What we’re reading (4/19)
“Three Stocks Could ‘Set The Tone’ For Earnings Season” (CNBC). “Get ready for an avalanche of earnings in the coming days. IBM, Netflix, Chipotle, Honeywell and Schlumberger are just a sample of the top reports coming out. More than 60 S&P 500 companies and one-third of the Dow are releasing results this week.”
“The Earnings Season Is Great. Investors Are Already Looking Past It.” (Wall Street Journal). “It is shaping up to be a stellar earnings season for stocks, particularly cyclical ones like banks and retailers. The problem is that the market may already be moving on. Because the U.S. economy is emerging from the Covid-19 crisis, most analysts thought first-quarter numbers would be good.”
“Coke Sales Rebound As Vaccinations Roll Out And Venues Open” (ABC News). “Sales are steadily improving at Coca-Cola Co. as vaccinations allow for the opening of stadiums, restaurants and theaters in many regions globally. Coke historically had booked half its sales from restaurants, stadiums and other public places. The pandemic broadsided the company.”
“Oil Supermajors’ Mega-Bet On Natural Gas” (Economist). “Energy companies have no seat at the climate high table convened by President Joe Biden on April 22nd and 23rd, to which he has invited 40 other world leaders to discuss how to speed up the shift from dirty energy. From the sidelines, coal firms will scowl at efforts to curb demand in Asia and oil drillers wince at support for electric cars. Watching particularly closely will be those firms which have bet big on natural gas. As the energy transition gathers momentum, no fuel’s future is smokier than that of the least grubby hydrocarbon.”
“GameStop Loses CEO In Latest Management Shakeup” (Reuters). “GameStop Corp’s George Sherman will step down as chief executive officer in the biggest shakeup at the video game retailer, giving top shareholder Ryan Cohen more control as he leads the company’s shift to e-commerce.”
What we’re reading (4/18)
“GM And LG Announce Another $2.3 Billion EV Battery Plant” (CNN Business). “General Motors and LG plan to build a new $2.3 billion plant to build batteries for electric vehicles, a key step toward the US automaker's goal of an all-electric future. The new plant, GM's second EV battery operation with LG, will be adjacent to the automaker's Spring Hill assembly plant in Tennessee, where it announced last fall a $2 billion investment to build electric vehicles.”
“Mall Department Stores Were Struggling. The Pandemic Has Pushed Them To The Edge Of Extinction.” (Washington Post). “Department stores, once a middle-class mainstay of convenience and indulgence, had been spiraling downward long before the pandemic turbocharged online shopping and helped tip a number of big-name retailers into bankruptcy. Nearly 200 department stores have disappeared in the past year alone, and another 800 — or about half the country’s remaining mall-based locations — are expected to be shuttered by the end of 2025, according to commercial real estate firm Green Street.”
“The Biggest Alternatives Firms Will Make More Money From Fees In 2021” (Institutional Investor). “Major alternative asset managers will rake in higher fees over the next couple of years as investors continue to flock to alternative investments, according to Morgan Stanley equity analysts. In their preview of publicly-traded alternative asset managers’ first quarter earnings on Friday, the analysts predicted fundraising will drive 17 to 18 percent of average fee-related earnings growth in 2021 and 2022. In addition, they anticipated an increase in gross realized performance fees of 56 percent in 2021 and 33 percent in 2022.”
“America's Best Work-From-Home Expert Is Bracing For Turmoil” (Business Insider). “From reduced commute times to better work-life balance, [Stanford Economist Nicholas] Bloom sees plenty to celebrate about the shift to remote work. But over the course of three video calls with me this year, he also said the transition would be rocky. He said many employees would be unhappy with the arrangements their companies offer, some would leave for competitors, innovation could slow, and promotion disparities would emerge as single men got more face time with their managers than women with young kids, which would culminate in all sorts of discrimination lawsuits.”
“Landmen Who Once Staked Claims For Oil And Gas Now Hunt Wind And Sun” (Wall Street Journal). “These days, the jobs are going dry. Landmen, after riding the highs of the boom, face weakened demand for fossil fuels and investor indifference to shale companies after years of poor returns. Instead of oil and gas fields, some landmen are securing wind and solar fields, spots where the sun shines brightest and the wind blows hardest.”
What we’re reading (4/17)
“The New U.S. Plan To Rival China And End Cornering Of Market In Rare Earth metals” (CNBC). “‘It’s absolutely correct there is a cornering of the market with lithium and other rare earths,’ Biden climate envoy John Kerry recently said at a CNBC Evolve summit on the future of energy innovation. But efforts in the recent past to rival China in the rare earths market and rebuild a domestic industry have been stymied.”
“Bond Giant Pimco Attempts To Change Its Culture” (Wall Street Journal). “In recent years, Pimco has overhauled how employees are evaluated, promoted and trained, hiring consultant McKinsey & Co. to conduct regular staff workplace surveys and appointing an employee ombudsman. It has sought to narrow the wide gaps in pay between its top executives and those a rung or two below.”
“Crypto Is Minting Lobbyists” (DealBook). “A week before Coinbase made its blockbuster debut on Wall Street on Wednesday, the cryptocurrency exchange was part of a much quieter, but symbolically important, launch — in Washington, D.C. Yep, here come the lobbyists.”
“The Death Of Cash” (Business Insider). “Annual global non-cash transactions are expected to pass the 1 trillion milestone by 2024. This major transformation is being propelled by several factors, including increased usage of digital wallets, more small vendors adapting to accept credit cards, and the explosive growth of mobile commerce.”
“Jaleel White [Steve Urkel] Is Launching His Own Cannabis Brand” (CNN Business). “White, known for playing Steve Urkel on the 1990s sitcom "Family Matters," is partnering with 710 Labs on his new line, itsPurpl. It's set to launch in California on April 20, or 4/20, and includes variants of the strain Purple Urkle.”
What we’re reading (4/16)
“Silicon Valley Is Starting To Bring Workers Back To The Office” (CNN Business). “After years of building huge modern offices and a work culture that many industries have emulated, Silicon Valley was among the first to shutter those offices and go fully remote when the coronavirus pandemic began. Now, many of the tech industry's biggest companies are slowly making plans to bring workers back, offering a potential road map in the process for what office work looks like in year two of the pandemic.”
“SPAC Hot Streak Put On Ice By Regulatory Warnings” (Wall Street Journal). “Investors are cooling to one of the hottest bets on Wall Street as new regulatory scrutiny of special-purpose acquisition companies cuts the flood of new issues to a trickle while share prices tumble. SPACs have raised about $100 billion so far this year, more than last year’s record of $83.4 billion, which itself was more than the amount raised in the nearly 30-year history of these blank-check companies.”
“China's Economy Grows 18.3 Percent But Covid Recovery Shows Signs Of Slowing” (NBC News). “A year after the Covid-19 pandemic shuttered shops and closed factories, China’s economy has burst back to life. The country’s gross domestic product soared 18.3 percent in the first quarter of this year when compared to the same period in 2020, according to official figures announced Friday.”
“The Owner Of A Single New Jersey Deli Boasts A $105 Million Market Cap - Despite Making Only $14,000 In Sales Last Year” (Business Insider). “Hometown International runs a single store, Your Hometown Deli, in Paulsboro - a borough that's home to around 6,000 people. Its menu ranges from meatball sandwiches and cold cuts, to hash browns and onion rings. The company has generated only $36,000 in sales over the past two years, has no full-time employees, and doesn't pay its president or director. Yet its stock price has surged from below $2 to $13.50 in under 18 months.”
“Dogecoin Spikes 300% In A Week, Stoking Fears Of A Cryptocurrency Bubble” (CNBC). “Created in 2013 by software engineers Billy Markus and Jackson Palmer, dogecoin was intended to be used as a faster but “fun” alternative to bitcoin. It has since found a growing community online. And now, defying all odds, dogecoin has a total market value of $34 billion, according to crypto market data site CoinGecko, adding about $19.9 billion in the last 24 hours.”
Subtractive reasoning in finance
An interesting new paper out of UVA documents a human bias toward “additive” solutions to problems over potential “subtractive” solutions. As one article about the paper explains:
Picture a bridge made of Legos. One side has three support pieces, the other two. How would you stabilize the bridge?
Most people would add a piece so that there are three supports on each side, a new study suggests. But why not remove a piece so that each side has two supports instead? It turns out that getting people to subtract — whether a Lego block, ingredients in a recipe or words in an essay — requires reminders and rewards, researchers report April 7 in Nature.
This default to addition isn’t limited to assembling blocks, cooking and writing. Rather, thinking in pluses instead of minuses could well contribute to modern-day excesses such as cluttered homes, institutional red tape and even an overburdened planet, says behavioral scientist Benjamin Converse of the University of Virginia in Charlottesville. ‘We’re missing an entire class of solutions.’
One wonders how the bias toward addition might also shape investor behavior, or have shaped the basic functioning of the investment management industry as a whole. We’ve known for decades, for example, that a few simple factors that are relatively easy to calculate predict a great deal of variation in the cross-section of stock returns; yet the equities-focused piece of the investments industry continues to be replete with firms employing equity analysts who spend their time meticulously building and refining detailed valuation models and studying the minutiae of corporate disclosures and filings. Of course, someone has to pay for all of this infrastructure and effort (you, in the form of fees). But what if all or most of this “added” effort and cost is wasted (relative to the benefits in terms of investment performance) and can just be subtracted away? That is a key part of the premise for the quantitative/systematic approach to investing we’re doing here.
What we’re reading (4/15)
“Waiting For A Crypto Boom In The Public Markets” (New York Times). “Heavy trading volume greeted the highly anticipated market debut of Coinbase, which ended the day worth some $86 billion. The cryptocurrency company’s coming-out party made some insiders very rich, opened up new possibilities for cementing its position in the blockchain economy and blazed a trail for other crypto companies to follow its lead onto the public markets.”
“Cathie Wood's Ark buys Into Coinbase, Sells A Bit Of Tesla” (Reuters). “Cathie Wood’s Ark funds bought $246 million worth of Coinbase shares on the cryptocurrency exchange’s Nasdaq debut on Wednesday and sold some Tesla shares, according to their daily fund trading summary.”
“U.S. Retail Sales Surged 9.8% In March” (Wall Street Journal). “U.S. shoppers boosted retail spending by nearly 10% in March as federal-stimulus funds made their way to households, warmer weather set in and the economy reopened more fully from pandemic-related restrictions.”
“Wall Street Execs, Employees Spent $2.9 billion On Campaigns, Lobbying During 2020 Election, Study Shows” (CNBC). “Wall Street executives, their employees and trade associations invested at least $2.9 billion into political initiatives during the 2020 election cycle, according to a new research report.”
“The Political CEO” (Economist). “When Americans notice business and politics mingling in other countries they often see it as a sign of institutional decay, crony capitalism or authoritarianism. Today the mixing of government and corporations is happening in America.”
What we’re reading (4/14)
“AP Source: Ponzi Schemer Bernie Madoff Dies In Prison” (Associated Press). “Bernie Madoff, the financier who pleaded guilty to orchestrating the largest Ponzi scheme in history, died in a federal prison early Wednesday, a person familiar with the matter told The Associated Press.”
“Why Wall Street Is So Excited About Bank Stocks” (CNN Business). “For years, Wall Street turned up its nose at America's bank stocks. Now, the sector is getting tons of love as investors eye the economic recovery, which is set to benefit big lenders.”
“Gary Gensler Has A Full Agenda As He Gets Set To Take Over The SEC” (CNBC). “The Senate is expected to confirm Gary Gensler as chairman of the Securities and Exchange Commission on Wednesday, and crypto assets — including bitcoin — are likely high on his agenda.”
“Chip Shortage Will Last Beyond 2022 As Demand Far Outstrips Supply, Intel Chief Says” (Washington Post). “The global semiconductor shortage hammering the auto industry and other manufacturers is going to take ‘a couple of years’ to abate, as demand soars alongside limited manufacturing capacity, the chief executive of chipmaking giant Intel said.”
“What Is Coinbase Worth? Maybe $65.3 Billion To Start.” (Barron’s). “Coinbase, the largest U.S. cryptocurrency exchange, is listing its shares on Wednesday. It will trade on the Nasdaq under the ticker COIN. Existing Coinbase stockholders have registered 114.85 million shares, according to a March 23 prospectus.”
What we’re reading (4/13)
“A Growing Number Of Investors Believe The Stock Market Is In A Bubble As Bullish Sentiment Reaches Pre-Pandemic Levels, An E*Trade Survey Finds” (Business Insider). “Out of 957 active investors who manage at least $10,000 in an online brokerage account, 69% of them think the market is either fully or somewhat in a bubble, according to E*Trade. That's up 3 percentage points from last quarter's survey.”
“U.S. Consumer Prices Post Biggest Gain In 8-1/2 Years As Economy Reopens” (Reuters). “U.S. consumer prices rose by the most in more than 8-1/2 years in March as increased vaccinations and massive fiscal stimulus unleashed pent-up demand, kicking off what most economists expect will be a brief period of higher inflation.”
“Boeing’s Sales Again Outpace Cancellations, Jetliner Deliveries Pick Up” (CNBC). “The manufacturer on Tuesday reported gross orders of nearly 200 of its bestselling 737 Max aircraft, including a 100-plane sale to Southwest Airlines. Accounting for cancellations, conversions and other order changes, it posted net positive orders of 40 planes. Boeing’s backlog stood at 4,054 planes at the end of last month, up from 4,041 at the end of February.”
“The Dispiriting Housing Boom” (Axios). “It's a discouraging scene: Bidding wars, soaring prices, and fears that homeownership is becoming out of reach for millions of Americans. We're in a housing frenzy, driven by a massive shortage of inventory — and no one seems to be happy about it.”
“Egypt Seizes The Ever Given, Saying Its Owners Owe Nearly $1 Billion For Suez Canal Traffic Jam” (Washington Post). “In the latest complication to the ill-fated voyage, Egypt has seized the Ever Given over its owners’ ‘failure to pay an amount of $900 million,’ the state-run news outlet Ahram Gate reported. That amount represents the total compensation that Egypt says it is owed for the six-day blockage of the Suez Canal, including lost revenue from ships that ordinarily would have traveled through the canal during that time, as well as costs for damage to the crucial waterway and the equipment and labor deployed in the 144-hour scramble to free the ship.”
What we’re reading (4/12)
“How Much Higher Will This Bull Market Go?” (MarketWatch). “This bull market’s strongest gains are behind us. That’s the conclusion I reached upon analyzing all U.S. bull markets since 1900. The good news is that, assuming the future is like the past, the current bull market still has more months of life in store. The bad news is that the stock market’s gains during those months are likely to be far more modest than what we’ve gotten used to over the last 12 months.”
“Raw Materials Prices Have Surged. Corporate Profits Are Likely Next.” (Wall Street Journal). “Prices are surging for raw materials, leading to higher costs for companies from home builders to clothing makers. If history repeats, that will be a boon to corporate bottom lines and investors as well.”
“ETF Investors Say Coinbase Listing Will Cause Explosion In Crypto Investing” (CNBC). “‘Coinbase is going to blow people’s minds,’ said Matt Hougan, chief investment officer at Bitwise Asset Management, which pioneered the first cryptocurrency index fund. ‘I think it’s going to force traditional finance to wrestle with the phenomenal growth that is taking place in crypto.’”
“Investor Dan Loeb's $17 Billion Hedge Fund Third Point Holds An Undisclosed Amount Of Cryptocurrencies With Coinbase” (Business Insider). “Third Point, which manages about $17 billion, disclosed in a regulatory filing in late March that five of its funds hold crypto assets under custody with Coinbase. The amount and duration of investment is currently unclear. In a separate brochure, the firm said it could invest in crypto directly or indirectly through derivatives contracts.”
“‘They Present A Version Of Themselves That Isn’t Real’: Inside The Dark, Biohacked Heart Of Silicon Valley” (Vanity Fair). “When they [the ‘Silicon Valley tech rich’] go on silent retreats and meditate for days on end, it’s seen as proof they are close to some sort of transcendental plane, and when they return to normal life, they will explain how we—they!—can fix civilization. Those who push themselves to extremes—by hacking their bodies, drinking Soylent instead of consuming real food, or forgoing sustenance altogether—are not seen as odd, but considered on the bleeding edge, as if they were just doing this to show us mere mortals how in control they are of their own lives.”
What we’re reading (4/11)
“Inside The Fight For The Future Of The Wall Street Journal” (DNYUZ). “The Wall Street Journal is a rarity in 21st-century media: a newspaper that makes money. A lot of money. But at a time when the U.S. population is growing more racially diverse, older white men still make up the largest chunk of its readership, with retirees a close second.”
“Wall Street’s Top Analysts Back These Stocks As The Second Quarter Kicks Off” (CNBC). “TipRanks analyst forecasting service attempts to identify the best-performing analysts on Wall Street, or the analysts with the highest success rate and average return per rating. These metrics take the number of ratings published by each analyst into account. Here are the best-performing analysts’ top stock picks right now[.]”
“Covid-19 Brought The Economy To Its Knees, But CEO Pay Surged” (Wall Street Journal). “The Covid-19 pandemic upended many businesses, but it didn’t upend compensation for most business leaders. Median pay for the chief executives of more than 300 of the biggest U.S. public companies reached $13.7 million last year, up from $12.8 million for the same companies a year earlier and on track for a record, according to a Wall Street Journal analysis.”
“CEO At Troubled Vaccine Plant Received 51 Percent Compensation Boost In 2020” (Washington Post). “Emergent BioSolutions, the troubled manufacturer at the heart of Johnson & Johnson’s coronavirus vaccine production problems, gave its chief executive officer a 51 percent increase in total compensation in 2020, to $5.6 million, according to a public filing Friday…[a]s a federal contractor specializing in biodefense and emergency response, Emergent’s 2020 financial success was fueled in large part by a burst of federal spending to fight the coronavirus pandemic.”
“A Looming Shortage Of Bacon And Hot Dogs Could Leave Big Cookout Plans Up In Smoke For July Fourth When Most Americans Are Vaccinated” (Business Insider). “Summer barbecues may taste a little different this year. Hogs have been in short supply since the beginning of the COVID-19 pandemic more than a year ago. Now analysts are predicting higher prices and a short supply of pork for foods like hot dogs and bacon as restaurants re-open and summer barbecues resume as vaccinations in the US pick up pace.”
What we’re reading (4/10)
“The Best Explanation Of Biden’s Thinking I’ve Heard” (New York Times). “With the $2 trillion American Jobs Plan, the economic theory that is Bidenomics is taking shape. It’s big. It puts climate at the center of everything. It is more worried about political risks — losing the House, giving Donald Trump a path back to power — than some traditional economic risks, like wasting money and bumping up inflation. It prefers to err on the side of spending more and making sure people know they got a bridge or a job than doing less and having people question whether government is working for them.”
“Coinbase’s Lofty Valuation Might Erode As Crypto Markets Mature” (Wall Street Journal). “Coinbase plans to go public Wednesday through a direct listing on the Nasdaq Stock Market. The company, which runs the largest U.S. exchange for bitcoin and other digital currencies, could achieve a bigger market capitalization than any of the world’s traditional exchange operators. But it faces a number of threats, including competition in the fast-evolving cryptocurrency industry, that could undermine its stock price in the long run.”
“Earnings Season Is About To Get Underway And That Could Be A Positive Catalyst For Stocks” (CNBC). “‘It isn’t what they report,’ said James Paulsen, chief investment strategist at Leuthold Group. ‘For the first time, we are going to hear more and more companies now actually making comments about the future. Are they going to upwardly revise some of their outlooks or are they not? That’s what’s really going to be key about it.’”
“The Ponzi Career” (Dror Poleg). “The future of work is a pyramid scheme, where every person sells his favorite person to the next person…[a]s more occupations become scalable, jobs that were previously stable are becoming risky. Telehealth enables superstar doctors to serve customers in markets that were previously inaccessible to them. Connected fitness devices like Peloton allow superstar instructors to serve thousands of customers at a time, making the average instructor in your local gym redundant. The same dynamic applies to many other service and knowledge jobs.”
“Inside Williston, ND, Where Men Work Hard, Make Bank And Get Into Trouble” (New York Post). “In 2008, as the US economy was in shambles and the housing market collapsed, Williston’s oil boom was just beginning, with prices peaking at $145 a barrel. Workers with little or no experience in oil drilling flocked to the state, looking for jobs. The population of Williston tripled between 2008 and 2013, from around 12,000 to a sudden influx of over 30,000 new arrivals. Between July 2012 and July 2013, ‘one new person arrived in Williston every three hours…[e]ight new people each day.’”
What we’re reading (4/8)
“Can Anything Derail The ‘Goldilocks’ Economy?” (CNN Business). “America's economy could be heading for a golden era of growth. But higher prices and the coronavirus pandemic still present risks.”
“Investors Sour On Emerging Markets As U.S. Prospects Brighten” (Wall Street Journal). “Investors say emerging markets have been upended by the improved U.S. growth outlook, which is strengthening the dollar and sending Treasury yields higher as money managers bet the Federal Reserve will raise interest rates in coming years to keep inflation tame.”
“A Large Chunk Of The Retail Investing Crowd Got Their Start During The Pandemic, Schwab Survey Shows” (CNBC). “…15% of current retail investors first began playing the market in 2020, based on analysis of about 500 investors. Schwab — which now hosts 31.5 million retail clients and $6.9 trillion in assets because of the retail investing boom — is calling the new wave of investors, ‘Generation Investor.’”
“A Tax Change Is Coming, Maybe” (DealBook). “The Biden administration has unveiled its corporate tax overhaul, intended to raise $2.5 trillion over 15 years to pay for an infrastructure program. ‘Debate is welcome. Compromise is inevitable. Changes are certain,’ President Biden said, but he stressed that ‘inaction is not an option.’”
“Biden Might Agree To A 25% Corporate Tax Rate As A Compromise With Business Groups, Rather Than The 28% He Wanted, According To A Report” (Business Insider). “Reuters spoke to more than a dozen corporate and White House officials involved in the push for the infrastructure plan, and most said they expected Biden and business groups to agree on a tax rate of 25%. This would bridge the gap between industry leaders, who generally oppose a tax hike, and Democrat lawmakers, who are overwhelmingly in favor of the 28% rate.”
What we’re reading (4/7)
“Investors Big And Small Are Driving Stock Gains With Borrowed Money” (Wall Street Journal). “As of late February, investors had borrowed a record $814 billion against their portfolios, according to data from the Financial Industry Regulatory Authority, Wall Street’s self-regulatory arm. That was up 49% from one year earlier, the fastest annual increase since 2007, during the frothy period before the 2008 financial crisis. Before that, the last time investor borrowings had grown so rapidly was during the dot-com bubble in 1999.”
“Janet Yellen Calls For A Global Minimum Tax On Companies. Could It Happen?” (The Economist). “Such a levy, Ms Yellen said, would help ‘make sure the global economy thrives based on a more level playing field’, and would help end a ‘30-year race to the bottom’. Though the idea of a minimum tax raises hackles in tax havens in the Caribbean, parts of Europe and farther afield, many other big economies will welcome America’s renewed commitment to multilateralism on tax after the prickly unilateralism of the Trump years.”
“JPMorgan’s Chief Sees A Boom Coming” (DealBook). “A combination of excess savings, deficit spending, a potential infrastructure bill, vaccinations and ‘euphoria around the end of the pandemic,’ Mr. Dimon wrote, may create a boom that ‘could easily run into 2023.’ That could justify high equity valuations, but not the price of U.S. debt, given the ‘huge supply’ soon to hit the market.”
“Morgan Stanley Dumped $5 billion In Archegos’ Stocks The Night Before Massive Fire Sale Hit Rivals” (CNBC). “The night before the Archegos Capital story burst into public view late last month, the fund’s biggest prime broker quietly unloaded some of its risky positions to hedge funds, people with knowledge of the trades told CNBC.”
“International Passenger Traffic Down 89% In February, No Sign Of Recovery: IATA” (Reuters). “Global airline industry body IATA said international passenger traffic plunged 89% in February compared to the same month last year as COVID-19 infections climbed once more, and there was no sign of an aviation recovery yet.”
What we’re reading (4/6)
“The Global Economy Will Grow 6% this Year as Vaccines Pave The Way For A Full Recovery, IMF Says” (Business Insider). “The IMF lifted its estimate for global gross domestic product growth this year to 6% from 5.5%, according to its latest economic outlook report. The improvement was largely tied to expectations for economic reopening and mass vaccination.”
“U.S. Auto Industry Calls For Government Help As It Warns Of Impact Of Chip Shortage” (Reuters). “A U.S. auto industry group on Monday urged the government to help as it warned the global semiconductor shortage could result in 1.28 million fewer vehicles built this year and disrupt production for another six months.”
“Bitcoin ETF Coming ‘In A Year Or Two,’ Analyst Says As SEC Mulls Applications” (CNBC). “The Securities and Exchange Commission formally acknowledged a bitcoin ETF proposal from VanEck just two weeks ago, starting the countdown on its 45-day approval timeline. But seeing a bitcoin ETF approved in the next 30 days isn’t that likely, according to Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research. It’s more likely that the SEC will extend its timeline, he told CNBC’s ‘ETF Edge’ on Monday.”
“Coinbase Independent Directors Have Close Company Tie” (Wall Street Journal). “Fred Ehrsam’s ties to Coinbase Global Inc. run deep: He co-founded the multibillion-dollar bitcoin exchange, was its president until 2017, owns millions of its shares and was part-owner of a company it bought last year. Under Coinbase’s plan to tap the public markets, however, the San Francisco-based company classifies Mr. Ehrsam as an independent director, securities filings show. The same goes for Fred Wilson, another Coinbase director who owns a significant stake of the company.”
“How Brexit Ruined Easter For Britain’s Chocolate Makers” (New York Times). “For the second year in a row, Easter will be a largely online affair, with socially distanced egg hunts and virtual church services. But there will be one notable difference here in Britain. Domestic chocolate makers, who should be celebrating one of their busiest times of year, are fuming instead, and all of them cite the same cause: Brexit.”
What we’re reading (4/5)
“The US Recovery Is Speeding Up But The Global Economy Isn’t Out Of Danger” (CNN Business). “The economic recovery in the United States and China is gaining steam, triggering a wave of upgraded forecasts and optimistic commentary. Meanwhile, economists watching other parts of the world are getting worried.”
“Stocks Were The Only Major Asset Class That Gained In The First Quarter, But Bank Of America Says ‘Anemic’ Returns May Be On The Horizon” (Business Insider). “According to the firm's Sell Side Indicator, a contrarian gauge of Wall Street sentiment, optimism over the past twelve months has risen three times the typical rate following bear markets since 1985. Bank of America's sentiment indicator is now at a 10-year high and the closest it's been to a contrarian ‘sell’ signal since May 2007.”
“Risky Borrowers Are Falling Behind On Car Payments” (Wall Street Journal). “A greater share of people with low credit scores has been falling behind on their car payments in recent months, a sign of stress among consumers whose finances have been hit hard by the pandemic. Some 10.9% of subprime borrowers with outstanding auto loans or leases were more than 60 days past due in February, up from 10.7% in January and 8.7% a year prior, according to credit-reporting firm TransUnion.”
“GameStop Plans $1 Billion Stock Sale, Shares Slide” (Reuters). “[GameStop] said it would sell up to 3.5 million shares and use the proceeds to speed up the shift in its business model to e-commerce in an overhaul being led by top shareholder and board member Ryan Cohen.”
“He Built A $10 Billion Investment Firm. It Fell Apart In Days.” (New York Times). “[Bill Hwang] borrowed billions of dollars from Wall Street banks to build enormous positions in a few American and Chinese stocks. By mid-March, Mr. Hwang was the financial force behind $20 billion in shares of ViacomCBS, effectively making him the media company’s single largest institutional shareholder. But few knew about his total exposure, since the shares were mostly held through complex financial instruments, called derivatives, created by the banks.”
What we’re reading (4/4)
“Individual Investors Retreat From Markets After Show-Stopping Start To 2021” (Wall Street Journal). “Individual investors kicked off 2021 at a sprinter’s pace. Now, they are finally showing signs of fatigue. Trading activity among nonprofessional investors has slowed in recent weeks after a blockbuster start to the year, with the group plowing less money into everything from U.S. stocks to bullish call options.”
“What’s Behind The Boom In Iconic Boomer Musicians Selling Their Songs” (CNBC). “A wave of boomer rock icons are selling out of their song catalogs. The moves, the latest of which was made by Paul Simon last week, point to a straightforward truth about the intersection of art and money: Music has always been a business, and one where creative genius deserved to be rewarded with riches. And it is a business that right now is seeing major changes caused by streaming, and further disruptions caused by the pandemic.”
“A Cryptocurrency Entrepreneur Just Bought The World’s Largest Painting, By Artist Sacha Jafri, For A Whopping $62 Million” (Artnet News). “Last fall, Sacha Jafri set a Guinness World Record for the world’s largest painting, titled The Journey of Humanity. Now, he’s sold it at auction for an equally large price: $62 million. The figure makes him the fourth-most expensive living artist—behind Jeff Koons, David Hockney, and digital artist Beeple.”
“Technology After The Pandemic” (DealBook). “Many companies made changes to survive the pandemic. For tech companies, the changes were also about seizing opportunities to thrive as life abruptly moved online. Few companies have juggled these risks and rewards in as many industries, across as many countries, as Prosus, an Amsterdam-based conglomerate that in 2019 was spun out of Naspers, the South African tech and media giant.”
“Hertz Selects Chapter 11 Exit Plan Backed By Centerbridge, Warburg, Dundon” (Reuters). “Hertz Global Holdings Inc said on Saturday it has selected an enhanced proposal from Centerbridge Partners, Warburg Pincus, and Dundon Capital Partners to provide the equity capital required to fund the car rental company’s exit from Chapter 11. The proposed deal, which is subject to approval by the U.S. bankruptcy court for the district of Delaware, is supported by holders of over 85% of the company’s unsecured notes, Hertz said in a statement.”
March 2021 performance update
Hi folks, here with a a performance update for March. First, the key numbers for the month:
Prime picks: +2.53%
Select picks: +4.15%
SPY S&P 500-Tracking ETF: 2.79%
Bogleheads (80% VTI + 20% BND): 1.14%
As usual, cumulative performance since since we started last May is shown in the chart below.
A few takeaways for March from my perspective:
Select appears to be coming back, substantially outperforming SPY in the month and beating it by more than 100 basis points for the second consecutive month. Over the long run, I’m expecting Select to outperform the market, but underperform Prime, and this is a step in that direction. I use the same foundational model to choose the Select picks as the Prime picks, but deliberately choose stocks for Select that don’t look quite as good as Prime (but still good relative to the modal stock). Another way of saying that is that, per unit of return the Select picks earn, they tend to exhibit a little more volatility relative to the Prime picks (or, equivalently, per unit of risk, they tend to yield a little less).
The composition of the Select portfolio was more heavily weighted toward tech last month compared to Prime (8 of 10 picks for Select; 4 of 10 for Prime). That disproportionality is interesting in light of Select’s outperformance, especially in as far as it runs counter to the popular finance media narrative that rising long-term Treasury rates should have the opposite effect on tech stocks, given their relatively longer cash flow durations and higher sensitivity to interest rate shocks.
Relatedly, one way that rising interest rates likely affected the numbers above in a way they actually would be expected to shows up in the performance of the Bogleheads portfolio. That portfolio has a 20% exposure to the bond-tracking ETF BND. Bogleheads was in positive territory in March because of its 80% equity weight on VTI, but the BND piece of the portfolio was down 1.26% as rising rates hurt bond values.
That’s all for now!
Stoney Point Total Cumulative Performance
What we’re reading (4/3)
“Travel Is Coming Back. That’s Great News For Airport Stores” (CNN Business). “Airline travel in the United States recently reached its highest level since the pandemic began, although it's still around half of what it was pre-pandemic, according to the Transportation Security Administration.”
“We (Might) Work” (Scott Galloway). “The new WeWork is a stronger company than the 2017 model. It’s still not worth $50 billion, but it might be worth $9B (or more)…[i]magine: a commercial real estate play, with properties around the world, configured as flexible office space, rentable by the hour, the day, or the month, with great community spaces, aspirational design, and strong tech. In sum, We might Work.”
“The Housing Market Is Crazier Than It’s Been Since 2006” (Wall Street Journal). “The past year has been the hottest for sales activity in 14 years. Home values are rising in practically every corner of the U.S., and median sale prices in dozens of metro areas have posted double-digit percentage increases from a year ago, according to Zillow Group Inc. In Boise, Idaho, the median sale price rose almost 25% in January from a year earlier, while in Stamford, Conn., it rose 19%.”
“Here’s Where The Jobs Are — In One Chart” (CNBC). “The Labor Department reported Friday that total nonfarm payroll employment rose by 916,000 last month, the best monthly print since August. The unemployment rate continued its steady decline to 6%.”
“I Avoided Fake Meat For Years. That Was A Big Mistake” (Wired). “If anyone needs a reminder, beef is bad for the world. You can either stick a seed in the ground, grow some food, and eat it, or grow some food and feed large quantities of it to a cow, every day for about two years, the animal farting and burping methane until you chop it up and eat it. Multiply that by the beef cravings of a few billion people and that math gets real bad, real quick.”
What we’re reading (3/31)
“Biden Set To Unveil $2 Trillion Infrastructure Plan” (Wall Street Journal). “Mr. Biden will unveil the proposal during a Wednesday afternoon speech in Pittsburgh, where he kicked off his presidential campaign. He is expected to make the case that the investments are necessary to help the U.S. compete with China and tackle climate change.”
“Goldman Sachs Is Close To Offering Bitcoin And Other Digital Assets To Its Wealth Management Clients” (CNBC). “The bank aims to begin offering investments in the emerging asset class in the second quarter, according to Mary Rich, who was recently named global head of digital assets for Goldman’s private wealth management division.”
“No Longer A ‘Lost’ Generation: Millennials Born In The 1980s Are Finally Getting Richer” (Business Insider). “Older millennials are finally getting richer. Over the past three years, they've gained serious ground in building wealth, according to a new report by the Federal Reserve Bank of St. Louis that studied data from the Survey of Consumer Finances. As of 2019, those born in the 1980s have median wealth levels 11% below where they should be if the Great Recession hadn't occured [sic].”
“Wells Fargo Plans To Bring Workers Back To Office In September” (Reuters). “Wells Fargo & Co said on Tuesday it plans to start bringing workers back to its offices after Labor Day due to the increasing availability of vaccines. The bank hopes that operations will begin to return to normalcy after Sept. 6, according to a memo circulated to the staff.”
“Corporations Are Working With Social Media Influencers To Cancel-Proof Their Racial Justice Initiatives” (Washington Post). “Companies like Procter & Gamble, Sephora and Snap are seeking help to stay ahead of cultural moments and avoid embarrassing gaffes[.]”
April Prime + Select picks available now
The new Prime and Select picks for April are available starting now, based on a model run put through today (March 30). As a note, we’ll be measuring the performance on these picks from the first trading day of the month, Thursday, March 1, 2021 (at the mid-spread open price) through the last trading day of the month, Friday, April 30 (at the mid-spread closing price).
You can check out the latest picks here.