What we’re reading (6/9)
“Is There A Housing Bubble?” (Vox). “There aren’t enough homes to meet the demand for would-be homeowners, and there aren’t enough homes to meet the demand for renters. The US needs to build enough housing to support the number of people who need a place to live. And to do that, it needs to change local zoning laws that seek to prop up current homeowners’ investments by preventing more dense housing from being built. If it doesn’t, prices will continue to rise.”
“Why We Can't Have Cheap Houses” (Axios). “The holy grail of affordable new housing will realistically always require government subsidy...[o]bstacles to new construction are invariably deliberate, placed there by existing residents in an attempt to maximize their own property values. When all building codes are local, it's impossible to confront them in a formulaic and centralized manner.”
“The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax” (ProPublica). “In 2007, Jeff Bezos, then a multibillionaire and now the world’s richest man, did not pay a penny in federal income taxes. He achieved the feat again in 2011. In 2018, Tesla founder Elon Musk, the second-richest person in the world, also paid no federal income taxes. Michael Bloomberg managed to do the same in recent years. Billionaire investor Carl Icahn did it twice. George Soros paid no federal income tax three years in a row.”
“US Authorities Are Investigating The ‘Illegal’ Leak Of Billionaires’ Tax Information, Including Data On Jeff Bezos, Elon Musk, And Warren Buffett” (Business Insider). “The US government is investigating how some of the wealthiest Americans, including Amazon CEO Jeff Bezos and Tesla CEO Elon Musk, had their tax information published online. Nonprofit news site ProPublica published a report on Tuesday showing how much the 25 richest Americans — including Bezos, Musk, Berkshire Hathaway CEO Warren Buffett, Microsoft founder Bill Gates, and Facebook CEO Mark Zuckerberg — paid in tax.”
“AMC’s Hertz Sequel Far More Successful Than The Original, Spawns Sequel Of Its Own” (Dealbreaker). “When Hertz shares skyrocketed for no particular reason then known to investing man, it struck upon the not-at-all-unreasonable idea of selling a whole bunch of additional shares. If people were willing to snap up shares of a company mired in pandemic and bankruptcy regardless of what had previously been known as “fundamentals,” why should Hertz itself not benefit from the frenzy? The answer to that question turned out to be, ‘because the SEC says no.’ […] Unlike its predecessor meme stocks, AMC Entertainment has neither shown reticence, nor had it imposed upon it.”
What we’re reading (6/8)
“Wages Pick Up, But Unclear How Far Employers Will Go” (Axios). “Employers have had to raise wages to incentivize workers to come back or to stay. It's unclear how much higher they're willing to go. Last month average hourly earnings rose half a percent, while weekly earnings ticked up just a quarter percent versus April. Average hourly earnings grew nearly 3% for leisure and hospitality roles — where job growth has been strongest — between March and May, notes Invesco's Hooper.”
“Small Business Optimism Slips On Hiring, Inflation Worries - NFIB” (Reuters). “U.S. small-business confidence edged lower last month, the first decline in four months, as a nationwide labor shortage and inflation worries weighed on business owners' economic outlook, according to a survey released on Tuesday.”
“Companies You'd Never Expect Are Offering Signing Bonuses To New Employees” (CNN Business). “Amazon (AMZN), Ollie's Bargain Outlet (OLLI), Tops Markets supermarket chain, Sheetz convenience stores and many smaller stores are offering such one-time payments to sweeten job offers to new workers. Sign-on bonuses can be more attractive for some employers than raising wages because bonuses are not permanent and ultimately cheaper, said Andrew Challenger, vice president at executive outplacement firm Challenger, Gray & Christmas.”
“Federal Student-Loan Loss Forecast Rises By $53 Billion” (Wall Street Journal). “The Biden administration has raised an estimate of losses on the federal government’s student loan portfolio by $53 billion, reflecting lower repayment rates and pandemic-relief efforts. The new estimate—contained in the administration’s proposed budget for the fiscal year that begins in October—is based on updated data on how much money the nation’s 43 million student loan borrowers have sent to the government in recent years to repay their loans.”
“AMC Executives Made Millions Selling Their Shares Last Week Amid Dizzying Meme-Stock Rally” (Business Insider). “Six AMC Entertainment executives took home more than $8 million last week after selling shares of the company amid a massive rally for the company's stock. Friday filings with the Securities and Exchange Commission show the six movie-theater executives - John McDonald, Gary Locke, Carla Chavarria, Daniel Ellis, Elizabeth Frank, Anthony Saich - offloaded more than 150,000 shares after the meme stock closed the week 83% higher on the back of enthusiasm from retail traders.”
What we’re reading (6/7)
“Higher Interest Rates Would Be Good For The Country, Treasury Secretary Yellen Says” (CNBC). “U.S. Treasury Secretary Janet Yellen said that President Joe Biden’s $4 trillion spending proposal would be positive for the country, even if it leads to a rise in interest rates. During an interview with Bloomberg News, the former Federal Reserve chair said the president’s plans would total about $400 billion each year — a level of spending she argued was not enough to create an inflation over-run.”
“Major US airlines are going on a hiring spree after slashing tens of thousands of jobs” (Business Insider). “Airlines are in need of more staff as air travel makes a comeback after a turbulent year. One year after slashing thousands of employees' jobs due to COVID-19 cutting flight demand, top airline companies in the US are going on a hiring spree. American, Delta, United, and Southwest have all announced they are hiring pilots and other positions before the end of the year.”
“Jeff Bezos Is Going To Space On First Crewed Flight Of Rocket” (CNN Business). “Jeff Bezos will be flying to space on the first crewed flight of the New Shepard, the rocket ship made by his space company, Blue Origin. The flight is scheduled for July 20th, just 15 days after he is set to resign as CEO of Amazon. Blue Origin said Bezos' younger brother, Mark Bezos, will also join the flight.”
“Options Traders Bet On Return Of $100 Oil” (Wall Street Journal). “Traders have alighted on what some believe to be a one-way bet in the world’s most important commodity market: oil prices going to $100 a barrel. They have scooped up call options tied to Brent and West Texas Intermediate crude-oil prices reaching $100 by the end of next year. Oil prices haven’t topped that milestone since 2014, when a gush of U.S. crude depressed energy markets.”
“I’m Not Scared To Reenter Society. I’m Just Not Sure I Want To.” (The Atlantic). “Quarantine has given us all time and solitude to think—a risk for any individual, and a threat to any status quo. People have gotten to have the experience—some of them for the first time in their life—of being left alone, a luxury usually unavailable even to the wealthy. Relieved of the deforming crush of financial fear, and of the world’s battering demands and expectations, people’s personalities have started to assume their true shape. And a lot of them don’t want to return to wasting their days in purgatorial commutes, to the fluorescent lights and dress codes and middle-school politics of the office. Service personnel are apparently ungrateful for the opportunity to get paid not enough to live on by employers who have demonstrated they don’t care whether their workers live or die.”
What we’re reading (6/6)
“G-7 Back Steps To Deter Tax Dodging By Multinational Firms” (Associated Press). “The Group of Seven wealthy democracies agreed Saturday to support a global minimum corporate tax of at least 15% to deter multinational companies from avoiding taxes by stashing profits in low-rate countries. G-7 finance ministers meeting in London also endorsed proposals to make the world’s biggest companies - including U.S.-based tech giants - pay taxes in countries where they have lots of sales but no physical headquarters.”
“El Salvador Will Adopt Bitcoin As Legal Tender, President Says” (CNN Business). “El Salvador could become the first county to adopt bitcoin as a legal tender, Salvadorian President Nayib Bukele announced in a video recording shown during the Bitcoin 2021 conference held in Miami.”
“No One Is Policing Corporate America, And White-Collar Crime Is On The Rise. What Comes Next Could Be A Full-Scale Financial Meltdown.” (Business Insider). “The SEC is supposed to be one of the cops monitoring businesses in the US and policing white-collar crime. When a corporation commits fraud — that is to say, steals from its customers or vendors, or lies about the state of its business — regulators could punish wrongdoers with Old Testament justice, sending a message to corporate America that criminal misbehavior will not be tolerated. But instead of fulfilling their duties, watchdogs like the SEC have seemingly given up on the task.”
“The Jobs Report Takeaway: A Huge Reallocation Of People And Work Is Underway” (New York Times). “The problem is that old jobs are long gone for the vast majority of those who remain unemployed. The number of workers reporting that they are on temporary layoff — many of whom may never be recalled — remains elevated but is a small share of the 7.6 million jobs needed to return to prepandemic employment levels.”
“Why Investors May Not Want To Regularly Rebalance Their Portfolio” (Wall Street Journal). “In the end, the argument against simple, routine rebalancing is mostly that it isn’t nuanced enough—that adjusting a portfolio along the lines of broad asset classes like stocks and bonds at set intervals might be too blunt an instrument to improve performance. However, rebalancing by picking out-of-favor sectors within those broad asset classes when opportunities present themselves can be productive, says money manager Adam Johnson, author of the Bullseye Brief financial newsletter.”
What we’re reading (6/4)
“The May Jobs Report Shows Signs Of Labor-Market Acceleration As Unemployment Falls” (Business Insider). “The US economy added 559,000 nonfarm payrolls in May, the Bureau of Labor Statistics said Friday morning. Economists surveyed by Bloomberg held a median estimate of a 674,000-payroll gain. The reading shows a sharp acceleration from April's dismal report, which saw job growth land well below economist forecasts.”
“Eurozone Inflation Above Target Sooner Than The ECB Expected” (Wall Street Journal). “The annual rate of inflation in the eurozone rose in May to hit the European Central Bank’s target for the first time since late 2018, as energy prices surged in response to a strengthening recovery in the global economy. The pickup in price rises comes before a June 10 meeting of policy makers at the eurozone’s central bank, which will consider new economic forecasts and whether to continue stimulus programs launched early in the pandemic.”
“The New Geopolitics Of Global Business” (The Economist). “[T]he post-pandemic business world is dramatically different from what you might have expected two decades ago. Tech firms comprise a quarter of the global stockmarket and the geographic mix has become strikingly lopsided. America and, increasingly, China are ascendant, accounting for 76 of the world’s 100 most valuable firms. Europe’s tally has fallen from 41 in 2000 to 15 today.”
“Palantir Gets Aggressive In SPAC Investments, Backing Digital Health, Aviation And Robot Companies” (CNBC). “Palantir has now agreed to at least six SPAC deals in less than three months. A SPAC is a blank-check company that raises money to buy a private entity through a reverse merger and take it public with the help of financing from additional investors. By participating in the PIPE, or private investment in public equity, Palantir is guaranteed ownership of a certain amount of stock once the transaction closes and the shares in the operating company start trading.”
“Employees Are Quitting Instead of Giving Up Working From Home” (Bloomberg). “While companies from Google to Ford Motor Co. and Citigroup Inc. have promised greater flexibility, many chief executives have publicly extolled the importance of being in offices…[b]ut legions of employees aren’t so sure. If anything, the past year has proved that lots of work can be done from anywhere, sans lengthy commutes on crowded trains or highways…[a]nd for Portia Twidt, there’s also the notion that some bosses, particularly those of a generation less familiar to remote work, are eager to regain tight control of their minions.”
What we’re reading (6/3)
“AMC Files To Sell 11 Million Shares — Stock Immediately Tanks” (CNBC). “AMC Entertainment said Thursday it plans to sell more than 11 million shares amid the trading frenzy in its stock. ‘In accordance with the terms of the Distribution Agreement, we may, through our sales agents, offer and sell from time to time up to an aggregate of 11,550,000 shares of our Class A common stock,’ AMC said in an SEC filing. Shares of AMC reversed course in premarket trading, dropping 7% after popping more than 20%.”
“Global Inflation Hasn't Been This High Since 2008” (CNN Business). “Price are rising quickly across huge swaths of the developed world, with inflation in countries that belong to the Organization for Economic Cooperation and Development surging in April to the highest rate since 2008. Energy price hikes boosted average annual inflation across OECD countries to 3.3% in April, compared with 2.4% in March, the Paris-based organization said Wednesday. That's the fastest rate since October 2008.”
“Fed To Sell Corporate Bonds And ETFs Acquired During Covid-19 Crisis” (Wall Street Journal). “The Federal Reserve will soon begin selling off the corporate bonds and exchange-traded funds it amassed last year through an emergency-lending vehicle set up to contain the Covid-19 pandemic’s economic fallout. The vehicle, known as the Secondary Market Corporate Credit Facility, or SMCCF, held $5.21 billion of bonds from companies including Whirlpool Corp. , Walmart Inc. and Visa Inc. as of April 30. In addition, it held $8.56 billion of exchange-traded funds that hold corporate debt, such as the Vanguard Short-Term Corporate Bond ETF.”
“Private Equity Bet On Troubled Caribbean Refinery Blows Up On Retirement Funds” (Reuters). “U.S. private equity firm Arclight Capital Partners LLC, which invests the retirement savings of Maine teachers, NFL football players and Mayo Clinic doctors, lost hundreds of millions of dollars betting on a troubled Caribbean oil refinery, according to sources and documents reviewed by Reuters.”
“Oh, Look, Another Doomed Proposal To Kill The Carried-Interest Loophole” (Dealbreaker). “For almost as long as this website [Dealbreaker] has been around, it has been writing about the impending death of the carried-interest loophole. It has been a priority of administrations Democratic and Republican, pretty much rhetorically in the latter case but rhetorically important, all the same, because it seems like such an obvious fix, directed as it is against rich and politically unpopular hedge and private equity fund managers to close what looks like an incredibly unjust windfall, being taxed on the money they earn for earning other people money at a much lower rate than the money earned by, say, their janitors for keeping their offices clean…[a]nd for all of that time, the carried-interest loophole survives…[a]s, we are sure, it will again, because while we were dead wrong about the last massive tax overhaul’s chances of becoming law, we’re quite sure this one is even more dead in the water.”
What we’re reading (6/2)
“One Way Companies Are Concealing Higher Prices: Smaller Packages” (Washington Post). “Consumers are paying more for a growing range of household staples in ways that don’t show up on receipts — thinner rolls, lighter bags, smaller cans — as companies look to offset rising labor and materials costs without scaring off customers. It’s a form of retail camouflage known as ‘shrinkflation’[.]”
“How The World Ran Out Of Everything” (DNYUZ). “From fashion to food processing to pharmaceuticals, companies have embraced Just In Time to stay nimble, allowing them to adapt to changing market demands, while cutting costs. But the tumultuous events of the past year have challenged the merits of paring inventories, while reinvigorating concerns that some industries have gone too far, leaving them vulnerable to disruption.”
“Disaster Feared As Chemical Cargo Ship Sinks Off Sri Lanka” (Reuters). “A cargo ship carrying tonnes of chemicals is sinking off Sri Lanka's west coast, the country's government and navy said on Wednesday, in one of Sri Lanka's worst-ever marine disasters. The Singapore-registered MV X-Press Pearl, carrying 1,486 containers, including 25 tonnes of nitric acid, along with other chemicals and cosmetics, was anchored off the island's west coast when a fire erupted on May 20.”
“Dogecoin Price Jumps on Coinbase Debut Prospect” (Wall Street Journal). “Dogecoin got a new lease on life Wednesday, with the price rallying sharply after Coinbase Global Inc. said it would allow users to trade the joke cryptocurrency on a platform that is geared toward more experienced investors. Fresh tweets from Tesla CEO Elon Musk also provided a catalyst.”
“Nearly 40% Of Workers Would Consider Quitting If Their Bosses Made Them Return To The Office Full-Time, A New Survey Shows” (Business Insider). “Some employees have enjoyed working from home so much that they'd rather quit their jobs than go back to the office full-time, according to a new survey. Out of 1,000 US adults polled in May, 39% said they'd consider quitting if their bosses weren't flexible about them working from home…[t]he survey showed that 49% of the respondents who said they'd consider quitting were millennials and Gen Z — i.e. adults born after 1980.”
What we’re reading (6/1)
“Oil Jumps To Two-Year High As OPEC And Allies Reconfirm Gradual Production Increase” (CNBC). “A group of some of the world’s most powerful oil producers agreed on Tuesday to continue gradually easing production cuts amid a rebound in oil prices. OPEC and its oil-producing allies, known as OPEC+, will boost output in July, in accordance with the group’s April decision to return 2.1 million barrels per day to the market between May and July.”
“What A Work-From-Home Revolution Means For Commercial Property” (The Economist). “As companies try to tempt workers back to the office, developers and investors are bullish, betting on new, green buildings with alluring amenities. But a huge uncertainty hangs over them: will enough people come? Even as vaccinations progress, workers have been slow to return. In early May only one in 20 buildings in America had occupancy levels above 10%, compared with a third in Europe and Africa, and roughly half of buildings in Asia, according to Freespace, a property-tech firm.”
“Steel And Lumber Prices Are Sky-High. Lifting Trump's Tariffs Could Help” (CNN Business). “The US economy is so hot the supply of key materials can't keep up with surging demand — sparking shortages and price spikes in everything from computer chips and copper to chlorine. President Joe Biden does have a lever he could theoretically pull to help cool prices of lumber and steel, as they're still subject to Trump era tariffs. Yet doing so could come at significant cost: undermining Biden's efforts to rebuild domestic manufacturing and create jobs at home.”
“The Southwest Is America’s New Factory Hub. ‘Cranes Everywhere.’” (Wall Street Journal). “Companies producing everything from steel to electric cars are planning and building new plants in Southwest states, far from historical hubs of American industry in the Midwest and Southeast. The lure is open land, local tax breaks and a growing supply of tech-savvy workers.”
“Krispy Kreme Officially Files To Go Public Via An IPO And List On The Nasdaq Under The Ticker DNUT” (Business Insider). “The doughnut brand Krispy Kreme officially filed for an initial public offering. The company, based in North Carolina, said in its S-1 filing with the Securities and Exchange Commission on Tuesday that it would trade on the Nasdaq under the ticker DNUT. Krispy Kreme said it hoped to raise $100 million, a figure commonly used as a placeholder in S-1 filings. The chain didn't say how many shares it would offer or their price.”
What we’re reading (5/31)
“Reopening Bets Pay Off Big For Stock Pickers” (Wall Street Journal). “Investors are amassing hefty gains by loading up on economically sensitive stocks that have flourished during this year’s explosion of business activity. More than two dozen actively managed exchange-traded funds have surged at least 20% so far this year, outpacing the S&P 500’s 12% climb. Goldman Sachs analysts say 56% of stock-picking large-cap mutual funds are beating their benchmarks, the highest percentage in more than a decade.”
“Don’t Ignore Warnings Of Imminent Market Crash” (Seattle Times). “The combination of very high government debt, asset bubbles in the economy and bad demographic trends – with baby boomers retiring before the millennial generation is in full economic bloom – has created weakness in financial markets…[s]tock market momentum is up but fundamentals have weakened…historically is a sign of the end of a cycle.”
“Truckers Are Getting Big Pay Hikes, But There's Still A Shortage Of Drivers” (CNN Business). “America's truck driver shortage is driving pay higher. But it's not solving the scarcity of truckers. Massive increases in online ordering during the pandemic have sent demand for delivery truck drivers through the roof. That's increased competition for those willing to be long-haul truckers, forcing those trucking companies to hike pay. But that hasn't persuaded enough people to take the long-distance driving jobs that the industry needs to fill.”
“Millions Of Americans Could Face Eviction As Housing Protection Expires In June” (CNBC). “More than 11 million Americans are behind on their rent and many could be pushed from their homes when the national eviction ban expires in June. The Centers for Disease Control and Prevention’s eviction moratorium, which has been in effect since September, will lift on June 30. Although the policy has been far from perfect at keeping renters housed, it’s reduced the normal number of eviction filings over the same time period by at least a half, according to Peter Hepburn, an assistant professor of Sociology at Rutgers University-Newark and research fellow at The Eviction Lab.”
“A Key US Watchdog Wants Officials To Set Up A ‘Regulatory Perimeter’ For Cryptocurrencies” (Business Insider). “Michael Hsu, who oversees the country's national banks, told the Financial Times that agencies overseeing the US financial system want to coordinate "a lot more" on the $1.5 trillion cryptocurrency market, which has boomed in 2021 but crashed sharply two weeks ago. The comments were one of the clearest signs yet that US regulators plan to take a more active role in the cryptocurrency market.”
What we’re reading (5/30)
“U.S. Manufacturers Blame Tariffs For Swelling Inflation” (Wall Street Journal). “Economists and policy makers are debating whether stimulus spending and easy monetary policy are fueling inflation. Many businesses say there is another culprit that should share the blame: import tariffs. The Trump administration implemented tariffs on products including lumber, steel and semiconductors to shield American companies from a glut of cheap imported products from China and other countries. The tariffs have long been opposed by U.S. companies that import the goods and pay the levies. They are making a new push for the Biden administration to lift them, on grounds that tariffs contribute to rising prices and product shortages that are accompanying the post-pandemic recovery.”
“Larry, Larry Quite Contrary” (Politico). “[S]ome administration officials have quietly wondered if [Larry] Summers was right about the rescue package being too big. While many outside economists back Biden’s approach, others also say Summers represents a silent minority of center-left economists who would speak out more if not for fear of crossing the White House. ‘A lot of what he's saying is what everyone is saying over coffee and whispering,’ said one prominent economist who proved the point by only saying so anonymously. ‘He’s an outlier in the public debate because the people that have megaphones aren't saying this on the Democratic side, but he's well within a consensus view in the economics profession.’”
“Here Are The Next Media Mergers That Make The Most Sense” (CNBC). “AT&T’s decision to merge WarnerMedia with Discovery and Amazon’s $8.45 billion acquisition of MGM Studios has kicked off another round of media consolidation. The last significant set of mergers brought Discovery and Scripps together, AT&T and Time Warner, Comcast and Sky, Viacom and CBS, and Disney with most of Fox. Given all of those deals, there are fewer companies remaining to find dance partners. But there’s also added pressure on companies like NBCUniversal and ViacomCBS, who have global streaming video aspirations, to add more content.”
“Bank of America's Mortgage Bankers Are Quitting In Frustration Over Call Quotas, Cross-Selling Mandates, And A New Compensation Scheme That Shortchanges Top Producers” (Business Insider). “Bank of America is facing an exodus in its mortgage business. Dozens of people have quit this year, according to four current and former mortgage bankers, with two of them suggesting the resignations have now climbed above 100. More departures are expected at the end of June, when the bank pays out its next quarterly bonuses, one of the people, who has spoken with colleagues about it, said.”
“‘Real Compromise’ On U.S. Infrastructure Bill Possible—Republican Senator” (Reuters). “Negotiations with U.S. President Joe Biden over a potentially massive infrastructure investment package are inching forward even though disagreements remain over the size and scope of such legislation, Republican Senator Shelley Moore Capito said on Sunday.”
May 2021 performance update
Hi friends,
Here with a performance update for May. As usual, the key numbers for the month:
Prime: +1.21%
Select: -3.22%
S&P 500 (SPY ETF): -0.09%
Bogleheads Portfolio (80% VTI, 20% BND): -0.39%
After a couple of flattish months, I’m quite pleased to see Prime outperforming the market by about 130 basis points. The interesting big winner among the Prime set in the month was EXPD (+12.32%). EXPD—not Expedia; rather, Expeditors International of Washington—is a global logistics provider (e.g., air freight, ocean freight, etc.). That feels like a covid recovery story, so it’s interesting to see our algo picking it up. Another big winner this month was Maximum Integrated Products (MXIM, +6.39%), which makes circuits. If you’ve been following the global chip shortage in our “what we’re reading” blog posts, you may not be surprised to see the appreciation in that stock in the last month. But, again, interesting to see our algo picking it up. Recall, I push a button every month to select our picks (based on a formula that is qualitatively agnostic as to the daily news flow, but nevertheless aims to pick up on quantitatively meaningful news to the extent that news maps to value-relevant financial indicia).
Along these lines, worth calling out that our model’s #1 and #2 picks in the whole S&P 500 for June are direct diagnostics competitors Lab Corp and Quest. A pet theory on that without studying it closely: much of the world is still embroiled in the covid catastrophe, meaning these global diagnostics providers’ services remain much in need. Our model could essentially be communicating a view that markets are not correctly extrapolating an elevated growth outlook for these behemoths (counterpoint: the market could know something our model doesn’t capture, or simply have a different view as to the path of attenuation of the covid catastrophe globally).
Speaking of catastrophes, Select’s performance last month left something to be desired. That was largely driven by two picks getting hammered: Paycom (PAYC, -13.25%) and Cognizant Technology Solutions (CTSH, -12.04%). It’s a little foggy to me as to why. Both provide cloud services, so it could be part of the rotation out of high-technology stocks that market practitioners have been talking a lot about on CNBC and Bloomberg in the midst of the sector’s already-great 2020. Quantitatively, one story could be that these are long-“duration” stocks, meaning their values are particularly sensitive to changes in expectations about the level of Treasury rates. Given the evolution of the inflation outlook in the last month, one sort of has to imagine the market is anticipating future Fed rate increases to stymie the rising prices, which could have a particularly adverse effect on stocks like these.
As to macro factors more generally, it’s worth noting there are a lot of moving pieces in the macro outlook right now—from the drivers of continued low labor market participation, to the causes of rising price levels, to the merits of the current administration’s latest budget proposal, to the wisdom of the Fed’s continued monetary support, to the global covid outlook. I try to feature some of these topics in Stoney Point’s “what we’re reading” posts, but I do view these factors as mostly affecting asset allocation decisions (i.e., “Should I be in stocks or in gold or real estate or bonds?) rather than security selection decisions (i.e., given I’m going to be in stocks over a 3- to 5-year horizon, which stocks should I choose?”). My here’s here at Stoney Point are a little more focused on latter.
Stoney Point Total Performance History
June Prime + Select picks available now
The new Prime and Select picks for June are available starting now, based on a model run put through today (May 29). As a note, we’ll be measuring the performance on these picks from the first trading day of the month, Tuesday, June 1, 2021 (at the mid-spread open price) through the last trading day of the month, Wednesday, June 30, 2021 (at the mid-spread closing price).
You can check out the latest picks here, and stay tuned for performance result for May.
What we’re reading (5/29)
“Memorial Day Travel Surge To Test Airports, Airlines” (Wall Street Journal). “While domestic air-travel numbers last Christmas were only half those in 2019, recent Transportation Security Administration counts have them now hovering around 90% of pre-pandemic levels. The TSA screened 1.9 million passengers last Sunday, a 14-month high.”
“Why You Should Wait Out The Wild Housing Market” (The Atlantic). “How wild is the U.S. housing market right now? So wild, half of the houses listed nationwide in April went pending in less than a week. So wild, one poll found that most buyers admitted to bidding on homes they’d never seen in person. So wild, a Bethesda, Maryland, resident recently included in her written offer “a pledge to name her first-born child after the seller,” according to the CEO of the realty site Redfin. So wild, she did not get the house.”
“Bosses Are Acting Like The Pandemic Never Happened” (Vox). “CEOs should be thinking ‘if I try to push my organization back to 2019 and that all-cubicle model,’ [Harvard Business School professor Prithwiraj] Choudhury said, ‘the risk is I’m going to lose my best employees.’”
“Even In The Face Of Surging Grocery Prices, Retail Beef And Pork Prices Cause Sticker Shock” (Washington Post). “Overall food prices rose 0.4 percent from March, and are up 1 percent from a year ago, according to data released by the Bureau of Economic Analysis on Friday. The price of pork soared 2.6 percent in the month of April and 4.8 percent from a year ago, adjusting for seasonality. And while beef and veal prices stayed fairly flat for the month, they are up 3.3 percent from a year ago. In a season that routinely sees increased demand for beef and pork, this goes far beyond people excited to get back outside to barbecue.”
“A Massive Cannabis Farm Raided By UK Police Turned Out To Be A Bitcoin Mine” (Business Insider). “When police in West Midlands, UK were getting ready to raid what they suspected was a cannabis farm on May 18, they instead discovered a cryptocurrency mine that was stealing thousands of pounds worth of electricity from the main supply. ‘It's certainly not what we were expecting,’ Sandwell Police Sergeant Jennifer Griffin, said in a statement.”
What we’re reading (5/28)
“Commercial Real Estate Is Stuck In A Slow Motion Train Wreck” (Business Insider). “[R]ight now there is a two-ton grey rhino staring down the US economy: More precisely, $6.5 trillion of assets in the US commercial real estate (CRE) industry. This coming CRE threat, in the three major non-residential sectors of the industry, is snorting loudly and padding its foreleg, while we all stand and stare.”
“A Key U.S. Inflation Gauge Rose 3.1% Year Over Year, Higher Than Expected” (CNBC). “A key inflation indicator rose a faster-than-expected 3.1% in April as price pressures built in the rapidly expanding U.S. economy, the Commerce Department reported Friday. The core personal consumption expenditures index was forecast to increase 2.9% after rising 1.9% in March. Federal Reserve officials consider the measure to be the best gauge for inflation, though they watch a number of metrics.”
“The Economy Is Spinning Its Wheels, And About to Take Off” (Paul Krugman, New York Times). “[C]hill out. There is some bad news out there, but most of it is a temporary byproduct of extraordinary good news: The virus is losing, and the economy is winning.”
“Americans’ Boost To Spending Is Adding Fuel To Economic Growth” (Wall Street Journal). “Americans extended a spending binge in April as they continue to catch up on activities they held off on during the pandemic, propelling a broad economic recovery. After months of buying goods, many households are now shelling out more for services, dining out, traveling, and even visiting the spa. Consumer spending rose by 0.5% in April the Commerce Department said Friday—a solid increase, though slower than the 4.7% gain the prior month, which was fueled in part by federal stimulus checks.”
“The Tech Startup That Taught A Computer To Taste Wine” (CNN Business). “A California startup that taught a computer to ‘taste’ wine is using the technology to help winemakers improve their products and attract new customers. Founder Katerina Axelsson says Tastry uses artificial intelligence (AI) to analyze ‘tens of thousands of wines a year,’ generating vast reams of data to help winemakers and retailers target their products more effectively.”
June picks available soon
We’ll be publishing our Prime and Select picks for the month of June before Tuesday, June 1 (the first trading day of the month). As always, we’ll be measuring SPC’s performance for the month of May, as well as SPC’s cumulative performance, assuming the sale of the May 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., May 28 — note: Monday is Memorial Day and U.S. markets are closed). Performance tracking for the month of June will assume the June picks are bought at the open price (at the mid-point of the opening bid and ask prices) on the first trading day of the month (Tues., June 1).
What we’re reading (5/27)
“Wall Street Rebels Against Exxon” (DealBook). “Exxon Mobil suffered a stunning loss at its annual shareholder meeting yesterday, as a small new activist investor focused on climate change, Engine No. 1, won at least two seats on its 12-member board. To corporate America, the upset was a clear sign that company boards and leaders need to pay attention to environmental, social and governance issues (known as E.S.G.) — or suffer rebukes.”
“Larry Summers Sends Stark Inflation Warning To Joe Biden” (CNN Business). “Larry Summers is urging Washington to tap the brakes on stimulus — or risk unleashing a serious burst of inflation.‘I think policy is rather overdoing it,’ Summers said in recorded comments at a CoinDesk conference that were released Wednesday. ‘The sense of serenity and complacency being projected by the economic policymakers, that this is all something that can easily be managed, is misplaced.’”
“‘God Told Me to Put Money Into Hertz’: How Small Investors Are Upending Wall Street” (Wall Street Journal). “Many small investors are beating Wall Street pros at their own game. A basket of stocks favored by individuals has outperformed the broader market since March of last year, according to Vanda Research. This group, which includes behemoths like Apple Inc. and Tesla Inc. alongside electric-vehicle maker NIO Inc. and digital-payments company Square Inc., has gained 68% since the beginning of March 2020, far outpacing the S&P 500’s roughly 36% climb.”
“An Economic Theory Called ‘Reallocation Friction’ May Explain Why Employers Are Having A Hard Time Finding Workers — And Why A Full Recovery Could Be Years Away” (Business Insider). “In a normal economy, it's not a problem when workers change careers; other jobseekers can come in to take their place. But an exodus, like the one we may be seeing now in hotels and restaurants, is different. It can take time for workers to find a job in an unfamiliar industry in which they have few connections. Their new positions could require them to move to another city or state. And inexperienced workers require training to build up the necessary skills. Until all that happens, jobs go unfilled — keeping unemployment elevated, even though the demand for those jobs is there. Economists call it reallocation friction.”
“Best Buy Sales Jump 36% As Consumers Splurge On Electronics, Retailer Raises Forecast” (CNBC). “Best Buy said Thursday that sales grew 36% in the fiscal first quarter as shoppers’ stimulus-fueled spending spree included consumer electronics. Shares of the company 3.3% in premarket trading after the home electronics and appliance retailer raised its forecast.”
What we’re reading (5/26)
“Dow Jones Industrial Average Celebrates 125 Years As Wall Street’s Bellwether” (Wall Street Journal). “One hundred twenty-five years ago, the Dow Jones Industrial Average made its debut. The index of 12 smokestack companies closed that first trading day, May 26, 1896, at 40.94. It included General Electric Co. as well as long-forgotten names like American Cotton Oil and Distilling & Cattle Feeding. Since then, the Dow has evolved with the U.S. economy, giving investors from Wall Street to Main Street a measure of financial markets through the Great Depression, two world wars and all the events that shaped the 20th and early 21st centuries. It has risen an average of 7.69% each year and notched 1,464 record closes, according to Dow Jones Market Data.”
“The Bankers, Brokers, And Big Money Transforming Litigation Finance From A Lawyer's Hustle To A Multibillion-Dollar Asset Class” (Business Insider). “Paying for someone else's lawsuit used to be illegal. Now it's a multibillion-dollar opportunity. Commercial litigation funders make money by advancing money to businesses that lack the resources or the patience for a lawsuit. In return, they get a multiple of what they invested (often double or triple) or a return anchored to an interest rate. Litigation funders now have $11.3 billion invested or ready to invest in US commercial litigation, according to a recent estimate by Westfleet Advisors.”
“Amazon To Buy MGM Studios For $8.45 Billion” (CNBC). “Amazon said it hopes to leverage MGM’s storied filmmaking history and wide-ranging catalog of 4,000 films and 17,000 TV shows to help bolster Amazon Studios, its film and TV division.”
“Credit Suisse Just Told Its New York Bankers To Come Back To The Office From June 14 As More On Wall Street Prepare For A Summer Return” (Times News Express). “Credit Suisse follows Goldman Sachs, which also asked its US employees to come back to the office by June 14, Insider reported earlier this month. Goldman’s CEO David Solomon, in particular, has not been shy at voicing his discontent with remote work, calling it an ‘aberration.’”
“Ford Plans $30 Billion Electric Vehicle Investment By 2025” (CNN Business). “Ford is doubling down on electric vehicle development, announcing Wednesday it will invest $30 billion in electrification efforts by 2025. The automaker also pledged that 40% of its vehicles sold by 2030 will be electric. Ford had previously announced plans to spend $22 billion on electrification efforts and had recently revealed plans to build two new battery factories in a joint venture with Korean battery maker SK innovation.”
What we’re reading (5/25)
“The Great Commodities Boom Hits A Chinese Wall” (CNN Business). “In recent weeks, investors have poured money into bets on raw materials like steel and iron ore, confident that limits to supply and massive post-pandemic demand would trigger one of the biggest price spikes in decades. Now, thanks to action from China, the frenzy may be on hold. What's happening: Five top Chinese regulators announced Monday that they had jointly summoned key companies in the iron ore, steel, copper and aluminum sectors over the weekend…to step up regulation and closely monitor commodities markets, warning that there would be ‘zero tolerance’ for speculation or market manipulation.”
“Bitcoin Traders Using Up To 100-To-1 Leverage Are Driving The Wild Swings In Cryptocurrencies” (CNBC). “Bitcoin’s aggressive moves are being driven by much more than the next China crackdown or Elon Musk headline. Traders taking excessive risk in the unregulated cryptocurrency market being forced to sell when prices go down were in large part responsible for last week’s 30% drop in prices and outages for major exchanges, according to analysts. A burgeoning bitcoin lending market is also adding to the volatility.”
“900 People A Day Are Moving To Florida, Many Fleeing ‘Tax Hell’ In New York And New Jersey, The State's CFO Said” (Business Insider). “About 900 people a day are moving to Florida, the state's CFO, Jimmy Patronis, told Fox Business on Monday, attributing it mainly to higher taxes in states such as New York and New Jersey. Migration to Florida had steadily risen over the past decade before booming during the coronavirus pandemic as remote working and the warm climate drew people to the Sunshine State. Florida also has no personal income tax. In comparison, New York unveiled proposals in April to bump up its income-tax rates for its wealthiest residents. Patronis told Fox that states like New York and New Jersey were ‘financial train wrecks.’”
“If You Thought Working From Home Was Messy, Here Comes Hybrid Work” (Wall Street Journal). “It took months for bosses and employees to adjust to working remotely in the pandemic. The next era of work might be even more messy. Companies are laying down new rules and setting expectations for hybrid work as some workers come back in and others remain out of office…after months of discussions, big employers from Humana Inc. in Louisville, Ky., to Nike Inc. near Portland, Ore., say they are cementing plans to return to corporate complexes after Labor Day[.]”
“Global Uncertainty Is On The Wane” (The Economist). “The covid-19 pandemic created a wave of economic uncertainty around the world in 2020. But at the start of this year, even as infections mounted globally, a sense of confidence appeared to be returning. Such is the signal recorded by the World Uncertainty Index, a quarterly measure of global economic and political turmoil. It hit a record high in the first quarter of 2020, but fell sharply in the three months to the end of March this year, touching a 14-year low.”
What we’re reading (5/23)
“Bosses Still Aren’t Sure Remote Workers Have ‘Hustle’” (Wall Street Journal). “More than a year into America’s great work-from-home experiment, many companies have hailed it largely as a success. So why do some bosses think remote workers aren’t as committed as office dwellers? Recent remarks of numerous chief executives suggest the culture of workplace face time remains alive and well. At The Wall Street Journal’s CEO Council Summit this month, JP Morgan Chase & Co.’s Jamie Dimon said remote work doesn’t work well ‘for those who want to hustle.’ Goldman Sachs CEO David Solomon has called it ‘an aberration that we are going to correct as soon as possible.’”
“A Biden-Friendly Economist Is Creating A Big Headache For President's Spending Plans” (Politico). “The White House and congressional Democrats have argued for weeks that the lack of child care services poses a major obstacle to the economic recovery, pressing for a massive and immediate investment to get parents back to work. But a new economic analysis led by a prominent White House ally concludes that school and daycare closures are not driving low employment levels — blunting a key Biden administration argument in favor of its American Families Plan and undercutting the view of some Democrats that investing in child care is crucial for the country to climb out of the coronavirus recession.”
“The Declining American Birth Rate Could Actually Be Good For The Economy” (Business Insider). “Earlier this month, the Centers for Disease Control and Prevention (CDC) dropped a new report that revealed the US birth rate fell by 4%, the sharpest single-year decline in nearly 50 years and the lowest number of births since 1979…[b]ut here's the thing: A declining birth rate isn't necessarily bad news. It's both the continuation of a decades-long trend and a symbol of progress in gender equity. And while it signals some economic distress, it may also represent the start of a solution to America's affordability problem.”
“More Investors Than Ever Are Borrowing To Buy Stocks. Here’s What This Really Means For The Market” (MarketWatch). “Margin debt’s new all-time high is neither bullish nor bearish. I’m referring to the total amount that investors have borrowed to purchase stocks. Because the effect of margin is to leverage stocks’ gains, its marketwide level is a measure of investor confidence. To the bulls, rising margin debt means investor sentiment should be strong enough to propel the market higher. To the bears, in contrast, it is a contrarian indicator, with high levels indicating dangerous levels of speculative excess.”
“Bookies Of Mormon! Church Of Latter Day Saint Sees Its GameStop Shares Rocket 10-Fold To $8.7 Million - As Its Big-Tech Investments Help Swell $100bn Portfolio By $2.4 billion” (Daily Mail). “The Church of Jesus Christ of Latter-day Saints has seen its investment in shares of GameStop pay off handsomely thanks to the meme-fueled rally, after its initial $867,000 investment soared to $8.7 million in just a few months. Ensign Peak Advisors, the church's investment arm based in Salt Lake City, first purchased 46,000 shares of the struggling video game retailer in late 2020, when the stock traded between $10 and $20, according to regulatory filings.”
What we’re reading (5/22)
“Home Prices Just Smashed Another Record” (CNN Business). “Home prices in the US continued to climb in April, reaching new highs and rising at the fastest pace on record. The median sale price was a record $341,600 in April, according to a report from the National Association of Realtors. It was the highest median price since NAR began tracking this data in 1999. The median price, which includes existing single-family homes, townhomes, condominiums and co-ops, was up a record 19% from a year ago.”
“Why It’s Hard To Hire Right Now” (DealBook). “Businesses of all types report that they are having trouble hiring despite high unemployment. But are expanded unemployment benefits really to blame? We asked experts in economics, recruiting and other fields what’s making it hard for many U.S. businesses to hire right now — and what they can do to fix it.”
“At Its Heart, The Legal Battle Between Apple And ‘Fortnite’ Maker Epic Games Is About Whether Or Not The iPhone Is A Computer” (Business Insider). “[The] argument is critical because of how the App Store operates, with Apple acting as the sole arbiter of what can and cannot be published on the iPhone. If the iPhone is a computer, then the App Store is a monopoly, Epic's lawyers argued. If it isn't, and it's a distinct category of device, then Apple says it is protecting its users by keeping alternative digital storefronts off the iPhone.”
“Green Finance Goes Mainstream, Lining Up Trillions Behind Global Energy Transition” (Wall Street Journal). “Some of the world’s biggest companies and deepest-pocketed investors are lining up trillions of dollars to finance a shift away from fossil fuels. Assets in investment funds focused partly on the environment reached almost $2 trillion globally in the first quarter, more than tripling in three years. Investors are putting $3 billion a day into these funds. More than $5 billion worth of bonds and loans designed to fund green initiatives are now issued every day. The two biggest U.S. banks pledged $4 trillion in climate-oriented financing over the next decade.”
“Inside The Rise And Fall (And Rise And Fall) Of Shit Coins” (Vanity Fair). “If this all seems a little ridiculous, it’s designed to be. The entire premise of shit coins is to play on people’s anxieties by inflating every aspect of the coin in question. Think of it like theater, in which the entire internet is the stage, and every social platform, messaging app, and meme is at the disposal of the actors who are trying to pump up the value of a specific coin so they can make money, and then run off with the proceeds before everyone else realizes they’ve been conned by a group of rogue investors.”