What we’re reading (3/10)
“States Expected Covid-19 To Bring Widespread Tax Shortfalls. It Didn’t Happen.” (Wall Street Journal). “States have avoided a Great Depression-scale cash crisis. Despite the pandemic’s crushing toll on the economy, total state tax revenues were roughly flat in 2020 from the year before, according to the Urban Institute, a Washington, D.C., think tank.”
“Here's What We Know So Far About The Massive Microsoft Exchange Hack” (CNN Business). “Many security experts remain alarmed about the large, Chinese-linked hack of Microsoft's Exchange email service a week after the attack was first reported. The breach is believed to have targeted hundreds of thousands of Exchange users around the world. Microsoft (MSFT) said four vulnerabilities in its software allowed hackers to access servers for the popular email and calendar service, and the company urged customers to immediately update their on-premises systems with software fixes.”
“Hedge Fund Managers Are Getting Inside Information From Alumni Networks, Study Finds” (Institutional Investor). “Hedge fund managers are gathering private information from their alumni networks and using that trading edge ahead of merger announcements, a study found. Managers of hedge funds who are connected to directors of companies engaged in mergers increase their call option holdings on targets before the deals are announced, according to a [new] paper[.]”
“Wharton Professor Jeremy Siegel Says Value Stocks Will Outperform Tech This Year In 'The Hottest Economy We're Going To See In A Long Time’“ (Business Insider). “Wharton School professor Jeremy Siegel is predicting a value stocks will be big outperformers on the stock market in the next year, as the economy recovers, he told CNBC's Trading Nation on Tuesday. Tech stocks, which have been under pressure in recent days, have further room to trade lower, but Siegel does not expect that correction to become a crash.”
“The World’s Consumers Are Sitting On A Pile Of Cash. Will They Spend It?” (The Economist). “The economic controls implemented during the second world war make today’s restrictions on restaurants and football stadiums look lax. In America the government rationed everything from coffee to shoes and forbade the production of fridges and bicycles. In 1943 its entire automobile industry sold only 139 cars. Two years later the war ended, and a consumer-led boom ensued. Americans put to use the personal savings they had accumulated in wartime. By 1950 carmakers were producing more than 8m vehicles a year.”
What we’re reading (3/9)
“Americans' Inflation Expectations Hit A 7-year High As The Economic Recovery Picked Up, Fed Survey Finds” (Business Insider). “Consumers' median year-ahead inflation expectations rose to 3.1% in February from 3%, according to the Federal Reserve Bank of New York's Survey of Consumer Expectations — the highest reading since July 2014. The higher expectations come as COVID-19 case counts dive and business activity sharply improves.”
“T-Mobile to Step Up Ad Targeting of Cellphone Customers” (Wall Street Journal). “T-Mobile US Inc. will automatically enroll its phone subscribers in an advertising program informed by their online activity, testing businesses’ appetite for information that other companies have restricted.”
“Why Bill Gates Is Worried About Bitcoin” (DealBook). “‘Bitcoin uses more electricity per transaction than any other method known to mankind,’ Bill Gates told Andrew, adding, ‘It’s not a great climate thing.’ Studies note that the annual carbon emissions from the electricity generated to mine and process the cryptocurrency equal the amount emitted by New Zealand or Argentina.”
“Chamber of Commerce Endorses Gary Gensler To Serve As SEC Chair” (Washington Post). “The U.S. Chamber of Commerce, the country’s largest business lobbying organization, is throwing its weight behind Gary Gensler, President Biden’s pick to lead the Securities and Exchange Commission. Gensler, a former Goldman Sachs partner who turned into an aggressive financial industry regulator and progressive darling, was expected to win confirmation thanks to his support among Democrats. But the business lobby’s imprimatur could help him draw some Republican support.”
“AT&T Says Rule Barring Selective Disclosures To Analysts Can’t Possibly Be Designed To Bar Selective Disclosures To Analysts” (Dealbreaker). “What information is ‘material’ under securities law involves a very large gray area. Whether or not a publicly-listed company is going to make or miss earnings estimates, however, seems pretty clearly in the black: It is, after all, the kind of thing investors look out for on a quarterly basis, and one that usually has some impact on the price of a company’s stock. And, five years ago, AT&T was very much about to miss, and for the third time in a row. That the company considered this material seems clear from the fact that it felt the need to do something to prevent it. That something was not find an extra $76 million in revenue and quick, but to call all of the analysts covering AT&T and to tell them the not-yet-public information that their earnings estimates were too damned high.”
What we’re reading (3/8)
“David Tepper Is Getting Bullish On Stocks, Believes Rising Rates Are Set To Stabilize” (CNBC). “David Tepper, founder of Appaloosa Management whose comments have been known to move markets, said it’s very difficult to be bearish on stocks right now and thinks the sell-off in Treasurys that has driven rates higher is likely over.”
“Cathie Wood’s ARK Faces Test as Tech Rally Cools” (Wall Street Journal). “The stock market’s swift turn against technology and other growth stocks has handed star stock picker Cathie Wood and her firm, ARK Investment Management LLC, their toughest test yet. The firm’s five exchange-traded funds all have declined more than 20% since early February, stung by a sharp rise in government-bond yields. The flagship ARK Innovation ETF has suffered the steepest declines, falling 27% from its Feb. 16 high. In comparison, the Nasdaq Composite Index has dropped about 8% over the same period.”
“How Do Silicon Valley Techies Celebrate Getting Rich In A Pandemic?” (New York Times). “The parties are on Zoom, the tax talk is on Slack, the house shopping is slightly less intense, and the vibe is cautious. It’s a weird time to become rich.”
“Elon Musk Lost $27 Billion Last Week” (CNN Business). “Elon Musk's net worth plunged last week as tech stocks got hammered and Tesla shares' stunning rise quickly unraveled. Wall Street is growing increasingly nervous about rising bond yields, which could make borrowing more expensive. That could eat into corporate profits, which is why investors have begun to reverse some of the positions they took over the past year in high-growth but risky tech stocks like Tesla.”
“The Biggest Private Island For Sale In The Bahamas Is About To Hit The Auction Block — And There’s No Minimum Bid” (Business Insider). “The 730-acre undeveloped island, known as St. Andrews or Little Ragged Island, is the Bahamas' southernmost and largest privately held island currently listed for sale, according to the listing. It features white sand beaches and deep water access that could accommodate large yachts. The listing notes that the island could be transformed into a private home or a resort with enough space for an 18-hole golf course.”
What we’re reading (3/7)
“Covid-19 Crashed The Stock Market A Year Ago. Here Are Some Lessons Learned.” (Wall Street Journal). “The S&P 500 took just 126 trading days to swing from a record to a bear market and back to a new high—marking the fastest such recovery in history. That was even as market prognosticators warned stocks were due for another bout of selling, based on the growing death toll and unprecedented job losses caused by the coronavirus pandemic.”
“The Market’s Ride On Easy Street Is Getting Bumpy” (Briefing.com). “Good news just isn't moving the needle like it used to because the forward-looking stock market has priced in so much of it already; hence, it is more sensitive these days to news, and developments, that could act as speed bumps, if not damaging pot holes, on Easy Street.”
“Too Many Smart People Are Being Too Dismissive Of Inflation” (New York Times). “Fears were overblown for years. But let’s not be blasé about how hard it could be to halt high prices if they haunt us again…the prices of many commodities are surging — copper and lumber because of a jump in home building. Global steel demand has pushed up iron ore prices. Even tin, heavily used in electronics, has soared as suppliers rush to meet consumer demand for new gadgets.”
“The Business Winners In Biden’s Relief Package: Restaurants, Concert Venues And Airplane Manufacturers” (Washington Post). “The restaurant industry emerged as the bill’s biggest private-sector winner. The package establishes a $28.6 billion ‘revitalization fund’ for restaurants that will dole out grants to help them cover pandemic-related revenue losses, with businesses eligible for up to $5 million each.”
“Millennial New Yorkers Are Ditching Basements And Roommates For Luxury Apartments At $1,000-Plus Discounts” (Business Insider). “In a city notorious for its unaffordability, the pandemic era has sent once sky-high rents plummeting, making luxury living by New York City standards attainable for those once priced out of such a lifestyle. Millennial New Yorkers…are jumping on deals they know won't last indefinitely, upgrading to luxury apartments that suddenly fit with their budgets.”
What we’re reading (3/6)
“When SPAC-Man Chamath Palihapitiya Speaks, Reddit And Wall Street Listen” (Wall Street Journal). “Mr. Palihapitiya is the man of the market moment. The founder of tech-investing firm Social Capital Holdings Inc. has charmed Wall Street to raise billions of dollars to bring startups public. Amateur traders hang on his every word for clues about his next target—and for the insults he hurls at the high-finance elite. (Hedge funds, he said last April, deserved to get wiped out when coronavirus shutdowns devastated the economy.)”
“Stocks Face The Crosscurrents Of Higher Interest Rates And Fiscal Stimulus In The Week Ahead” (CNBC). “The Covid-19 aid package is on track for final congressional approval in the week ahead — and it could be a double-edged sword for markets. The legislation should be greeted by optimism around the powerful lift it could give the stock market and the economy, but it could also be met with concern about what a historically large stimulus package could do to inflation and interest rates.”
“John McAfee Is Indicted For Altcoin Pump-And-Dumps And ICO Schemes” (Wired). “On Friday the US Attorney’s Office of the Southern District of New York indicted McAfee and executive assistant Jimmy Watson on multiple charges that encompass two alleged cryptocurrency schemes. (McAfee was previously indicted in October for separate tax evasion charges.) According to court documents, McAfee and his associates raked in a combined $13 million between the two efforts, both of which relied on using McAfee’s popular Twitter account to push niche cryptocurrencies or promote initial coin offerings without disclosing that he stood to profit, either through investment gains or promotional fees.”
“Demoralized Junior Bankers Are Contemplating Ditching Investment-Banking Altogether As They Battle Burnout After A Grueling Year Working From Home” (Business Insider). “[I]nvestment-banking revenues at the top banks increased 23% to $49.4 billion, according to Coalition, but headcount to handle the additional workload didn't grow correspondingly. Front-office staffing was flat compared to 2019 and revenue per full-time employee increased to $2.9 million, a 23% uptick.”
“Turns Out Hertz’s Future Not As Bright As Day Traders Hoped” (Dealbreaker). “[T]he people running Hertz did have the gumption to do what GameStop’s leaders did not, which was to throw their hands into the air and say, ‘You wanna buy this stock? Here, have as much of it as you’d like.’ In doing so, of course, Hertz did have to mention that the stock people were eagerly buying at about $2 apiece would eventually be worth almost exactly the same amount less once the bankruptcy sorted itself out, which is why the SEC politely requested it stop selling them. That means today those apparently illiterate investors are only out $29 million instead of $500 million.”
What we’re reading (3/4)
“The National Debt Is Big And Getting Bigger. Does It Matter?” (American Banker). “[W]hat the debt is and how it works are intrinsically intertwined with what it represents, and in recent years it hasn’t been behaving the way it’s supposed to, and no one knows precisely why. And away from the political arena, economists and wonks are deeply conflicted about what the national debt really is, and how afraid we need to be of it.”
“Cathie Wood’s ARK Investment Faces Reckoning As Tech Trade Stalls” (Wall Street Journal). “ARK Investment Management LLC’s winning bets on disruptive technology companies cemented Cathie Wood’s status as Wall Street’s hottest fund manager since Peter Lynch or Bill Gross. Now, those gambits threaten to make ARK a high-profile casualty of the recent shift in investor sentiment away from tech stocks and toward cyclical shares tied to an economic upswing.”
“‘Buzz’ ETF Tracking Social Media Sentiment Launches Thursday Amid Reddit Manias In Stocks” (CNBC). “Is it time for an ETF that measures hype? Measuring the buzz around stocks mentioned in social media is all the rage. Now, there’s an exchange-traded fund for that. The Van Eck Vectors Social Sentiment ETF (BUZZ) selects 75 stocks with the most bullish social media sentiment and packages them into an ETF.”
“'Big Short' Investor Michael Burry Is Betting Volkswagen Will Beat Tesla In Electric Vehicles” (Business Insider). “The Scion chief's indirect bet on Volkswagen is notable because the German auto group is taking on Tesla in the electric-vehicle market, and Burry was short Tesla as of December. He predicted in January that shares in Elon Musk's electric-vehicle company - which have skyrocketed by more than 600% since the start of 2020 - would suffer a massive collapse. ‘Enjoy it while it lasts,’ he said.”
“Corporate America's Earnings Recession Is Over” (CNN Business). “By the end of last week, 96% of companies in the [S&P 500] benchmark index had posted results, according to FactSet. Per analyst John Butters' latest estimate, S&P 500 earnings grew 3.9% last quarter. That would mark the first year-on-year increase since the end of 2019.”
What we’re reading (3/3)
“The Fed Starts To Acknowledge That It Has An Eye On Tumult In The Bond Market” (New York Times). “Lael Brainard, one of the Federal Reserve’s Washington-based governors, on Tuesday offered the first major hint that a wild ride in bond markets over the past week may have raised alarms at the U.S. central bank. ‘I am paying close attention to market developments — some of those moves last week and the speed of those moves caught my eye,’ Ms. Brainard said.”
“Mortgage Application Demand Stalls As Interest Rates Surge To Highest Level Since July” (CNBC). “Mortgage interest rates last week rose at the fastest pace in over a year, throwing cold water on already cooling demand. Total mortgage application volume was essentially flat for the week, rising just 0.5% according to the Mortgage Bankers Association’s seasonally adjusted index.”
“How The Oil Market Bounced Back From A Year Of Crisis” (Wall Street Journal). “Oil prices have staged a rapid recovery since the biggest crisis to strike the energy industry in decades. The Organization of the Petroleum Exporting Countries and its allies stepped in last spring to backstop the market by slashing production in the teeth of a collapse in crude prices. This week, the cartel is expected to reach a deal on unwinding some of those cuts.”
“Lyft sees best week for rides since pandemic began, stock rises sharply” (MarketWatch). “In the best sign yet of a recovery in ride hailing, Lyft Inc. said Tuesday that it saw its largest volume of rides since March 2020 last week, sending its shares higher in after-hours trading.”
“Hedge Fund May Have Cut Itself A Nice Little Deal With Yale’s Money” (Dealbreaker). “David Swensen is one of the most powerful and influential investors in the world, a man who from his perch at the helm of Yale University’s endowment for more than three decades has just about as much experience investing in hedge funds as anyone. As such, it would take some serious stones to attempt to defraud so wealthy and august an institution and man. But hedge fund managers are not known for lacking in chutzpah, so that’s exactly what Deccan Value Investors allegedly did.”
What we’re reading (3/2)
“Target Earnings Top Estimates As Sales Rise 21%, Boosted By A Surge Of Post-Holiday Shoppers” (CNBC). “Target’s earnings topped Wall Street’s estimates, as its sales got a lift from a strong holiday season and store traffic picked up in January. The big-box retailer has benefited as shoppers look for easy and safe ways to buy groceries and other items during the pandemic. Its 2020 sales grew by more than $15 billion — greater than its total sales growth over the prior 11 years.”
“Breached Software Firm SolarWinds Faces SEC Inquiry After Insider Stock Sales” (Washington Post). “Relatively unknown just a few months ago, SolarWinds has been in the hot seat since hackers exploited vulnerabilities in its software to breach at least nine government agencies and about 100 companies. Last week, members of Congress questioned SolarWinds chief executive Sudhakar Ramakrishna about whether private companies like his can be trusted to protect the country from future attacks.”
“Democrats Unveil An Ultramillionaire Tax On The Top 0.05% Of American Households” (Business Insider). “Sen. Elizabeth Warren of Massachusetts, who has long been a proponent of a wealth tax, introduced the Ultra-Millionaire Tax Act with Rep. Pramila Jayapal of Washington and Rep. Brendan Boyle of Pennsylvania. A press release said the proposed tax would apply to 0.05% of households. It would place a 2% tax on household net worth between $50 million and $1 billion and a 3% tax on household net worth over $1 billion.”
“Inside The Complicated Business Of Disguising 5G Equipment” (CNN Business). “For years, artificial cacti have lined the sandy roadsides of North Scottsdale, Arizona. They look real at first glance but tucked inside are antennas and radio equipment that provide 4G LTE wireless connectivity to the area. Large concealment structures like this, which in this case are about 24 feet tall, have become so good it's sometimes hard to tell the real cacti from the fakes.”
“Get Ready For More Bond-Market Scares” (The Economist). “The week in financial markets has got off to a breezy start, belying the turmoil of last week…[i]t is all in marked contrast to last week, when anxiety about inflation gripped America’s bond market. The steady fall in bond prices since the start of the year had suddenly quickened to a pace that threatened a destabilising rout.”
What we’re reading (3/1)
“Global Stocks Rise After US Stimulus Package Passes And Falling Bond Yields Reignite Risk Appetite” (Business Insider). “Global shares rose on Monday, buoyed by the passing of US President Joe Biden's $1.9 trillion spending package and by a retreat in bond yields, which soothed some concern among investors about a potential shift in the Federal Reserve's ultra-accommodative monetary policy.”
“Fed’s Brainard Urges Steps to Address Weaknesses in Short-Term Funding Markets” (Wall Street Journal). “Regulators should continue to advance reforms to the financial system to address vulnerabilities revealed by the coronavirus-induced market turmoil a year ago, Federal Reserve Gov. Lael Brainard said Monday.”
“Not Just Tesla: Tech Analyst Says Electric Vehicle Stocks Could Soar 50% This Year” (CNBC). “Electric vehicle stocks could climb up to 50% this year, according to Wedbush analyst Daniel Ives, who thinks there’s enough room in the market for more than just Tesla. ‘In my opinion EV stocks could be up another 40- 50% this year, given what we’re seeing in terms of a green tidal wave globally,’ Ives told CNBC’s ‘Street Signs Europe’ Monday.”
“Biden’s Bubble Risk: A Reckoning In Markets As The Economy Recovers” (Politico). “It’s a bizarre environment that’s confounding even the most seasoned economists and investors: an unusual mix of sentiment seen in 1999, just before the dot-com bust, the period a decade ago after the 2008-09 financial crisis, and the early years of the roaring 20s after the pandemic a century ago that concluded with the crash of 1929.”
“Warren Revives Wealth Tax, Citing Pandemic Inequalities” (New York Times). “Senator Elizabeth Warren, Democrat of Massachusetts, plans to introduce legislation on Monday that would tax the net worth of the wealthiest people in America, a proposal aimed at persuading President Biden and other Democrats to fund sweeping new federal spending programs by taxing the richest Americans. Ms. Warren’s wealth tax would apply a 2 percent tax to individual net worth — including the value of stocks, houses, boats and anything else a person owns, after subtracting out any debts — above $50 million. It would add an additional 1 percent surcharge for net worth above $1 billion.”
What we’re reading (2/28)
“The Private Equity Party Might Be Ending. It’s About Time.” (New York Times). “[T]he [private equity] party could be ending. In a little-noticed December ruling in a case involving a failed 2014 leveraged buyout, Jed S. Rakoff, a federal judge in the Southern District of New York, threw some sand into the otherwise well-lubricated gears of what has been a 40-year financial bonanza. It’s about time we started asking tough questions about the ramifications of loading up companies with huge amounts of debt they will surely have difficulty repaying.”
“Pay Cuts, Taxes, Child Care: What Another Year of Remote Work Will Look Like” (Wall Street Journal). “Companies are anticipating another largely remote work year, and new questions about compensation and benefits are weighing on managers. Discussions about the future of work, such as whether to reduce the salaries of employees who have left high-cost cities, are priority items in board meetings and senior executive sessions across industries, according to chief executives, board members and corporate advisers.”
“$3 Gasoline Could Be Around The Corner—Unless OPEC And Russia Start Pumping More Oil” (CNN Business). “OPEC and Russia's unprecedented production cuts last spring lifted oil prices out of a death spiral. Nearly a year later, the group is under pressure to cool off the red-hot market.”
“The Rules Of The Tech Game Are Changing” (The Economist). “The gale of creative destruction used to blow hard in Silicon Valley. The list of firms toppled from dominance runs from Fairchild Semiconductor to Hewlett-Packard. Yet recently the giants have clung on: Apple and Microsoft are over 40 years old and Alphabet and Amazon over 20; even Facebook is 17 this month. What happened?”
“Coinbase And Roblox Take A Page From Google, Keeping Marketing Costs Way Down Ahead Of Public Debuts” (CNBC). “Cryptocurrency exchange Coinbase and gaming app Roblox are both getting set to go public through a direct listing of their shares. They have something else in common that’s likely to prove very attractive to investors: Brand awareness. Both companies spend less than 10% of their net revenue on sales and marketing. Those are savings that allow the companies to focus more on product development and even profit generation.”
February 2021 performance update
Hi folks, here with a February performance update. Here are the key numbers for the month:
Stoney Point Prime picks: 1.36%
Stoney Point Select picks: 2.79%
“The market” (S&P 500-tracking SPY ETF): 1.78%
“Bogleheads” (80% VTI, 20% BND): 1.42%
A few notes:
There was a lot of volatility in February. As you can see in the chart below, valuations were a lot higher about mid-way through the month. As of Feb. 16, for example, Prime was up 6.56%, Select was up 7.98%, SPY was up 4.97%, and the Bogleheads blended ETF portfolio was up 4.40%.
Valuations dropped off sharply in the last week or so (also easy to spot in the chart). One plausible explanation is the rise in interest rates in the month. The 20-year Treasury yield rose from 1.92% to 2.25% from 2/16 through 2/25. The typical large-ish stock has a cash flow duration in the range of 10-20 years (in my experience), meaning that a 1 percent increase in Treasuries reduces value of 10-20%. From that perspective, the declines in the back half of the month make a lot of sense: SPY declined -3.19% over that period, which implies a duration of 9.9 years for the average S&P 500 stock (asset values—not just stocks, but all assets—decline when rates rise because any asset’s value is just the present value of its future cash flows, where its present value equals the sum of CF(n)/(1+r)^n as n increases, where CF(n) = cash flow in year “n” and r is the discount rate, generally equal to the “risk free rate” (Treasury rate) + a risk premium).
The rise in rates isn’t "bad” news per se. Arguably, rates rose because economic growth forecasts look really good, and the market is anticipating the Fed will raise rates in the future to avoid overheating. Those market-wide expectations about the future show up in valuations today. I.e., the overheating may simply indicate that expectations of overall economic performance look pretty good, which may ultimately be good for stocks.
With rates rising from historical lows, it naturally raises the question of whether or not anyone should really be in bonds right now (under the idea that bond values will mechanically decline as rates increase). Surely, people will not abandon bonds wholesale, but this line of thinking generally supports the idea that equities should outperform bonds for the foreseeable future.
One note about a specific pick: Twitter (a Prime pick last month) was up 51% last month. Wild.
That’s all for now As usual, you can check out the position-level February performance for our Prime and Select picks on our performance page and our picks for March here.
Stoney Point Total Cumulative Performance
March Prime + Select picks available now
The new Prime and Select picks for March are available starting now, based on a model run put through today (February 27). As a note, we’ll be measuring the performance on these picks from the first trading day of the month, Monday, March 1, 2021 (at the mid-spread open price) through the last trading day of the month, Wednesday, March 31 (at the mid-spread closing price). If you’re following the strategy, you’d want to re-balance into your March positions at the start of trading on Monday.
You can check out the latest picks here.
What we’re reading (2/27)
“Warren Buffett Defends Berkshire Hathaway’s $25 Billion In Buybacks” (Wall Street Journal). “In Mr. Buffett’s annual letter to shareholders, he defended the larger-than-usual buybacks, saying they enhance the intrinsic value for shareholders but still leave Berkshire ample funds for any opportunities. He was less than complimentary of other chief executives buying back stock. ‘American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked,’ he wrote.”
“Where Have All the Houses Gone?” (New York Times). “Much of the housing market has gone missing. On suburban streets and in many urban neighborhoods, across large and midsize metro areas, many homes that would have typically come up for sale over the past year never did. Even in cities with a pandemic glut of empty apartments and falling rents, it has become incredibly hard to buy a home.”
“Why This QE Is Different In One Chart” (Global Macro Monitor). “The Fed deserves some kudos for not letting the financial system collapse during the early days of COVID but the risk of much higher inflation is now at hand. There is just too much money created by the Fed and the credit markets chasing too few assets, goods, services, and, yes, semiconductors.”
“As Rising Treasury Yields Spook Stock Investors, March Looms Like A Lion” (MarketWatch). “Ultimately, seasonal trends suggest that March will be wobbly and could be used as an excuse for further selling, but on that downturn may be cathartic and give way to further gains in the spring.”
“ARK Funds: The Tail That Wags The Dog?” (Morningstar). “Although ARK's investment strategy is familiar, the company's sales success is not. Its inflows raise the question: Is the mutual fund tail wagging the stock-market dog? That is, have ARK funds performed so well--ARKK is up 11% this year after gaining a breathtaking 152% in 2020--because when its funds put their new monies to work, they boost the prices of the stocks that they already hold?”
What we’re reading (2/26)
“Time For A Tantrum?” (New York Times). “The S&P 500 suffered its worst single-day drop in a month yesterday, with tech stocks hard hit. But the big story is in bonds, where yields surged (and prices fell) as investors worried that the Fed wasn’t, well, worried enough.”
“How Will A Surge In Bond Yields Affect Your Mortgage, Car Loans And 401(k)?” (USA Today). “What's pushing yields higher yield? As the U.S. continues to climb out of its pandemic-induced recession, optimism has grown that further stimulus aid and widespread COVID vaccinations will help the economy expand rapidly later this year. So rising bond yields typically signal that investors are hopeful for more economic growth in the future. But they can also indicate that a potential spike in inflation is just around the corner.”
“Best Buy Just Laid Off 5,000 Workings And Will Close More Stores” (CNN Business). “Best Buy said Thursday that it laid off 5,000 workers this month and is planning to close more stores this year as more consumers buy electronics online. The news comes at a time when big chains face growing competition from Amazon and other sites that sell items like TVs and laptops. Fry's Electronics said Wednesday that it would abruptly close all of its stores overnight, ending nearly four-decades in business.”
“Beyond Meat Signs Supply Deals With McDonald’s, Yum” (Wall Street Journal). “The deals boost Beyond’s prospects as more restaurants resume in-person dining, after Covid-19 forced shutdowns and restrictions on eating out over the past year. The pandemic’s blow to the food-service industry hurt Beyond’s business, which had been heavily propelled by restaurants in recent years, and prompted the company to focus more on supermarket sales.”
“Goldman Says Stock-Transfer Taxes Aren’t All Bad, As Long As They’re Not In New York” (Dealbreaker). “There is a growing consensus: The stock transfer tax under consideration by the New York State Legislature would be a disaster. An end to New York City as we know it, because passing it would force every bank and hedge fund and financial services player to up and move to Palm Beach or Houston, permanently immiserating the capital of global capitalism. Everyone says this: the Atlanta-based New York Stock Exchange, the nominally Democratic governor’s nominally Democratic tax commissioner and, through its membership in the Securities Industry and Financial Markets Association, Goldman Sachs.”
What we’re reading (2/25)
“Red-Hot Stock Market Pushes More Companies To Go Public” (Wall Street Journal). “Last year’s increase in the number of companies listed on U.S. exchanges was the largest since the late-1990s dot-com bubble. The total is expected to surge even more this year as hundreds of companies tap everyday investors, according to data compiled by University of Florida finance professor Jay Ritter.”
“Robinhood Offers Blistering Retort To ‘Elitist’ Criticisms From Munger” (CNBC). “Robinhood fired back at Berkshire Hathaway Vice Chairman Charlie Munger, who earlier this week said the free trading app was having a ‘regrettable’ impact on investors.”
“Has McKinsey Lost Its Luster?” (New York Times). “Partners at McKinsey yesterday voted out their leader, Kevin Sneader, as the company deals with blowback over its role in the U.S. opioid crisis. It was the latest tough headline for the consulting firm, which may face growing threats to its status as a trusted adviser to companies and governments — and as a magnet for top talent.”
“Mortgage Rates Surge Higher For Second Week In A Row” (Washington Post). “The days of mortgage rates below 3 percent are fast coming to a close. According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 2.97 percent with an average 0.6 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 2.81 percent a week ago and 3.45 percent a year ago. The 30-year fixed average has risen 24 basis points in the past two weeks. (A basis point is 0.01 percentage point.)”
“CEOs Like Google's Sundar Pichai And Microsoft's Satya Nadella Are Among The Most Overpaid CEOs, According To A New Report” (Business Insider). “[C]ompanies that have consistently graced the list are performing worse than those that have never been mentioned. As You Sow has published this report annually since 2015, and nine CEOs have made the list every year, amounting to a total pay of $2 billion. However, these nine businesses have seen a lower annualized shareholder return compared to S&P 500 companies that have never made the overpaid CEO list.”
March picks available soon
We’ll be publishing our Prime and Select picks for the month of March on or before 2/28. As always, we’ll be measuring SPC’s performance for the month of February, as well as SPC’s cumulative performance, assuming the sale of the February picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Friday, February 26). Likewise, performance tracking for the month of March will assume the March 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 (Monday, March 1).
What we’re reading (2/24)
“150 Business Leaders, Including Google’s Sundar Pichai And Longtime Trump Ally Stephen Schwarzman, Are Backing Biden’s $1.9 Trillion Stimulus Bill In A Letter To Congress” (Business Insider). “More than 150 executives from top US companies spanning a range of industries including finance, tech, and real estate have backed President Joe Biden's $1.9 trillion stimulus package in a letter that will be sent to Congress, CNN reported Wednesday.”
“Lowe’s Tops Earnings Estimates As Same-Store Sales Jump 28%, Warns That Some DIY Trends Could Fade” (CNBC). “Lowe’s said Wednesday its fourth-quarter same-store sales climbed 28.1%, as consumers spent more on home projects during the pandemic. That’s higher than the 22% growth that analysts expected, according to StreetAccount. Even with the strong results, Lowe’s continues to expect that sales could moderate as the pandemic eases.”
“J&J’s Covid-19 Vaccine Is Safe And Effective, FDA Says, Paving Way For Approval” (Wall Street Journal). “The U.S. Food and Drug Administration found that a Johnson & Johnson Covid-19 single-dose vaccine was 66.1% effective in preventing moderate to severe virus disease, and that it had a ‘favorable safety profile.’”
“Investors Are Betting On A Macy’s Revival. Should They Be?” (CNN Business). “Retailers have been battered by the pandemic, which triggered a plunge in foot traffic and caused demand for products like work clothing to all but evaporate. But stock in Macy's is now trading close to where it was before Covid-19 rattled markets, while Kohl's has recovered all its losses. That raises the question: Are these stores on the brink of a comeback, or have investors gotten ahead of themselves? There are clear signs that the outlook for retailers is starting to brighten.”
“Future Vaccines Depend on Test Subjects in Short Supply: Monkeys” (New York Times). “Mark Lewis was desperate to find monkeys. Millions of human lives, all over the world, were at stake. Mr. Lewis, the chief executive of Bioqual, was responsible for providing lab monkeys to pharmaceutical companies like Moderna and Johnson & Johnson, which needed the animals to develop their Covid-19 vaccines. But as the coronavirus swept across the United States last year, there were few of the specially bred monkeys to be found anywhere in the world.”
What we’re reading (2/23)
“December Home Prices Rose 10.4%, The Biggest Gain In 7 Years, Case-Shiller Says” (CNBC). “That is the strongest annual growth rate in over six years, and a significantly stronger gain than in November, when prices were up 9.5%. It also ranks as one of the largest annual gains in the more than 30-year history of the index.”
“World’s Top 10 Hedge Fund Managers Earn $20.1 Billion In 2020” (Reuters). “Hedge funds made gains of 11.7% on average in 2020 amid a huge sell-off in March and large economic shutdowns following the emergence of the novel coronavirus, according to data from Hedge Fund Research.”
“Private Equity Ownership Is Killing People At Nursing Homes” (Vox). “When private equity firms acquire nursing homes, patients start to die more often, according to a new working paper published by the National Bureau of Economic Research…[r]esearchers from Penn, NYU, and the University of Chicago studied Medicare data that covers more than 18,000 nursing home facilities, about 1,700 of which were bought by private equity from 2000 to 2017…[t]hey found that going to a private equity-owned nursing home increased mortality for patients by 10 percent against the overall average.”
“A complete Guide To Cathie Wood's Mind-Blowing Success, Her Firm's Investing Strategies, And The Stock Picks She's Betting On For The Future” (Business Insider). “While her career dates back to 1981, 2020 was the year when her performance and fund inflows earned her a cult-like following in the industry. The $27 billion ARK Innovation ETF, her flagship exchange-traded fund, rose 150% last year, thanks partly to Tesla's 730% gain. Her other funds that cover the fintech, genomic, and internet industries all landed on the list of the 10 best-performing ETFs of 2020.”
“Kohl’s Tried Striking A Deal With Amazon. It Wasn’t Enough” (CNN Business). “An activist group, which includes Macellum Advisors, Ancora Holdings, Legion Partners Asset Management and 4010 Capital LLC, said Monday that it has taken a 9.5% stake in Kohl's and has nominated nine new members to its board of directors. The news, first reported by the Wall Street Journal, sent Kohl's (KSS) shares up 8% in Monday trading.”
What we’re reading (2/22)
“Historic Gains In Small Stocks Highlight Investor Exuberance” (Wall Street Journal). “Shares of small companies are outpacing their larger counterparts by the widest margin in more than two decades…[t]he Russell 2000 Index of small companies has climbed 15% and set 10 closing records so far this year, well above the S&P 500’s 4% rise. That is the largest such gap between the two indexes through Feb. 19 since 2000, according to Dow Jones Market Data.”
“United Airlines Engine Explosion Over Denver Prompts Company To Ground Boeing 777s” (CBS News). “Federal aviation regulators are ordering United Airlines to step up inspections of all Boeing 777s equipped with the type of engine that suffered a catastrophic failure over Denver on Saturday. United said it is temporarily removing those aircraft from service.”
“White House Says Stock-Trading Tax Is Worth Studying After GameStop Frenzy” (CNN Business). “The White House supports studying the merits of a financial transaction tax — a move favored by progressives and despised by Wall Street — in the wake of the GameStop trading frenzy…such a tax would face fierce opposition from Wall Street and it's unclear whether moderate Democrats would support it. Opponents warn it would backfire on retail investors by raising costs and making financial markets less liquid.”
“France Hired McKinsey To Help In The Pandemic. Then Came The Questions.” (New York Times). “As France raced to complete a complex blueprint in December for vaccinating its population against the coronavirus, the government quietly issued millions of euros in contracts to the consulting giant McKinsey & Company…within weeks, France’s vaccination campaign was being derided for being far too slow. In early January, France had vaccinated only ‘several thousand people,’ according to the health minister, compared with 230,000 in Germany and more than 110,000 in Italy.”
“Everyone Is Getting Hilariously Rich” (Dealbreaker). “[I]t’s not just the [bit]coins themselves that are minting millionaires. Coinbase, the largest digital currency exchange, has hit a $100 billion valuation in the secondary markets ahead of its planned public listing. Founded in 2012, Coinbase is the largest crypto exchange in the U.S. as measured by trading volume. In the first nine months of 2020, Coinbase notched $141 million in net income off $691 million revenue from trading fees and commissions.”
What we’re reading (2/21)
“Blue-Collar Jobs Boom as Covid-19 Boosts Housing, E-Commerce Demand” (Wall Street Journal). “Nationally, employment in residential construction, package delivery and warehousing now exceeds pre-pandemic levels. Manufacturers have steadily added back jobs after slashing payrolls last spring, though employment remains down about 5% from February 2020, according to Labor Department data. Job openings in many blue-collar occupations broke above pre-virus levels last summer and remain significantly elevated, figures from the online job site Indeed show.”
“Feds Investigating Why Boeing Plane Rained Debris On Denver Suburb” (Washington Post). “The aircraft, a Boeing 777-200, appeared to scatter dozens of pieces of debris across a residential area roughly a half-mile wide, badly damaging at least one home and one vehicle, local authorities said. No injuries have been reported on the ground or among the flight’s 231 passengers and 10 crew members.”
“Wall Street Is Beginning To Say Stimulus Probably Won’t Spark Dangerous Inflation” (Business Insider). “For weeks, economists at major banks had sat on the sidelines, vaguely saying another package would achieve its intended goal of accelerating growth. Now that Democrats are charging forward with Biden's large-scale plan and likely to pass the bill by mid-March, Wall Street's take probably won't make Republicans too happy.”
“Big Tech Is Swallowing The Rest Of Silicon Valley” (MarketWatch). “The Top 15 tech firms in the region had sales of $1.35 trillion in 2020, which would give them the 15th-highest GDP in the world collectively, while comprising nearly 40% of Silicon Valley tech jobs[.]”
“The Man Who Turned Credit Card Points Into An Empire” (New York Times). Today’s episode of “The Daily” looks at Brian Kelly, the so-called “Points Guy,” who has famously spent the past decade arbitraging credit card points and evangelizing his tactics.