What we’re reading (3/20)
“Larry Summers Versus The Stimulus” (The New Yorker). “The Biden rescue package will pour out enough sand to fill a hole, and then keep pouring. In Summers’s view, this is economically risky, because it means that the Federal Reserve will probably eventually need to manage inflation, a recipe for a bumpy future. “My reading is that there are roughly zero historical examples where we got inflation to the point where the Fed got nervous and had to tighten and the whole thing happened smoothly,” Summers told me last week.”
“A Return To Wall Street’s Low-Rent District” (New York Times). “Of all the trading manias in recent months — Bitcoin, SPACs, meme stocks, nonfungible tokens — the latest has a long history of fraud and scandal. That’s right, penny stocks are booming, according to The Times’s Matt Phillips, who visited the ‘low-rent district of Wall Street.’ There were 1.9 trillion transactions last month on the over-the-counter markets, where such stocks trade, according to the industry regulator Finra. That’s up more than 2,000 percent from a year earlier, driven in large part by the surge in retail trading[.]”
“5 Big Signs That Travel Is Roaring Back” (CNN Business). “Vacation deprivation is about to be replaced by a travel boom, according to Expedia CEO Peter Kern. He told CNN's Julia Chatterley earlier this week that people are beginning to think about their future travel ‘very quickly.’ Reservations on the travel website for some parts of the United States this summer are ‘all booked up’ and he expects Europe will soon follow as the number of vaccinations grow.”
“Elon Musk Says Tesla Won’t Share Data From Its Cars With China or U.S.” (Wall Street Journal). “Speaking via video link Saturday to the government-backed China Development Forum in Beijing, Mr. Musk said that no U.S. or Chinese company would risk gathering sensitive or private data and then sharing it with their home government.”
“Taiwan Official Urges People To Stop Changing Their Name To ‘Salmon’” (The Guardian). “A Taiwanese official has pleaded with people to stop changing their name to “salmon” after dozens made the unusual move to take advantage of a restaurant promotion. In a phenomenon that has been labelled ‘salmon chaos’ by local media, about 150 mostly young people visited government offices in recent days to officially change their name. The cause of this sudden enthusiasm was a chain of sushi restaurants. Under the two-day promotion, which ended on Thursday, any customer whose ID card contained ‘gui yu’ – the Chinese characters for salmon – would be entitled to an all-you-can-eat sushi meal along with five friends.”
What we’re reading (3/19)
“Morgan Stanley Says Rising 10-Year Treasury Yields Is Reasonable As Confidence In U.S. Economy Grows” (CNBC). “Morgan Stanley said the rise in 10-year Treasury yields is reasonable and a reflection of the growing confidence in the U.S economic outlook, according to Jim Caron, global fixed-income portfolio manager at the investment bank.”
“The New Stimulus Act Offers Big Benefits for Families” (Wall Street Journal). “The coronavirus-relief legislation signed by President Biden earlier this month contains unprecedented benefits for families with children and other dependents—especially for some who plan carefully. The new benefits, which apply for 2021, are largest for low-income families, but they extend well into the middle class, with many eligible for more than $10,000 in tax-free income for this year. Higher earners can also benefit from some changes, such as expanded tax breaks for child-care costs.”
“Paris Goes Into Lockdown As COVID-19 Variant Rampages” (Reuters). “France imposed a month-long lockdown on Paris and parts of the north after a faltering vaccine rollout and spread of highly contagious coronavirus variants forced President Emmanuel Macron to shift course. Since late January, when he defied the calls of scientists and some in his government to lock the country down, Macron has said he would do whatever it took to keep the euro zone's second largest economy as open as possible.”
“Goldman’s First-Year Bankers Beg to Work Only 80-Hour Weeks in Stinging Deck” (Bloomberg). “Hundred-Hour weeks on the job. Declining physical and mental health. The heightened chance of fleeing the bank in very short order. Those are among the laments of 13 first-year analysts in Goldman Sachs Group Inc.’s investment-banking group who surveyed themselves, according to a presentation making the rounds on social media.”
“Coinbase Trades Investor Roadshow For A Reddit Q&A” (Coinbase). “Coinbase is opting for a question-and-answer session on online forum Reddit lasting through Friday evening and a series of explainer videos ahead of its public debut, in lieu of a more traditional roadshow or live-streamed presentations for investors…[m]uch about Coinbase's public listing is already unusual—it'll be the Nasdaq's first major direct listing, and it will be the first U.S. cryptocurrency company to become publicly-traded. It's also a nod to the cryptocurrency industry's roots in online forums and where many of its biggest enthusiasts still convene.”
What we’re reading (3/18)
“Bank Of New York Mellon Invests In Crypto Startup” (Wall Street Journal). “The startup, Fireblocks, builds tools for the secure storage and transfer of bitcoin and other cryptocurrencies. BNY Mellon plans to use Fireblocks’s technology to underpin a new business that the bank unveiled last month, in which it plans to serve as a custodian for digital assets on behalf of institutional investors.”
“Google To Spend $7 Billion In Data Centers And Office Space In 2021” (CNBC). “Google says it plans to spend more than $7 billion on real estate across the U.S. in 2021 as it resumes spending in the wake of the Covid-19 pandemic. The company said the money will go toward expanding offices and data centers across 19 states, creating what it says will amount to at least 10,000 full-time jobs. $1 billion will go specifically toward California.”
“Jobless Claims Are Still Higher Than During The Great Recession A Year After The Pandemic Started” (CNN Business). “Last week, 770,000 Americans filed initial claims for unemployment benefits on a seasonally adjusted basis, the Department of Labor reported Thursday. It was an increase from the prior week and 70,000 claims more than economists had expected. It was also nearly 3 times as many claims as in the same week last year, just before the pandemic layoffs made benefit claims skyrocket.”
“Back To The 60s” (The Grumpy Economist). “In the 1960s, macroeconomists thought that recessions were just ‘shortfalls’ of ‘aggregate demand.’ The point of policy was to fill the valleys with aggregate demand, as indicated by the dashed line of the top graph. In the conventional reading, they tried it in the 1970s, and got inflation…How can an economy run ‘too hot?’ Well, if your boss asked you to work 7 days a week 12 hours a day with no vacations to finish a special project, you could. But you would not want to do that forever. The economy as a whole can similarly push above what is long-run sustainable for a little while.”
“‘Big Short’” Investor Michael Burry Says He’ll Stop Tweeting After SEC Regulators Paid Him A Visit” (Business Insider). “Michael Burry's incendiary tweets have piqued the interest of federal regulators, the investor revealed this week. ‘Tweeting and getting in the news lately apparently has caused the SEC to pay us a visit,’ the Scion Asset Management boss said in a now-deleted tweet. ‘Lovely,’ he continued, adding the hashtag ‘#nomoretweets.’”
What we’re reading (3/17)
Happy St. Patty’s Day!
“Investing In Bonds Has ‘Become Stupid,’ Ray Dalio Says. Here’s What He Recommends Instead” (MarketWatch). “The founder of Bridgewater Associates, the world’s largest hedge-fund firm, decried the ‘ridiculously low yields’ of bonds in a LinkedIn blog post Monday, while urging a diversified portfolio…Dalio has never been a fan of holding cash either — and he still isn’t.”
“P/E Ratios And The Case Of The Dueling Denominators” (Fisher Investments). “[I]f a ratio holds steady while the numerator rises, then the denominator must also be rising. That is the case now: Even as earnings were falling last year, analysts looked to the future, to lockdowns ending and normal(ish) economic activity returning, and penciled in a strong recovery. Stock prices rose alongside expectations, in a sign investors were looking to that same future.”
“Learning Apps Have Boomed in the Pandemic. Now Comes the Real Test.” (New York Times). “After a tough year of toggling between remote and in-person schooling, many students, teachers and their families feel burned out from pandemic learning. But companies that market digital learning tools to schools are enjoying a coronavirus windfall. Venture and equity financing for education technology start-ups has more than doubled, surging to $12.58 billion worldwide last year from $4.81 billion in 2019[.]”
“Commodities Boom Hits Home” (Wall Street Journal). “Prices are surging for the raw materials used to build American homes. Lumber, one of the biggest costs in home-building after land and labor, has never been more expensive and is more than twice the typical price for this time of year. Crude oil, a starting point for paint, drain pipe, roof shingles and flooring, has shot up more than 80% since October. Copper, which carries water and electricity throughout houses, costs about a third more than it did in the autumn.”
“U.S. Housing Starts Fall Sharply In February” (CNBC). “Housing starts dropped 10.3% to a seasonally adjusted annual rate of 1.421 million units last month, the Commerce Department said on Wednesday. Economists polled by Reuters had forecast starts would drop to a rate of 1.560 million units in February.”
What we’re reading (3/16)
“The Financial Crisis The World Forgot” (New York Times). “By the middle of March 2020 a sense of anxiety pervaded the Federal Reserve. The fast-unfolding coronavirus pandemic was rippling through global markets in dangerous ways. Trading in Treasurys — the government securities that are considered among the safest assets in the world, and the bedrock of the entire bond market — had become disjointed as panicked investors tried to sell everything they owned to raise cash. Buyers were scarce. The Treasury market had never broken down so badly, even in the depths of the 2008 financial crisis.”
“Inflation Is Coming — And Active Funds Aren’t Prepared, Bank Of America Warns” (Institutional Investor). “A majority of actively managed U.S. large-cap funds failed to beat the Standard & Poor’s 500 index in 2020 for an eleventh straight year of underperformance, according to a report released last week by S&P Dow Jones Indices, a unit of S&P Global.”
“On Wealth Tax, White House Says Biden And Warren Have Different Plans” (Business Insider). “In a press briefing on Monday, White House Press Secretary Jen Psaki addressed the possibility of a wealth tax, something the Biden administration is either open or opposed to, based on recent remarks. She was clear that its position, whatever it is, is far removed from the most prominent one: that of Sen. Elizabeth Warren.”
“The CEO Of Amtrak Thinks Americans Are Ready For Trains Again” (Slate). “William J. Flynn took over as CEO of Amtrak at the worst possible time. It was April 2020—one month after the country locked down—and ridership on the quasi-public passenger rail network was down by 97 percent. Two recovery bills later, Amtrak’s finances have been shored up. Though business remains way down, vaccines are rolling out, and Flynn aims to double Amtrak’s pre-pandemic ridership in the next two decades.”
“What It’s Like To Live In The Robocall Capital Of America” (CNN Business). “Baton Rouge, Louisiana…receives the most robocalls per person in the United States, according to data from YouMail, a robocall-prevention service that tracks robocall traffic across the country. The city averaged 39 robocalls per resident in February, YouMail found. That's more than two and a half times the national average, which is about 14 to 15 calls monthly for each person[.]”
What we’re reading (3/15)
“The Hoarding Economy” (Axios). “Americans are locking away greater shares of their money — especially big businesses and the wealthy — a trend that has increased thanks to the coronavirus pandemic and is likely to stick around for some time.”
“Wall Street Is Already Eyeing Biden’s Next Trillion-Dollar Spending Plan” (CNN Business). “Stimulus checks from President Joe Biden's huge relief package, enacted last week, are just making their way out the door. But Wall Street is already looking ahead to his administration's next priority: infrastructure.”
“Electric-Vehicle Startups Promise Record-Setting Revenue Growth” (Wall Street Journal). “It took Google eight years to reach $10 billion in sales, the fastest ever for a U.S. startup. In the current SPAC frenzy, a spate of electric-vehicle companies planning listings are vowing to beat its record—in some cases by several years.”
“This Quant Manager With Triple-Digit 2020 Return Says Ignore P/E” (Forbes). “Traditionally, price to earnings ratios have been the go-to method for figuring out if stocks are overvalued, but one quant manager says P/E is the wrong way to evaluate equities. He argues that profits growth and new stock highs are the metrics investors should be studying to predict which stocks will outperform.”
“When Doing Well Means Doing Good” (DealBook). “Allison Herren Lee was named acting chair of the Securities and Exchange Commission in January, and since then she has been active, especially when it comes to environmental, social and governance, or E.S.G., issues. The agency has issued a flurry of notices that such disclosures will be priorities this year. Today, Ms. Lee, who was appointed as a commissioner by President Donald Trump in 2019, is speaking at the Center for American Progress, where she will call for input on additional E.S.G. transparency, according to prepared remarks seen by DealBook.”
What we’re reading (3/14)
“Commodities Supercycle Looks Like A Stretch” (Wall Street Journal). “Commodity markets are roaring, stirring a debate about whether prices are headed for an extended upswing. The history of booms and busts in raw materials suggests the conditions aren’t right. Prices for Brent crude, the international benchmark in energy markets, have jumped 82% since the end of October. Copper is more expensive than it has been since 2011. Food hasn’t cost as much since 2014, according to a United Nations index.”
“Air Travel Is Picking Up As TSA Records Highest Passenger Screenings In Nearly A Year” (CNBC). “TSA officers screened 1,357,111 people at airports on Friday, marking the highest number of passengers on a single day since March 15, 2020. The milestone reflects that air travel is starting to pick up again after a challenging year for airlines caused by the Covid-19 pandemic.”
“What Used Cars Tell Us About The Risk Of Too Much Inflation Hitting The Economy” (Washington Post). “What’s happened at places like Deal Depot [a dealership in S.C.] and other dealers shows why some top economists and Wall Street investors are concerned that the $1.9 trillion stimulus President Biden signed into law last week could spur a risky cycle of rising prices across the whole economy. Nationwide, used-car prices soared 17 percent nationally in seven months last year — the most of any product.”
“The Simplest Asset To Hedge Against Inflation” (A Wealth Of Common Sense). “It’s counterintuitive to think cash would be a good hedge against inflation since short-duration fixed income is a terrible hedge against inflation over the long-term. This is why long-term assets like stocks and short-term assets like cash can make for a decent inflation-hedged portfolio. Stocks can help protect you against long-term inflation while cash can allow you to use any short-term inflationary spikes to redeploy faster at higher rates.”
“A Lawyer Has Filed More Than 100 Lawsuits Over Vanilla Flavoring In Food And Drinks, Arguing Most Of It Is Fake” (Business Insider). “Over the past two years, New York lawyer Spencer Sheehan has filed more than 100 lawsuits against companies marketing products with imitation vanilla flavoring as simply ‘vanilla.’ Sheehan told Insider he started these cases after noticing a bottle of A&W Root Beer had a label saying ‘made with aged vanilla’ on it. He said he was skeptical about whether it contained authentic vanilla.”
What we’re reading (3/13)
“Behind Greensill’s Collapse: Detour Into Risky Loans” (Wall Street Journal). “A Wall Street Journal review of internal Greensill records, including board minutes and emails, along with interviews with more than a dozen people familiar with Greensill’s business, reveals how the company obscured its riskier loans behind a safe but barely profitable supply-chain finance business.”
“Bitcoin Surpasses $60,000 In Record High As Rally Accelerates” (CNBC). “Bitcoin crossed a record high of $60,000 on Saturday morning, continuing its rally as major companies and financial institutions adopt cryptocurrencies. Bitcoin, the world’s biggest cryptocurrency, was at $60,415.34 as of 7:25 a.m. ET, according to Coinbase, recovering from a dip at the end of February that followed a previous record high that month.”
“The $69 Million Beeple NFT Was Bought With Cryptocurrency” (New York Times). “An artwork by Beeple which exists only as a digital file and was sold as a “nonfungible token” for a staggering $69.3 million at an online auction handled by Christie’s on Thursday was bought by an investor known only by a pseudonym and who paid for it with cryptocurrency, the auction house said Friday.”
“NFTs & Copyright Law” (David Lizerbram & Associates). “An NFT is a digital certificate of ownership. It’s simply a way of stating, and verifying, who is the owner of any digital asset, such as a piece of art. The reason anyone cares about NFTs is that they make it easy for someone to verify ownership, and therefore they make it easy to buy and sell digital art. You won’t buy something if the seller can’t prove that she owns it or if you can’t prove that you own it when you want to sell it. As of this writing, the market for digital art NFTs is exploding.”
“Neural Mechanisms Of Credit Card Spending” (Scientific Reports). A new study finds credit card spending creates ‘cravings’ for more spending: “Credit cards have often been blamed for consumer overspending and for the growth in household debt. Indeed, laboratory studies of purchase behavior have shown that credit cards can facilitate spending in ways that are difficult to justify on purely financial grounds. However, the psychological mechanisms behind this spending facilitation effect remain conjectural…[i]n an fMRI shopping task…Credit card purchases were associated with strong activation in the striatum, which coincided with onset of the credit card cue and was not related to product price.”
What we’re reading (3/12)
“Value Investors Finally Have Reason to Celebrate—For Now” (Wall Street Journal). “Value stocks are beating growth stocks by the widest margin in two decades, the latest sign that investors expect the next year to bring a powerful economic rebound.”
“A Buyout Fund C.E.O. Got In Tax Evasion Trouble. Here’s Why Investors Shrugged.” (New York Times). “The muted public reaction from the public pension plans, sovereign wealth funds and endowments that invest in Vista’s funds highlights an unflattering reality of the financial world: Investors are often willing to overlook the misdeeds of money managers if they’re posting solid returns. And in a prolonged era of low interest rates, private equity is one of the few places where big investors can expect better returns than the bond market.”
“The Housing Market Stands At A Tipping Point After A Stunningly Successful Year During The Pandemic” (CNBC). “No one could have predicted it. Not the economists, not the real estate agents, and especially not the nation’s homebuilders. But a pandemic caused an emotional run on housing unlike any other.”
“America Is Running Out Of Houses, Which Means Anyone Who Wants To Buy A Home Right Now Is Battling Sky-High Prices” (Business Insider). “Homes have been selling at a breakneck pace in the year since the coronavirus crisis started. The speed of purchasing shows little signs of slowing, especially given that both increased demand for and reduced supply of houses for sale are the byproduct of several economic and social conditions that are still present. And housing inventory could run out soon as a result.”
“Mortgage Rates Persist In Their Steady Climb” (Washington Post). “According to the latest data, released Thursday by Freddie Mac, the 30-year fixed-rate average rose to 3.05 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 3.02 percent a week ago and 3.36 percent a year ago. The 30-year fixed average has risen for four consecutive weeks, something it hasn’t done since April 2019.”
What we’re reading (3/11)
“US Jobless Claims Fall To 712,000 As Pace Of Layoffs Eases” (ABC News). “The number of Americans seeking unemployment benefits fell last week to 712,000, the lowest total since early November, evidence that fewer employers are cutting jobs amid a decline in confirmed coronavirus cases and signs of an improving economy.”
“House Passes $1.9 Trillion Covid Relief Bill, Sends It To Biden To Sign” (CNBC). “House Democrats passed a $1.9 trillion coronavirus relief bill on Wednesday, sending one of the biggest stimulus plans in U.S. history to President Joe Biden’s desk. The president hopes to sign the bill Friday after Congress formally sends it to the White House, which can take days for large bills. Biden will check off his first major legislative item as the U.S. tries to ramp up Covid-19 vaccinations and jolt the economy.”
“The World Went On A Debt Binge Last Year. There Could Be A Nasty Hangover” (CNN Business). “Spurred on by rock-bottom rates, governments issued $16.3 trillion in debt in 2020, and they're expected to borrow another $12.6 trillion this year, according to S&P Global Ratings. But fears are growing that an explosive economic comeback starting this summer could generate inflation, potentially forcing central banks to raise rates sooner than expected. Should that happen, the cost of servicing mountains of sovereign debt will jump"[.]
“World's Biggest Asset Manager Says Gold Is Failing As A Hedge Against Inflation And Stocks” (Business Insider). “Gold is failing as a hedge against both equities and inflation, a portfolio boss at the world's biggest asset manager BlackRock has said. In a blog post on Wednesday, Russ Koesterich said gold trades ‘with a positive correlation’ with stocks, causing problems for investors who want to protect themselves against falling equity prices.”
“Companies Are Boosting Wages To Bring Workers Back In COVID-19 Recovery” (Yahoo! Finance). “The Bureau of Labor Statistics said that average hourly earnings nationally rose 5.3% year-over-year in February, to $30.01 per hour. But those figures remain noisy. Because a large share of the job losses in the pandemic were among low-income workers, the data for average wage growth ends up becoming more representative of higher-earning workers.”
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.”