirmed Christopher J. Waller to the Federal Reserve Board of Governors, in what could be President Trump’s last addition to the central bank, while the prospects of the more controversial nomination of Judy Shelton have dimmed…[a] macroeconomist, Waller is the director of research at the Federal Reserve Bank of St. Louis. His main research areas include monetary theory and macroeconomic theory. Before joining the St. Louis Fed in 2009, Waller led the economics department at the University of Notre Dame, among other academic postings.”
“More Oil Is About To Hit Markets. Wall Street Isn’t Scared” (CNN Business). “Saudi Arabia, Russia and other oil producing countries have agreed to start pumping more oil next month, even as the coronavirus pandemic continues to cloud the outlook for demand. But that's not dissuading investors, with crude prices at their highest level since early March…[s]o why have oil prices pushed even higher Friday? It could have been worse. [And] [a]s with stocks, prices have been buoyed by optimism about Covid-19 vaccines, which are expected to usher in an explosion of demand. Oil prices are also getting a boost from a weaker US dollar, which makes crude cheaper for buyers in emerging markets[.]”
“Cheesecake Factory Settles With SEC Over Misleading Covid Risk Disclosures, A First For A Public Company” (CNBC). “The Securities and Exchange Commission has charged and settled with the Cheesecake Factory for misleading investors with its Covid-19 disclosures. This is the first time that the regulator has charged a company for misleading investors about the financial impacts of the pandemic. Without admitting to the SEC’s findings, the restaurant company has agreed to pay a $125,000 fine and to not conduct further violations of the reporting provisions of securities laws. The Cheesecake Factory’s regulatory filings from March 23 and April 3 were ‘materially false and misleading,’ according to the SEC. The company said that its restaurants were ‘operating sustainably’ during the pandemic as states across the country implemented lockdowns.”
November performance update coming soon
As usual, we’ll be posting a performance update for last month, and we’ll be doing it soon. Just a heads up, our data provider—the IEX Cloud service offered by the Intercontinental Exchange—launched a massive data upgrade on 12/1 (you can read more about their upgrade here), including the addition of 200,000+ symbols and 160+ exchanges globally, expanding their coverage of U.S. and international ETFs, U.S. mutual funds, among other things. We’ll need to wait until that’s complete before posting any data as it looks like one of our Prime picks was inadvertently dropped from their database. Rest assured, that stock didn’t go bust or anything—quite the contrary, it’s a multi-billion-dollar S&P 500 constituent and looks like it was actually up almost 45 percent in November alone. I’m in direct contact with the folks at IEX cloud sorting out the kinks. These sorts of upgrades are to be expected as these real-time data providers grow alongside the quantitative and quantamental investment management clients (and newsletters!).
But for those who can’t wait, some *preliminary* numbers for 11/2-11/30:
SPC Prime Picks: 17.7%
SPC Select Picks: 8.1%
SPDR S&P 500-Tracking “SPY” ETF: 9.6%
Bogleheads Portfolio (80% VTI, 20% BND): 8.7%
What we’re reading (12/3)
“Dollar Bears Vindicated By Landmark Week As Spiral Accelerates” (Bloomberg). “It’s turning into a week of vindication for proponents of a weaker dollar as the case they’ve been making for years may be gaining steam. The greenback is spiraling lower, probing levels last seen in April 2018, judging by a Bloomberg index. The tumble is part of a broader move across financial markets to price in brighter growth prospects for 2021 and the potential for superior investment opportunities outside the U.S., in large part as hopes for a coronavirus vaccine build.”
“The Sharing Economy Come Home: The IPO Of Airbnb!” (Musings On Markets). The “Dean of Wall Street”, NYU Prof. Aswath Damadoran, lays out his valuation of Airbnb, which filed its preliminary prospectus for an IPO with the SEC on November 16th.
“Mortgage Rates Sink To Record Low Again” (Washington Post). “The 30-year fixed mortgage rate, the most popular loan product, sank to its lowest level on record this week, marking the 14th historic low it has hit this year. According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average fell to 2.71 percent with an average 0.7 point. (Points are fees paid to a lender equal to 1 percent of the loan amount and are in addition to the interest rate.) It was 2.72 percent a week ago and 3.68 percent a year ago.”
“Google Reveals Major Hidden Weakness In Machine Learning” (Discover). “In recent years, machines have become almost as good as humans, and sometimes better, in a wide range of abilities — for example, object recognition, natural language processing and diagnoses based on medical images. And yet machines trained in this way still make mistakes that humans would never fall for. For example, small changes to an image, that a human would ignore, can force a machine to mislabel it entirely. That has potentially serious implications in applications on which human lives depend, such as medical diagnoses.”
“This Family Bet Everything On Bitcoin When It Was $900—And Bought More When It Crashed In 2018” (CNBC). “Didi Taihuttu, his wife, and three kids bet all they have on bitcoin. In 2017, CNBC spoke to the Dutch family of five when they were in the process of liquidating their assets — from a profitable business and 2,500-square-foot house, to their shoes — and trading it all in for the popular cryptocurrency and a life on the road. Nearly four years and 40 countries later, Taihuttu and his family still don’t have bank accounts, a house, or all that much by way of personal possessions. All of the family’s savings remain tied up in highly volatile cryptocurrencies.”
What we’re reading (12/2)
“VCs Are Pouring Money Into The Wrong Education Startups” (Wired). “[T]hough the year is not yet complete, VC investments in education technology during 2020 are already at $9.7 billion, more than twice the amount in all of 2019. This striking increase suggests that investors see enticing opportunities in the education landscape that will endure beyond the pandemic. But a more reliable assessment requires a closer look at the nature of these new investments. Do they suggest that investors see, in the wake of Covid-19, new opportunities for radical changes in education? In a word, no. A closer look at recent venture capital activity indicates that early-stage investments—those more likely to target risky and innovative startups—have actually declined since the onset of the pandemic. Instead, venture capital's focus on education technology is entirely concentrated in later-stage investments that support relatively mature companies.”
“The Covid Pandemic Could Cut Business Travel by 36%—Permanently” (Wall Street Journal). “Even if Covid-19 vaccines become widespread, business travel is likely to be changed by the pandemic. Travel budgets have been slashed and some meetings will remain virtual; conferences and conventions may be crimped. But by how much?…Guesses aside, a look at data suggests between 19% and 36% of all air trips are likely to be lost[.]”
“Trump Threatens To Veto Major Defense Bill Unless Congress Repeals Section 230, A Legal Shield For Tech Giants” (Washington Post). “President Trump on Tuesday threatened to veto an annual defense bill authorizing nearly $1 trillion in military spending unless Congress opens the door for Facebook, Twitter and other social media sites to be held legally liable for the way they police their platforms.”
“Retail Cornerstones Fall In Britain, Pushed By Fast Fashion And Pandemic” (New York Times). “[A]s Christmas lights flicker above the sidewalks in Britain’s downtowns and as the busiest shopping period of the year begins after a monthlong lockdown in England, the nation is watching two of its largest retailers fall. They have about 25,000 employees between them. More bankruptcies are expected, as the lockdowns have relentlessly exposed the retailers that have failed to pick up on customers’ willingness to shop online.”
“What Janet Yellen’s Nomination As Treasury Secretary Means For U.S. Policy On China And Trade” (CNBC). “Yellen has in the past acknowledged concerns about Chinese industrial practices. Her policy stance on China is less known, but she has supported open trade and the international trading system — an indication that she, like many on Biden’s team, would be a moderate voice.”
What we’re reading (12/1)
“Everyone’s Bullish” (Axios). “Following positive vaccine news and the run-up in global equities punctuated last week by the Dow hitting 30,000 points, investors are again throwing caution to the wind and growing more uniform in their bets that stocks will continue to rise.”
“A New Setback For Big Cities As Return To The Office Fades” (Wall Street Journal). “U.S. employees started heading back to the office in greater numbers after Labor Day but that pace is stalling now, delivering another blow to economic-recovery hopes in many cities. The recent surge in Covid-19 cases across the country has led to an uptick in Americans resuming work at home after some momentum had been building for returning to the workplace, property analysts said. Floor after floor of empty office space is a source of great frustration for landlords and companies, which have invested millions of dollars in adapting building plans and developing new health protocols to make employees comfortable with a shared location.”
“Nasdaq Seeks Mandatory Board Diversity For Listed Companies” (Reuters). “Nasdaq is pushing for the more than 3,000 companies listed on its U.S. stock exchange to make their boardrooms less overwhelmingly male and white by hiring directors that better reflect the country’s diverse population. The company filed a proposal Tuesday with the Securities and Exchange Commission that, if approved, would require all companies on the exchange to disclose the breakdowns of their boards by race, gender and sexual orientation. Companies that do not comply could be delisted, or kicked off the exchange.”
“S&P Global Agrees To Buy IHS Market, A Financial Data Powerhouse, For $44 Billion” (New York Times). “S&P Global, the owner of stock indexes like the Dow and the S&P 500, said on Monday that it plans to acquire IHS Markit for $44 billion, including debt. The transaction would create a financial information powerhouse at a time when data increasingly fuels automated trading. The all-stock deal — the biggest announced so far this year — would give S&P Global control of IHS Markit, whose software is used by many of the world’s biggest financial institutions.”
“Here Comes The Four Day Workweek” (Dealbreaker). “In a rough year for the world, New Zealand has come out a winner. With just 25 coronavirus deaths, the island nation has avoided the worst of the economic and healthcare fallout of the pandemic. Now, certain residents will have more time to enjoy the spoils. Yesterday, Unilever announced a four-day workweek for the company’s Kiwi employees…[i]n a 12 month experiment, Unilever will pay its 81 New Zealand-based employees for a five-day workweek, but allow them to work just four. After the trial period, Unilever says it will take the “lessons learned” and see how they can be applied to the company’s 155,000 other employees.”
December Prime + Select picks available now
The new Prime and Select picks for December are available starting now, based on a model run put through today (November 30). As a note, we’ll be measuring the performance on these picks from the first trading day of the month, Tuesday, November 1, 2020 (at the mid-spread open price) through the last trading day of the month, Thursday, December 31 (at the mid-spread closing price). If you’re following the strategy perfectly, you’d want to close out your November positions by end-of-trading today, and re-balance at the start of trading tomorrow.
You can check out the latest picks here.
What we’re reading (11/30)
“People Are Working Longer Hours During The Pandemic” (The Economist). In the U.S., people are working an average 32 extra minutes per day, according to workplace software developer Atlassian. Across 65 countries, the average increase is about 30 minutes per day.
“Salesforce Deal To Buy Slack Expected To Be Announced Tuesday After Market Close” (CNBC). “Salesforce’s deal to buy Slack is expected to be announced Tuesday after markets close, sources told CNBC’s David Faber. The deal is expected to be about half cash and half stock, the sources said, and will price Slack at a premium. Salesforce is set to report quarterly earnings on Tuesday. Slack’s market cap was more than $24 billion as of Monday morning.”
“The Franchise Relationship That Powers Small Business Is Fraying” (Wall Street Journal). “Stressed by the hit to business from the coronavirus pandemic, store owners and corporate bosses at Subway, Econo Lodge and other companies are bickering publicly as never before. Companies are asking franchisees to buy equipment and adopt new safety protocols, moves they say are necessary to reassure customers during the pandemic and to grow thereafter. Franchisees are pushing back on store upgrades, promotional discounts and fees they say are excessive and undermine their profits. Some are agitating to replace executives or suing to change practices.”
“The Stock Market Could Pull Back Up To 7% Before The End Of 2020 — But Investors Should Use It As A Buying Opportunity, Says Top Wall Street Market Strategist” (Business Insider). “Major stock indexes are reaching record highs, but BNY Mellon's Liz Young sees a bumpy finish to 2020. She told CNBC on Monday that stocks could pull back up to 7% before the end of the year, but investors should buy the dip as the economy is set to recover in 2021. Both the Nasdaq and S&P 500 closed at record highs on Friday, while the Dow Jones is on pace for its best month since 1987.”
“The Luxury E-Commerce Wars Heat Up” (New York Times). “Unlike the music industry, which has Spotify, or the hotel business, which has Booking.com, the luxury fashion industry is still without a single dominant online player…Scott Galloway, a professor of marketing at New York University’s Stern School of Business, agreed. ‘A supreme luxury e-commerce group is a compelling idea, but no one so far has been able to pull it off,’ he said. Could that be about to change?”
What we’re reading (11/29)
“McKinsey Proposed Paying Pharmacy Companies Rebates For OxyContin Overdoses” (New York Times). “When Purdue Pharma agreed last month to plead guilty to criminal charges involving OxyContin, the Justice Department noted the role an unidentified consulting company had played in driving sales of the addictive painkiller even as public outrage grew over widespread overdoses. Documents released last week in a federal bankruptcy court in New York show that the adviser was McKinsey & Company, the world’s most prestigious consulting firm.”
“Investors Pile Into Risky ETFs During Wild Market Rally” (Wall Street Journal). “Investors’ penchant for risk-taking has rejuvenated a volatile and sometimes dangerous group of exchange-traded funds. Leveraged and inverse ETFs have raked in $16.3 billion through the first 10 months of the year, on pace to top 2008’s record haul of $16.7 billion, according to Morningstar. The funds use leverage to double or triple daily returns and sometimes offer investors a chance to profit off the inverse, or opposite, of an index’s move.”
“5 Big Picture Trends Being Accelerated By The Pandemic” (Visual Capitalist). “#1: Screen Life Takes Hold…#2: The Big Consumer Shake-Up [making physical buying ‘frictionless’ and accelerating e-commerce penetration]…#3: Peak Globalization [the flat-lining of global trade/global GDP]…#4: The Wealth Chasm [the richest are richer than ever]…#5: The Flexible Workplace[.]”
“Congress Stalled On Stimulus Talks And Time Is Running Out As Millions Face A ‘Benefits Cliff’” (CNBC). “Millions of jobless Americans are likely eyeing ongoing negotiations in Congress around a new coronavirus relief package with intense interest. Unemployment benefits — namely, the size of a weekly subsidy to benefits — are among the thorny issues that have delayed a deal for months. Congress gave an extra $600 a week to the unemployed as part of the CARES Act relief law signed in March. That aid expired in July.”
“The TikTok Party House Next Door” (Bloomberg). “What is it like to live next to social media influencers? Some wealthy Los Angeles residents are finding out the hard way as homes in their neighborhoods increasingly turn into collab houses, or TikTok mansions — so called because they're rented out by talent management groups and filled with young stars who use them as backdrops for content on the video-sharing platform and similar apps. They’re also the target of Mayor Eric Garcetti’s latest crackdown on house parties, writes Patrick Sisson.”
What we’re reading (11/28)
“Black Friday 2020 Online Shopping Surges 22% To Record $9 Billion, Adobe Says” (CNBC). “Spending online on Black Friday this year surged nearly 22% to hit a new record, according to data from Adobe Analytics, as the Covid pandemic pushed more people to shop from the sofa and avoid crowded stores and malls. Consumers spent $9 billion on the web the day after Thanksgiving, up 21.6% year over year, according to Adobe, which analyzes website transactions from 80 of the top 100 U.S. online retailers.”
“In Praise Of Janet Yellen The Economist” (New York Times). “[T]he good news about Yellen goes beyond her ridiculously distinguished career in public service. Before she held office, she was a serious researcher. And she was, in particular, one of the leading figures in an intellectual movement that helped save macroeconomics as a useful discipline when that usefulness was under both external and internal assault.”
“What Is MasterClass Actually Selling?” (The Atlantic). “Sometimes an advertisement is so perfectly tailored to a cultural moment that it casts that moment into stark relief, which is how I felt upon first seeing an ad for the mega-best-selling writer James Patterson’s course on MasterClass a few years ago…[i]t didn’t matter that I’d never read a book by Patterson before—I was hooked. What appealed to me was not whatever actionable thriller-writing tips I might glean, but rather the promise of his story, the story of how a writer becomes a mogul. Any hapless, hand-to-mouth mid-lister can provide instructions on outlining a novel. MasterClass dangled something else, a clear-cut path out of the precariat, the magic-bean shortcut to a fairy-tale ending—the secret to ever-elusive success”
“Tesla Could Widen Release Of ‘Self-Driving’ Software In Two Weeks” (Reuters). “Tesla Inc Chief Executive Officer Elon Musk said on Friday there will probably be a wider roll out of a new ‘Full Self Driving’ software update in two weeks. In October, Tesla released a beta, or test version, of what it calls a ‘Full Self Driving’ software upgrade to an undisclosed number of “expert, careful” drivers. ‘Probably going to a wider beta in 2 weeks,’ Musk said on Twitter, in a reply to a user asking if the software would be available in Minnesota. Musk had said earlier it was planned that the latest upgrade would be widely released by the end of this year, with the system becoming more robust as it collected more data.”
“Do Businesses Need COVID Liability Protection?” (News-Press NOW). “Since March, more than 1,000 COVID-19 lawsuits have been filed against employers, according to the Missouri Chamber of Commerce and Industry. That’s something Missouri lawmakers and businesses would like to change…Earlier this month, Gov. Mike Parson expanded his call for a special session to include emergency legislation to shield health facilities and businesses from COVID-related lawsuits if those entities follow public health guidelines. In a grim irony, the coronavirus itself might delay this legislation after COVID exposure forced the Senate to go into recess. The issue of COVID liability has proved controversial, although some of Missouri’s neighboring states have passed legal protections. One critic said businesses will do the bear minimum to protect workers and customers if the state grants broad immunity.”
What we’re reading (11/27)
“The Stock Market And Derivatives Are Sending Different Signals” (Wall Street Journal). “Rising stock indexes suggest investors are breathing a sigh of relief right now…[But] the Cboe Volatility Index has hovered above 20 since Feb. 24…the longest such streak since one ending in 2009 during the financial crisis, according to Dow Jones Market Data. The gauge [the Cboe Volatility Index, or “VIX”] is based on options prices tied to the S&P 500 and tends to fall as stocks are rising. The VIX at an elevated level signals investors remain cautious despite a stock market that is flying high, with concerns lingering that the volatility that gripped markets earlier in the year could return.”
“Why Are House Sales Such A Bad Deal For Every American?” (Real Clear Markets). “Put into perspective, the median American family gives up around half of their yearly income to sell a $500,000 home. Many accept these fees as necessary. They are not. Like the stock spreads of 1980s Wall Street, high real estate fees are the product of a well-organized, influential cartel whose sole purpose is to line its own pockets at the expense of consumers.”
“What C.E.O.s Are Worried About” (New York Times). “As coronavirus cases continue to rise, Harvard recently convened two dozen executives from companies like BlackRock, CVS Health, Kohl’s, PayPal and Walmart to discuss the pandemic’s impact on business. One professor at the closed-door meeting was Joseph Allen of Harvard’s School of Public Health, who has been advising companies on pandemic-related matters. He spoke with DealBook about what corporate chiefs say when they speak candidly with one another, as they look to the next phase of the pandemic — and beyond.”
“JPMorgan Chase To Pay $250 Million For Failings In Asset, Wealth Business” (Reuters). “JPMorgan Chase & Co has agreed to pay $250 million for risk management and other control failings in its asset and wealth management business, a U.S. regulator said on Tuesday, in the second chunky penalty for the bank in less than two months.”
“Profits Are ‘Soaring’ For Large Retailers—But Frontline Workers Are Barely Earning More” (CNBC). “A new report from the Brookings Institute finds that while top retailers’ profits have “soared” during the coronavirus pandemic, pay for frontline workers has barely budged. Brookings analyzed the earnings and compensation of frontline employees at 13 of the biggest retailers in the U.S. between March 13 and November 19 of this year, including Albertsons, Amazon, Best Buy, Costco, CVS Health, Dollar General, Home Depot, Kroger, Target and Walmart. While the companies in the report made an average of 39% more in profit this year compared to 2019, pay for their essential workers increased by just 10% on average, or $1.11 per hour, over the course of the pandemic.”
What we’re reading (11/26)
“After Admitting Mistake, AstraZeneca Faces Difficult Questions About Its Vaccine” (New York Times). “The announcement this week that a cheap, easy-to-make coronavirus vaccine appeared to be up to 90 percent effective was greeted with jubilation. “Get yourself a vaccaccino,” a British tabloid celebrated, noting that the vaccine, developed by AstraZeneca and the University of Oxford, costs less than a cup of coffee. But since unveiling the preliminary results, AstraZeneca has acknowledged a key mistake in the vaccine dosage received by some study participants, adding to questions about whether the vaccine’s apparently spectacular efficacy will hold up under additional testing.”
“The Athleisure Market Is Heating Up As Consumers Flock To ‘Comfort In Uncomfortable Times’” (CNBC). “If you walk into any Old Navy store this holiday season, you’ll notice a plethora of athletic gear paired with other comfy clothes front and center. Knowing consumers have been drawn to loungewear like leggings, pajama sets and other cozy options during the coronavirus pandemic, the retailer reshuffled its store layout to accommodate the trend, placing those items right at the door. It also ordered more fleece hoodies, stretchy bottoms, and the like, to make sure its inventories were plentiful ahead of the holiday rush.”
“Disney Increases Number Of Planned Layoffs To 32,000 Employees” (CNN Business). “Walt Disney Co. is planning to shed 32,000 employees by the end of March — 4,000 more than previously announced — as the coronavirus pandemic continues to hammer its parks and resorts business.”
“Wall Street Dealers In Hedging Frenzy Get Blamed For Volatility” (Bloomberg). “Two professors have just lent academic heft to a suspicion running rampant on Wall Street all year: The options market “is whipsawing share prices like never before. As retail investors spur a boom in derivatives trading to rival actual stock volumes, dealers rushing to hedge themselves are said to have fueled the 2020 melt-up in tech names from Netflix Inc. to Microsoft Corp. They’re also suspected of amplifying two big drawdowns in September and October. New research sheds light on just how this dynamic tends to play out. A study from the Imperial College Business School and the University of St. Gallen has concluded that structural changes to the industry in the past two decades mean dealers are indeed contributing to intra-day volatility as they balance their exposures.”
“[Review of] Debts Hopeful And Desperate: Financing The Plymouth Colony By Ruth A. McIntyre” (The New England Quarterly, June 1964). A little Thanksgiving financial history in the form of a book review from nearly 60 years ago. Did you know Plymouth Colony was financed by a private placement of common stock (basically a 17th century VC deal)? “In this concentrated study Miss McIntyre examines the whole financial story in great detail…‘The terms of July 1, 1620 were not unlike those of other colonial enterprises tried in Virginia and Bermuda. The entire capital, including lands, was to be a joint stock fund, divided into shares. Every person over the age of sixteen going to the new colony was rated at £10, and £10 was accounted a single share…The adventurers who contributed only money and stayed at home, and the planters, were to continue the joint stock for seven years during which time all profits from ‘trade, traffic, trucking, working, fishing, or any other means’ must remain in the common stock. Then they would divide equally the capital and profits, viz., lands, houses and goods. The common stock would furnish food, apparel, and provisions.’”
December picks available soon
Reminder: we’ll be publishing our Prime and Select picks for the month of December on or before 11/30. As always, we’ll be measuring SPC’s performance for the month of November, as well as SPC’s cumulative performance, assuming the sale of the November picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Monday, November 30). Likewise, performance tracking for the month of December will assume the December picks are bought at the open price (at the mid-point of the opening bid and ask prices) the first trading day of the month (Tuesday, December 1).
Stay tuned for the new picks and the performance updates and be sure to follow us on Twitter (@StoneyPointCap).
What we’re reading (11/25)
“Trailblazing Economist And Presidential Adviser Edward Lazear Dies At 72” (Stanford University). “Described as ‘perhaps the foremost labor economist of his generation,’ economist, White House adviser and Stanford University professor Edward P. Lazear passed away from pancreatic cancer on Nov. 23. Recognized as the founder of the field of personnel economics, Lazear’s boundless energy and entrepreneurial spirit have led to contributions in many domains. At Stanford University, he served as the Morris Arnold and Nona Jean Cox Senior Fellow at the Hoover Institution and the Davies Family Professor of Economics at Stanford Graduate School of Business. ‘Ed was a pioneering labor economist, a gifted teacher, an accomplished public servant and an extraordinary colleague,’ said Condoleezza Rice, director of the Hoover Institution.”
“The Dow Just Hit 30,000. It Was A Long Road To Get There” (CNN Business). “The average began tracking the most powerful corporate stocks in 1896, and it has served as a broad measure of the market's health through 22 presidents, 24 recessions, a Great Depression and two global pandemics. Along the way, it also weathered at least two stock market crashes and innumerable rallies, corrections, bull and bear markets.”
“Better Governance Would Benefit American Business” (The Hill). “Economists of different ideological stripes will differ on whether the Biden administration’s economic policies will be better for business than those of a second Trump administration. But putting aside differences over policy, the new administration could hardly fail to be more transparent, predictable and effective than the one currently in place, and this should encourage investment, productivity and economic growth.”
“Gap Shares Tumble As Earnings Fall Short, Retailer ‘Remains Optimistic’ About The Holidays” (CNBC). “Gap Inc. shares fell Tuesday after the company reported fiscal third-quarter earnings that fell short of expectations, as higher spending on marketing offset sales gains at Old Navy and Athleta, while the company’s namesake and Banana Republic brands reported double-digit declines.”
“Elon Musk Becomes World’s Second Richest Person” (BBC). “Mr Musk's net worth jumped by $7.2bn (£5.4bn) to $128bn after shares in his car firm Tesla surged. Only Amazon founder Jeff Bezos is richer, according to the Bloomberg Billionaires Index. It comes after news Tesla shares will be added to the S&P 500, one of the main share indexes in the US. That triggered a fresh wave of buying of the electric carmaker's shares, sending the company's market value above $500bn and boosting the value of Mr Musk's holding in the business.”