What we’re reading (8/17)
“S&P 500 Doubles From Its Pandemic Bottom, Marking The Fastest Bull Market Rally Since WWII” (CNBC). “The broad equity benchmark has rallied 100% on a closing basis from its Covid trough of 2,237.40 on March 23, 2020. It took the market 354 trading days to get there, marking the fastest bull market doubling off a bottom since World War II, according to a CNBC analysis of data from S&P Dow Jones Indices.”
“A New Theory Suggests That Day-To-Day Trading Has Lasting Effects On Stockmarkets” (The Economist). “In a recent working paper Xavier Gabaix of Harvard University and Ralph Koijen of the University of Chicago study how the aggregate value of America’s stockmarket responds to buying and selling. Researchers have studied flows before, typically finding noticeable effects as investors sell one stock and buy another. Messrs Gabaix and Koijen are interested in whether this finding scales up to move the market as a whole—a thesis that is consistent with the smaller-scale findings, but more provocative.”
“Retirement Planning Upgrade Turns Your 401(k) Into A Cash Machine” (Investor’s Business Daily). “Congress has given 401(k) plan sponsors like your employer the green light for offering investments that provide guaranteed lifetime income — annuities — to plan members like you. The introduction of annuities would add a major power tool to workers' retirement planning kits.”
“Weak Oversight Plagues Audits Of Billions In Private Assets” (Wall Street Journal). “Firms that audit private entities essentially police each other, often with no public disclosure. A Wall Street Journal analysis of the system shows that auditors give top grades to one another, hardly ever find fault with the biggest accounting firms and often don’t disclose failures among smaller auditors…[r]esearch by the government and data from the auditing industry trade group show significant flaws in audits of private organizations, particularly those done by smaller firms.”
“Michael Burry Of ‘Big Short’ Bets Against Cathie Wood’s ARKK” (Bloomberg). “Michael Burry, the investor made famous by “The Big Short” movie, has taken aim at one of Wall Street’s hottest stars. Burry’s Scion Asset Management owned bearish put contracts against 235,500 shares of the ARK Innovation ETF (ticker ARKK) at the end of the second quarter, according to a regulatory filing Monday. The new position was valued at almost $31 million, the filing says. The flagship exchange-traded fund of Cathie Wood and her firm Ark Investment Management lured billions in the past year after her thematic tech-focused bets trounced the market in 2020.”
What we’re reading (8/16)
“Growth Prospects Are High, But Valuations Are at Nose-Bleed Levels. Here’s What Investors Can Do.” (Institutional Investor). “As early- and late-cycle indicators conflict, Neuberger Berman analysts suggest investors turn toward private debt — senior loans to private-equity-backed companies. According to a report from the investment management firm…investors are facing a central paradox in the market. Early-stage predictions show growth is coming in the near future, a signal to investors to put money to work. In fact…the Federal Reserve is forecasting U.S. GDP to be 7 percent larger in 12 months and 3 percent larger than it was before the Covid-19 pandemic shut down economies around the world. But valuations are extremely high, the mark of a mid- to late-stage economic cycle that is pushing investors to be risk averse.”
“Millennials Plowed Their Money Into Apple, Tesla, And Disney During The Pandemic. Here Are Their 10 Favorite Stocks.” (Business Insider). “Millennials' favorite stocks over the past year include Apple, Tesla, Ford, and Pfizer, according to a study by DailyFX. The financial-news website turned to Robinhood to figure out which companies were most popular among young investors. DailyFX looked at data from the trading app - whose users are predominantly aged 18 to 35 - for the 12-month period to April 1, 2021. Millennials piled into several stocks that were hammered by pandemic-related travel restrictions and lockdowns, including Disney, Delta Air Lines, and Carnival, the cruise operator. GameStop was excluded[.]”
“Carvana’s Success Rides On Used-Car Loans” (Wall Street Journal). “When Carvana makes a car loan to a buyer, it packages it with other loans and sells the debt to investors. While other auto lenders also sell loans to investors, they typically keep the debt on their books, recording gains and losses over time. Carvana, on the other hand, doesn’t retain the debt and immediately books gains on the cash sales. For now, that bolsters revenue. Critics warn the practice could leave the company vulnerable if debt-market conditions change or if the loans Carvana makes start to sour. Indeed, loan-sale revenue sank when securitization markets shut down in the first half of 2020. A linchpin of the transactions is that Carvana is able to sell its car loans to investors at a premium to their face value.”
“Don’t Let Inflation Anxiety Undermine Our Future” (Paul Kurgman, New York Times). “Much of the media coverage of the budget resolution just approved by the Senate on a party-line vote…suffers from two common problems in fiscal reporting: lack of quantitative context and failure to distinguish clearly between spending increases and fiscal stimulus, which aren’t necessarily the same thing…the fact is that America desperately needs to invest in its future — both in hard assets like roads and bridges and in its people, especially its children. And there are no good economic reasons not to make those investments. Debt isn’t a problem given low interest rates; inflation wouldn’t be a problem given the economy’s ability to absorb higher government spending. Build we can, and build we must.”
“From Saigon To Kabul: Biden’s Response To Vietnam Echoes In His Views Of Afghanistan Withdrawal” (Washington Post). “Three weeks before the fall of Saigon, top Ford administration officials pleaded with Biden and other senators for more U.S. military aid, according to newspaper accounts…[i]n a closed-door briefing, top officials at the State and Defense departments told Biden and other senators on the Senate Foreign Relations Committee that the South Vietnamese army had “a chance” to defend Saigon and the Mekong Delta area with more U.S. military aid, the newspaper accounts said. ‘I am convinced there is absolutely no chance,” Biden told reporters[.]”
What we’re reading (8/15)
“Party Like It’s 1999—Investors Send These Stocks Into Record Territory” (Fortune). “There's nothing scary about these markets. U.S. futures are off their lows, trading higher. Europe is doing a bit better. The only drama I can see: can the benchmark indexes grind out yet another all-time high? Looks that way.”
“Used Car Price Hikes May Soon Be Over” (CNN Business). “Used car prices may finally be peaking. Prices shot up like a rocket earlier this year, soaring 30% between March and June according to the consumer price index, the federal government's main inflation barometer. That was by far the steepest three-month increase in those prices, according to government data that goes back nearly 70 years. Before the recent run-up in used car prices, which started last fall, the biggest 3-month rise in prices was only a 12% jump in 1974. But prices edged up only 0.2% in July, and gauges from the industry have raised hopes that the prices are at least leveling off if not about to start a modest decline.”
“The New Inflation: Don't Expect Food Or Gas Prices To Fall Any Time Soon” (The Hill). “The outlook for inflation has deteriorated sharply since the pandemic began and the Fed took inflationary monetary policy actions. Because of the lagged effects of monetary growth on inflation, it is likely that this new episode of inflation will continue for quite some time — even with a speedy response by the Fed, which grows more likely by the day. The Biden administration’s policies will worsen the outlook for inflation. Increased regulations have created an energy price shock, and introduced other supply shocks that will slow productivity and output growth and boost inflation.”
“These People Who Work From Home Have A Secret: They Have Two Jobs” (Wall Street Journal). “They were bored. Or worried about layoffs. Or tired of working hard for a meager raise every year. They got another job offer. Now they have a secret. A small, dedicated group of white-collar workers, in industries from tech to banking to insurance, say they have found a way to double their pay: Work two full-time remote jobs, don’t tell anyone and, for the most part, don’t do too much work, either.”
“The Limits Of Vacation” (DealBook). “Leaders’ first priority should be to stop glorifying exhaustion, said Dr. Maslach of Berkeley. After that, she suggests that managers ask employees what they need, rather than assume that they know, since there is no one answer. For example, companies have sought to improve morale by installing a volleyball court on the rooftop of an office or by providing free food during the day. What may have made more of a difference to employees was receiving fewer emails from bosses during evenings and weekends.”
What we’re reading (8/14)
“Consumer Sentiment Suddenly Crashes Below Early-Pandemic Levels” (CNN Business). “Americans are extremely worried about the Delta variant and the spike in Covid-19 cases. A key survey of consumer confidence plunged in August below where it was in April 2020 when the first Covid-19 outbreak slammed the brakes on the US economy. The University of Michigan said that its influential consumer sentiment index plunged 13.5% from July to August and hit a level of 70.2. That's the most bearish reading for this measure since December 2011.”
“How Millennial Investors Lost Millions On Bill Ackman’s SPAC” (Institutional Investor). “The structure was too complicated for both investors and their brokerages to quickly unpack, and the stock, along with the warrants and options attached to it, tanked. Within weeks, the Securities and Exchange Commission stunned Ackman, essentially killing the deal by telling his lawyers that it did not meet the New York Stock Exchange’s requirements for a SPAC — even though Ackman said on CNBC that the NYSE had given him the go-ahead months earlier.”
“The Robinhood Bros Who Keep Their Stock Losses Secret From Their Wives” (Mel Magazine). “Driven by the stock-market craze earlier this year, there are a number of men who gambled their entire family’s savings on single stocks without ever telling their significant other…‘When I first started, I really didn’t know anything about trading stocks,’ he explains. A graphic designer by trade, Austin often found himself frantically googling terms like ‘limit order,’ ‘calls’ and ‘earnings reports,’ as he dumped additional installments of $100 to $250 into his account.”
“American Motherhood vs. The American Work Ethic” (Vox). “Mothers working from home during the pandemic have reported higher rates of anxiety, depression, and loneliness than fathers. Last year, 3 million women dropped out of the workforce — and 1.6 million of them still have not returned. That means companies have lost employees with valuable perspectives that have been proven to make companies more innovative and profitable. It also shrinks the talent pool for companies who are desperately seeking workers. That all creates an unfolding crisis, not only for women and their families, but for society and the economy as a whole.”
“Yale Researchers Say Social Media’s Outrage Machine Has The Biggest Influence On Moderate Groups” (Fast Company). “For the study, the team of researchers built machine-learning software capable of identifying moral outrage in Twitter posts, which then trawled nearly 13 million tweets from over 7,000 users. After tracking the users’ pages over time, they discovered those who racked up more ‘likes’ or ‘retweets’ after showing outrage were more likely to keep doing so in future posts. This was subsequently backed up by controlled behavioral experiments conducted by the team.”
What we’re reading (8/13)
“Welcome To The Peak Everything Market And Economy” (CNN Business). “The rapid shutdown of the economy in the spring of 2020 led to a brief but painful recession. But the resulting reopening has caused a massive boom that has some wondering if America is now in the midst of a new Roaring Twenties...just like 100 years ago. Still, there are indications that the economy and market may soon be reaching peak levels -- for just about everything…[e]arnings momentum should begin to fade…housing prices may finally pull back a bit…inflation could cool, but it won’t go away for good[.]”
“A Fed Policy Shift Could Be Near. Buying Bank Stocks Looks Like A Good Strategy.” (Barron’s). “Federal Reserve Chairman Jerome Powell could more definitively signal an end to the easy-money policies that have propelled the equity market ever higher over the past 21 years, at the Fed’s annual summer gathering in Jackson Hole, Wyo., on Aug. 26-28. Such a shift could make it harder to thrive in the stock and options market.”
“GameStop’s Power Player: How Outsider Ryan Cohen Wrested Control” (Wall Street Journal). “Ryan Cohen rose to become chairman of GameStop Corp. with the verve of an old-school corporate raider. Wielding little more than a minority stake and a sharp tongue, Mr. Cohen pushed out GameStop’s executive team and installed longtime associates on the company’s board. The tactics made the co-founder of online pet store Chewy Inc. a favorite of the individual investors who sent GameStop’s stock on a roller coaster this year; they call him ‘Papa Cohen.’”
“The Elan Of Elon Musk” (DealBook). “Much has been written about Carson Block, the volatile and sometimes venomous short-seller who runs Muddy Waters Capital. Now, Block is penning some rare words of his own. Block just sent clients his first shareholder letter since starting a hedge fund in 2015. In the letter, obtained by DealBook from a source familiar with the fund, Block, a longtime critic of Elon Musk, Tesla’s C.E.O., said that his firm’s multiyear bet against the electric carmaker had been sent to ‘heaven,’ with no plans to revive it. Block said Musk’s ‘narcissism’ drew his disdain and stoked the belief that Tesla’s business would crater. But Block added that he underestimated Musk’s ability to raise capital in huge amounts, reinvent himself and captivate shareholders.”
“Half Of Lumber Dealers Now Sit On Excess Inventory In The U.S.” (Bloomberg). “In July, 49% of building-material dealers and manufacturers said they had excess lumber capacity, while none described their levels as “very tight,” in a survey by John Burns Real Estate Consulting LLC. Back in April, 40% said their wood inventories were ‘very tight.’ Lumber prices have come down from records in May, when sawmills were caught off guard with low inventories amid a surge in home building and renovation. Producers have since increased output, and a shortage of other building supplies such as siding and windows has slowed the pace of construction.”
What we’re reading (8/12)
“Inflation Is Spreading To More Parts Of The US Economy” (CNN Business). “America's soaring price hikes moderated last month, signaling that inflation may have peaked. But investors should pay heed to another trend: the spread of higher prices across more sectors of the economy. What's happening: Consumer price inflation remained elevated in July, according to the Bureau of Labor Statistics. Prices rose 5.4% from a year earlier, flat compared with June when the index hit a 13-year high.”
“Prices Rise 5.4 Percent In July Over Last Year As The Economy Claws Back From Pandemic Depths” (Washington Post). “Prices rose 5.4 percent in July compared with a year ago, as policymakers at the Federal Reserve and the Biden administration grapple with how long — and how high — inflation could climb as the economy rebounds. Data released by the Bureau of Labor Statistics on Wednesday showed prices rose 0.5 percent in July compared with June, a slight easing of the monthly pace of inflation. For months, the Fed and White House have said inflation will keep climbing as consumer demand surges while supply chains struggle to catch up. Their expectation is that as supply backlogs have time to clear, inflation will settle back down closer to the Fed’s 2 percent annual target.”
“The Cool Down In July’s CPI Data” (Fisher Investments). “This month, what really jumped out at us was the shelter component, which rose 0.4% m/m and contributed over one-fourth of CPI’s monthly rise. Hotels contributed about half of that. The other half came from rent. Not rent of primary residences, which is what you actually think of when you think of rent. That figure rose 0.2% m/m, and it is only 7.6% of the total CPI basket, making its impact on headline inflation negligible. The real culprit: Owners’ equivalent rent (OER), which rose 0.3% m/m and is a whopping 23.6% of the CPI basket. Yes, you read that right, nearly one-fourth of the CPI basket is imaginary. Owners’ equivalent rent isn’t real—it is the hypothetical amount homeowners would pay to rent their own home, if they rented instead of owning it. It is not something anyone ever pays. It is instead a crude stand-in for home prices, which are an investment, not a capital good, and therefore excluded from CPI. We will leave it to you whether it is sensible to put this made-up service in CPI, but it is there nonetheless.”
“Why Lumber Prices Have Already Bottomed, But Will See Upside Capped At 15% Over The Next 2 Years, According To An Investing Chief” (Business Insider). “The price of lumber has already bottomed, according to Mace McCain, chief investment officer at Frost Investment Advisors. But he's not expecting a runaway rebound either. Instead, McCain sees lumber trading rangebound in the $500 to $600 per thousand board feet range for the next two years, reflecting just 15% upside from current levels over the period.”
“Lordstown Eyes Contract Manufacturing, Leasing Space At Its Ohio Plant” (Bloomberg). “Lordstown Motors Corp, which previously warned it needs to raise additional funding, hung the "open for business" sign on its northeastern Ohio plant on Wednesday, saying it was in talks to build vehicles for other automakers or lease space in the factory. Shares of the electric vehicle startup, which also said it will begin limited production of its Endurance pickup truck in late September, rose 6.1% in after-hours trading.”
What we’re reading (8/11)
“The Harmful Death Of Modern Merger Review” (Real Clear Markets). In a recent blog post, the acting director of the FTC’s Bureau of Competition announced the Commission can no longer guarantee it will meet statutory deadlines for merger reviews under the HSR [Hart-Scott-Rodino] Act. For deals that cannot be sufficiently investigated—a standard and quantity unknown to the public, and which the Commission does not even attempt to describe in its blog post—the Commission will be sending out form letters ‘alerting companies that the FTC’s investigation remains open and reminding companies that the agency may subsequently determine that the deal was unlawful.’”
“Hackers Steal $600m In Major Cryptocurrency Heist” (BBC). “Blockchain site Poly Network said hackers had exploited a vulnerability in its system and taken thousands of digital tokens such as Ether. In a letter posted on Twitter, it urged the thieves to ‘establish communication and return the hacked assets.’ In scale, the hack is on par with huge recent breaches at exchanges such as Coincheck and Mt Gox.”
“How Much Carbon Comes From A Liter Of Coke? Companies Grapple With Climate Change Math” (Wall Street Journal). “From farm to bottler to supermarket cooler, a liter of Coca-Cola creates 346 grams of carbon dioxide emissions, the company’s data show. That’s less than half the tree-to-toilet 771-gram carbon footprint of a mega roll of Charmin Ultra Soft toilet paper, as measured by the Natural Resources Defense Council, an environmental group. Math like this is fast becoming obligatory. Investors are increasing pressure on businesses to disclose the emissions of greenhouse gases related to their products and services. Regulators are starting to ask about that, too. Within the next couple of years, every public company in the U.S. might well be required to report climate information.”
“Pfizer Jumps 6% To Eclipse Record High Reached In 1999 As Strength From COVID-19 Vaccine Continues” (Business Insider). “Shares of Pfizer surged as much as 6% on Tuesday to a record all-time-high, surpassing its previous record reached in April of 1999. The move higher in Pfizer comes amid ongoing strength of its COVID-19 vaccine, which was developed by its partner, BioNTech. Second-quarter earnings results from BioNTech on Monday revealed their view that demand for its COVID-19 vaccine will be strong into 2022 and beyond.”
“Demand For Air Conditioning Is Set To Surge By 2050” (The Economist). “When Joe Biden was a newly elected senator, he asked James Eastland, his fellow in Congress, to tell him the most significant thing that occurred during his long time in the chamber. “Air conditioning,” Mr Eastland replied. Summer in Washington is stifling, so in the past members of Congress departed by June. “Then we put in air conditioning, stayed year round, and ruined America,” he reportedly said, sardonically.”
What we’re reading (8/10)
“Millions Of Americans Are Unemployed Despite Record Job Openings” (Wall Street Journal). “The 10.1 million job openings in June is the highest level since record-keeping began in 2000, but a two-year average of monthly openings—which includes the drop in hirings in spring of 2020—shows a depressed rate, indicating that the current surge has yet to fully offset the halt in hiring seen last year.”
“U.S. Small Business Optimism Drops As Labor Shortages Persist” (Reuters). “Small business owners across the United States grew less confident in the economic recovery in July as labor shortages remained an issue, according to a survey released on Tuesday. The National Federation of Independent Business (NFIB) Optimism Index fell 2.8 points to a reading of 99.7 in July, almost erasing all of June's gain. Six of the 10 index components declined, three improved and one was left unchanged.”
“SoftBank Unit Behind Risky Multibillion-Dollar Tech Bets Dumps Microsoft, Facebook, Alphabet And Netflix Shares” (CNBC). “SoftBank has offloaded shares of U.S. tech giants like Facebook, Microsoft, Alphabet and Netflix, according to its latest financial report released on Tuesday. The Tokyo-headquartered conglomerate invests in publicly listed shares through its SB Northstar trading unit and provides a breakdown of the unit’s portfolio companies in its quarterly results.”
“No Mystery In Falling Bond Yields” (Fisher Investments). “[A]fter the rebound back to pre-pandemic GDP levels, more pedestrian pre-pandemic growth rates should follow. Countries that reopened earlier—and regained their pre-pandemic peaks—like China and America, are already experiencing this. Meanwhile, economists are penciling in similar, with quarterly eurozone GDP growth estimates falling back to sub-1% q/q next year—its typical rate range. Inflation also seems to be leveling off, with June’s reading decelerating to 1.9% y/y. Inflation fears have tapered off as well, and most pundits now presume this year’s inflationary pressures are temporary anomalies. Falling eurozone bond yields are perfectly consistent with the economic outlook many see: slower economic growth and milder inflation than they initially expected.”
“Brands Are Already Marketing To Generation Alpha” (Vox). “Both new and traditional kid-focused brands have, for the most part, abandoned the kitschy, rainbow-colored packaging used in the ’90s and early aughts. Think of the commercials for Fruit Gushers candy and Kid Cuisine microwavable meals. Instead, they’ve defaulted to the minimalist aesthetic familiar to any millennial-aged shopper, with serif fonts and cohesive pastel color schemes that subtly inform the consumer that this brand is ethical, economical, and safe for their child. ‘You can tell Gen Alpha are kids of millennials because their snacks are filled with these labels,’ tweeted Andrea Hernández, a food and beverage trend analyst. ‘Paleo, keto, probiotic, low carb, low sugar, plant based.’”
What we’re reading (8/9)
“Warren Buffett's Berkshire Hathaway Recovers From Coronavirus Slowdown” (Reuters). “Warren Buffett's Berkshire Hathaway Inc on Saturday said many of its businesses are enjoying strong recoveries from the early depths of the coronavirus pandemic, fueling rebounds in profits and revenue. The company Buffett has run since 1965 also signaled the billionaire's confidence in its future by repurchasing $6 billion of its own shares in the second quarter, even as its stock price regularly set new highs.”
“Oil Prices Slide on Worries Over China Delta Variant Outbreak” (Wall Street Journal). “The price of oil and other key industrial commodities slid Monday after Chinese government measures to halt the spread of the Delta variant spooked investors about global energy demand. Brent crude oil, the global benchmark, fell 4% to $67.87 a barrel and West Texas Intermediate futures—the main U.S. benchmark—were down 4.3% at $65.38 a barrel. At those prices, both gauges were set for their lowest close in around 2½ months.”
“Gold And Silver Claw Back Losses After Friday's Stellar Jobs Report Ignited Concerns Over Tighter Fed Policy And Unleashed A ‘Flash Crash’” (Business Insider). “Gold and silver prices on Monday recovered slightly from a sharp slide at the start of Asian trading, but were weighed down by rising expectations that the US Federal Reserve will cut back on its bond buying sooner than expected. Spot gold prices declined 4% to $1,707 per ounce late Sunday, while spot silver prices dropped 9% from $24.34 to $22.10 an ounce. Both metals are paring losses after the "flash crash". Gold was trading at $1,748 per ounce at 4:55 a.m. ET Monday, down 0.8% on the day and at its lowest level since April. Silver was down 1.7% at $23.90 an ounce after touching its lowest level since December.”
“Malls Are back. But For How Long?” (CNN Business). “It's an amazing rebound from the dire conditions just more than a year ago. Many, especially the traditional indoor malls, were closed by stay-at-home orders, and rent collections from tenants came to a halt. Anchor tenants such as JCPenney (JCP) and Nieman Marcus filed for bankruptcy and closed many stores permanently. Others, such as Lord & Taylor, went out of business altogether. There were also bankruptcies by major mall operators including Washington Prime Group and CBL Properties, each of which operate more than 100 malls.”
“Senators Go Beyond Biden To End Private-Equity Tax Break” (Bloomberg). “Two senior Senate Democrats are proposing to end a prized tax break for the private-equity industry in a new bill that would go further than President Joe Biden’s plan and potentially raise quadruple the revenue. Senate Finance Committee Chairman Ron Wyden and Rhode Island’s Sheldon Whitehouse, a member of the panel, are introducing legislation Thursday to repeal the break for carried interest, which allows private equity fund managers to pay lower tax rates on their earnings than they would for regular income. The bill would also prohibit them from deferring tax payments on those earnings, another benefit embedded into the current law.”
What we’re reading (8/8)
“Companies Thought They Had Plans For Fall. Now They Are Scrapping Them” (Wall Street Journal). “Up until a few weeks ago, corporate leaders felt confident about what to expect this fall. Offices would reopen after Labor Day. Business travel would resume more broadly. Long-delayed work gatherings, conventions and off-site meetings would finally take place. The pandemic has, once again, upended many of those plans. The swift, startling resurgence of Covid-19 cases and hospitalizations across the U.S. is causing corporate leaders to rip up playbooks for the next few months.”
“How Virtual Reality Will Change Trading For Pros And Everyone Else” (CNBC). “The work-from-home boom has given several virtual reality (VR) companies incentive to experiment with new ways of trading. While platforms are rapidly evolving and firms are putting themselves in a position to sell the new technology, it’s not a big business yet — but many believe it will be soon…’Traders just don’t have enough real estate on their desk,’ said [FlexTrade] Managing Director Andy Mahoney. ‘We can do better than a keyboard, screen and a mouse.’”
“What Zomato’s $12 Billion IPO Says About Tech Companies Today” (Harvard Business Review). “In mid-July, Zomato, a food delivery company, listed its shares in Indian stock markets. Its initial public offering (IPO) was oversubscribed 35 times, giving it a valuation of $12 billion. Why does a loss-making company — with no real properties or assets — command such high valuation and attract global celebrity investors like Fidelity, Morgan Stanley, Canadian Pension Fund, and the Singapore Government? Despite operating a traditional food business, Zomato epitomizes a modern tech company.”
“The Pandemic Business Boom” (The Atlantic). “As a general rule, business formation is cyclical: People are more apt to start companies when net worths are rising, confidence is soaring, and lenders are itching to lend. People are less apt to start companies when family finances are stressed, the business outlook is cratering, and credit conditions are tightening. It was no surprise, then, that the pandemic recession led to a huge drop in new business starts last spring. What was a surprise was that business formation surged strongly in the second half of 2020, when much of the country was still shut down, and the surge just kept going. Entrepreneurs launched 500,000 more new businesses considered likely to hire employees from mid-2020 to mid-2021 than from mid-2018 to mid-2019, and today Americans are starting companies at the fastest-ever recorded pace.”
“Where Are The Robotic Bricklayers?” (Construction Physics). “Blocks are quite heavy, which means the machines to manipulate them will likely always be more expensive than the machines for manipulating a lighter building system. And even large blocks individually make up a small fraction of the overall building. So automated masonry systems might end up being more expensive and have lower production rates than other building types. We could see a situation where there’s a small window of time where automated masonry becomes extremely popular/competitive, but then is quickly overshadowed as the technology gets adapted for other building systems.”
What we’re reading (8/7)
“Cathie Wood, Meme-Stock Champion Who Bet Big On Tesla And Bitcoin, Stands Her Ground” (Wall Street Journal). “Fans of fund manager Cathie Wood have built websites that track her every investment move. They sell T-shirts with her picture in the style of the Barack Obama “Hope” poster and with the ticker symbol of her flagship exchange-traded fund, ARK Innovation. On social media, they call her ‘Mamma Cathie,’ ‘Aunt Cathie’ and, in South Korea, ‘Money Tree.’ Behind the adoration is her unchecked enthusiasm for a certain kind of speculative investment: companies that generate little or no profit but have what she says is the potential to change the world through ‘disruptive innovation.’”
“This Is The Job Market We’ve Been Waiting For” (New York Times). “America is getting back to work. That’s the simplest, clearest analysis of the labor market that emerges from nearly every line of the July employment numbers released Friday morning. It is a welcome sign that, as of the middle of last month, the economy is healing rapidly — and that the previous couple of months reflected healthier results than previously estimated.”
“It May Look Like A Bubble, But The US Isn't Heading For Another Housing Crisis” (CNN Business). “Home prices have surged during the pandemic, leaving many to believe we're either in a housing bubble or heading toward one. The good news, however, is that the United States is not about to repeat the 2005-07 housing boom and bust, which led to the Great Recession. Basic supply and demand factors — not speculation, predatory lending and/or bad underwriting — are driving home prices. Moreover, a series of mortgage-market safeguards should prevent a hard landing when home prices recede.”
“What Is Direct Indexing?” (Morningstar). “Two things that have made direct indexing a more viable option for more investors in recent years are the rise of commission-free trading, and fractional share stock investing, which allows investors to purchase fractional shares in a certain dollar amount. It works like this: Amazon.com is currently trading at around $3,300 per share, so if we invest $1,000 we would own 0.3 shares of Amazon. Because stock prices vary so widely, having the ability to invest fractionally makes it much easier to match the index’s proportions.”
“Why Biden Will (Probably) Keep This Republican on His Team” (New York Times). “Some have speculated or reported that Mr. Biden will select a more progressive successor. But Mr. Powell, a former investment banker and a Republican, brings to the job unmatched experience, disarming political savvy and a record of positive, transformative change at the Fed. It will be hard for Mr. Biden to look past those attributes.”
What we’re reading (8/6)
“The Chip Shortage Is Getting Worse” (Vox). “Starting next week, General Motors is again halting the assembly lines of several pickup truck plants because the company doesn’t have enough computer chips. The plants had been back up and running for just a week following a shutdown in July, which was also caused by the chip shortage. These production halts may not stop anytime soon.”
“JPMorgan, Led By Bitcoin Skeptic Jamie Dimon, Quietly Unveils Access To A Half-Dozen Crypto Funds” (CNBC). “With little fanfare, JPMorgan Chase has started giving its wealth management clients access to six crypto funds in the past month. On Thursday, financial advisors were allowed to begin placing private bank clients into a new bitcoin fund created with crypto firm NYDIG, according to people with knowledge of the move. The fund is nearly identical to one NYDIG offers to clients of rival bank Morgan Stanley, said the people.”
“Exclusive: Intel Agencies Scour Reams Of Genetic Data From Wuhan Lab In Covid Origins Hunt” (CNN). “[S]enior intelligence officials still say that they are genuinely split between the two prevailing theories on the pandemic's origins, or some combination of both scenarios. CNN reported last month that senior Biden administration officials overseeing the 90-day review now believe the theory that the virus accidentally escaped from a lab in Wuhan is at least as credible as the possibility that it emerged naturally in the wild -- a dramatic shift from a year ago, when Democrats publicly downplayed the so-called lab leak theory.”
“Apple's Plan To ‘Think Different’ About Encryption Opens A Backdoor To Your Private Life” (Electronic Frontier Foundation). “Apple has announced impending changes to its operating systems that include new ‘protections for children’ features in iCloud and iMessage. If you’ve spent any time following the Crypto Wars, you know what this means: Apple is planning to build a backdoor into its data storage system and its messaging system.”
“AFL-CIO President Richard Trumka Dead At 72” (Politico). “Richard Trumka, president of the powerful AFL-CIO labor organization, has died unexpectedly, the federation announced Thursday. Trumka, 72, had served as president of the AFL-CIO, which represents more than 12.5 million workers, for more than a decade and was called a ‘dear friend’ by President Joe Biden…’He was a relentless champion of workers’ rights, workplace safety, worker-centered trade, democracy and so much more,’ AFL-CIO Communications Director Tim Schlittner said in a statement.”
What we’re reading (8/5)
“SEC Chief Gary Gensler Braces For Clash With Crypto Traders” (Wall Street Journal). “Securities and Exchange Commission Chairman Gary Gensler this week declared war on what he called the Wild West of crypto trading, promising a vigorous attack on fraud and misconduct. But progress is likely to be more piecemeal and incremental than wholesale and sudden. Mr. Gensler outlined his desire to regulate digital assets such as bitcoin and other crypto products to the same extent as stocks, bonds and commodity-related trading instruments.”
“Container Shipping Rates Between U.S. And China Exceed $20,000, Hitting A Record” (CNBC). “Container shipping rates from China to the United States have scaled fresh highs above $20,000 per 40-foot box as rising retailer orders ahead of the peak U.S. shopping season add strain to global supply chains. The acceleration in Delta-variant Covid-19 outbreaks in several counties has slowed global container turnaround rates. Typhoons off China’s busy southern coast in late July and this week have also contributed to the crisis gripping the world’s most important method for moving everything from gym equipment and furniture to car parts and electronics.”
“Lessons From America’s Decade-Old Downgrade” (Fisher Investments). “10 years ago today, Standard & Poor’s made a $2.1 trillion math error, fought with the Treasury for several hours, then downgraded America’s credit rating from AAA to AA+. Not because America’s debt was problematic, but because they didn’t like how politicians were squabbling over the debt ceiling. They thought it would undermine the stability of America’s debt and scare off investors. Headlines globally agreed, warning debt costs would soar absent the AAA rating. How wrong they were. Yields fell in the immediate aftermath … and kept on falling. Over the next few years, debt got more affordable as buyers competed to own the world’s deepest, most liquid government asset. If ever you needed proof that credit ratings are inconsequential to markets, the events of a decade ago are required reading.”
“The Stock Market Is At Record Highs, But Corporate Debt Is Ballooning. Here Is One Stock That Should Benefit.” (Forbes). “Credit agencies may be one of the big winners of the post-pandemic build back, as they ride the waves of economic instability and decide which consumers and businesses are worthy of credit lines and extra lending. They wield very real power. For consumers, they dictate mortgage capability, car lease agreements, mobile phone contracts and store credit. But for businesses fighting for a comeback, credit agencies are the last throw of the dice for a much-needed cash injection. As consumers tighten their belts in the post-COVID world, businesses continue to feel the squeeze and there’s speculation it’s going to get harder before it gets better…[t]he power of the credit agency has therefore grown to an all-time high, and The Edge thinks stocks in this field are worth watching. One credit agency which has caught our attention is Dun & Bradstreet Holdings, Inc. (DNB).”
“As More Defaults Loom, China’s Finance Regulators Face A Dilemma” (The Economist). “A document circulating among Chinese banks in early July has caused unease among investors and local officials. Known as “Document No. 15”, the regulatory directive says that banks should stop lending to heavily indebted local-government financing vehicles (lgfvs), companies set up by city or provincial governments to finance building projects and public works. The groups, which have not so far been allowed to default, have about 48.7trn yuan ($7.5trn) in debts, 11.9trn yuan of which is held in fixed-income securities. They routinely use bank loans to pay interest on bonds. Ending the steady stream of credit is a recipe for turmoil. ‘If banks don’t give them a blood transfusion’, a local investor told Chinese media, ‘lgfvs will face a default crisis.’”
What we’re reading (8/3)
“A Hawkish Bullard Sees More Volatile Economic ‘Regime’ Emerging In U.S.” (Reuters). “The coronavirus pandemic may have pushed the United States into a volatile era of stronger growth and better productivity, but higher interest rates and faster inflation as well, St. Louis Federal Reserve president James Bullard said, elaborating on why he thinks the U.S. central bank should end its crisis-era policies.”
“Apartment Rents Increase As Young Workers Head Back To Cities” (Wall Street Journal). “Apartment rents are rising fast, boosted by young professionals returning to cities and an expensive housing market that keeps many of them renting. Stock prices of publicly traded apartment companies have jumped in stride. The FTSE Nareit Equity Apartments index, which tracks these landlords, is up 42% since January, trouncing the S&P 500’s 17% gain during the same period.”
“PepsiCo To Sell Tropicana And Other Juice Brands For $3.3 Billion” (CNBC). “PepsiCo announced Tuesday it has agreed to sell Tropicana, Naked and other North American juice brands to a French private equity firm. The deal with PAI Partners will net pretax cash proceeds of $3.3 billion for Pepsi. The food and beverage giant will also receive a 39% stake in a newly formed joint venture with PAI and the exclusive U.S. distribution rights for the juice brands for certain channels, like food service.”
“Hedge Funds Are Taking On Venture Capitalists In The Battle To Back The Best Startups. Investors At Funds Like Two Sigma And Point72 Reveal Their Strategies To Stay Ahead.” (Business Insider). “Hedge funds, long considered the world's best public market investors, have been losing their edge. Quants are squeezing out inefficiencies while funds struggle to justify their cost. In turn, these managers have turned to the murkier private markets to boost returns. Like in the public markets, strategies run the gambit.”
“Inside The Epic Infrastructure Bill” (DealBook). “The bipartisan infrastructure plan, drafted during a marathon weekend session in the Senate, may go to a vote in the chamber this week. It is just over 2,700 pages long, with allocations for everything from broadband and bridges to ports and pedestrian crossings, plus proposals for how to pay for it all.”
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.”