September Prime + Select picks available now
The new Prime and Select picks for September are available starting now, based on a model run put through today (August 31). As a note, we’ll be measuring the performance on these picks from the first trading day of the month, Wednesday, September 1, 2021 (at the mid-spread open price) through the last trading day of the month, Thursday, September 30, 2021 (at the mid-spread closing price).
You can check out the latest picks here, and stay tuned for performance results for August.
What we’re reading (8/31)
“Day Of The Unicorn Comes For Politico” (New York Sun). “As feats of publishing entrepreneurship go, it’s one for the record books, or at least the business school case studies — Politico, a Washington-centric mostly online news organization founded in 2007, will be sold to the German publisher Axel Springer for a reported $1 billion. If that sum is even close to being accurate, it’s staggering. Time magazine was sold in 2018 to Marc Benioff and his wife Lynne Benioff for $190 million. The Washington Post was sold to Jeff Bezos in 2013 for $250 million.”
“Are Value Stocks Cheap for a Fundamental Reason?” (AQR). “We have been discussing the attractiveness of the value factor for many months based on the unusually high value spread, which compares the valuation multiples of expensive stocks to cheap stocks. This metric is still extremely cheap… 90th+ percentile cheap across all regions…the current high value spread is forecasting high expected returns, not lower than usual fundamental growth rates for cheap versus expensive stocks.”
“Hotel Stocks Are Improving, but Risks Persist” (Wall Street Journal). “Hotel REITs are among the riskier real-estate bets because rooms turn over every day and travel is particularly vulnerable to economic swings. They were among the hardest hit when the pandemic began. New data suggest things are getting better. In the second quarter, hotel REITs’ cumulative funds from operations—an earnings metric widely used in commercial real estate—turned positive for the first time since early last year, according to the National Association of Real Estate Investment Trusts.”
“Robinhood Tanks After SEC Chair Tells Barron’s That Banning Payment For Order Flow Is A Possibility” (CNBC). “Shares of Robinhood dropped Monday amid several bouts of bad news for the brokerage app. Robinhood’s stock fell 6.9% to $43.64 per share after Securities and Exchange Commission Chairman Gary Gensler told Barron’s that banning the controversial practice of payment for order flow is ‘on the table.’ Gensler told the outlet that payment for order flow — the back-end payment brokerages receive for directing clients’ trades to market makers — has ‘an inherent conflict of interest.’”
“Why Do We work Too Much?” (The New Yorker). “In the modern office, stress has become a default metric for judging whether we are busy enough…[a]s the anthropologist James Suzman elaborates in his recent book, “Work: A History of How We Spend Our Time,”…‘[e]ver since some of our ancestors substituted their bows and digging sticks for plows and hoes, death by overwork has been a thing…[but what drives ‘death by overwork’ today is employees’] own ambitions refracted through the expectations of their employers.’”
What we’re reading (8/30)
“U.S. Gasoline Jumps, Oil Steady As Hurricane Ida Roils Supplies” (Bloomberg). “U.S. gasoline futures jumped and oil was steady after Hurricane Ida barreled ashore in Louisiana, disrupting energy supplies in the world’s largest economy at a time of rising commodity prices Gasoline for October spiked more than 4% higher in New York before paring gains, while West Texas Intermediate crude was little changed. Last week, WTI rallied 10% as investors wagered global demand would weather the setback posed by the spread of the delta coronavirus variant.”
“Tiger Funds Rocked By Latest Peloton Woes” (Institutional Investor). “More woes for Peloton Interactive. Shares of the online exercise company — a Wall Street favorite during the pandemic-related shutdown — fell more than 6 percent Thursday in after-market trading after the company reported disappointing quarterly results [and] announced a sharp price reduction in its critical product[.]”
“Peloton Investors Face A New Reality As Fitness Company’s Costs Eat Into Profits” (CNBC). “Peloton investors were in for a rude awakening on Thursday. Many expected to see the connected fitness equipment maker report slowing sales. Gyms have reopened, and outdoor runs and vacations beckoned during the summer months. What investors hadn’t anticipated was a 20% price cut in the company’s top-selling product and a ramp up in marketing spending. Growth is slowing, and it’s less profitable growth.”
“Elizabeth Holmes' Trial Is Set To Begin: Here's What You Need To Know” (CNN Business). “Elizabeth Holmes, the disgraced founder and former CEO of Theranos, is set to go to trial this week, more than three years after being indicted on multiple federal fraud and conspiracy charges over allegations she knowingly misrepresented the capabilities of her company's proprietary blood testing technology.”
“New Life And Work Choices Revitalize Exurbs, Bringing New Strains” (Wall Street Journal). “Exurban areas, which include 240 counties as defined by the Brookings Institution, grew at almost twice the national rate over the past decade, a shift that began before the pandemic. There are signs it is accelerating this year as Americans prepare for an expected post-pandemic landscape where increased working from home reduces the need to commute.”
What we’re reading (8/29)
“How The Stock Market Can Ride An Economic ‘Hat Trick’ To New Highs Through Year-End, Even As The Threat Of A Correction Mounts, According To One Wall Street Chief Strategist” (Business Insider). “[I]f COVID-19 cases peak sooner than later, economic growth should begin to improve and force investor expectations higher, according to the note. Further, a weaker US dollar and further inflation could produce another bump higher for commodity prices. A rebound in economic surprises, a weakening US dollar, and rising commodity prices represents the trifecta of an economic hat trick that could power stock prices higher, according to [Leuthold Group strategist Jim] Paulsen.”
“Fed Faces New Challenge Spelling Out Employment Goals” (Wall Street Journal). “Assessing maximum employment, often described as the unemployment rate consistent with stable inflation, will be a delicate task for the Fed because officials concluded, in retrospect, that they overestimated it during the previous expansion and possibly raised interest rates too soon. Their deliberations figure to be more difficult now because of how the Covid-19 pandemic has upended normal economic activity—for example, by making it harder to determine how many people who left the labor force last year will return.”
“Wood You Look At That: Lumber Is Cheap Again” (Fortune). “What's going on? As lumber prices reached record levels this spring, many DIYers and builders simply stopped buying. At the same time, sawmills were upping production in order to cash in on the record prices. That, of course, was a prefect recipe for a correction. But now with prices still freefalling, buyers have little reason to jump back in. Thus that's why we've shifted all the way from a wood shortage to an oversupply. In a matter of three months, lumber has gone from exorbitant to relatively affordable levels.”
“OnlyFans And The Myth Of Owning Your Hustle” (Vanity Fair). “When OnlyFans, a social platform with over 130 million users, announced what essentially was a change in the company’s content guidelines last week, the backlash was swift…what OnlyFans’ betrayal of sex workers—followed by that abrupt reversal—[…] makes apparent is the central mythology undergirding the rising class of creator-driven platforms at large: the flawed belief that you, the creator, are ever the one in the driver’s seat.”
“Niall Ferguson On Why The End Of America’s Empire Won’t Be Peaceful” (The Economist). “[I]t is all too easy to see a sequence of events unfolding that could lead to another unnecessary war, most probably over Taiwan, which Mr Xi covets and which America is (ambiguously) committed to defend against invasion—a commitment that increasingly lacks credibility as the balance of military power shifts in East Asia. (The growing vulnerability of American aircraft carriers to Chinese anti-ship ballistic missiles such as the DF-21D is just one problem to which the Pentagon lacks a good solution.) If American deterrence fails and China gambles on a coup de main, the United States will face the grim choice between fighting a long, hard war—as Britain did in 1914 and 1939—or folding, as happened over Suez in 1956.”
What we’re reading (8/28)
“The Ghost Of Arthur Burns Haunts A Complacent Federal Reserve That’s Pouring Fuel On The Fires Of Inflation” (MarketWatch). “The Fed poured fuel on the Great Inflation by allowing real interest rates to plunge into negative territory in the 1970s. Today, the federal funds rate is currently more than 2.5 percentage points below the inflation rate. Now, add open-ended quantitative easing—some $120 billion per month injected into frothy financial markets—and the largest fiscal stimulus in post-World War II history. All of this is occurring precisely when a post-pandemic boom is absorbing slack capacity at an unprecedented rate. This policy gambit is in a league of its own.”
“Crypto Firms Want Fed Payment Systems Access—And Banks Are Resisting” (Wall Street Journal). “Cryptocurrency companies want to tap into the Federal Reserve payments systems that traditional banks use to move money around quickly. The banks are pushing back. The companies include Avanti Bank, which aims to provide custody services for institutional investors in cryptocurrencies, and Kraken, a cryptocurrency exchange platform. They say direct access to the Fed’s payment systems would allow them to more quickly and cheaply process orders from customers buying and selling digital assets. Currently they must partner with traditional banks that have accounts with the Fed.”
“Small Manufacturers Are The Most Optimistic” (Axios). “More small businesses in the manufacturing sector expect to see higher sales next quarter, relative to operators in other industries…[a] National Federation of Independent Business quarterly report released Thursday shows that a net positive 9% of small manufacturers said in July that they expected sales growth in the next 3 months.”
“We’re Burying Our Kids In Debt (Just Not The Way You Think)” (New York Times). “To keep the lights on, the School District of Philadelphia — like thousands of districts across the country — has increasingly turned to debt financing: They issue bonds to borrow money from financial markets, either with their own bonding authority or through municipal governments. Investment funds purchase these bonds, thus lending the funds to local governments or school districts, who promise to repay the loans, plus interest and issuance fees. Debt-financing public education has not only failed to provide schools with sufficient funds; it has also imposed long-term costs. What seems like a fix for school districts’ strapped budgets has actually trapped them in cycles of austerity, exacerbating the very inequalities public education is designed to address.”
“The Simple Tricks That Turned One Investor’s $70,000 Retirement Account Into A $264 Million Fortune” (Washington Post). “You can sometimes find fascinating information in footnotes — and that’s where I discovered the amazing investment returns of Ted Weschler, 60, a relatively low-profile money manager based in Charlottesville whose retirement account has outperformed the S&P 500 by hundreds to 1. Weschler, who operates out of a two-person shop located above a bookstore, has been one of Warren Buffett’s deputies at Berkshire Hathaway since 2012, where he manages billions of Berkshire bucks.”
What we’re reading (8/27)
“It’s Time For The Fed To Rethink Quantitative Easing” (Larry Summers, Washington Post). “The Fed is running quantitative easing at current levels not because anyone has analyzed that as appropriate given current conditions. Rather, there is a felt need to maintain credibility given previous commitments and a reluctance to accept the immediate pain and dislocation associated with changing course, coupled with faith in the ability to manage the situation down the road.”
“At The Jackson Hole Meeting, The Fed Ponders An Uneven Recovery” (The Economist). “Business cycles are never perfectly symmetric across time and space. Yet they have rarely been as uneven as the rebound from covid-19. Some parts of the global economy are straining to meet roaring demand even as others are limping along, battered by the spread of the virus. It is enough to take the fun out of monetary policy. Indeed, the Delta variant kept attendees of an annual symposium for central bankers from meeting in Jackson Hole, Wyoming, in the shadow of the majestic Teton mountains. Instead, they peered at their computer screens as they discussed how to shepherd an unbalanced economy through uncertain times.”
“Powell’s Benign View On Inflation Is Getting Pushback At The Fed, And Elsewhere” (CNBC). “The Fed chief devoted a long passage in the remarks [at Jackson Hole] to rebut the notion that inflation posed a longer-term structural problem to the economy. He attributed most of the current price rise to a surge in longer-lasting ‘durable’ goods that in pre-pandemic times actually had a long-running negative inflation rate. Moreover, he said there is evidence that one key area of inflation, used car prices, has stabilized and is likely to bring the overall rate much closer to the longer trend. Earlier Friday morning, the Commerce Department reported that the Fed’s preferred inflation gauge, the personal consumption expenditures price index, had expanded by 3.6% from a year ago, the fastest pace in about 30 years.”
“SEC Launches Review Of Online Strategies Used By Brokers, Advisers” (Wall Street Journal). “The Securities and Exchange Commission launched a wide-ranging review Friday of the online strategies that brokers such as Robinhood Markets Inc. and investment advisers use to interact with customers, aiming to determine whether tools like smartphone notifications are in the best interests of investors. The SEC solicited public comments Friday on ‘digital engagement practices’ in the financial industry. These include social-networking tools, investing games and contests with prizes, digital badges, and leaderboards, notifications, celebrations for trading and chatbots. Requests for public comment often represent a first step in the process of developing new rules to guide behavior in the industry.”
“America’s Big Oil Problem” (Project Syndicate). “For decades, the oil industry has produced manipulative studies and funded major marketing campaigns to convince the public that oil and “natural” gas were essential for economic growth and not harmful to the planet. It has also spent liberally to influence lawmakers at the national and state levels, including in California, a climate leader, thereby blocking climate-related legislation and policies. US lawmakers must start listening to voters, escape the grip of oil and gas lobbyists, and enact policies that recognize the scale of the climate crisis.”
What we’re reading (8/26)
“Why Is The Supply Chain Still So Snarled? We Explain, With A Hot Tub” (Wall Street Journal). “The global supply chain is an intricate ballet of container ships, airplanes, trucks and trains. The coronavirus pandemic threw it out of whack. This is why you often can’t buy the goods you want…Covid-19 infections caused by the Delta variant are adding fresh uncertainty. Supply bottlenecks, especially at ports, continue to delay products of all kinds.”
“Skin in the Game: FOMC Style” (Jupiter Asset Management). “We find it noteworthy that around 60% of Powell’s net investable worth is in (primarily US) equities, a share which is likely higher today given the stellar performance of said equities since the filing (+39% for the S&P 500). Equally noteworthy is what is absent from the portfolio. In particular, we find it interesting that Powell owns no Treasuries. True, there’s an exposure to a more tax-efficient version – municipal bonds –, but if Powell’s portfolio is a variant on the classic 60-40, there’s a very clear underweighting of nominal assets relative to that framework.”
“Inflation Could Stay High Next Year, And That’s OK” (New York Times). “[Adam] Posen [of the Peterson Institute for International Economics] expects inflation to be above 3 percent next year — nevertheless, he thinks that the Fed should keep short-term rates near zero. That’s because he thinks the burst of inflation will recede after 2022. And he doesn’t think another year of 3-plus percent inflation would be enough to embed expectations of high inflation in the minds of consumers and businesses.”
“Is There A Link Between Vaccination Rates And Opening Up International Air Travel?” (OAG). “For a while I imagine many of us assumed this would be so: The more people were vaccinated the more we’d be able to fly where we want. However, the data seems to show that it isn’t quite that simple. At OAG we’ve been looking at the correlation between vaccination rates by country and international air capacity for each country relative to where capacity was two years ago. What we see is that vaccination rates in and of themselves are not a guide to how easy international air travel is. It’s clear that government policy (or lack of it) is a much more important determinant of airline recovery.”
“There’s A Battle Brewing Over Salaries For Remote Workers — And It Could Change The Way Everyone Gets Paid” (Business Insider). “The fight over remote compensation — whether employees can take their big-city wages with them wherever they choose to live — is the next big battle in the war over working from home. Some companies have rejected the hardline stance, telling employees who relocate that they can keep their coastal salaries. Others, including Reddit and Spotify, are going even further: In a radical departure from traditional compensation policies, they plan to eliminate all geographic differences in US salaries, paying every employee as if they lived and work in San Francisco. It's hard to overstate how consequential this shift in compensation could be, not just for those of us who work from home but for cities and states all across the US.”
September picks available soon
We’ll be publishing our Prime and Select picks for the month of September before Wednesday, September 1 (the first trading day of the month). As always, we’ll be measuring SPC’s performance for the month of August, as well as SPC’s cumulative performance, assuming the sale of the August picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Tues., August 31). Performance tracking for the month of September will assume the September 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 (Wednesday, September 1).
What we’re reading (8/25)
“Companies Strike While The Stock Market Is Hot” (Wall Street Journal). “U.S. companies are rushing to cash in on soaring stock prices. It isn’t just the white-hot market for initial public offerings. Companies are returning to the public markets to issue shares and raise cash from investors at the same time that existing shareholders are tapping the public market to unload their stockholdings at a record clip.”
“Record-High Stock Prices Are Increasing The Risk Of ‘Fragility Shocks' In The Next Few Months, Bank Of America Says” (Business Insider). “Record-high stock prices and a possible change in Federal Reserve policy have heightened the risk of ‘fragility shocks’ hitting equities in the coming months, Bank of America analysts said. Last week's sell-off on Tuesday and Wednesday was a sign that investor sentiment remains nervy and could be vulnerable to bigger shocks in the future, analysts including Riddhi Prasad and Benjamin Bowler said in a note on Tuesday.”
“Mortgage Rates Fall For The First Time In 3 Weeks, But Demand Is Still Light” (CNBC). “After rising for three weeks, mortgage rates came back down a bit last week, but it didn’t seem to have much effect on mortgage demand. Total application volume rose 1.6% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.03% from 3.06%, with points falling to 0.29 from 0.34 (including the origination fee) for loans with a 20% down payment.”
“Where Are The Borrowers?” (DealBook). “The job of a banker, an old joke goes, can be summed up by the 3-6-3 rule: Gather deposits at 3 percent, lend them out at 6 percent and be on the golf course by 3 p.m. These days, banks pay next to nothing in interest, yet they are awash in deposits. They also offer loans at rock-bottom rates, yet see little demand from borrowers. What are they doing with the money instead? Bingeing on bonds, The Times’s Matt Phillips reports.”
“How Blackstone Built The Perfect Pandemic Portfolio In Real Estate” (Fortune). “On a spring day in 2019, the chief of property investments in the Americas for private equity powerhouse Blackstone was gazing down from the rooftop terrace of the 14-story, avant-garde Netflix building on L.A.’s Sunset Boulevard—the streaming giant’s creative headquarters. The jammed parking lots, the parade of technicians, writers, actors, and producers rushing from office towers to low-slung studios, all told Meghji that this buzzing epicenter for content creation exemplified one of the best real estate opportunities on the planet. ‘This wasn’t just another cluster of office towers,’ he recalls. ‘It was critical infrastructure for making the online entertainment that was already exploding in a new way[.]”
More covid origins news…
Interest in “alternative” explanations for covid’s origins (explanations that were previously considered heterodox but apparently no longer are) seems to be continuing to gather momentum. At first blush, this whole story wouldn’t seem relevant to investors. On the contrary, I think, the potential implications in terms of the credibility and reliability of various institutions and experts are profound, and especially so for those weighing choices about whether to trust their assets to supposed experts versus letting algorithms, data, and machines to the thinking.
In light of previously suggesting on this blog that arguments privileging the belief that the novel coronavirus could not have escaped from a lab were quite weak as a logical matter (see here), the following seems relevant! Not sure what he means by “other perspectives,” but that’s a far cry from language like “Coronavirus almost certainly came from an animal, not a lab leak, top scientists argue”. To wit (emphasis added):
The director of the National Institutes of Health said Monday it appears Covid-19 originated from an animal, but he didn’t rule out the possibility that scientists at the Wuhan Institute of Virology were secretly studying it and that it could have leaked out from there.
It’s still unknown if the virus leaked out of a Wuhan lab, NIH director Dr. Francis Collins said Monday in an interview on CNBC’s “Squawk Box,” adding that the World Health Organization’s investigation into the origin of the coronavirus has gone “backwards.”
“The vast evidence from other perspectives says no, this was a naturally occurring virus,” Collins said. “Not to say that it could not have been under study secretly at the Wuhan Institute of Virology and got out of there, we don’t know about that. But the virus itself does not have the earmarks of having been created intentionally by human work.”
The WHO investigation has been made harder by China’s refusal to participate, says Collins.
“I think China basically refused to consider another WHO investigation and just said ‘nope not interested’,” Collins told CNBC’s Squawk Box
What we’re reading (8/23)
“U.S. Expansion Slowed In August, Survey Shows” (Wall Street Journal). “The U.S. economic expansion is losing momentum. Softening demand at a time of rising Covid-19 cases, labor shortages and persistent knots in shipping networks are restraining businesses in the U.S. and across the globe, according to private-sector surveys released Monday.”
“Dividend Payouts To Hit $1.4 Trillion In 2021, Nearing Pre-Pandemic Levels, Research Shows” (CNBC). “Dividends paid to investors are projected to hit $1.39 trillion in 2021, reflecting a recovery that’s stronger than expected, according to a new report from British asset manager Janus Henderson. The 2021 forecast for dividends is just 3% below the pre-pandemic peak, the firm found. Dividend payments in the second quarter jumped 26% from the same period last year to $471.7 billion, just 6.8% below the levels seen in the second quarter of 2019. Janus Henderson projected that dividend payouts will return to pre-pandemic highs within the next 12 months.”
“God, Money, YOLO: How Cathie Wood Found Her Flock” (New York Times). “Ms. Wood and her firm’s unusual approach to investing — which combines high levels of risk with high levels of transparency about her views to produce, at least last year, astronomically high returns — have connected with new investors in a way the financial industry had only dreamed of. Her aggressive bets on often unprofitable technology stocks are a better fit for traders who brag on Reddit about YOLO-ing their rent money than it ever was for the endowments and institutions that rely on the traditional money management industry, where she spent more than 30 years.”
“A Painful Trade Shock Is Coming To Afghanistan” (Full Stack Economics). “Afghanistan’s economy is in for a difficult year. Even beyond the stresses of rule by the Taliban, the state has some economic weaknesses that will be greatly exacerbated by Taliban rule and political isolation…[t]he last IMF report on the country prior to the collapse of the government counted imports at about $7 billion annually, a huge fraction of Afghanistan’s $19 billion GDP. Imports exceeded exports by about a factor of five…that high level of imports was sustainable under the unusual circumstances of the U.S. presence, it won’t be sustainable going forward…[g]iven that its currency reserves have been frozen to prevent the Taliban from accessing them, it will need to balance its trade deficit quickly, without any adjustment period.”
“Physical Pain, Gender, And Economic Trends In 146 Nations” (Macchia and Oswald in Social Science & Medicine). “More than a quarter of the world's citizens are in physical pain. Physical pain is lower in a boom and greater in an economic downturn…[and] increases in pain are borne almost exclusively by women and found principally in rich nations…[t]he counter-cyclicality of physical pain is not what would be predicted by conventional economic analysis: during an expansion, people typically work harder and longer, and accidents and injuries increase. Nor are the study results due to unemployed citizens experiencing more pain (although they do). Instead, the study's findings are consistent with an important hypothesis proposed recently, using different kinds of evidence, by brain and behavioural-science researchers (e.g., Wiech and Tracey, 2009). The hypothesis is that economic worry can create physical pain.”
What we’re reading (8/22)
“Citadel To Redeem About $500 Million From Melvin Capital” (Wall Street Journal). “Ken Griffin’s Citadel LLC and Citadel partners are planning to redeem roughly $500 million of the $2 billion they put in Melvin Capital Management after Melvin got slammed by bad short bets on GameStop Corp. and other soaring stocks, said people familiar with the matter.”
“Check, Please? How New York’s Restaurants Suddenly Got So Expensive — And Why That’s Probably For The Best.” (GrubStreet). “The food-service research firm Technomic pegs typical annual menu inflation at around 2.5 percent, accounting for natural fluctuations in costs of goods and labor. But according to the U.S. Bureau of Labor Statistics, prices at full-service restaurants have risen 4.3 percent in the past year, the largest 12-month increase ever recorded. So, what’s really going on? Well, restaurants are enmeshed within a vast and highly sophisticated ecosystem of supply and demand, which is being tested by a perfectly terrible storm of events.”
“A Big Study About Honesty Turns Out To Be Based On Fake Data” (Buzz Feed). “A landmark study that endorsed a simple way to curb cheating is going to be retracted nearly a decade later after a group of scientists found that it relied on faked data. According to the 2012 paper, when people signed an honesty declaration at the beginning of a form, rather than the end, they were less likely to lie. A seemingly cheap and effective method to fight fraud[.] […] [yet] [y]ears later, he [Ariely] and his coauthors found that follow-up experiments did not show the same reduction in dishonest behavior…[and] more recently, a group of outside sleuths scrutinized the original paper’s underlying data and stumbled upon a bigger problem: One of its main experiments was faked “beyond any shadow of a doubt,” three academics wrote in a post on their blog, Data Colada, on Tuesday.”
“Bad News: The Selling The Story Of Disinformation” (Harper’s). “A common account of social media’s persuasive effects provides a convenient explanation for how so many people thought so wrongly at more or less the same time. More than that, it creates a world of persuasion that is legible and useful to capital—to advertisers, political consultants, media companies, and of course, to the tech platforms themselves. It is a model of cause and effect in which the information circulated by a few corporations has the total power to justify the beliefs and behaviors of the demos. In a way, this world is a kind of comfort. Easy to explain, easy to tweak, and easy to sell, it is a worthy successor to the unified vision of American life produced by twentieth-century television. It is not, as Mark Zuckerberg said, “a crazy idea.” Especially if we all believe it.”
“The Economics Of Taliban Finance” (FT via Marginal Revolution). “An example of Islamist governance can be found on the stretch of road from Kabul to the Mile 78 border crossing in south-west Farah province that borders Iran. The road has more than 25 government checkpoints and a fee is charged at multiple points on the journey. By contrast, the Taliban who police the same road have far fewer checkpoints and give a receipt, so only a single payment is necessary. Ibraheem Bahiss, an Afghanistan consultant at International Crisis Group, said the Taliban sought to portray themselves as better administrators.”
What we’re reading (8/21)
“Global Stocks Fall As Delta Variant Concerns Intensify, With Oil Extending Its Losses” (Business Insider). “[T]he spread of the Delta variant of COVID-19 was front of mind [for investors this past week], and what that could mean for economic recovery in the US as well as Asia and elsewhere. Hospitalizations and deaths are on the rise in the US, where average daily cases on Thursday topped 130,000 for the first time since February, official data showed. Investors concerned about economic growth are looking ahead to the Federal Reserve Chair Jerome Powell's comments at the Jackson Hole symposium next week. They are bracing to hear more about its timeline for tapering and easing of economy-stimulating policies.”
“In Nod To Delta Variant, Fed Moves Jackson Hole Meet Online” (Reuters). “The Federal Reserve Bank of Kansas City said on Friday its annual economic symposium in Jackson Hole, Wyoming, will take place on Aug. 27 virtually and not in person as planned, the clearest sign yet of the impact of the COVID-19 Delta variant on the Fed's plans.”
“Ark’s Cathie Wood Says Stock Market ‘Couldn’t Be Further Away From A Bubble.’ Here’s Why.” (MarketWatch). “[S]tar investor Cathie Wood, who runs a suite of popular ETFs in Ark Investment Management, says that there’s no reason to fear that the market is becoming too bubblicious…Wood’s view on the market…is that investors are acting much more sedately and prudently, compared with the euphoria that was characteristic of the late 1990s and early 2000s dot-com boom. ‘In a bubble…and I remember the late ’90s…our [Ark Invest’s] strategies would have been cheered on,’ she told the business network. ‘You remember the leapfrogging of analysts making estimates one higher than the other, price targets one higher than the other,’ she said on ‘Tech Check.’”
“SEC Weighs Requiring Companies To Give More Details On Workers” (Wall Street Journal). “The Securities and Exchange Commission is considering asking public companies to disclose more information about their workforces. ‘Investors want to better understand one of the most critical assets of a company: its people,’ SEC Chairman Gary Gensler said earlier this week in a Twitter thread. ‘I’ve asked staff to propose recommendations for the Commission’s consideration on human capital disclosure.’ Mr. Gensler previously said the disclosures would likely be mandatory for public companies and could touch on a number of metrics, including turnover, skills and development training, compensation, benefits, workforce demographics including diversity, and health and safety.”
“Here’s More Evidence That Factor Investing Works In Fixed Income” (Institutional Investor). “NTAM [Northern Trust Asset Management] researchers found that 70 percent of excess returns of actively managed fixed income funds can be traced to simple exposures to factors such as duration and credit [quality]. They also determined that systematic factors may offer more opportunities to earn income without taking too much credit risk or tying up money in illiquid investments.”
What we’re reading (8/20)
“Money Managers Race To Launch First U.S. Bitcoin ETF After SEC Signal” (Wall Street Journal). “Asset managers are jockeying to create the first U.S. bitcoin exchange-traded fund after a top securities regulator signaled a path to approval. In the past two weeks, ProShares, Invesco Ltd. , VanEck, Valkyrie Digital Assets and Galaxy Digital have all filed plans for bitcoin futures ETFs. If approved, the funds would make trading bets on bitcoin’s future value akin to buying a stock. Earlier in August, Securities and Exchange Commission Chairman Gary Gensler indicated that he would be receptive to ETFs that will trade in bitcoin futures rather than cryptocurrency itself as long as they follow stricter rules usually reserved for mutual funds. The SEC has already approved the first U.S. bitcoin-futures-based mutual fund, which started trading last month.”
“Second-Largest U.S. Mortgage Lender Will Accept Payment In Bitcoin” (CNBC). “Starting later this year, U.S. homebuyers will have the option to pay for their mortgage in bitcoin. United Wholesale Mortgage, which made its public debut in January via a special purpose acquisition (SPAC) merger, announced plans this week to accept cryptocurrency for home loans, in what is being billed as a first for the national mortgage industry.”
“The Next Taper Is A Big Deal For Very Different Reasons” (Real Clear Markets). “Jay Powell’s current Fed is likely to announce tapering its current QE, once again based solely upon recent payroll figures and a quickly falling unemployment rate. With those, he is preparing the public for the stepping down the pace of its purchases. This Chairman doesn’t want Bernanke’s [2013] [taper] tantrum.”
“Fed Fear Is Back. Investors Are Getting Antsy” (CNN Business). “Wall Street is fighting its Federal Reserve hangover and the Dow booked its third straight day of losses after the central bank suggested Wednesday it could ease off the stimulus gas as early as year-end. So the investor angst continues, sending CNN's Fear & Greed index back into ‘extreme fear’ from ‘neutral’ just two days ago…[n]ext week's central bank symposium at Jackson Hole will be watched closely for any more signals for the eventual and inevitable taper. The central bank has three meetings left in 2021, and analysts at Bank of America think the November meetings are when the Fed is most likely to clamp down on the amount of monthly purchases.”
“Big Tech And The Taliban” (DealBook). “Social media platforms were caught as much by surprise by the Taliban’s takeover of Afghanistan as Western leaders were. Accounts and content linked to the group are rapidly multiplying, as governments around the world decide whether to officially recognize the Taliban as Afghanistan’s rulers. U.S. tech giants like Facebook, Twitter and YouTube, which have largely designated the Taliban a terrorist organization, have been put in a tricky position as the Taliban try to establish their authority and legitimize their rule online.”
What we’re reading (8/19)
“Bets Against Cathie Wood's ARK Innovation Fund At Record High - S3” (Reuters). “Short interest in star investor Cathie Wood's flagship ARK Innovation ETF was at a record high, data from analytics firm S3 Partners showed on Wednesday, as several hedge funds disclosed this week they had bet against the top performing ETF of 2020.”
“The IMF Acts Against The Taliban” (Wall Street Journal). “Late Wednesday…the U.S. and the IMF signaled the Taliban won’t have access [to ~$400 million in Special Drawing Rights from the IMF] due to the chaos on the ground and the ‘lack of clarity’ from the international community on who should be recognized as the legitimate government of Afghanistan. This is an excellent start, but it is only a temporary fix. The Taliban will surely come back and seek recognition once they are in full control of the country.”
“Three Former Netflix Engineers Charged With Insider Trading” (CNN Business). “Three former Netflix engineers and two of their associates have been charged with illegally profiting more than $3 million in a long-running insider trading scheme, the Securities and Exchange Commission said Wednesday. The SEC complaint said that the person at the center of the scheme, Sung Mo Jun, traded on nonpublic information about the growth of the platform's subscriber base, both while he was employed at Netflix and after he left the company in 2017.”
“Are Television Ratings Rigged, Or Merely Inaccurate?” (RealClearMarkets). “While they may not agree on nearly anything else, one issue manages to unite Fox News Channel, MSNBC and CNN: an archaic television ratings system that is known to wildly misrepresent viewership. At a time when cord-cutting has brought about many new ways to consume television news and entertainment, the industry’s primary measurement tool, Nielsen Ratings, seems stuck in another era. Those chosen as “Nielsen families” have complained for years about the cumbersome, almost primitive methods used to track their viewership.”
“What Happens When All Of Your Co-workers Quit?” (The Cut). “The so-called great resignation has created a seismic power shift that has already forced corporations like McDonald’s, Walmart, and Starbucks to boost wages or offer perks to entice new hires. There has been an endless parade of Schadenfreude-inducing headlines about employers who are now on their knees begging for staff like desperate suitors…[but] in the meantime it has been devastating to those left behind whose unbearable workloads have led to depression, substance abuse, and trips to the hospital. After all, not everyone can quit.”
What we’re reading (8/18)
“Investors Bet Corporate Spending And Buybacks Will Support Stocks” (Wall Street Journal). “Investors are betting that cash-rich companies will increase spending on everything from factories to share buybacks, a combination many believe can boost stocks in coming months. Businesses including Tyson Foods Inc., consumer-products firm Newell Brands Inc., Morgan Stanley and alcohol seller Constellation Brands Inc. have said in recent weeks they plan to build factories, expand research budgets, pay down debt or seek acquisitions while also giving priority to dividends or share repurchases.”
“Palantir Bought $50 Million In Gold Bars In August As Cash Pile Grows” (CNBC). “While some companies such as Tesla are diversifying into bitcoin, data analytics software company Palantir is betting on gold. Palantir bought $50 million in gold bars in August, the company disclosed in its latest earnings statement. The move reflects a growing company stashing cash in an unconventional asset in response to economic uncertainty spurred by the coronavirus pandemic and governments’ response to it.”
“The S&P 500 Is Due For A 10% Correction And Will Slump For The Next Few Quarters As Tapering, Taxes, And Slow Earnings Growth Weighs On Returns, Morgan Stanley's Stock Chief Says” (Business Insider). “Morgan Stanley's chief US equity strategist doesn't see much upside left for the S&P 500 for the remainder of 2021. The firm's year-end price target for the benchmark index is 4000, a roughly 10% drop from current levels. Additionally, between now and the end of the year, Morgan Stanley expects a correction of even greater than 10%.”
“Why The S&P 500 Could Be Headed For An Imminent 7% Decline, According To BofA” (Business Insider). “The bank highlighted rising credit spreads as a big risk for the S&P 500, as it signals deteriorating credit conditions even as the market hits new record highs. The S&P 500 closed at a record high on Monday for the 49th time so far this year, and is up more than 2% over the past month.”
“Bill Ackman’s SPAC Gets Sued” (DealBook). “[The SPAC] run by the billionaire hedge-fund investor Bill Ackman, got sued this morning in a novel case that could have far-reaching implications for the SPAC industry. The case…contends that Ackman’s SPAC isn’t an operating company, but is actually an investment company like Ackman’s funds, which should be regulated by the Investment Company Act of 1940. If certain SPACs were regulated as investment companies, much of the industry could be affected because it would make it harder for anyone in the investment business to participate in a SPAC.”
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.”