What we’re reading (8/2)
“Why Apple Shareholders Shouldn’t Be Too Worried After The Earnings Selloff” (CNBC). “‘Let’s face it, if Apple has any trouble getting chips, then every other company on the planet will have 10x those problems,’ said Nick Colas, co-founder of DataTrek Research. ‘If you’re really worried about chip supply, you want to own Apple because it is first in line at every chip fab.’”
“Fed's Kashkari Warns Delta Variant Fears Are Keeping Millions From Restarting Work And Could Slow The Labor Market's Recovery” (Business Insider). “As many as 9 million Americans are holding back from returning to work as the highly contagious Delta variant spreads, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Sunday…The Federal Reserve policymaker said he had hoped the job market would revive in the fall with millions going back to work, and he still expects that to be the case.”
“A Tsunami Of Deferred Debt Is About To Hit Homeowners No Longer Protected By A Foreclosure Moratorium” (Washington Post). “A Washington Post analysis of the Census’s Household Pulse Survey showed that although the percentage of homeowners surveyed who were behind on their mortgage has declined from 7.8 percent at its peak in mid-December to 4.7 percent in early July, the share of delinquent homeowners who experienced a loss of income due to unemployment has increased to 14.5 percent. That number is even higher among those who reported they used money saved from any missed or deferred payments to meet spending needs, at 18.8 percent.”
“Home Prices Are Soaring. Is That the Fed’s Problem?” (New York Times). “It’s an unattractive prospect to pull back monetary support to try to rein in housing specifically, because doing so would slow the overall economy, making it harder for the central bank to foster full employment. The Fed’s policy-setting committee voted Wednesday to keep policy set to full-support mode, and Mr. Powell said at a subsequent news conference that the economy remains short of the central bank’s jobs target.”
“Foot Locker To Buy Two Shoe Store Chains For $1.1 Bln” (Reuters). “Pent-up demand for sneakers and athletic gear from U.S. shoppers, as well as government stimulus have boosted Foot Locker's sales this year, but the company has said it was looking to focus beyond malls whose traffic has been pressured by the pandemic and a surge in online shopping.”
July 2021 performance update
Hi all,
Here with a performance update for July. The key numbers for the month:
Prime: -0.45%
Select: +3.11%
SPDR S&P 500-tracking SPY ETF: +2.25%
Bogleheads Portfolio (80% VTI + 20% BND): +1.42%
A good outcome for Select, with a couple of big winners in the monthly (namely, Advanced Micron Devices and Monolithic Power Systems, up ~13% and ~19%, respectively). Prime was a bit softer, but the flattish-ness masks significant heterogeneity in performance across the included positions, with Paycom’s big ~10% monthly return offset by single-digit negative returns across a number of names that will continue to be in the Prime set in August. The underlying thesis/hope, of course, is that catalysts for a re-rating of these stocks will manifest in trading sessions yet to come.
On the macro front I’m keeping an eye on the proliferation of the Delta variant, federal infrastructure spending plans, and Fed rates. This is all for asset allocation purposes, and would not affect what stocks SPC would select among equities overall. Overall, on a 3- to 5-year horizon, I personally anticipate maintaining a sizeable allocation to U.S. equities.
Stoney Point Total Performance History
August Prime + Select picks available now
The new Prime and Select picks for August are available starting now, based on a model run put through today (August 1). As a note, we’ll be measuring the performance on these picks from the first trading day of the month, Monday, August 2, 2021 (at the mid-spread open price) through the last trading day of the month, Tuesday, August 31, 2021 (at the mid-spread closing price).
You can check out the latest picks here, and stay tuned for performance result for June.
What we’re reading (8/1)
“FTC’s Economics Witness Out, In New Blow To Court Fight With Facebook” (Politico). “The lead economics expert in the Federal Trade Commission’s antitrust suit against Facebook has parted ways with the agency, two individuals familiar with the case said — adding yet another impediment to the regulator’s largest court fight…[t]he expert, University of California-Berkeley economist Carl Shapiro, didn’t respond to multiple phone calls and an email asking the reasons for his departure. But he has criticized new FTC Chair Lina Khan’s aggressive approach to antitrust enforcement, and she in turn has faulted the agency’s traditional reliance on economists’ analyses in its fights against alleged monopolists.”
“Fed’s Brainard Says Labor Market Hasn’t Satisfied Goals For Reducing Bond Purchases” (Wall Street Journal). “The U.S. labor market hasn’t achieved enough progress to justify a pullback in the Federal Reserve’s stimulus program but is on track to reach a key threshold around the end of the year, a top central bank official said in a speech prepared for delivery Friday night. The Fed cut its benchmark interest rate to near zero in March 2020 and has been purchasing at least $120 billion a month in Treasurys and mortgage bonds to provide extra stimulus to the economy.”
“Interest Rates Haven’t Been This Low In 5,000 Years” (MarketWatch). “How is this for a historical comparison — interest rates are at a 5,000-year low. That’s a finding in the latest Bank of America flow show report, which, in fairness, is a number that’s been trotted out before. It’s based on a 2005 book about the history of interest rates, but the chart is still incredible to examine. ‘In the next 5,000 years, rates will rise, but no fear on Wall Street this happens anytime soon,’ said David Jones, director of global investment strategy at Bank of America.”
“Hedge Fund Buys Paper. Hedge Fund Closes Paper.” (New York Times). “Over the last 15 years, more than one quarter of newspapers, mostly weeklies like The Blade-News, have gone out of business, according to a University of North Carolina study. Alden and other hedge funds have bought struggling papers, seeing them as undervalued assets that can be made profitable after further cutbacks.”
“Lumber Prices Have Fallen, But The Stage Is Set For A Potential 65% Rally Through The End Of The Year, An Expert Says” (Business Insider). “[W]ith the $1.2 trillion bipartisan infrastructure deal moving through Congress, a continued rise of housing prices thanks to near-zero interest rates, and seasonal historic trends, there is a good chance lumber prices will rise again, to as high as $1,000 per thousand board feet, according to Joshua Mahony, senior market analyst at trading platform IG.”
What we’re reading (7/30)
“How The Coronavirus Infects Cells — And Why Delta Is So Dangerous” (Nature). “What has emerged from 19 months of work, backed by decades of coronavirus research, is a blow-by-blow account of how SARS-CoV-2 invades human cells (see ‘Life cycle of the pandemic coronavirus’). Scientists have discovered key adaptations that help the virus to grab on to human cells with surprising strength and then hide itself once inside. Later, as it leaves cells, SARS-CoV-2 executes a crucial processing step to prepare its particles for infecting even more human cells. These are some of the tools that have enabled the virus to spread so quickly and claim millions of lives. ‘That’s why it’s so difficult to control,’ says Wendy Barclay, a virologist at Imperial College London.”
“A No-Jerks Policy Ignited Morale at the Company Behind Yankee Candle” (Wall Street Journal). “Founded in 1903 as a maker of curtain rods, Newell grew over the decades by acquiring dozens of household brands, from Rubbermaid and Contigo water bottles to Elmer’s glue and Baby Jogger strollers. In 2016, a megadeal combined Newell with Jarden Corp., whose brands included Crock-Pot cookers, Yankee Candle and Bicycle playing cards. The companies proved to be a poor fit. Many Jarden brands struggled under Newell, which ultimately jettisoned most of them while keeping the largest, Yankee Candle.”
“Why A Looming Copper Shortage Has Big Consequences For The Green Economy” (CNBC). “Copper has played a big role in the world economy for thousands of years. The Bronze Age? That happened because blacksmiths figured out how to forge copper with tin. Now copper is used in electrical and heating equipment because its chemical properties make it such a useful conductor. It’s used in car motors, household pipes, washing machines, all sorts of things we use every day. That’s not to mention all the different copper alloys that get mixed into other metals and items. Also, the metal is so easily recyclable that most of the copper on earth remains in the ground. In fact, only about 12% of all copper on Earth has been mined throughout human history, and nearly all of it remains in circulation. Some of the copper in circulation right now could have once been jewelry or armor in ancient Egypt.”
“The Prospects For Developing Countries Are Not What They Once Were” (The Economist). “From 2000 to 2011, the brics grew on average by a startling 17% per year, in nominal us dollars at market-exchange rates, while the g6 grew at just 4%. They reached half the g6’s gdp by 2017, not 2025. In 2021, the imf projects, bric gdp will be worth about 57% of the g6’s (see chart 1). Last year China announced that it had eradicated extreme poverty. As of 2018 the number of people living in extreme poverty in India had fallen below the estimated 99m people living in extreme poverty in Nigeria. It is a historic achievement. The 2040 prediction looks more troubled.”
“Why Do We Buy Stuff?” (Morningstar). “Imagine you’re in an ice cream shop. There are 20 different flavors to choose from. If you’re like me, you’ll narrow those 20 flavors down pretty quickly by eliminating all the ones that aren’t chocolate. But what if there were 100 flavors to choose from, and 20 of them were some variety of chocolate?”
What we’re reading (7/29)
“Halfway Through Earnings Season, The ‘Peak Everything’ Story May Need To Be Put On Hold” (CNBC). “As has been the case for the last several quarters, analysts have substantially underestimated the extent of the economic recovery. Earnings are coming in 18% above expectations, well above the historic norms of 3% to 5% above expectations…Why does this keep happening? ‘The analysts cover individual companies; they’re not economists,’ said Nick Raich of The Earnings Scout. ‘They have been looking to the companies for guidance, and the company guidance overall has been far too conservative. The expectations for the economy keep getting better, not worse.’”
“Robinhood IPO Prices At $38 A Share” (Wall Street Journal). “The price chosen by the company and its underwriters is at the bottom of the range of $38 to $42 a share they had been targeting. It pegs Robinhood’s valuation at about $32 billion, far higher than the nearly $12 billion it fetched in a funding round a year ago but below the lofty prior expectations of some investors and bankers.”
“Nikola Founder Trevor Milton Indicted In US For Misleading Investors” (Reuters). “Trevor Milton, the founder of electric truck maker Nikola Corp, has been indicted on charges of making false and misleading statements to investors, the U.S. Department of Justice said on Thursday. The indictment said that, from November 2019 to September 2020, Milton schemed to defraud investors into buying Nikola shares through statements about the company's product and technology development.”
“All It Took For Credit Suisse To Lose $5.5 Billion Was For People To Ignore Huge Risks Piling Up That Weren’t Making The Bank Any Money” (Dealbreaker). “Did you think that $5.5 billion disasters that lead to house-cleanings at both the investment bank and compliance department, cutting the prime brokerage business to the bone, an avalanche of ominous letters and phone calls from regulators and prosecutors, and enough fury to cause even the Swiss to consider—however briefly—actually holding bankers to account just sort of, you know, happen[?]…well, uh, you pretty much hit the nail on the head, according to Credit Suisse’s in-house investigation into the Archegos Capital Management debacle.”
“The Big Boat Is Back: Ever Given Finally Arrives In Rotterdam After Disastrous And Costly Suez Canal Incident” (Business Insider). “The Ever Given, which blocked cargo traffic for six days earlier this year after getting stuck in the Suez Canal, has finally arrived at the Dutch port of Rotterdam, its original destination. The boat docked at Rotterdam's ECT Delta terminal on Thursday morning, per Reuters. It will be there unloading its cargo until August 3, after which it will move on to its next destination, Felixstowe, in the UK.”
What we’re reading (7/28)
“Hot Housing Market Lets Banks Sell Mortgage Risk” (Wall Street Journal). “A red-hot housing market is enabling banks to sell a new kind of bond that shares the risk of mortgage and loan defaults with institutional investors. Texas Capital Bank recently sold $275 million of securities to investors looking to cash in on the pandemic-fueled boom in home prices. The bonds are backed by short-term loans the bank makes to mortgage lenders. When those lenders’ borrowers default, the investors in the bonds effectively cover the loss. The transfers are a product of the effort to shield Fannie Mae and Freddie Mac from the risk of a mortgage-market reversal.”
“Mortgage Rates Just Dropped To A Six-Month Low, And Refinances Shoot Higher” (CNBC). “The popular 30-year fixed mortgage rate fell back to the lowest level since February last week, and the 15-year fixed set a record low. That sent borrowers to their lenders, looking to save money on their monthly payments. Applications to refinance a home loan jumped 9% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index…[t]he average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.01% from 3.11%, with points decreasing to 0.34 from 0.43 (including the origination fee) for loans with a 20% down payment.”
“Robinhood Reveals New Regulatory Probes On The Eve Of Its Blockbuster IPO” (CNN Business). “Regulators are investigating the fact that Robinhood CEO Vlad Tenev is not licensed by FINRA, Wall Street's powerful self-regulator, the online trading platform announced Tuesday. News of the probe comes more than five months after CNN Business reported that Tenev, the public face of Robinhood, is not registered with FINRA, short for the Financial Industry Regulatory Authority. That's despite the fact that he presides over one of the nation's largest and most powerful online brokerages.”
“JPMorgan's Head Of Electronic Trading Analytics Left For A Hedge Fund” (eFinancialCareers). “Pascal Tomecek, a JPMorgan managing director who was responsible for electronic trading and data analytics for spread markets in the corporate and investment bank, has left for a hedge fund…Tomecek is joining the New York office of Cubist Systematic Strategies…[a]t JPMorgan he worked across credit securitized products and public finance, incorporating algorithmic market making, machine learning, fixed income analytics and automated trade idea generation. Cubist Systematic Strategies is the quantitative investing arm of Point72, the hedge fund run by Steve Cohen, now also the owner of the New York Mets. Working in a data role for Cohen can be an opening to a whole new baseball career: Sameer Gupta, the head of data solutions for Point72 has also been made the head of data solutions for the Mets.”
“Goldman Sachs Files To Create An ETF Dedicated To DeFi And Blockchain Stocks” (Business Insider). “Goldman Sachs is aiming to create an exchange-traded fund focused on companies developing decentralized finance and blockchain technology, a regulatory filing shows. In an application filed Monday with the Securities and Exchange Commission, the US bank said it plans to use Solactive's Decentralized Finance and Blockchain Index as a benchmark for its Goldman Sachs Innovate DeFi and Blockchain Equity ETF.”
What we’re reading (7/27)
“Rookie Bankers Sour On Wall Street’s Pitch Of Big Pay And Long Hours” (New York Times). “Although top executives of the biggest banks have recently talked tough about the need for employees to return to the office, many are paying heed to the complaints of their youngest workers. Goldman’s chief executive, David Solomon, said in an earnings call this month that his firm would pay more competitively and enhance rewards for performance. Goldman is also enforcing its no-work-on-Saturday rule. JPMorgan is rolling out technology to automate some aspects of analysts’ work, and recently hired more than 200 additional junior bankers to ease the pressure in a particularly busy year.”
“Work-From-Anywhere Perks Give Silicon Valley A New Edge in Talent War” (Wall Street Journal). “Some of the biggest names in tech aren’t just allowing existing workers to relocate out of the Bay Area, they are also starting to hire in places they hadn’t often recruited from before. The result is the most geographically distributed tech labor market to date. That’s leading to above-market rates for workers in smaller hubs, forcing local companies to raise wages to keep up with the cost of living and fend off deeper-pocketed rivals from California, Seattle and New York.”
“IMF Warns That Inflation Could Prove To Be Persistent And Central Banks May Need To Act” (CNBC). “The International Monetary Fund warned Tuesday that there’s a risk inflation will prove to be more than just transitory, pushing central banks to take pre-emptive action. The issue is currently dividing the investment community, which has been busy contemplating whether a recent surge in consumer prices is here to stay. In the U.S., the consumer price index came in at 5.4% in June — the fastest pace in almost 13 years. In the U.K., the inflation rate reached 2.5% in June — the highest level since August 2018 and above the Bank of England’s target of 2%.”
“Private Equity Firms To Scramble For Exit After China's New Tutoring Rules” (Reuters). “China's move to ban private tutoring firms from making a profit from teaching core school subjects and raising capital is set to trigger a scramble among venture and private equity investors to find an exit after pouring billions of dollars into the sector.”
“Home Prices Can't Go Straight Up Forever. But This Probably Isn't A Bubble” (CNN Business). “[T]oday's housing market is very different from the mid-2000s bubble that wrecked the economy. Unlike then, there is currently a massive shortage of homes and home builders are being very cautious about adding new supply. The other key difference is that banks, home buyers and regulators appear to have learned a painful lesson about the pitfalls of overborrowing…Economists at Bank of America concede that home prices may correct lower in some markets in the short to medium term. Still, the bank told clients in a recent note that a ‘hard landing is unlikely’ this time around.”
What we’re reading (7/26)
“A Key Gauge Of Future Inflation Is Easing” (Wall Street Journal). “One of the most important signals of future inflation has begun to ease in the past month, a development that should reassure the Federal Reserve in its prediction that the recent inflation surge will prove largely temporary. That signal is so-called inflation expectations: what businesses, consumers, workers and investors expect inflation to be over the next one to 10 years. Because such expectations can be self-fulfilling, economists consider them key to where inflation is going.”
“As Food Prices Soar, Big Agriculture Is Having A Field Day” (The Economist). “Trouble is brewing in America. The reopening economy’s hunger for goods from China, and for the containers that carry them, has left importers of coffee, of which the average American guzzles two cups a day, struggling to ship the stuff from Brazil. They are using whatever they can get, says Janine Mansour of Port of New Orleans, where much of America’s raw coffee lands. That includes much bigger boxes, which reach maximum allowed weight before they are full. Importing part-empty containers adds extra costs, Ms Mansour says, and these will ultimately be swallowed by consumers.”
“Will The Economy Turn?” (Charles Schwab). “Although the growth rate may slow, U.S. economic growth remains high on level terms, and in our view that is likely to continue. However, this year’s swings between cyclicals and defensives, value and growth, and international and U.S. stocks exemplify the importance of holding a diversified portfolio to help reduce overall portfolio volatility.”
“Delays, More Masks And Mandatory Shots: Virus Surge Disrupts Office-Return Plans” (New York Times). “When companies began announcing tentative return-to-office plans this spring, there was a sense of optimism behind the messages. Covid cases were dwindling in the United States as the vaccine rollout picked up pace. Employers largely hoped their workers would get shots on their own, motivated by raffle tickets, paid time off and other perks, if not by the consensus of the medical community. In recent days, that tone has suddenly shifted.”
“Bitcoin, Dogecoin And Ethereum Are Suddenly Having Another Great Week” (CNN Business). “Cryptocurrencies rallied Monday, just a week after they were hit by a major sell-off. As of 4:45 a.m. ET on Monday, bitcoin, ethereum and dogecoin had soared 10%, 7.3% and 11%, respectively, over the past 24 hours, according to data from CoinDesk. Bitcoin climbed to a six-week high of nearly $38,133, while ethereum reached $2,330. Dogecoin was last trading at about 20 cents per coin, giving it a $28.8 billion market cap. The surge came as major tech giants have signaled — or appeared to signal — their support for digital currencies through last week.”
What we’re reading (7/25)
“Robinhood Promises To Fix ‘The Issues’ That Outraged Customers When It Restricted Trading In Meme Stocks” (Business Insider). “Robinhood knows it angered many retail investors earlier this year when the trading app halted buying of GameStop, AMC, and other meme stocks amid an epic rally — and the company has pledged to earn back the trust of frustrated customers. In a roadshow event Saturday ahead of its planned initial public offering, Robinhood cofounder and CEO Vlad Tenev said the company is ‘focusing on is making sure we fix the issues that led to customers being upset.’”
“FICO Score’s Hold On The Credit Market Is Slipping” (Wall Street Journal). “For decades, nearly every consumer credit decision revolved around a three-digit number—the FICO credit score. That is changing. FICO has long dominated the market for consumer credit, providing scores for some 200 million U.S. consumers that are used by a whole host of lenders to evaluate credit-card, auto-loan and mortgage applicants. For borrowers, higher scores can mean bigger loans and lower interest rates. But powerful forces are aligning to challenge its dominance.”
“Start-Ups Will Suffer From Antitrust Bills Meant To Target Big Tech, VCs Charge” (CNBC). “While proponents argue such bills would prevent so-called killer acquisitions where big companies scoop up potential rivals before they can grow — Facebook’s $1 billion acquisition of Instagram is a common example — tech investors say they’re more concerned with how the bills could squash the buying market for start-ups and discourage further innovation.”
“Why You Should Issue GDP Linked Bonds” (Bretton Goods). “[W]ill your GDP next year be higher and lower than this year. And by how much? Having a market based estimate of this information would be extremely helpful. To begin with it would provide a real time, day by day forecast of GDP. And given that prediction markets have had a good run so far, it will probably be more accurate than conventional forecasters. So the question comes: how do you structure a security to predict GDP?”
“Crocs Accuses Walmart, Hobby Lobby And Nearly 20 Other Brands Of Copying Its ‘Iconic Design’” (Washington Post). “In four lawsuits filed last week, the Colorado-based manufacturer claims the knockoffs infringe on its trademark for the distinctively clunky $50 shoes made with buoyant foam and ventilation holes that can be adorned with charms. ‘These actions underscore our determination to take forceful steps to protect our trademarks and other intellectual property,’ the company’s chief legal officer, Daniel Hart, said in a statement. ‘It is essential that we protect Crocs’ iconic DNA, and we will not tolerate the infringement of our rights or those who try to freeride on the investments we have made in our brand.’”
August picks available soon
We’ll be publishing our Prime and Select picks for the month of August before Monday, August 2 (the first trading day of the month). As always, we’ll be measuring SPC’s performance for the month of July, as well as SPC’s cumulative performance, assuming the sale of the July 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., July 30). Performance tracking for the month of August will assume the August 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 (Mon., August 2).
What we’re reading (7/22)
“Fed Chief Powell Enjoys Support For Reappointment, But He’s Not a Lock” (Wall Street Journal). “President Biden’s selection of the next Federal Reserve chair is likely to be a choice between keeping the current chief, who enjoys broad support in markets and among lawmakers from both parties, or replacing him with one of his well-regarded colleagues. Chairman Jerome Powell, whose term expires in February, is viewed by some inside and many outside the administration as the front-runner for the job.”
“The Bond Market Is Torn Over The Potential For Higher Inflation And Lower Growth” (CNBC). “A volatile environment for government bonds is reflecting a highly uncertain future for the U.S. economy, pointing to both slower growth and stubborn inflation. After a burst higher earlier this year that scared markets, Treasury yields have fallen back sharply as investors have switched their focus from worries about price increases to the potential that the rapid burst in post-pandemic activity could start to slow down.”
“AMC And Other Meme Stocks Flipped The Way Markets Usually Work” (MSNBC). “[W]hile most market observers, including me, thought that the meme-stock bubble would quickly burst, leaving many retail investors holding the bag, it has proved shockingly resilient. GameStop's stock, for instance, is still up by almost 1,000 percent in 2021, while AMC's stock is up by more than 1,800 percent. Now meme-stock traders are doing something even more surprising: using their power to reshape corporate decision-making.”
“JPMorgan Awards Jamie Dimon Surprise Retention Bonus” (Wall Street Journal). Present value? $50 million. And with “one exit strategy open for Mr. Dimon: He can exercise them if he leaves the bank for an elected or unelected government job, according to the regulatory filing.” SPC’s view: seen him in person, wasn’t impressed. And his return-to-office commentary has been embarrassing and totally out-of-touch.
“Why Should They Call Us ‘Professors’?” (Marginal Revolution). “Some of the strongest norms are around the title ‘Doctor.’ Just about everyone calls their physician ‘Doctor,’ though the esteemed profession of lawyer does not receive similar treatment. As a Ph.D.-toting academic, I’ve even had people say to me — correctly — ‘You’re not a real doctor.’ I fear that by ceding this unique authority status to doctors we are making it easier for them to oversell us medical care, a major problem in the U.S. If your doctor suggests that you need a procedure done, it can be hard to say no, especially if you have been deferring to that person for years through the use of an honorific title.”
What we’re reading (7/21)
“Options Trader Bets On A Huge Rebound For Nordstrom” (CNBC). “Nordstrom may have lost more than 3% in Monday’s washout — but that price action emboldened, rather than deterred — at least one options trader to make a very bullish bet on the retailer’s stock. As of Monday’s close, Nordstrom had lost 13% in the last week of trading. This trader looks to be betting that the bottom is in, and that the stock could jump as much as 34% by August expiration.”
“Why The Markets Worry About The Delta Variant” (DealBook). “Last week, analysts at Goldman Sachs told clients that the potential economic impact of the Delta variant of the coronavirus would be “modest.” Even if that turns out to be the case, investors look nervous as infections spread because of the highly contagious strain. Yesterday [Monday], the S&P 500 recorded its steepest one-day drop since May and European stocks had their worst day of the year.”
“Now Hiring: White Castle—Four Years After You Applied” (Wall Street Journal). “When Abigail Ezzell applied for a server position at Cracker Barrel, she was in high school. She was in college when she finally heard back. The email landed last month, three years after she submitted it. ‘It was like, hey, Abigail, so glad to see you applied! They gave me a date and time to come in for an interview,’ says Ms. Ezzell, 20. When Ms. Ezzell applied, she had been looking for an after-school job in Mount Airy, N.C. She’s now living in San Francisco, where she’s an undergraduate studying political science. ‘I definitely did not email them back,’ she says. Cracker Barrel declined to comment.”
“Comcast, ViacomCBS Rumors Said To Include Talk Of Something Bigger” (Forbes). “Executives for ViacomCBS and Comcast Corp. have been holding discussions that some interpret as laying the groundwork for something bigger. Speculation about a potential deal has been brewing since before this month’s Allen & Co. retreat for tech and media moguls in Sun Valley, Idaho, where ViacomCBS Chairwoman Shari Redstone and Comcast CEO Brian Roberts were among the notable attendees. Both companies have been under pressure to achieve greater scale, as competitors have struck major deals to propel their streaming services.”
“Haiti vs. the Dominican Republic: Why The Big Divergence?” (Noahpinion). “The countries of Haiti and the Dominican Republic together form the island of Hispaniola in the Caribbean. Haiti comprises roughly the western third of the island, while the D.R. makes up the eastern two-thirds. The economic divergence between these two countries is one of the most remarkable in the world, perhaps surpassed only by North and South Korea. As recently as 1960, the two countries had similar standards of living. Today, the D.R., by some measures, is eight times as rich as Haiti, while Haiti’s standard of living hasn’t advanced at all since 1950.”
What we’re reading (7/20)
“OPEC+ Is Boosting Oil Production, Ending Dispute That Shook Energy Markets” (CNN Business). “OPEC+ agreed to increase oil production Sunday, as demand roars back and prices surge, ending a dispute between the United Arab Emirates and Saudi Arabia. Oil prices soared about two weeks ago after major producers, including Saudi Arabia and the UAE, fell out over plans to increase production in the face of rising global demand.”
“UBS Profit Jumps On Wealth Management Boom” (Wall Street Journal). “The booming business of managing rich people’s money boosted results for UBS Group AG, raising hopes that the Swiss banking giant will return more money to shareholders. On Tuesday, Switzerland’s biggest bank said net profit jumped to $2 billion from $1.23 billion a year earlier, outpacing analyst expectations of $1.34 billion.”
“71% Of Institutional Investors Say They Will Buy Or Invest In Digital Assets In The Future - And Over Half Already Do, Survey Finds” (Business Insider). “Investors in Asia are leading the way in terms of adoption of digital assets, but US and European institutions are following suit, by expanding their crypto-based offerings, according to the survey, which is part of Fidelity Digital Assets' 2021 Institutional Investor Digital Assets Study.”
“The Looming Stagflationary Debt Crisis” (Nouriel Roubini, Project Syndicate). “The warning signs are already apparent in today’s high price-to-earnings ratios, low equity risk premia, inflated housing and tech assets, and the irrational exuberance surrounding special purpose acquisition companies (SPACs), the crypto sector, high-yield corporate debt, collateralized loan obligations, private equity, meme stocks, and runaway retail day trading. At some point, this boom will culminate in a Minsky moment (a sudden loss of confidence), and tighter monetary policies will trigger a bust and crash.”
“The Pandemic-Induced Renaissance Of Malls” (Axios). “For the last decade or so, malls have been dying. Surprisingly, the pandemic may save them…[a] year and a half of isolation has reignited a desire to gather in public spaces — and spruced-up, futuristic malls could make billions off of a cooped-up America. ‘The pandemic has definitely made people appreciate public spaces more, so there is scope for malls to capitalize on this trend,’ says Neil Saunders, managing director of GlobalData Retail.”
What we’re reading (7/19)
“Amid Mega-Mergers And Acquisitions, ViacomCBS May Be In Play” (New York Post). “The cliché describes those preliminary M&A powwows between CEOs that are so commonplace, you probably shouldn’t label them ‘deal discussions.’ Except on those occasions when they deserve that designation, which is why Shari Redstone, the matron of the ViacomCBS media empire, caused such a stir two weeks ago at the Allen & Co. media conference in Sun Valley, Idaho. People who attended the event say Redstone was “talking to everyone,” which again may or may not lead to a deal.”
“Bill Ackman’s Deal Machine Must Try Again” (DealBook). “When Bill Ackman’s jumbo-sized SPAC, Pershing Square Tontine Holdings, struck a deal last month to buy a 10 percent stake in Universal Music Group, it did so with a highly complex transaction that took a lot of explaining. Now, pushback from the S.E.C. has forced Ackman to change course.”
“Cathie Wood's Flagship ARK Fund Shows Dot-Com Bubble Traits And May Be Luring Investors Into A ‘Bull Trap,’ JPMorgan Strategist Says” (Business Insider). “In a note dated July 15, [JPM analyst Shawn] Quigg wrote that a second-half pick-up in Treasury yields and a shift in the growth dynamic of the economy could trigger a bull-trap reversal of shares in the exchange-traded fund. ‘A looming rise in yields could be a catalyst to accelerate ARKK shares lower, in addition to the continued outperformance of large staple-tech stocks over disruptive-tech stocks, and pressing ARKK into the capitulation phase,’ he wrote.”
“Robinhood Is Seeking A Market Valuation As High As $35 Billion In Upcoming IPO” (CNBC). “The stock trading app will attempt to sell its share at a range of $38 to $42 per share, according to the updated prospectus. Robinhood is looking to sell 55 million shares at that range to raise as much as $2.3 billion. Robinhood’s last private market valuation was $11.7 billion as of September.”
“Taming Wildcat Stablecoins” (Gary Gorton, Jeffery Zhang, working paper). “Cryptocurrencies are all the rage, but there is nothing new about privately produced money. The goal of private money is to be accepted at par with no questions asked. This did not occur during the Free Banking Era in the United States—a period that most resembles the current world of stablecoins…Based on lessons learned from history, we argue that privately produced monies are not an effective medium of exchange because they are not always accepted at par and are subject to runs. We present proposals to address the systemic risks created by stablecoins, including regulating stablecoin issuers as banks and issuing a central bank digital currency.”
What we’re reading (7/18)
“Red-Hot U.S. Economy Expected To Cool From Here” (Wall Street Journal). “The U.S. economy’s 2021 growth surge likely peaked in the spring, according to economists who expect to see a slower but still-strong expansion into next year. Widespread business reopenings, rising vaccination rates and a big infusion of government pandemic aid this spring helped propel rapid gains in consumer spending—the economy’s main driver. But that burst of economic growth is starting to ebb, economists say.”
“Biden To Reappoint Jerome Powell As Fed Chair, Say Economists” (Reuters). “U.S. President Joe Biden will reappoint current Federal Reserve Chair Jerome Powell for a second four-year term starting February next year, according to an overwhelming majority of economists polled by Reuters this week.”
“Still Working Remotely? Your 2021 Taxes May Be More Complicated Than Your 2020 Return” (CNBC). “Of those who were still doing their jobs remotely in late 2020, about 30% said they were working in a different state than where they had lived and worked pre-pandemic, according to a survey done by the Harris Poll on behalf of the American Institute of CPAs…[d]ifferent states have different approaches for when they expect you to report income earned there, and the rules don’t necessarily mean you’ll be paying more overall in taxes because most states provide a tax credit to eliminate double taxation (although that isn’t always the case).”
“Nobody Knows If Beefing Up The IRS Will Really Pay Off. We Should Do It Anyway.” (Washington Post). “Anyone who pays attention knows that the IRS staff has been shrinking for years, that it’s almost impossible for an average person to get IRS people on the phone to answer questions, and that the IRS back-office is a total mess. All this ought to be fixed, regardless of whether it produces financial gains for taxpayers. What I hadn’t realized until I delved into the Treasury’s May report was how much IRS audits of big companies — those with more than $20 billion of assets — have fallen in recent years.”
“Musk Waxes Lyrical On Cybertruck, Says It Looks Like It Was ‘Made By Aliens From The Future’” (NBC News). “[Musk] wrote [on Twitter], ‘To be frank, there is always some chance that Cybertruck will flop, because it is so unlike anything else. I don’t care. I love it so much even if others don’t. Other trucks look like copies of the same thing, but Cybertruck looks like it was made by aliens from the future.’”
What we’re reading (7/17)
“Regulators Feel Torn About Cryptocurrencies” (DealBook). “Cryptocurrencies have ‘completely failed’ to become a legitimate payment system, the Fed chair, Jay Powell, said yesterday at a Senate hearing. He added that so-called stablecoins — cryptocurrencies whose value is pegged to the dollar or another asset like gold, with the idea of making them a predictable means of exchange — are dangerously unregulated. Central banks could step in and develop digital versions of their currencies, but Powell is ‘legitimately undecided’ about the benefits of doing so, he told senators.”
“Wall Street Is Paying Bankers More Than Ever To Cloak A Brutal Work Life” (Bloomberg). “[R]ates of turnover and burnout among young workers are accelerating. Banks have tried to turn the tide with raises, bonuses, vacations and even free Pelotons. All that means it’s never been more lucrative to be a young banker in the U.S. The problem though is that it’s also never been more lucrative for aspirants to work outside the gilded world of finance. And the gap between banks and other employers like technology firms has narrowed. ‘Is it the best time to be a banker in terms of making money? Sure,’ says executive recruiter Dan Miller of True Search. ‘Is it a horrible time in terms of lifestyle? Absolutely.’”
“Staffing Firms Look Beyond The Pandemic” (The Economist). “A year ago employers were furloughing staff. Now many of them are desperately looking for more. The rapid bounce-back in some bits of the labour market—notwithstanding the risk of a new pandemic flare-up—has been good news for workers angling for a pay rise. It is also a boon for staffing agencies, which match firms with potential hires. Beyond short-term dislocations to the workforce, the changing way in which people want to work should keep the recruiters busy.”
“Investors Are Very Scared Even With Stocks Near Record Highs” (CNN Business). “The Dow and S&P 500 are both up about 15% in 2021 and are each about a percent away from their all-time highs. But as Friday's market sell-off showed, investors remain extremely nervous about the market. The CNN Business Fear & Greed Index, which looks at seven different measures of market sentiment, is showing signs of Extreme Fear. Four of the seven indicators are in bearish territory.”
“What Makes A Champion? Early Multidisciplinary Practice, Not Early Specialization, Predicts World-Class Performance” (Güllich, et al., Perspectives on Psychological Science). “What explains the acquisition of exceptional human performance? Does a focus on intensive specialized practice facilitate excellence, or is a multidisciplinary practice background better? We investigated this question in sports…adult world-class athletes engaged in more childhood/adolescent multisport practice, started their main sport later, accumulated less main-sport practice, and initially progressed more slowly than did national-class athletes…[w]e illustrate parallels from science: Nobel laureates had multidisciplinary study/working experience and slower early progress than did national-level award winners. The findings suggest that variable, multidisciplinary practice experiences are associated with gradual initial discipline-specific progress but greater sustainability of long-term development of excellence.”
What we’re reading (7/16)
“Bond King Jeff Gundlach Says There Is A Simple Reason Treasury Yields Are So Low Even As Inflation Surges” (MarketWatch). “Bond guru Jeffrey Gundlach of DoubleLine Capital said it is no mystery why U.S. Treasury yields are anchored lower despite evidence that inflation is rising in an economy attempting to rebound from a stultifying pandemic. Speaking to CNBC’s Halftime Report on Thursday, Gundlach said that the financial system remains awash with liquidity, i.e., willing buyers, who seem eager to purchase benchmark government debt, a factor that has been a key reason in driving prices up and yields commensurately lower. ‘Yields are this low because of all the liquidity in the system,’ Gundlach told the business network.”
“Homeowners Have Another Chance To Refinance As Mortgage Rates Fall Again” (CNN Business). “Homeowners who missed out on ultra-low interest rates earlier this year may have another chance. The average interest rate on a 30-year fixed-rate mortgage fell to 2.88%, according to Freddie Mac, the lowest level since mid-February and the third consecutive weekly drop. The 15-year fixed-rate mortgage dropped to 2.22%.”
“Wall Street Opens Back Up To Oil And Gas—But Not For Drilling” (Wall Street Journal). “Energy companies are raising money again from Wall Street at superlow borrowing costs, thanks in part to higher oil prices. The one thing most investors don’t want them to do with it is pump more crude. Speculative-grade energy companies, including oil producers, pipeline operators and refineries, have issued bonds in the U.S. at a record pace this year, raising about $34 billion so far, according to LCD, a unit of S&P Global Market Intelligence. Cash is primarily heading toward riskier borrowers in the shale patch, which by this time last year had raised about half as much from bond issuances.”
“Why Investors Are Worried About A Profits Squeeze In 2022” (The Economist). “Optimism about earnings has driven share prices higher in the past year. But financial markets are relentlessly forward-looking. And with bumper earnings already in the bag, they now have less to look forward to. A rally in bond prices since March and a sell-off in some cyclical stocks point to concerns about slower gdp growth. A plausible case can be made that the earnings outlook might worsen as quickly as it improved.”
“Small Hedge Fund Managers Are Feeling Optimistic As Launches Surge And Investors Seek Alternatives To The Industry's Biggest Names” (Business Insider). “Macro managers, stock-pickers, and distress players all were able to make money last year. And those who invest in hedge funds took notice. Starting in July 2020, there have been three consecutive quarters where more funds were launched than were liquidated — an impressive stat since fundraising meetings and conferences ground to a halt during the throes of the pandemic.”
What we’re reading (7/15)
“U.S. Weekly Jobless Claims Fall As Expected” (Reuters). “Initial claims for state unemployment benefits fell 26,000 to a seasonally adjusted 360,000 for the week ended July 10, the Labor Department said on Thursday. Economists polled by Reuters had forecast 360,000 applications for the latest week.”
“Many Jobs Lost During The Coronavirus Pandemic Just Aren’t Coming Back” (Wall Street Journal). “Job openings are at a record high, leaving the impression that employers are hiring like never before. But many businesses that laid off workers during the pandemic are already predicting they will need fewer employees in the future.”
“Wall Street Analysts See These Risks Causing A ‘Growth Scare’ For Global Markets” (CNBC). ‘With Covid-19 cases on the rise due to the surging delta variant and a range of macroeconomic shifts occurring, the global market narrative has moved from “goldilocks to growth scare,’ according to Barclays.”
“CEOs Made 299 Times More Than Their Average Workers Last Year” (CNN Business). “The average S&P 500 company CEO made 299 times the average worker's salary last year, according to AFL-CIO's annual Executive Paywatch report. Executives received $15.5 million in total compensation on average, marking an increase of more than $260,000 per year over the past decade. At the same time, the average production and nonsupervisory worker in 2020 earned $43,512, up just $957 a year over the past decade.”
“The Car Market Is Insane. It Might Stay That Way for a While.” (Slate). “The entire auto industry has been hobbled for months by the worldwide shortage of semiconductor chips, which has prevented manufacturers from producing enough vehicles to meet the demand from Americans eager to spend their pandemic savings and stimulus checks. As a result, many dealerships are practically barren of inventory, and new rides are fetching record prices…[and] shoppers will likely have to wait until 2022 for the auto industry to settle[.] […] Some of the pain, especially in the used car market, could begin to ease up earlier. But it could be well into next year before prices fall back to earth and customers see the sort of selection they’re used to at dealerships.”
What we’re reading (7/14)
“JPMorgan Has Big Wealth-Management Growth Plans” (Business Insider). “Private banking and wealth management are a key part of JPMorgan's future. In the past year, the bank has hired about 100 advisors for its private-bank division, which oversees more than $836 billion in client assets and caters to individuals worth at least $10 million. JPMorgan plans to hire as many as 1,500 new advisors over the next five years, doubling its current private-bank advisor head count, Private Bank CEO David Frame told Insider.”
“The Boomer Wealth Boom” (City Journal). “Over time, the rate at which Americans have saved for retirement has increased impressively. A 2016 study of gains in retirement savings over a 27-year period by Andrew Biggs of the American Enterprise Institute found that retirement savings of those aged 55 to 69 grew by 126 percent after inflation, to $448,292. The gains haven’t all been concentrated among the rich, either. As Biggs points out, even the retirement savings of middle-income Americans increased by 70 percent after inflation in that time. With these gains has come a sharp decline in poverty among seniors.”
“America’s Elite Law Firms Are Booming” (The Economist). “According to the American Lawyer, an industry journal, total revenues at the 100 biggest firms rose by 7% last year, to $111bn…average profit margins increased, from 40% to 43%. Profits per equity partner rose by over 13%, to an all-time high of nearly $2.2m. These went up at all but six of the top 100 firms. At the most lucrative ones, such as Davis Polk, Kirkland & Ellis or Sullivan & Cromwell, they surpassed $5m. Each equity partner at Wachtell, Lipton, Rosen & Katz, the richest of the lot, raked in $7.5m, up from $6.3m in 2019[.]”
“Lumber Wipes Out 2021 Gain With Demand Ebbing After Record Boom” (Bloomberg). “Lumber, which at one point was among the world’s best-performing commodities as the pandemic sent construction demand soaring and stoked fears of inflation, has officially wiped out all of its staggering gains for the year.”
“NYC Restaurant's French Fries Set Guinness World Record for Most Expensive” (NBC News). “Serendipity3, the iconic Upper East Side restaurant, set a Guinness World Records title for making the “Most Expensive French Fries'' -- just in time to celebrate National French Fry Day…Serendipity3’s Creative Director and Chef Joe Calderone and Corporate Executive Chef Frederick Schoen-Kiewert are the masterminds behind the ‘Creme de la Creme Pommes Frites,’ which cost a whopping $200.”