What we’re reading (12/19)
“Startup Hedge Fund Turns To Quantamental Analysis For ESG Products” (Waterstechnology). “A newly established investment firm, Changebridge Capital, is applying a ‘quantamental’ approach, combining quantitative screening and fundamental analysis, to find ESG-related investment opportunities in misunderstood and inefficiently priced areas of the stock market.”
“Banks On Alert After Sweep Finds No Evidence Of Major Hack” (Bloomberg). “Bank executives have said for years that their worst nightmare is a successful cyberattack against the industry. Now they’re watching one unfold across government agencies in what could be one of the biggest hacks in U.S. history.”
“Tesla Jumps 6% In Heavy Volume Ahead Of S&P 500 Entry, Stock Then Falls A Bit In After Hours” (CNBC). “Shares of Tesla traded more than four times their 30-day average volume on Friday as passive funds bought the stock ahead of Tesla joining the S&P 500. The stock will be added to the benchmark index ahead of Monday’s opening bell, based on prices from Friday’s close.”
“Travis Scott Is The Latest Entrant In The (Very Crowded) Spiked Seltzer Wars” (CNN Business). “Travis Scott is partnering with Anheuser-Busch on a new agave-spiked seltzer called Cacti, bringing yet another label to the crowded spiked seltzer market. AB InBev (BUD), the brewer of Budweiser, Corona and Stella Artois, announced the new beverage on Thursday. Scott, whose record label is called Cactus Jack, says the seltzer — made with blue agave from Mexico — was inspired by his love of tequila. It will come in lime, pineapple and strawberry flavors.”
“Stuck At Home, People Are Splurging On Wine And Spirits” (New York Times). “The pandemic has been a boon to retail alcohol sales of all kinds. Beer sales are up, as are those of wine and vodka. Even the lowly vermouth — the anonymous mixer that blends with the name-brand spirits in martinis and Manhattans — has seen a spike in business as consumers substitute drinking at home for visits to local bars or restaurants.”
What we’re reading (12/18)
“A Moment Of Reckoning: The Need For A Strong And Global Cybersecurity Response” (Microsoft). “The final weeks of a challenging year have proven even more difficult with the recent exposure of the world’s latest serious nation-state cyberattack. This latest cyber-assault is effectively an attack on the United States and its government and other critical institutions, including security firms. It illuminates the ways the cybersecurity landscape continues to evolve and become even more dangerous. As much as anything, this attack provides a moment of reckoning.”
“Largest U.S. Cryptocurrency Exchange Coinbase Files For IPO As Bitcoin Soars Past $23,000” (CNBC). “Digital currency exchange Coinbase is going public as renewed investor interest in cryptocurrencies has pushed bitcoin to an all-time high. On Thursday the company announced that it has confidentially submitted a draft registration statement on Form S-1 with the Securities and Exchange Commission. The form is expected to go into effect after the SEC completes its review process.”
“Are IPO Pops Signs Of Market Irrationality” (Marginal Revolution). “It’s all a bit like a restaurant on a Saturday night. If the place is seen as “cool” — whether because of its food and service (the product), its setting (the physical asset) or its ambience (the brand) — there will be a line out the door. Otherwise it will be fairly empty. Furthermore, the presence of a line will draw continued interest over time. It is hard or maybe even impossible to set prices so that every table is filled yet there is no line. To deploy some technical language, the demand curve may be discontinuous.”
“Landlords Are Running Out Of Money. ‘We Don’t Get Unemployment’” (CNN Business). “As the coronavirus pandemic drags on -- with unemployment still high, government support dwindling and the status of future stimulus unknown -- landlords are suffering…[a] national ban on evictions, put in place by the Centers for Disease Control and Prevention to stop the spread of the virus, has meant many landlords must continue to pay to maintain and finance their properties with less rent coming in and no recourse to remove non-paying tenants”
“Google’s Legal Peril Grows In Face Of Third Antitrust Suit” (New York Times). “More than 30 states added to Google’s mushrooming legal woes on Thursday, accusing the Silicon Valley titan of illegally arranging its search results to push out smaller rivals.”
What we’re reading (12/17)
“What Happens When The 1% Go Remote” (Bloomberg). “In the long run, cities’ ability to attract new generations of innovative and creative talent will ensure their financial survival. But if policies don’t change, their budgets will suffer in the meantime, and their least-advantaged people and neighborhoods will bear the brunt of it as budget cuts and austerity measures eliminate key services. If things get bad enough — as they did in New York in the 1970s — it could take them quite a while to restore their budgets.”
“Ten States Sue Google, Alleging Deal With Facebook To Rig Online Ad Market” (Wall Street Journal). “Ten states sued Google Wednesday, accusing the search giant of running an illegal digital-advertising monopoly and enlisting rival Facebook Inc. in an alleged deal to rig ad auctions that was code-named after ‘Star Wars” characters.’”
“China Rental Company’s Shares Have Cratered 76% This Year As The Shine Of Debt-Fueled Growth Fades” (CNBC). “Danke, founded in 2015, leases properties from owners on a long-term basis, refurnishes them, and then rents them out. The business model entails getting more money back from renters than Danke has paid to lease the apartment. Danke touts itself as a tech company, claiming that data, artificial intelligence and its IT infrastructure are the “backbone” of its business.”
“Russia’s Hacking Frenzy Is A Reckoning” (Wired). “This week, several major United States government agencies—including the Departments of Homeland Security, Commerce, Treasury, and State—discovered that their digital systems had been breached by Russian hackers in a months-long espionage operation. The breadth and depth of the attacks will take months, if not longer, to fully understand. But it's already clear that they represent a moment of reckoning, both for the federal government and the IT industry that supplies it.”
“Sheriff Of Boston-Ham Comes For Robinhood” (Dealbreaker). “[Y]ou can be sure that if you give Secretary of the Commonwealth Bill Galvin a new law with which to bludgeon the financial services industry, he’ll do so. Especially if the object of the bludgeoning has proven itself of richly deserving thereof.”
What we’re reading (12/16)
“What Happens To The Unemployed When The Checks Run Out” (New York Times). “When jobless workers get their last unemployment check, the effect on spending is sharp and swift…spending on food, clothes and other so-called nondurable goods immediately drops 12 percent, about twice as much as when they lost their job and went on unemployment insurance, University of Chicago researchers have found. Spending at drugstores falls 15 percent. Co-payments for visits to the doctor fall 14 percent. Spending on groceries falls 16 percent, or $46.30 a month, on average. Millions of Americans are less than two weeks from cutbacks like those. The last two federal emergency unemployment programs in the CARES Act, passed as the pandemic’s first wave surged in March, expire on Dec. 26.”
“Robert Shiller Calls Stocks ‘Highly Priced,’ But Wouldn’t Cash Out” (CNBC). “Nobel Prize-winning economist Robert Shiller believes the fear of missing out is fading. According to Shiller, the market phenomenon was the major narrative driving the historic rally off the March 23 low — as the world entered the throes of the coronavirus pandemic. But with big gains in the rearview mirror, Shiller isn’t turning bearish. ‘The market is highly priced, but it’s not so high that I wouldn’t consider it as an investment,’ the behavioral economics expert told CNBC’s “Trading Nation” on Tuesday.”
“There’s A Reason To Be Bullish On Stocks In 2021, Too” (CNN Business). “[T]his once-in-a-generation global health crisis was met with an almost unprecedented globally coordinated fiscal and monetary response, both of which have led to historically low interest rates and that are likely stay this way until the world can finally free itself from the pandemic. The combination of these conditions has typically supported continued stock market gains in the past, and we see no reason for 2021 to be any different.”
“Pfizer And Moderna Will Make Bank On Their Vaccines” (Dealbreaker). “Yesterday was a big day. Just over three-quarters of a year since the start of the pandemic, the inoculation process began in the U.S. Wall Street analysts predict a significant haul for Pfizer and Moderna, anticipating the firms will earn a collective $32 billion from the vaccines in 2021 alone. Talk about a shot in the arm.”
“The EU Unveils Its Plan To Rein In Big Tech” (The Economist). “A year ago Europe was being hailed as a regulatory superpower in technology. Countries around the world copied its strict new privacy law, the General Data Protection Regulation (GDPR), while America’s government scarcely tried to exercise any control over a fast-moving industry. The positions have since been reversed. This autumn the European Court of Justice quashed a €14bn ($17bn) fine on Apple levied by Margrethe Vestager, the EU’s competition chief, in a huge setback for the bloc’s antitrust strategy. And America has found new purpose. In October Congress published a lengthy report on how to update competition law.”
What we’re reading (12/15)
“Meghan Markle Is Investing In A Trendy Oat Milk Latte Company” (CNN Business). “Meghan Markle, the Duchess of Sussex, is betting big on oat milk. Markle said Monday she invested in instant oat milk latte company Clevr Brands, which sells four flavors of its powdered drink for $28 per 14-serving bag. The company says its products are sustainable, ethically sourced and healthful.”
“Pricey Stocks May Yet Head Higher As Uneven Economic Recovery Maintains Grip On U.S.” (Washington Post). “[T]he bull market may just be getting started. With the Federal Reserve planning to hold its benchmark lending rate near zero for at least three years, stocks are likely to remain attractive in comparison with bonds, according to investment strategists.”
“Tech I.P.O.s Take A Breather” (DealBook). “Wall Street is increasingly muttering the “B” word: bubble. Airbnb’s $83 billion market cap is more than that of Marriott, Hilton and Hyatt combined, while DoorDash’s $56 billion market cap is bigger than that of most restaurant chains. The median valuation of tech I.P.O.s this year is 24 times trailing revenue, the University of Florida professor Jay Ritter told The Wall Street Journal. That measure for the Nasdaq Composite Index is currently 4.3 times, while for tech I.P.O.s for most of the 2010s it averaged about six times.”
“Congress Warms To Possible Covid Stimulus Deal” (Politico). “A bipartisan group of senators finally hit paydirt in its long-running coronavirus relief negotiations. And it may provide a pathway to a deal that has eluded Congress for months.”
“Exxon Promises To Cut Greenhouse-Gas Emissions, End Flaring by 2030” (Wall Street Journal). “Exxon Mobil Corp. pledged to reduce greenhouse-gas emissions from its operations over the next five years and eliminate routine flaring of methane by 2030, responding to pressure from activists and investors to lower its carbon footprint. The Texas-based oil giant said Monday that it would cut the “intensity” of emissions from its oil-and-gas production by 15% to 20% by 2025. It didn’t provide hard numbers on exactly how much of total emissions those reductions would represent.”
What we’re reading (12/14)
“Jamie Dimon May Be Open To Relocating Chunks Of JPMorgan Chase From NYC” (New York Post). “When Jamie Dimon took over as CEO of JPMorgan Chase 15 years ago, he noticed something strange: Occupying the bank’s most expensive real estate, with prime Park Avenue views, was a floor full of computer servers. Dimon, according to JPMorgan insiders, asked why couldn’t those same servers be located in, say, Columbus, Ohio, where the real estate costs are much lower? I can’t tell you where JPMorgan eventually put those servers other than to say they aren’t located in the Big Apple anymore. And the same will soon be said of many other banks and financial businesses now seeking to move out of the once-friendly confines of New York City, which isn’t so friendly anymore.”
“The War On Cocoa: Hershey Co. Accused Of Not Upholding Sustainability Efforts In West Africa” (NBC News). “It has been a bitter holiday season for the maker of foil-wrapped Hershey's Kisses. For nearly a month, a battle has been raging between the Hershey chocolate company and the West African farmers who harvest many of its cocoa beans. And it appears that the long-disenfranchised farmers may have scored a rare win. The dispute began in November, when cocoa industry traders noticed that an unnamed source had purchased so many cocoa beans in the futures market that prices rose by more than 30 percent.”
“Google Suffers Widespread Outage Affecting Gmail, YouTube, Other Services” (Wall Street Journal). “More than a dozen Google services, including Gmail and YouTube, were offline in swaths of the globe Monday morning, interrupting access for both individuals and businesses. The Alphabet Inc.-owned company’s services showed errors for users attempting to sign in or access their emails or their files using Google’s Drive services, according to social-media postings from users. On YouTube, the home page was replaced with an illustration of a monkey with a hammer, with the title, ‘oops.’”
“A Hedge Fund Vet Makes A Fresh Start In The Pandemic” (Institutional Investor). “It’s been a good 2020 for John Thaler, who decided to stage a comeback in January after shutting down JAT Capital in 2015. After delivering eye-popping returns so far this year, Thaler’s new firm, Hampton Road Capital Management, is forming a strategic relationship with Leucadia Asset Management, the asset management division of Jefferies Financial Group…[a]ccording to an investor letter distributed early Friday and obtained by Institutional Investor, Hampton Road is up 39.4 percent net year-to-date through December 10.”
“Beware These 15 Worst States For Taxes On Your Retirement” (Yahoo! Finance). “Maybe you want to spend your retirement somewhere sunny. Or maybe a view of the mountains is more your style. But before you start making plans, it’s worth looking at the tax situation in any state you’re considering. Some places impose significantly harsher taxes on retirees than others.”
Mid-month performance update
I mentioned a few days ago we’d be putting through some updates to our historical performance stats in response to a major upgrade by our primary data provider (IEX cloud, the Intercontinental Exchange’s API service). I’m happy to write that most of the bugs in their historical pricing database seem to have been worked out by now and, accordingly, we’ve updated everything on the back end over here at Stoney Point. With that preamble, below is latest cumulative performance chart for our picks from May 4 (the first trading day for our inaugural stocks picks) through December 11 (the most recent trading day as of this writing. The chart pretty much speaks for itself: our Prime picks have blown the market out of the water to date. Our free Select picks haven’t been nearly as exciting (as expected), and are performing pretty much in-line with the Bogleheads 80-20 stock-bond portfolio recommended for a hypothetical “young investor.”
Some miscellany in regards to IEX’s platform upgrade:
IEX added a “fully-adjusted” measure of historical prices that incorporates adjustments for both splits and dividends (previously, they only offered split-adjusted prices). This will allow us to automate things quite a bit. Essentially, this measure of prices “bakes” the effect of dividends and corporate actions like stock splits into historical prices so that when you take P(t+1)/P(t)-1 your return will capture the true total return (and therefore we don’t separately need to adjust for dividends). It does mean that if you’re comparing the pricing we report to that provided elsewhere, you’ll need to be sure to compare the third parties’ adjusted prices (rather than their “raw” prices).
In a few cases, returns based on IEX’s current data appear to differ ever so slightly from what we previously reported. This could be due to minor calculation errors on our part, or it could be due to restatements or other adjustments on IEX’s side of things. In any cases, all differences were de minimis in magnitude and, in almost every case, the effect of the differences was to increase the performance of our Prime and Select picks (i.e., based on the most up-to-date data, which now is included everywhere on this site, it appears the performance of our picks has been even better than previously reported).
What we’re reading (12/13)
“U.S. Treasury Breached By Foreign-Backed Hackers: Reuters” (Bloomberg). “Hackers suspected to be working for the Russian government have been monitoring emails at the U.S. Treasury Department and a U.S. agency responsible for deciding policy around the internet and telecommunications, Reuters reported, citing people familiar with the matter.”
“The Triumphs—And Troubles—Of Citi Research” (Institutional Investor). “In just four years, Citi had risen rapidly up the rankings of investment research houses, defying the regulatory burdens and shrinking client wallets that threatened the larger sell-side industry…Citi’s improvement in the [Institutional Investor] rankings reflected an intentional investment on the part of the bank’s equities leaders, who had a stated goal of making Citi into a top-three research provider. But even as Citi analysts racked up votes in II’s surveys, cracks had started to form in the bank’s research division.”
“Elliott Management Has Significant Stake in Public Storage” (Wall Street Journal). “Elliott Management Corp. has built a significant stake in Public Storage and privately nominated six directors to the self-storage giant’s board, according to people familiar with the matter. Representatives of Elliott and Public Storage, which has a market value of $38 billion, have had multiple discussions in recent weeks about changes that could be made at the company, the people said.”
“15% Of Millennials Now Expect To Retire Early, Study Finds—Here’s Why” (Grow). “A recent study by Northwestern Mutual shows that while 20% of Americans expect that the pandemic will force them to retire later than they’d previously expected, another 10% expect to retire early. That number is even higher among millennials, 15% of whom now expect to retire early.”
“Companies Have Raised More Capital In 2020 Than Ever Before” (The Economist). “In March the corporate world found itself staring into the abyss, recalls Susie Scher. From her perch overseeing global capital markets at Goldman Sachs, a bank, she witnessed firms scrambling for money to keep going as the wheels of commerce ground to a halt amid the pandemic. Many investors panicked. Surely, the thinking went, public markets would freeze in the frigid fog of covid-19 uncertainty—and then stay frozen. Instead, within weeks they began to thaw, then simmer, kindled by trillions of dollars in monetary and fiscal stimulus from governments desperate to avert an economic nuclear winter. In the past few months they have turned boiling hot.”
What we’re reading (12/12)
“Pfizer And Moderna Could Score $32 Billion In Covid-19 Vaccine Sales — In 2021 Alone” (CNN Business). “Wall Street analysts are projecting Pfizer and Moderna will generate $32 billion in Covid-19 vaccine revenue -- next year alone. That doesn't take into account the goodwill boost these companies will receive by helping to end the worst pandemic in a century. That boost is magnified for Moderna (MRNA), a young biotech company that few people had heard of before 2020 that could now be on the cusp of getting its own FDA authorization.”
“‘Facebook Has Destroyed This F--king Town’: Facing A Legal Onslaught, Mark Zuckerberg Gets Ready To Fight Back” (Vanity Fair). “You would think that Facebook’s stock would have taken a vertiginous fall on Wednesday. That the company’s valuation would have been cut by double- or even triple-digit billions of dollars. That the sky over Facebook would have fallen, and it would have felt as if the end of the world was nigh…[a]nd yet, while Facebook’s valuation fell by a couple of percentage points on Wednesday, its stock didn’t look much different than it would on any typical day on Wall Street for the social network. That’s because Wall Street doesn’t believe that the FTC and 48 state attorneys general will, and can, break up Facebook.”
“AstraZeneca Agrees To Buy Alexion For $39 Billion” (Wall Street Journal). “The deal comes at a pivotal time for AstraZeneca, which is in late-stage development of a leading Covid-19 vaccine developed in partnership with the University of Oxford. The vaccine is being reviewed by U.K. and European drug regulators, and could be authorized for emergency use in the U.K. within weeks, scientists involved in it have said.”
“Three Of The 10 Biggest Tech IPOs Have Happened In 2020—Including Two In The Last Week” (CNBC). “[DoorDash, Airbnb, and Snowflake] each raised over $3 billion and have market caps between $55 billion and $100 billion, putting them among the 30 most valuable U.S. tech companies. Before going public they commanded valuations in the double-digit billions, attracting large checks along the way from private equity firms, fund managers, strategic investors and sovereign wealth funds.”
“Ex-Hedge Fund Manager Better Hope The Next Judge He Sees Doesn’t Think He’s A Thief And A Liar” (Dealbreaker). “When last we checked in with Dan Kamensky, he was begging his bank ‘not to put me in jail’ on account of having allegedly bullied said bank into not bidding for a thing he wanted, which higher bid would have been very good for the Neiman Marcus creditors committee on which he served, closing down that hedge fund—Marble Ridge Capital—as a result, forcing that hedge fund into the awkward position of arguing that doing so didn’t actually hurt the bankrupt retailer, and oh yea getting arrested and sued by the SEC. So, uh, how much worse can things get for the disgraced hedge fund manager? Well, quite a bit worse, actually.”
What we’re reading (12/11)
“Pandemic Villains: Robinhood” (Matt Taibbi). “It’s the perfect mousetrap, among other things because of its name. ‘That’s the other thing,’ says Brewster. ‘They call it Robin Hood.’ Instead of stealing from the rich and giving to the poor, the American version takes in the young and sells them to computer-powered hedge funds; this Robin Hood is the house that always wins. If there’s a more brilliant metaphor for capitalism in the Covid age, it’s hard to imagine.”
“The Covid Divide: The Pandemic Has Plunged Some Into Poverty, And Boosted Savings For Others” (CNN Business). “For many Americans, the economic effects of the pandemic have been devastating. Millions have lost jobs. Food and housing insecurity has soared. And roughly half of US households reported a drop in income this year, according to Bankrate.com….But others -- lucky enough to keep their jobs and even work from home -- have ended up financially better off, or at least unaffected, thanks to such factors as a rising stock market, increased savings, or a boost in demand for their business.”
“The Latest Trend Among TikTok Stars: Investing Their Popularity” (NBC News). “TikTok stars are known for setting trends on social media, but their latest isn't a dance sequence or popular video. More and more young TikTok stars are turning to venture capital investing as they turn their millions of followers and online popularity into massive fortunes.”
“Disney Unloads A Slew Of Impressive Disney+ Announcements, Announces Price Hike” (CNBC). “Disney is pulling out all the stops for its streaming services. On Thursday, the company revealed a slew of impressive Disney+ announcements, with over 100 movies and shows connected to franchises like Star Wars, Marvel, FX and National Geographic. The company’s newly minted strategy, which focuses heavily on its year-old streaming service Disney+, is all about “quality not volume,” Disney’s chairman and former CEO Bob Iger said during its Investor Day presentation. Iger, who left the helm of the company nine months ago to focus on content, said ‘quality holds value.’”
“GEs Feel-Good Accounting, Which Invented $6.2 Billion Fake Dollars, Costs Company 200 Million Real Ones” (Dealbreaker). “GE can’t afford very much at all these days, so it probably goes without saying that the $200 million check it now has to cut to the SEC isn’t ideal. Of course, it probably should have thought about that before instituting accounting practices—if you could be so generous as to call them ‘practices’—that had more to do with its former CEO’s relentlessly positive ethos than anything approaching reality.”
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.”