What we’re reading (4/29)
“U.S. Economy Grew At 6.4 Percent Annual Rate In First Quarter As Consumer Spending Drives Robust Recovery” (NBC News). “The reopening economy surged in President Joe Biden's first 100 days, with U.S. gross domestic product hitting 6.4 percent, the best quarterly reading since 2003. U.S gross domestic product, or GDP, a measure of the total amount of goods and services produced, hit 6.4 percent in the first quarter of 2021, according to advance estimates released Thursday from the Commerce Department.”
“Stocks Are Off to Best Start to a Presidential Term Since Great Depression” (Wall Street Journal). “The S&P 500 has risen 10% since Mr. Biden’s Jan. 20 inauguration. The index is on course for its strongest performance since the start of Mr. Roosevelt’s first term in 1933, when it surged 80% after a spectacular crash in the Great Depression, according to a Dow Jones Market Data analysis. By comparison, the S&P 500 rose 5.3% in the first 100 days of President Donald Trump’s term in early 2017 and on average has gained 3.2% over that period in presidential terms since Herbert Hoover’s in 1929.”
“Jobless Claims Hit New Pandemic Low For Third Straight Week As Labor Market Picks Up” (Washington Post). “Weekly jobless claims fell to a pandemic low for the third consecutive week, the Labor Department reported Thursday, with 553,000 Americans filing for initial unemployment benefits in the week that ended April 24. This marks a 13,000 decrease compared to last week, putting the insured unemployment rate around 2.6 percent, the Labor Department said.”
“Apple Just Had A Massive Quarter Thanks To The 5G iPhone” (CNN Business). “Apple's steady stream of hardware upgrades and new services launched throughout the pandemic has held the company in good stead going into 2021. The company on Wednesday reported revenues of $89.6 billion and a profit of $23.6 billion for the three months ending March 27, blowing past analyst forecasts. The company also authorized a $90 billion share buyback, it said. Apple shares surged more than 3% after-hours following the report.”
“Millennials Are Getting Screwed Again By Their 2nd Housing Crisis In 12 years” (Business Insider). “A recent bank note from Jefferies said the US was short 2.5 million homes, while Freddie Mac put that estimate higher at a shortage of 3.8 million. There are 40% fewer homes on the market than last year, a Black Knight report found. It's bad news for many aspiring homebuyers — but especially for millennials. It's just the latest chapter in a long line of bad economic luck.”
What we’re reading (4/28)
“Venture Firms Bask In a Surge of Blockbuster Profits” (Wall Street Journal). “The venture sector has long been defined by big wins on disruptive tech companies, balanced by far more numerous losing bets. But in recent months, an unusually large number of venture investments have logged multibillion-dollar profits, setting many firms up for their greatest returns since the dot-com boom of the late 1990s.”
“Samsung Family Announces Plans To Pay Off More Than $10 Billion Of Inheritance Tax” (CNBC). “The family of Samsung Electronics’ late chairman announced Wednesday they will be paying off a massive inheritance tax bill of more 12 trillion Korean won (about $10.78 billion). The inheritance tax payment is one of the largest in the history of South Korea and globally — ‘equivalent to three to four times the Korean government’s total estate tax revenue last year,’ Lee Kun-hee’s family said in a statement.”
“Small Business Demand Lifts UPS Q1 Profit, Revenue Up 27%” (ABC News). “UPS is one of the few companies that benefited from the pandemic as demand for delivery rose as more people stayed home and shopped online. But even with more people getting vaccinated and heading out, the company said it expects delivery demand to continue this year as more businesses open up and need to ship goods. Plus, consumers have more money in their pocket to spend from government stimulus checks. UPS said daily volume jumped more than 14% in the first three months of the year from the same period a year ago.”
“Hedge Fund Manager Spent Legitimate Earnings On Race Cars, Allegedly Needed To Commit Fraud To Buy A Place To Keep Them” (Dealbreaker). “[B]efore his indictment for allegedly lying to investors about how he was investing their money and how those investments were doing, among other things, Franzone told The Wall Street Journal just how he used his disposal income: the 1965 Daytona 500-winning ride, Toyota’s first-ever NASCAR-winning entrant, etc.”
“Record-Breaking Digital Artist Beeple Says The NFT Craze Is Just Like The Dotcom Bubble Of The Late 1990s” (Business Insider). “Record-breaking digital artist Beeple, who sold a piece of digital art for a record-breaking $69 million, thinks the non-fungible token (NFT) market will evolve in the same way the internet did during the dotcom bubble of the late 1990s.”
What we’re reading (4/27)
“Tesla Makes Money (Including From Selling Cars)” (DealBook). “The electric carmaker posted record quarterly earnings yesterday, beating Wall Street forecasts. But a closer look shows that its core business — you know, making vehicles — wasn’t the only story, and that might be why the company’s stock fell in aftermarket trading.”
“Joe Biden To Issue Executive Order Implementing $15-An-Hour Minimum Wage For Federal Contractors” (Business Insider). “The order would increase the hourly minimum wage for workers on federal contracts no later than March 30, 2022, almost a year from now. Officials in the Biden administration estimate the measure will benefit hundreds of thousands of government contractors and argue it will not raise the financial burden on taxpayers.”
“Toyota Snaps Up Lyft's Self-Driving Cars Unit For $550 Million” (CNN Business). “Toyota is hitting the gas to achieve its self-driving goals by buying Lyft's autonomous vehicle business for over half a billion dollars. The two players announced the $550 million acquisition on Tuesday, saying that it would allow them to create a ‘dream team’ of about 1,200 researchers and engineers around the world.”
“Crocs Shares Soar As Shoe Maker Raises 2021 Sales Outlook, Sees Growth Of 40% To 50%” (CNBC). “Crocs shares shot up more than 8% Tuesday after the shoe maker increased its revenue outlook for the full year and reported record first-quarter sales. CEO Andrew Rees said demand for the Crocs brand is “stronger than ever” across the world. Some have called Crocs the “it” shoe of the pandemic, as the clog became a closet staple for consumers seeking comfort at home.”
“Lakeside Idaho City Is America’s Hottest Housing Market In New WSJ/Realtor.com Index” (Wall Street Journal). “Buyers from other Western states are moving to northern Idaho in droves, seeking a more rural and less expensive place to live, said Kristen Johnson, a real-estate agent at Century 21 Beutler & Associates in Coeur d’Alene. Workers able to work remotely are also choosing to relocate, she said.”
May picks available soon
We’ll be publishing our Prime and Select picks for the month of May on or before 4/30. As always, we’ll be measuring SPC’s performance for the month of April, as well as SPC’s cumulative performance, assuming the sale of the April picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Fri., April 30). Likewise, performance tracking for the month of May will assume the May 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 (Mon., May 3)
What we’re reading (4/26)
“Summer Skies Will Be Close to Normal—But What About Air Fares?” (Wall Street Journal). “…[I]nvestors have reasons to be hopeful: All major airlines suggested last week that ticket prices on summer bookings are getting close to pre-pandemic trends.”
“Apple Will Spend $1 Billion To Open 3,000-Employee Campus In North Carolina” (CNBC). “Apple announced plans Monday to open a new campus in the Raleigh, North Carolina, area. Apple will spend over $1 billion on the campus, and it will employ 3,000 people working on technology including software engineering and machine learning.”
“The Last Roaring Twenties Ended In Disaster. Should Investors Be Worried?” (CNN Business). “There has been a lot of talk about how the combination of massive economic stimulus and vaccines for Covid-19 could bring about a lengthy financial boom — just as there was during the 1920s after the end of the influenza pandemic. But if you follow this analogy to its conclusion, there could be a major cause for concern. After all, the 1920s ended with the Black Tuesday stock market crash in October 1929 — right at the onset of the Great Depression.”
“Copper Prices Hit Their Highest Since 2011 As The Global Economic Recovery Spurs A Rally In Metals” (Business Insider). “Copper prices are surging as supply constraints combined with a surge in demand represent a perfect storm for the soft metal. Copper prices per ton soared to just under $10,000 on Monday, representing its highest level since 2011. Amid the height of the COVID-19 pandemic in March 2020, copper prices per ton traded at less than $5,000.”
“Why These C.E.O.s Got Paid So Much In The Pandemic” (DealBook). “Chief executives of big companies in the U.S. now make, on average, 320 times as much as the typical worker. In 1989, that ratio was 61 to 1. In years when the profits are flowing and unemployment is low, such disparities are often explained away. But in this pandemic year, corporate P.R. teams are bending over backward to justify their bosses’ big paydays.”
What we’re reading (4/24)
“U.S. Manufacturing, New Homes Sales Underscore Booming Economy” (Reuters). “U.S. factory activity powered ahead in early April, though manufacturers increasingly struggled to source raw materials and other inputs as a reopening economy leads to a boom in domestic demand, which could slow momentum in the months ahead.”
“History Offers Only Rough Guide To The Coming Economic Boom” (Wall Street Journal). “The U.S. economy is poised to grow at its fastest pace in decades, carried along by a wave of pent-up demand built during the pandemic and the trillions of dollars of support the government has provided over the past year. But what that boom will look like—how long it will last, what it might do for employment, how much inflation it might generate—isn’t clear.”
“A New Lawsuit Could Weigh In On Who’s The Real Inventor Of Bitcoin—Why Its Creation Is Still Shrouded In Mystery” (CNBC). “A copyright lawsuit brought by Craig Wright — the man who has claimed to be Satoshi Nakamoto, the pseudonym used by the creator of bitcoin — could finally put to bed the years-long mystery over who actually invented the multibillion-dollar cryptocurrency.”
“Imagining Berkshire Hathaway After Buffett: Who Will Be CEO, What Else Will Change — And What Won’t” (MarketWatch). “The passage of time guarantees that Berkshire Hathaway will one day be without the man synonymous with creating one of the world’s most valuable and admired businesses…[t]he most important role to fill will be CEO, one of three jobs now held by Buffett (he is also chairman and chief investment officer). While the actual name remains a secret, the background and skillset of Greg Abel suggests the board will choose him.”
“Billionaire Investor Reveals The Secret To His Success: Shrooms” (Daily Beast). “German investor Christian Angermayer—a 42-year-old billionaire who bears a not-negligible resemblance to Jared Leto in Blade Runner 2049—has made a fortune betting on a host of sci-fi-sounding finance fads. Among them: space travel, crypto, psychedelics, movies, weed, SPACs, and ‘life extension.’ […] in a recent profile, Angermayer cited a single experience as having paved the way for his billions: doing hallucinogenic mushrooms.”
What we’re reading (4/23)
“Stock Market Investors Must Keep An Eye On The Corporate Cash Mountain” (Wall Street Journal). “Major corporations are sitting on a mountain of cash: a decadelong buildup was given another sharp lift by precautionary measures taken during the pandemic. Those balances are worth monitoring, because they have important implications for investment returns in the future.”
“Congress Likely To Cap Joe Biden's Capital Gains Tax Hike At Around 28%, Goldman Sachs Says” (Business Insider). “Congress is likely to settle on a much more modest increase in capital gains tax than President Joe Biden would like, according to analysts at Goldman Sachs, with the eventual figure likely to land at around 28%.”
“Supreme Court Limits The FTC’s Authority To Return Money To Consumers Duped By Deceptive Business Practices” (CNBC). “In a unanimous opinion delivered by Justice Stephen Breyer, the court said that Section 13(b) of the FTC Act does not authorize the agency to seek monetary relief for violations of the law, as it has commonly been used. The court noted that 13(b) doesn’t explicitly authorize the agency to obtain such a remedy, but instead allows the FTC to seek “a permanent injunction” pending administrative proceedings.”
“Chinese Leaders Boast About China’s Rising Power. The Real Story Is Different.” (Washington Post). “[T]he reality in China often is more than meets the eye. Xi’s regime appears triumphant after controlling the pandemic within China, pulling off an economic recovery and scoring a ‘complete victory’ of eliminating absolute poverty despite the crisis. This confidence, however, is moderated by words of caution and deep insecurity that we did not see expressed earlier in Xi’s reign.”
“How the Super League Fell Apart” (New York Times). “For 48 hours, soccer stood on the brink. Fans took to the streets. Players broke into open revolt. Chaos stalked the game’s corridors of power, unleashing a shock wave that resonated around the world, from Manchester to Manila, Barcelona to Beijing, and Liverpool to Los Angeles.”
What we’re reading (4/22)
“American And Southwest Report Stronger Bookings, Ramp Up Schedules” (CNBC). “American Airlines posted its fifth consecutive quarterly loss on Thursday, while Southwest Airlines swung to a profit, boosted by federal payroll aid. Both carriers have noted an improvement in travel bookings and plan to increase flying during the peak spring and summer months as more people are vaccinated against Covid-19 and tourist attractions reopen.”
“Just Because You Can Work From Home Doesn’t Mean You’ll Be Allowed To” (Vox). “[A]s the return to the office picks up, the extent to which American office workers are allowed to continue working from home — which the vast majority of them have done during the pandemic — stands to affect everything from their satisfaction at work to where they are able to live.”
“Yes, Working From Home Makes You More Productive, Study Finds” (The Edge Markets). “The great work-from-home experiment occasioned by the pandemic has divided opinion in the corporate suite and sparked endless debates about whether employees work as effectively from the kitchen table as they do from the office. A new study finds that, in fact, remote work does indeed make us more productive… ‘[o]ur data on employer plans and the relative productivity of WFH imply a 5% productivity boost in the post-pandemic economy due to re-optimized working arrangements[.]’”
“The Curious Case Of First Union Capital” (Institutional Investor). “An investigation into First Union Capital reveals that its founder is not being truthful, if he even exists; that it appears not to be registered with the financial regulatory agencies in any country in which it claims to do business; that hundreds of thousands of traders have not used its online trading program over the past four years, as it claims; and that its assertion of the almost perfect predictive powers of its trading program is certainly bogus.”
“The Gray Market: How A Brazen Hack Of That $69 Million Beeple Revealed The True Vulnerability Of The NFT Market (And Other Insights)” (artnet news). “In the opening days of April, an artist operating under the pseudonym Monsieur Personne (“Mr. Nobody”) tried to short-circuit the NFT hype machine by unleashing “sleepminting,” a process that complicates, if not corrodes, one of the value propositions underlying non-fungible tokens. His actions raise thorny questions about everything from coding, to copyright law, to consumer harm. Most importantly, though, they indicate that the market for crypto-collectibles may be scaling up faster than the technological foundation can support.”
What we’re reading (4/21)
“Silicon Valley’s Deal Machine Is Cranking: ‘I’ve Never Seen It This Frenzied’” (Wall Street Journal). “Investors are offering startups five times—or more—the amount of money they are asking, and deals that used to take months now sometimes close in days, according to venture capitalists, deal makers and founders. Startups are raising cash every few months rather than every couple of years, and valuations are soaring with each new check, these people say.”
“Robinhood's ‘Costless’ Trading Can Be Very Expensive” (Real Clear Markets). “Essentially, Robinhood’s business model is in conflict with its customers. Robinhood has a regulatory duty of “best execution” of its customer trades at the best buy and sell prices available. In actuality, the SEC found Robinhood ran its customers’ trades to get the best payment for itself by directing order flow. Robinhood did this to such an extent its customers paid $34 million more than if they’d paid commissions to competitors because of inferior price execution – a fact the SEC determined Robinhood knew, at the time, but made misrepresentations to its customers nonetheless.”
“Weekly Mortgage Demand Jumps 8.6% After Interest Rates Fall To A Two-Month Low” (CNBC). “A sharp drop in mortgage interest rates sent homeowners and potential homebuyers to their mortgage lenders. Total mortgage application volume surged 8.6% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. That is the first overall increase in weekly applications since the end of February.”
“Wall St Fears Netflix Fatigue As Subscriber Growth Slumps” (Reuters). “Wall Street cast doubt on Wednesday on Netflix Inc's ability to bounce back strongly from a first-quarter slowdown in subscriber growth that pointed to fatigue among viewers after a year of COVID-19-driven binge streaming. Several analysts said the streaming giant would need fresh and interesting new content along with a creative approach to pricing going forward as it faces a slew of improving competitors.”
“Shockingly, Guy Behind $100 Million South Jersey Deli Has A Shady Past” (Dealbreaker). “So you’ve probably heard of the deli across the river from Philadelphia International Airport that sells about $18,000 a year worth of sandwiches and the like (except when it doesn’t) and which is nonetheless worth about $100 million. This, of course, raises a number of questions, although the main one seems to be, ‘What the hell are you talking about? How can that be?’ Another question that seems worth asking is, ‘Why the hell does a South Jersey deli with a gravel parking lot alongside a freight rail line sharing a building with something called the ‘New Jerseys Got Talent School Of Performing Arts’ have 7.8 million publicly-traded shares, a Nevada incorporation, a Hong Kong-based chairman, and shadowy shareholders in that city and Macau in the first place?”
What we’re reading (4/20)
“Oil Prices Went Negative A Year Ago. Now The Glut Is Gone” (CNN Business). “Panic gripped the energy market last spring as a frightening realization dawned on oil traders: The world was rapidly running out of space to store excess crude…[f]lash forward 12 months and US oil prices stand at $63 a barrel — exactly $100 above that record low [-$37/barrel] from last April.”
“Alaska's GameStop Stake Soared Over 700% Last Quarter - And Its Tesla Bet Has Gone From $0 To $85 Million In 18 Months” (Business Insider). “There have been several surprising beneficiaries of the GameStop short squeeze in January, including the Mormon Church. The state of Alaska has also emerged as an unlikely winner. The state's revenue department has owned a stake in the video-games retailer since at least 2017, and held about 43,000 shares worth $802,000 at the end of December last year, regulatory filings show.”
“Venmo Users Can Now Buy And Sell Bitcoin And Other Cryptocurrencies” (CNBC). “Starting Tuesday, Venmo will show users a new feature that lets them invest in four different cryptocurrencies — bitcoin, ether, litecoin and bitcoin cash — with a minimum spending requirement of $1. They can also share their crypto purchases with friends through Venmo’s social feed.”
“Behind The Mysterious Demise Of A $1.7 Billion Mutual Fund” (Wall Street Journal). “The Infinity Q Diversified Alpha Fund disclosed in filings with the Securities and Exchange Commission valuations of investments that in at least three instances were incorrect or inconsistent with market conditions, said traders and academics. One valuation was mathematically impossible, said a former Morgan Stanley managing director who reviewed the disclosures.”
“Wall Street Analysts Battle Weight Loss, High Blood Pressure And Mental Health Issues From Long Hours” (NBC News). “The online forum Wall Street Oasis, the networking group for students and junior staffers in the banking industry that conducted the survey, found junior bankers work on average at least 80 hours a week. After a year of working these hours, often in isolation, the survey found 40 percent of the first-year bankers, 32 percent of second-year bankers and 46 percent of third-year bankers sought or considered mental health counseling. Analysts in their early 20s interviewed for this article also reported they suffered extreme weight changes and developed health conditions like high blood pressure.”
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.”