What we’re reading (6/16)
“Vaccines Will Be The ‘Most Important’ Economic Policy This Year, IMF Chief Says” (CNBC). “Vaccine policy will trump all other economic polices this year as the world tries to recover from the coronavirus crisis, Kristalina Georgieva, the head of the International Monetary Fund said at CNBC’s Global Evolve Summit on Wednesday.”
“Odds Favor The Dow Being Higher At The End Of 2021 And 125 Years Of History Supports This” (MarketWatch). “It’s because of the market’s efficiency that a buy-and-hold strategy is so hard to beat over the long term. When you deviate from that buy-and-hold approach, you’re in effect betting that you know more and have greater insight than the collective wisdom of millions of other stock market investors. It’s not out of the question that you do, but — as history has shown numerous times — it’s a low probability bet.”
“Hard Truths About SoftBank” (The Economist). “The bull case for SoftBank is simple. It is an unabashed wager on tech-fuelled firms continuing their meteoric rise. It can thrive as long as investors are on hand to fund loss-making companies in the hope of future riches. For now, they are. But the recent IPO boom is petering out. Much of SoftBank’s record profit came with an asterisk: the share prices that helped generate it had already started falling back to Earth…[t]he next stress test for SoftBank may not be far off.”
“Amazon Tracks Warehouse Workers’ Every Move Because Jeff Bezos Thinks People Are Inherently Lazy, Report Says” (Business Insider). “Many of Amazon's policies were designed to prevent workers from becoming lazy, a former vice president told The New York Times. David Niekerk, who helped design the company's warehouse-management system, told the publication that founder Jeff Bezos' belief that people are inherently lazy helped shape the company's policies. Bezos believed that workers' desire to perform well decreased over time and that an entrenched workforce was a ‘march to mediocrity,’ Niekerk told The Times.”
“Poultry Prices Soar To Record Amid U.S. Chicken-Sandwich Wars” (FarmProgress). “U.S. producer prices for processed poultry jumped to an all-time high in May, climbing 2.1% in the eighth straight monthly increase, U.S. government data showed Tuesday. Gains in poultry outpaced the 0.8% increase in the broader producer price index. The surge comes after several large fast-food restaurant chains recently launched fried-chicken sandwiches in a bid to match Popeyes’ 2019 viral success.”
What we’re reading (6/15)
“Wall Street Isn’t To Blame For The Chaotic Housing Market” (Vox). “The fundamentals of low supply of houses, low mortgage rates, and the entry of millions of millennials into the housing market armed with higher personal savings help explain most of why the housing market has careened out of control over the past year. According to the National Rental Home Council, a single-family home rental lobbying group, ‘single-family rental home companies accounted for less than 0.14 percent of homes purchased’ and just 0.09 percent of net homes if you count the fact that many single-family rental investors sold homes as well.”
“Fed Officials Could Pencil In Earlier Rate Increase At Meeting” (Wall Street Journal). “Federal Reserve officials could signal this week that they anticipate raising interest rates sooner than previously expected following a spate of high inflation readings. In March, the last time they released quarterly economic forecasts, most officials expected to keep the Fed’s benchmark interest rate near zero through 2023 to encourage the economy’s recovery from the pandemic. Officials are set to release updated projections Wednesday after a two-day policy meeting.”
“Lumber Prices Post Biggest–Ever Weekly Drop With Buyers Balking” (Bloomberg). “Prices in Chicago fell 18% this week, the biggest decline for most-active futures in records going back to 1986. Lumber has has now dropped almost 40% from the record high reached on May 10. Sawmills appear to be catching up with the rampant homebuilding demand in North America that fueled a months-long rally, bringing some relief to a market beset by supply shortages and price surges. Buyers are balking at still historically elevated prices and awaiting additional supplies, setting off a cascading sell-off, analysts said.”
“What Lordstown’s Meltdown Means For SPACs” (DealBook). “Lordstown Motors’ founder and C.E.O., Steve Burns, as well its C.F.O., Julio Rodriguez, abruptly resigned yesterday. The departures came as the electric vehicle manufacturer, which went public via a SPAC last year, said a board investigation had found “issues with the accuracy” of claims about orders for its yet-to-be-released electric truck. Shares of Lordstown fell sharply. The Securities and Exchange Commission is looking into SPAC regulations, but last week said the review wasn’t due until April 2022. In the meantime, what, if anything, can be done to stop this from happening again?”
“Business Is Booming As Regulators Relax Drone Laws” (The Economist). “Although drones, or uncrewed aerial vehicles (UAVs) as they are also known, were originally developed for military target practice and surveillance, the civilian versions that have emerged over the past decade have created a thriving new industry. Commercial UAVs, especially the hovering type, are now used for jobs ranging from inspecting power lines, buildings and crops, to aerial photography, transporting medical supplies and, in some places, delivering pizzas. The worldwide value of this business reached $22.5bn last year, according to Drone Industry Insights, a German research firm with its eye on the market. By 2025 that figure is expected to be more than $42bn.”
What we’re reading (6/14)
“Airline Stocks Have Soared. They're Not In The Clear Yet” (CNN Business). “Air travel in the United States is back. That's great news for airline stocks, which have rallied this year on hopes that domestic trips would make a return. What's happening: The Transportation Security Administration said over the weekend that it screened more than 2 million passengers on Friday — the highest number since early March 2020. Before the pandemic, TSA screened an average of 2 million to 2.5 million travelers per day.”
“Goldman Sachs Says Value Stocks Will Outperform In The Near Term - But Growth Stocks Will Take The Lead By End Of 2021” (Business Insider). “The rotation into value stocks spurred by the global economic recovery is mostly over, but investors should expect near-term outperformance of value names before growth stocks regain market leadership by the end of 2021, according to Goldman Sachs. ‘History, valuations, positioning, and economic deceleration indicate that most of the rotation is behind us,’ Goldman analysts led by Ben Snider said in a recent note.”
“Bank Of America CEO Brian Moynihan Says Consumer Spending Is 20% Higher This Year Than 2019” (CNBC). “American consumers are spending more freely as the economy continues to open up, according to Bank of America CEO Brian Moynihan. Transaction volumes on customers’ credit and debit cards and over the Zelle payment network has grown by 20% so far this year compared to this point in 2019, Moynihan told CNBC’s Becky Quick Monday on CNBC’s ‘Squawk Box.’ The comparison excludes 2020, an abnormal year in many respects because the onset of the pandemic led to widespread stay-at-home orders.”
“‘Great Resignation’ Wave Coming For Companies” (Axios). “Workers have had more than a year to reconsider work-life balance or career paths, and as the world opens back up, many of them will give their two weeks' notice and make those changes they’ve been dreaming about…[s]urveys show anywhere from 25% to upwards of 40% of workers are thinking about quitting their jobs.”
“The Pandemic Revealed How Much We Hate Our Jobs. Now We Have A Chance To Reinvent Work” (Time). “[Millions are] reassessing their relationship to their jobs. The modern office was created after World War II, on a military model—strict hierarchies…[b]ut after years of gradual change in Silicon Valley and elsewhere, there’s a growing realization that the model is broken. Millions of people have spent the past year re-evaluating their priorities. How much time do they want to spend in an office? Where do they want to live if they can work remotely? Do they want to switch careers? For many, this has become a moment to literally redefine what is work.”
What we’re reading (6/13)
“Shell Considering Sale Of Holdings In Largest U.S. Oil Field, Worth Up To $10 Billion” (CNBC). “Oil giant Royal Dutch Shell is reviewing its holdings in the largest oil field in the United States for a possible sale as the company looks to focus on its most profitable oil-and-gas assets and grow its low-carbon investments, according to sources familiar with the matter.”
“In Defense Of SPACs” (DealBook). “Special purpose acquisition companies, better known as SPACs, have single-handedly revived the market for initial public offerings, taking small companies public by the dozens. So far this year, there have been roughly twice as many listings of these blank-check companies as traditional offerings. And since these cash shells — which raise money in an I.P.O. on the promise of merging with a private company within a couple of years, taking it public — often target emerging tech companies, that market has returned to its glory years.”
“Markets Are Leaving Little Room For The Fed To Be Wrong On Inflation” (Wall Street Journal). “[I]nvestors need to consider the possibility that the Fed is wrong, too. The risk that inflation continues to overshoot is clearly much higher than usual, while the risk of undershooting is lower. Instead of leaving a larger margin of error around forecasts, bond markets are leaving little, perhaps none, with a yield of just 1.45% on the 10-year Treasury. The bond market’s best guess on long-term consumer-price inflation, the break-even rate for the five years starting in five years’ time, is down from a peak of 2.38% to just 2.23%; that implies inflation slightly below the Fed’s target on its preferred price gauge.”
“The Fed Says Inflation Is Transitory, But These 10 Companies Have Already Said They'll Pass Along Rising Costs To Customers” (Business Insider). “Whatever side of the argument investors land on [re: whether current inflation is transitory or permanent], one thing is clear, dozens of companies are raising prices due to the increasing costs of basic commodities. From Coca-Cola to Campbell Soup, the majority of these price increases have come from consumer staples companies that are most affected by commodity costs.”
“The Telegram Billionaire and His Dark Empire” (Der Spiegel). “Telegram isn’t just a WhatsApp with different roots. The service touts itself as a platform that is beyond the reach of states and authorities, a place where anyone can write and make whatever claim they want. This attracts conspiracy theorists, like Germany’s "Querdenker” movement, right-wing extremists, drug dealers and con artists. It doesn’t take much searching to find a "hit list” with the names of members of the German parliament on it. Counterfeiters use the app to peddle fake COVID-19 vaccination cards, dealers use it to sell all kinds of drugs. Crimes are openly and visibly planned and committed on Telegram. The app has become the equivalent of a darknet in your pocket.”
What we’re reading (6/11)
“Slow Jobs Growth May Not Be A Bad Sign For America’s Recovery” (The Economist). “A prolonged period of elevated involuntary unemployment undoubtedly carries risks. But sub-million monthly payroll reports are not for the moment cause for much worry. America remains on track to eliminate remaining pandemic unemployment within two years. And in the meantime, the churning of workers into new, different jobs could leave the economy more productive than before, and better equipped for a post-pandemic world.”
“How ESG Stocks Perform Depends On Who Ranks Them” (Wall Street Journal). “Money is pouring into stocks that get good grades on issues like building a diverse workforce and reducing carbon emissions. But figuring out how high- and low-rated companies perform is nearly impossible because of inconsistencies in the way they are rated. A close look at the ratings and performance of stocks ranked by the three major providers of data on environmental, social and governance criteria shows that companies can have widely different ratings. Depending on the time period and the provider, top-ranked ESG stocks either beat the market or lag behind it. Low-ranked stocks, which are generally deemed to pollute more and treat their workers less well, can outperform top-ranked ESG stocks, and the market overall.”
“Apple Hires BMW Veteran In Latest Sign Of Electric Car Push” (CNBC). “Apple has hired Ulrich Kranz, a former senior executive at BMW who focused on electric cars, Apple confirmed to CNBC’s Phil LeBeau on Thursday. The hire is the latest sign that Apple is serious about building an electric car to compete with automakers such as Tesla. Hyundai said earlier this year it was in talks with Apple to manufacture its car before walking its comments back and confirming it was no longer in discussions.”
“Retail Investor Base Doubles In Europe As U.S. ‘Meme’ Stock Mania Spreads - Euronext” (Reuters). “The number of retail investors in Europe has doubled since the start of last year as stay-at-home rules and high savings rates during the pandemic triggered a surge in stock investing by non-professionals, according to data from Euronext. The trend is still less prevalent in Europe than in the United States, where retail investor participation in stock markets soared last summer before hitting extreme levels in January.”
“Behold The Highest-Paid C.E.O.s” (DealBook). “Six of the 10 largest executive pay packages of all time were awarded last year. This and other findings come from a new survey of the 200 highest paid C.E.O.s at public companies conducted for The Times by Equilar, a consulting firm. ‘Even in a gilded age for executive pay, 2020 was a blowout year,’ writes The Times’s Peter Eavis.”
What we’re reading (6/10)
“Key Inflation Measure Rises At Fastest Pace Since 1992” (CNN Business). “Consumer prices roared higher in May, rising at their fastest pace in decades. Inflation rose 5% in the 12-months ending in May, the Bureau of Labor Statistics reported Thursday. That was a faster pace than economists had predicted and the biggest jump since August 2008.”
“Homeowners Got $2 Trillion Richer During The First Three Months Of The Year” (CNBC). “Homeowners are getting richer and richer as prices keep soaring – and the numbers are staggering. Those with mortgages — about 62% of all properties — saw their equity jump by 20% in the first quarter from a year earlier, according to CoreLogic. This represents a collective cash gain of close to $2 trillion. Per borrower, the average gain was $33,400.”
“Coinbase Teams Up With 401(k) Provider To Offer Crypto” (Wall Street Journal). “A small group of workers will find something new in their 401(k) plan starting in July: the option to invest in cryptocurrency. ForUsAll Inc., a 401(k) provider, announced earlier this month a deal with the institutional arm of Coinbase Global Inc., a leading cryptocurrency exchange, that will allow workers in plans it administers to invest up to 5% of their 401(k) contributions in bitcoin, ether, litecoin, and others.”
“Are You A Work-Life Integrator Or A Segmenter? The Answer May Predict Your Risk Of WFH burnout.” (Business Insider). “Positioning the return to work as a potential cure for burnout is an idea that could gain traction — for better or for worse — at a time when many organizations face resistance from employees with little interest in commuting to an office five days a week.”
“Keystone XL Pipeline Nixed After Biden Stands Firm On Permit” (ABC News). “The sponsor of the Keystone XL crude oil pipeline pulled the plug on the contentious project Wednesday after Canadian officials failed to persuade President Joe Biden to reverse his cancellation of its permit on the day he took office. Calgary-based TC Energy said it would work with government agencies “to ensure a safe termination of and exit" from the partially built line, which was to transport crude from the oil sand fields of western Canada to Steele City, Nebraska.”
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.”