What we’re reading (11/20)
“Top Fed Official Opens Door To Faster ‘Taper’ Of Bond-Buying Programme” (Financial Times). “The vice-chair of the US Federal Reserve on Friday opened the door to a faster withdrawal of its massive bond-buying programme, suggesting the central bank could take earlier-than-expected action to tame inflation. Richard Clarida said the Federal Open Market Committee could consider discussing the pace of the planned ‘taper’ at its upcoming policy meeting in December.”
“IPOs Keep Jumping Higher. How Long Will The Ride Last?” (Wall Street Journal). “The number of publicly listed companies in the U.S. rose above 4,000 for the first time in more than a decade, according to the Center for Research in Security Prices LLC. The reasons ranged from a surge of cash provided by Washington, D.C., to a search for new and bigger returns as interest rates hovered near zero. Startups that desperately needed cash added more fuel to the frenzy, as did newly popular ‘blank-check’ companies whose only purpose was to acquire a private target and take it public.”
“Has Anyone Considered That Maybe We’re Not In A Stock Bubble?” (Dealbreaker). “Are we in a stock market bubble? Maybe. Or maybe we’re just in an economy where businesses are doing well because Americans sitting on a large pile of cash they’ve accumulated over the course of the pandemic are now doing their darndest to spend it. My money’s on the latter.”
“Hostility Towards Private Equity’s Push Into Property Is Misguided” (The Economist). “This injection of capital should be welcomed, not scorned. The investors want to make money, naturally, but they see a gap in the market that needs filling and they are doing something about it. Demand for rental housing has never been higher. In Britain less than one in ten homes were rented in the mid-1990s. The share today is closer to one in five. A third of households in America are rented. Falling home ownership rates across the rich world mean that decent quality housing in the private rented market is more sought-after than ever. Yet tenancies are insecure and the supply of rental homes has failed to keep up with demand. A number of countries face chronic shortages.”
“Young Wall Streeters Are Pumping Their Bonus Checks Into Crypto. Here's An Inside Look At How They're Making Trades — And What Their Firms’ Compliance Departments Have To Say About It.” (Insider). “Wall Street firms generally have detailed policies around what employees are allowed to invest in personally to prevent insider trading and conflicts of interest. And while these policies vary by firm and division — traders, dealmakers, and others with client-facing relationships are subject to more restrictions than retail bankers, for instance — most securities traded via brokerage accounts require clearance from compliance.”
What we’re reading (11/19)
“The Return Of The Bond Market Conundrum” (Pragmatic Capitalism). “It feels an awful lot like the 2000’s scenario where the Fed will want to raise rates, but if they do they risk inverting the curve and crashing the economy. But this time, if they start raising rates they don’t have 5% of wriggle room before they invert. They have barely any room at all. As of now it looks like the long end of the curve seems to be staunchly in the “inflation is transitory” camp which means that Conundrum 2.0 looks to be on the table here.”
“Turkey Currency Crisis Threatens Economy, Posing Challenge To Erdogan Rule” (Wall Street Journal). “The Turkish lira hit a record low against the dollar on Thursday after the Central Bank cut a key rate by one percentage point. The currency has lost more than a third of its value since March and is the worst-performing major emerging market currency this year so far. The depreciating lira is a self-inflicted wound for Mr. Erdogan, who has pushed for lower interest rates as part of an unconventional economic strategy that he argues will encourage growth. Thursday’s rate cut was the third in three months and came after the president fired a series of senior officials who opposed his unorthodox economic vision.”
“Cathie Wood Says We Are In A Strong Bull Market And As Long As There Is No Recession, ‘We Will Probably Be Fine’” (Insider). “Cathie Wood believes the bull market for stocks has shown its strength by shrugging off mounting price pressures, and unless an economic downturn hits, it'll probably keep up its winning ways. The Ark Invest chief acknowledged the "wall of worry" being climbed by investors faced with hot-running inflation, speaking in an interview with Barrons on Wednesday. But Wood pointed to how equity markets shrugged off bond moves earlier this year.”
“Biden’s Bank Regulator Pick At Risk After Tough Senate Grilling” (Financial Times). “The most intense and personal grilling came from Republican senators who accused her of being a communist. ‘I don’t know whether to call you ‘professor’ or ‘comrade’,’ quipped John Kennedy, the Republican senator from Louisiana. Pat Toomey, the top Republican on the panel, said she would “end banking as we know it” and criticised Omarova’s undergraduate thesis on Karl Marx as evidence that she was a ‘radical’ choice.”
“Zillow Tried to Make Less Money” (Matt Levine, Bloomberg). “I don’t know, it’s a weird story about technology and scale, about how many businesses — in particular, many public companies — aim to maximize not profit but size. In concept, a business model like ‘send everyone in America a bid on their house that is too low, and then buy the houses from the minority of suckers who take your bid’ seems … obviously … lucrative? Like, I would be happy to do that business? I don’t have the capital for it, but I’m sure there are hedge funds who would do this business if they could.”
What we’re reading (11/18)
“Pandemic Stocks Have Become Passé” (DealBook). “As the economy reopens and markets look forward to life without pandemic restrictions, many “stay at home” stocks are no longer paying off for investors. Peloton, the maker of connected exercise bikes, said yesterday that it would raise $1 billion in cash from selling stock, just weeks after it said it didn’t need more capital. The company’s stock is down more than 60 percent this year.”
“What Went Wrong With Zillow? A Real-Estate Algorithm Derailed Its Big Bet” (Wall Street Journal). “The first quarter delivered home-sale profits that were more than twice as high as anticipated, the company said. Zillow expected to make money primarily from transaction fees and from services such as title insurance—not from making a killing on the flip. The company’s algorithm, which was supposed to predict housing prices, didn’t seem to understand the market. Zillow was also behind on its target for home purchases. By the summer, it had the opposite problem, the company later acknowledged. It was paying too much money for homes, and buying too many of them, just when price increases were starting to slow.”
“In Praise of . . . Enron?” (Texas Monthly). “Twenty years later, however, Clemmons isn’t alone in waxing nostalgic about Enron. Interviews with nearly a dozen former employees paint a similarly rosy picture. Working there was “an amazing experience,” one said. “An awesome place to be a young person,” said another. Still, their memories contain contradictions. Enron was an invigorating, dynamic workplace (managed by unapologetic criminals). The company fearlessly pioneered several new markets and industries (while looting others).”
“Investors Know They Own Too Much Tech. This Analysis Shows That It’s Worse Than They Think.” (Institutional Investor). “Because pension funds and other big institutions have adopted index funds for at least part of their stock portfolios, many of them now face new risks. One of the criticisms of funds that track indices such the S&P 500, which is weighted by the market capitalization of its stocks, is that the benchmark has gotten concentrated in the most expensive constituents — think Alphabet, Apple, and Microsoft, for example. Investors, as a result, are less diversified than they think and more exposed to a potential decline in these stocks. “
“Don’t Mock The Metaverse” (The Economist). “Google Maps already offers a virtual space that contains the real world’s stations, shops and streets. The video-game industry—the only type of entertainment fully exposed to the compounding power of Moore’s law—has been selling virtual worlds for years. “EverQuest”, an online game launched in 1999, had half a million subscribers at its peak. (Players quickly co-opted it for socialising, and even weddings, as well as dragon-slaying.) “World of Warcraft”, which arrived five years later, hit 12m. These days 200m people a month hang out on “Roblox”, a video-game-cum-construction-set. Many spend their real money on virtual goods. It is hard to argue that an idea will never catch on when, for millions of people, it already has.”
What we’re reading (11/17)
“Biden Says Fed Chair Pick Could Be Unveiled This Week” (Wall Street Journal). “Mr. Biden is considering whether to reappoint Fed Chairman Jerome Powell when his four-year term expires in February or to pick Fed governor Lael Brainard for the position. Mr. Biden interviewed both candidates on Nov. 4, and he isn’t considering other individuals, according to a person familiar with the matter.”
“Retail Sales Rise Faster Than Expected In October Even As Inflation Pushes Prices Higher” (CNBC). “U.S. shoppers accelerated their level of spending in October even as the prices of goods jumped at their fastest pace since the 1990s, the Commerce Department reported Tuesday. Retail sales, a measure of how much consumers spent on goods ranging across categories from autos to sporting goods and food and gas, increased 1.7% for October, compared with 0.8% the previous month.”
“Market Is Wrong To Price In Mid-2022 Fed Hike, TD’s Misra Says” (Bloomberg). “TD doesn’t expect the Fed to raise rates until late 2023. The call runs counter to recent trading in the U.S. Treasury market, where the spread between 2- and 10-year yields narrowed to 97 basis points last week, the tightest since August, with traders pulling forward bets on Fed rate increases.”
“Why Conglomerates Break Themselves Up” (Axios). “GE, Johnson & Johnson, and Toshiba weren't the last of the conglomerates. Giants both old and new remain. (Think 3M, or Softbank.) In today's financially-optimized stock market, however, the arguments for internal diversification have mostly lost the day…[i]n the era of index funds, investors can get diversification easily from ETFs; they don't need corporate managers to do that for them.”
“46 Members Of Congress Have Violated A Law Designed To Stop Insider Trading And Prevent Conflicts-Of-Interest” (Insider). “Insider and several other news organizations have this year identified 46 members of Congress who've failed to properly report their financial trades as mandated by the Stop Trading on Congressional Knowledge Act of 2012, also known as the STOCK Act.”
What we’re reading (11/16)
“Why The Chip Shortage Drags On And On…And On” (Ars Technica). “[T]he semiconductor supply chain has become stretched in new ways that are deeply rooted and difficult to resolve. Demand is ballooning faster than chipmakers can respond, especially for basic-yet-widespread components that are subject to the kind of big variations in demand that make investments risky.”
“Credit Card Companies Acknowledge Their Biggest Fear - Competition” (Real Clear Markets). “In a recent article, the chairman of a credit card industry coalition expressed his members’ worst fear about bringing competition to who gets to process trillions of dollars in transactions each year. Doing so would result in a situation ‘in which credit card networks are forced to lower their prices to compete.’ Welcome to the real world!”
“Berkshire Cuts Visa, Mastercard Bets, Trims Some Drug Stakes” (Bloomberg). “Warren Buffett’s Berkshire Hathaway Inc. cut two of its payments bets -- holdings in Visa Inc. and Mastercard Inc. -- as it also pulled back on investments in pharmaceutical giants AbbVie Inc. and Bristol Myers-Squibb Co.”
“AQR Hedge Fund Parts With 5 Top Managers And Closes Struggling Division” (Financial Times). “Computer-powered hedge fund group AQR Capital Management is to remove five partners from its ranks and trim its bond arm, continuing to retrench operations after several lean years for many systematic trading strategies. The $137bn investment group led by Clifford Asness has been a pioneer of ‘quantitative’ investment strategies that attempt to profit from long-term market signals, rather than traditional human traders and fund managers.”
“The Good News About The Great Resignation” (Fortune). “[P]erhaps what’s really behind the Great Resignation is a collective shift in our mindset fueled by the pandemic—one in which many have reevaluated the very idea of what it means to work. Millions around the world have decided that life is simply too short to do work that risks their sanity, their safety, or their soul. For them, this moment has led to a desire for more meaningful, more impactful, purpose-driven work—work that might actually change the world.”
What we’re reading (11/15)
“Inflation Is Killing The Dollar Carry Trade In Emerging Markets” (Bloomberg). “A short-lived reprieve for emerging-market carry trades funded in dollars looks to be over, with an upsurge in U.S. inflation making the outlook increasingly treacherous. A Bloomberg index of these bets has dropped more than 4% in the past two months, the biggest slide since March 2020 for a strategy of borrowing in the greenback and investing in developing-nation currencies. The quickest U.S. inflation in three decades is putting pressure on the Federal Reserve to tighten, raising the prospect of higher costs for dollar borrowers, and less extra yield -- or carry.”
“Fed’s Kashkari Expects Higher Inflation Continuing Over Next Few Months” (Reuters). “Minneapolis Federal Reserve Bank President Neel Kashkari said on Sunday he expects higher inflation continuing over the next few months but warned that the U.S. central bank should not overreact to elevated inflation as it is likely to be temporary. ‘The math suggests we're probably going to see somewhat higher readings over the next few months before they likely start to taper off,’ Kashkari told CBS News’ “Face the Nation” in an interview on Sunday.”
“As American Workers Leave Jobs In Record Numbers, A Closer Look At Who Is Quitting” (Wall Street Journal). “American workers’ stampede toward the exits hasn’t let up. New data puts a finer point on who, exactly, is leaving jobs these days. Workers resigned from a record 4.4 million jobs in September, according to Labor Department data, and new surveys show that low-wage workers, employees of color and women outside the management ranks are those most likely to change roles. The findings signal that turnover isn’t evenly spread across the U.S. workforce even as employers across industries struggle to fill a variety of roles.”
“The Rise Of The Anti-Woke ETFs” (Bloomberg Quint). “A new batch of ETFs seeks to appeal to right-leaning investors who want an alternative to ‘woke’ Corporate America and ESG activism. While political-themed ETFs aren't a new idea, they've never really managed to attract meaningful assets. With Americans more polarized than ever before, could this be the moment that these ETFs actually find an audience?”
“Americans Are Still Buying Up A Storm” (CNN Business). “Consumer spending continues to power the US economy. Whether it's to buy a new house or just a Squid Game plush toy from Amazon (AMZN), people still seem willing to shell out their hard earned cash for stuff. Retail sales in the United States soared more than expected in September and figures for August were revised higher to show a bigger jump than initially reported. October numbers will be released Tuesday. More healthy gains are expected, despite lingering worries about rising prices and supply chain disruption.”
What we’re reading (11/14)
“Will Shortages Lead To Gluts?” (Charles Schwab). “A surplus of goods and materials seems a long way off at the present. Supply shortages, lifting inflation and slowing production, endured all year as strong demand outstripped supply and have been worsened by supply chain logjams. Yet, history shows us that shortages often lead to gluts. Should a supply glut emerge in 2022, it may lead to a fall in inflation as excess inventory prompts price cuts.”
“Workers Quit Jobs In Record Numbers As Consumer Sentiment Hits 10-Year Low” (CNBC). “Consumer confidence hit a 10-year low in November as inflation climbed to the highest levels since the early 1990s, complicating efforts from policymakers to sell the case that the current surge of price increases is temporary. The plunge in sentiment happened as workers quitting their jobs hit a fresh record in a labor market that has nearly three million more positions available than there are people looking or jobs.”
“GE And The Belief In Management Magic” (Wall Street Journal). “GE’s dissolution…points to another reality of corporate life and death. Often, failure—as Ernest Hemingway wrote in ‘The Sun Also Rises’—happens two ways: ‘gradually and then suddenly.’ GE’s corporate culture prided itself on elevating management to a kind of science. The dissolution of the company, however, points to a reality many executives don’t like to admit: Management matters a lot, but it doesn’t matter as much as you think (especially if you are management). Economic and business cycles are often more important to a company than what its managers do.”
“Top Tiger Global Dealmaker John Curtius Has A Stark Warning For Startup Employees About Their Stock Pay” (Insider). “In the red-hot venture-capital market, startups have been valued more highly than ever before. That's led some investors to wonder whether valuations have gone overboard…at greatest risk may be employees who join a startup that later has a drop in valuation, according to one of Tiger Global Management's top dealmakers. ‘There is a bit of frothiness in the market, and not all companies are being appropriately valued today,’ John Curtius, who leads the firm's software investments, said this week at Afore Capital's Pre-Seed Summit.”
“Business Schools Respond To A Flood Of Interest In E.S.G.” (DealBook). “A decade ago, the hottest M.B.A. courses typically covered topics such as game theory, valuing securities and negotiating mergers. Today, some of the most popular classes are about climate finance, impact investing and social entrepreneurship.”
What we’re reading (11/13)
“The Choking Of The Global Minotaur” (James K. Gailbraith, Project Syndicate). “In his remarkable 2011 book, The Global Minotaur, the economist (and future Greek finance minister) Yanis Varoufakis compared the United States to the mythical monster…[f]or 40 years, the US economy has taken in the consumption goods produced by Japan, South Korea, China, and others. To sustain the insatiable Minotaur, the world built a global labyrinth of ports, ships, more ports, warehouses, storage yards, roads, and rails. Then, one day, the Minotaur got sick and missed a meal. The next day, he sought to catch up by eating four meals, only to find that his gullet was not quite wide enough to get them all down. So, now the Minotaur sits, choking and helpless, hoping the blockage will clear. If it doesn’t, the consequences could be grave.”
“‘A Dangerous Man’: The Messy Politics Of Fed Chair Nominations” (Financial Times). “‘One lesson from history is that these appointment decisions . . . are not made in the abstract,’ said Sarah Binder, a professor of political science at George Washington University. ‘The choice isn’t solely about whether the president favours the economic beliefs of one candidate over the other.’”
“Facebook Is Under Fire, But It's Also Undervalued” (Morningstar). “We forecast that over the next five years, Meta's revenue will increase by a 21.8% compound annual growth rate, or CAGR. This growth can be broken into two parts: increase in the number of users and growth in the average revenue per user.”
“Record Quitting Fuels Tight Job Market” (Wall Street Journal). “As of Nov. 5, there were a projected 11.2 million U.S. job openings, according to estimates from the jobs site Indeed, exceeding 7.4 million unemployed workers in the U.S. labor force last month. The so-called quits rate—a measurement of workers leaving jobs as a share of overall employment—was 3% in September, a record high, Friday’s Labor Department data showed, a sign of worker confidence in the job market. Total quits, which reflects the number of jobs that workers left voluntarily, hit another record at 4.4 million.”
“Why Are People Really Quitting Their Jobs? Burnout Tops The List, New Research Shows” (Inc.). “Limeade, an organization dedicated to researching and improving employee well-being, has released its new study, ‘The Great Resignation Update,’ to examine why the ‘Great Resigners’ left. The study surveyed 1,000 U.S.-based employees who started a new job in 2021 and have been there for at least three months…[t]he No. 1 reason job-changers left their previous employers was burnout, which was cited by 40 percent of survey respondents. Events outside the workplace, like the 2020 COVID-19 recession, have contributed to worsening burnout over the past 20 months.”
What we’re reading (11/12)
“Why Jerome Powell Must Go” (Joseph Stiglitz, Project Syndicate). A blistering, contrarian view from a giant of economics.
“How NFTs Create Value” (Harvard Business Review). “NFTs have fundamentally changed the market for digital assets. Historically there was no way to separate the “owner” of a digital artwork from someone who just saved a copy to their desktop. Markets can’t operate without clear property rights: Before someone can buy a good, it has to be clear who has the right to sell it, and once someone does buy, you need to be able to transfer ownership from the seller to the buyer. NFTs solve this problem by giving parties something they can agree represents ownership. In doing so, they make it possible to build markets around new types of transactions — buying and selling products that could never be sold before, or enabling transactions to happen in innovative ways that are more efficient and valuable.”
“Tesla Had 5 Founders. Why Did Only Two Get Really Rich?” (Forbes). “‘When I got kicked out of Tesla I had no money—I mean I really had no money,’ Eberhard says. ‘Worse than that, I had no possibility of employment for about a year’ because of a restrictive intellectual property agreement with Tesla, he says. ‘I did not participate in any investment rounds after I left.’”
“Time For Businesses To Humanize — Or Die” (The Week). “[S]ome employers may have to rethink their entire production model if they want to survive. For instance, as Alex Press writes at Jacobin, business owners are bizarrely resistant to the idea of letting workers, like cashiers, sit down, even when it wouldn't interfere with their jobs. That compulsively controlling attitude isn't uncommon (as most people who have ever worked at a restaurant can attest), and it needs to go.”
“Renters Who Abandoned Their City Apartments During Covid Are Coming Home to a Crazy Leasing Market” (Wall Street Journal). “It turns out you can’t go home again. At least, that is the case for many of the Americans who left their homes in major metropolitan areas during the pandemic, relocating to the countryside for more living space and access to nature. Now they are returning in droves as vaccines become more widespread, employers call their workers back to the office and schools reopen for in-person instruction. They are arriving to find bidding wars and skyrocketing prices in their former neighborhoods, where everyone now wants the same things: outdoor space, a home office, and move-in readiness.”
What we’re reading (11/11)
“Real Consumption Must At Some Point Fall” (Marginal Revolution). “The biggest messenger for consumption losses is the rate of consumer price inflation, which measured at 6.2% on last reading. Not so many Americans expect to get an offsetting raise…in return, and above-average inflation is likely to continue for a year or two, some would say for longer. So real wages for many millions of Americans will be noticeably lower for the near future, too. That will translate into lower levels of consumption, with the timing of those losses depending on the spending and borrowing plans of individual households.”
“US Government Debt Sells Off Sharply On Inflation Surge” (Financial Times). “US government bonds sold off sharply on Wednesday after the labour department reported consumer prices soared last month, intensifying concerns the Federal Reserve will need to act more decisively to slow inflation. Yields on two-year Treasury notes, which are highly sensitive to interest rate expectations, rose by the most since the market turbulence triggered by the coronavirus outbreak in March 2020. The yield increased 0.09 percentage points to 0.52 per cent, signalling a significant fall in price. The biggest move was in the five-year note, which rose 0.14 percentage points to 1.22 per cent.”
“Inflation Pushes Income Tax Brackets Higher For 2022” (CNBC). “The IRS announced higher federal income tax brackets and standard deductions for 2022 amid rising inflation…The IRS also made other inflation adjustments, such as changes to the alternative minimum tax, a parallel system for higher earners, and an increased estate tax exemption. Moreover, there’s a boost for the earned income tax credit, a write-off for low- to moderate-income families, and higher flexible spending account limits, among other changes. Workers may also save more to 401(k) plans in 2022, according to last week’s announcement. But there won’t be a higher limit for individual retirement accounts.”
“The 'Big Short' Investor Michael Burry Says Tesla Stock Could Plunge 90% - And Notes Elon Musk Said It Was Overpriced At $160 Last Year” (Insider). “Michael Burry suggested Tesla stock could plummet 90% in a now-deleted tweet on Tuesday. The investor of ‘The Big Short’ fame drew a parallel to Amazon shares plunging when the dot-com bubble burst and only soaring years later once the e-commerce giant had transformed its business…[t]he Scion Asset Management boss noted that Elon Musk himself said Tesla was overvalued last year, when the company's stock was trading at less than a sixth of its current price (adjusted for Tesla's five-for-one stock split in August 2020).”
“GE Breakup Bets On Flying Revival” (Wall Street Journal). “The three-way split announced Tuesday will leave a slimmer GE centered on the conglomerate’s current aviation unit, its largest remaining division by revenue after years of asset sales. The jet-engine-making business is also GE’s most profitable, generating cash that the company as a stand-alone could direct toward other deals in commercial aerospace, defense and space, analysts said. GE and its partners are the largest makers of engines for commercial jetliners and thousands of military aircraft.”
What we’re reading (11/10)
“Americans Have Never Been In So Much Debt” (CNN Business). “American households are carrying record amounts of debt as home and auto prices surge, Covid infections continue to fall and people get out their credit cards again. Between July and September, US household debt climbed to a new record of $15.24 trillion, the Federal Reserve Bank of New York said Tuesday. It was an increase of 1.9%, or $286 billion, from the second quarter of the year.”
“‘The End Of The GE We Knew’: Breakup Turns A Page In Modern Business History” (Wall Street Journal). “General Electric Co., the company that for more than a century stood as a beacon of U.S. manufacturing might and management prowess, will split into three public companies, drawing the curtain on an era of modern business—the dominance of industrial conglomerates. The decision, announced Tuesday by Chief Executive Larry Culp, ends the myth that GE wielded a magic touch to run companies better, and make everyone richer, through its management of varied enterprises around the world.”
“Uber, DoorDash And Similar Firms Can’t Defy The Laws Of Capitalism After All” (The Economist). “[L]ook deeper and evidence is mounting that business flywheels are not defying the laws of capitalism. The money that went into building them recalls the railway mania among other past speculative investment crazes. The nine firms that have gone public so far [Uber, Lyft, Didi, and six delivery firms, including DoorDash, Delivery Hero, Meituan, and Zomato] collectively raised more than $100bn…[s]eemingly bottomless pits of investors’ cash went to subsidising rides and deliveries to juice demand. This reached absurd points: a pizzeria could make money by ordering its own food for a discounted price on DoorDash (which then paid back the regular amount).”
“Zillow Insiders Are Blaming An Internal Initiative Called Project Ketchup For The Company’s Home-Flipping Failures” (Insider). “The employees' accounts suggested that Zillow's iBuying problems had less to do with a glitch in its computer-driven, algorithmic approach to purchasing homes or unpredictable swings in prices and more to do with the overexuberance of human managers. Employees said leaders at the company failed to heed signs that Project Ketchup was prompting it to pay too much for homes and damaging key business relationships with contractors who fixed up properties before Zillow relisted them.”
“Hertz Raises $1.3 Billion in ‘Re-IPO.’ The New Stock Will Start Trading Soon.” (Barron’s). “Hertz Global Holdings, the rental car company that emerged from bankruptcy earlier this year, said late Monday that its offering raised more than expected at nearly $1.3 billion. Hertz sold 44.52 million shares at $29 each. It had planned to offer 37.1 million shares at $25 to $29 each, a prospectus said. The shares are set to trade on the Nasdaq under the ticker HTZ on Tuesday. At $29 a share, Hertz is valued at $13.7 billion.”
What we’re reading (11/9)
“Randal Quarles To Resign From Fed Board, Expanding Biden’s Options To Shape Agency” (Washington Post). “Quarles served a four-year term as the Fed’s vice chair for supervision that ran through mid-October. He was known for leading the charge to ease restrictions on the banking system put in place after the Great Recession, which was spurred by a financial crisis within the largest Wall Street banks. The banking cop role was created under the 2010 Dodd-Frank overhaul of the regulatory system.”
“CalSTRS Offers Rare Look Into How Much Pensions Pay to Invest” (Institutional Investor). “According to the report, last year CalSTRS paid, excluding incentive fees, 46.7 basis points (on its total assets), while 14 global peers paid 49.2 basis points on average. In addition, 43 pension funds general paid 61.5 basis points on average. The report tracks all expenses the pension paid to have its investments managed, including operational and other charges directly deducted from funds and carried interest — incentive fees.”
“Investors Take Aim At Private Equity’s Use Of Private Jets” (Financial Times). “Investors say they routinely find themselves billed for extra costs, such as the hiring of private jets, in addition to the standard “two and 20” — a 2 per cent annual management fee and 20 per cent performance fee — charged by the managers of private equity groups, known as general partners or GPs.”
“Chinese Junk Bond Yields Top 25% As Property-Market Strains Intensify” (Wall Street Journal). “The biggest selloff that China’s international junk-bond market has ever seen has wiped out around a third of bondholders’ wealth in just six months. The steep and rapid decline shows how regulatory curbs on borrowing, extremely dislocated credit markets, and slowing home sales have combined to pressure more Chinese property developers, which account for most of China’s high-yield issuance.”
“Wonking Out: Is The Great Resignation A Great Rethink?” (Paul Krugman, New York Times). “As [labor economist Arindrajit Dube] says, there’s considerable evidence that ‘workers at low-wage jobs [have] historically underestimated how bad their jobs are.’ When something — like, say, a deadly pandemic — forces them out of their rut, they realize what they’ve been putting up with. And because they can learn from the experience of other workers, there may be a ‘quits multiplier’ in which the decision of some workers to quit ends up inducing other workers to follow suit.
What we’re reading (11/8)
“Biden's Fed Calculus” (Axios). “President Biden has more than economics on his mind as he weighs his choice to lead the Federal Reserve: His pick will impact inflation, face the cruel judgment of financial markets and somehow need to find 50 votes in deeply divided Washington…[t]he case for Powell: [m]arkets know, like and trust the former private equity executive….[S]ome Republicans are vowing to block Brainard, calling her too liberal, and hinting at an ugly confirmation fight. The case for Brainard: She’s an actual economist and actual Democrat, and is more aligned with Biden on a range of fiscal, monetary and regulatory issues.”
“Investors Are Betting That Pfizer’s ‘Game-Changing’ Antiviral Pill Will Reduce Demand For COVID Vaccines” (Fortune). “On Monday, stocks of vaccine makers in Asia fell in the wake of U.S. pharmaceutical giant Pfizer’s announcement that its new antiviral pill called Paxlovid is 89% effective in reducing risk of hospitalization or death from COVID-19…Investors appear to believe that the introduction of highly-effective treatment options may reduce some global demand for COVID-19 vaccines, which are currently the main proven tools on the market to prevent hospitalizations and deaths related to the virus.”
“Rich Millennials to Financial Advisers: Thanks For the Golf Invite, But You Can’t Invest My Money” (Wall Street Journal). “More rich young investors are opting to go without a traditional financial adviser. Instead, they are betting they can get good-enough investment options from do-it-yourself digital platforms that are cheap and easy to use. Many also want to invest in riskier assets, like cryptocurrencies and tech startups, that mainstream advisers often don’t offer.”
“Elon Musk’s ‘Ticking Tax Time Bomb’” (DealBook). “Elon Musk appears to have used an impending stock option deadline to make a political point. Over the weekend, the Tesla C.E.O. surveyed his millions of Twitter followers about whether he should sell a chunk of his shares in the electric car company. “Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock,” he tweeted, committing to abide by the results of the poll.”
“The 2000s Housing Bubble Was Greatly Exaggerated” (Full Stack Economics). “[Mecatus Center Scholar Kevin] Erdmann argues that policymakers misdiagnosed the causes of the housing boom, and that led to catastrophic policy errors. In particular, because the Federal Reserve thought housing was overvalued in 2007, it didn’t cut rates fast enough in response to the housing crash. That helped turn what might have been only a mild, industry-specific downturn into a severe, economy-wide recession. And that recession, in turn, made the housing crisis bigger than it needed to be, since many previously solvent homeowners lost their jobs or saw their mortgages go under water.”
What we’re reading (11/7)
“Investing When Everything Is Expensive” (Morningstar). “Previous bull markets forced them to either 1) join the crowd, accepting that the consensus had correctly identified future trends, or 2) retreat into solitude, by buying that which had become neglected. The latter approach came with no guarantee, but at least it offered the solace of low prices. Today, there is no analogous choice. Yes, some investments are cheap, for example energy stocks or emerging-markets debt, but they account for only a small part of the global financial markets. They cannot form the whole.”
“Government-Bond Swings Burn Wall Street Investors” (Wall Street Journal). “A rapid U-turn in government-bond markets has sparked deep losses for some of Wall Street’s biggest investors, a stark demonstration of how even small shifts in expectations for economic growth and central-bank policy can upend the most carefully laid bets. Behind the losses are recent abrupt moves in government-bond prices. With central banks signaling plans to end their extraordinary stimulus measures, short-term bonds have tumbled in price, sending yields—which rise when prices fall—to touch their highest levels since March 2020.”
“Will We Be Sorry We Shut Down?” (City Journal). “It’s not clear…that everyone will experience the return to normal as a liberation. The pandemic caused us to worry, but it also delivered us for a while from a still-greater worry: the anxiety of freedom. To parody Pascal, who explained that the misfortune of humanity consisted in the inability to sit quietly in one’s room, alone, we might say that the misfortune of humanity after Covid will perhaps be to be shut up in one’s room—and like it.”
“Peloton's Founder Is No Longer A Billionaire After The Stock’s Violent Post-Earnings Sell-Off” (Insider). “John Foley's net worth fell to about $850 million during Friday's session as investors dumped shares and drove a sell-off that extended as far as 35%, Bloomberg first reported. Foley would still stand to gain if he exercised those options even after the sell-off, according to Bloomberg. He's also pledged 3.5 million shares as collateral for a personal loan, according to a regulatory filing.”
“The Man Who Called Bullshit On Uber” (Mother Jones). “Horan says he’s occasionally seen other companies use ‘these totally bullshit accounting games.’ But he adds they are the equivalent of a neon sign reading ‘Danger! Management Isn’t Trustworthy—Don’t Invest Here!’ In 2020, for example, Uber reported a net loss of $6.7 billion on $11.1 billion of revenue. But according to the company’s adjusted profit measure for the year, it came up $2.5 billion short. More than $4 billion in losses were accounted away.”
What we’re reading (11/6)
“October Jobs Report: Strong Rebound As U.S Economy Adds 531,000 Jobs” (Wall Street Journal). “The U.S. labor market sprang back to life in October after a summer slowdown, with employers briskly adding jobs and nearly 200,000 women joining the labor force. The economy churned out 531,000 new jobs last month, the biggest gain in three months, the Labor Department said Friday. Restaurants, consulting firms and factories all boosted hiring, suggesting broad strength across the economy.”
“The Jobs Numbers Take the ‘Stag’ Out Of The Stagflation Scare” (New York Times). “The story of the American labor market is less murky than it seemed just a few weeks ago. The new jobs numbers Friday present a straightforward, sunny view: Despite it all — the virus variants, the reopening struggles — Americans are going back to work at a rapid clip.”
“The Working Class Is On Strike” (The Nation). “Now more than ever, the rich are getting richer while the workers are left with crumbs. Just look at John Deere, which is expected to make over $5.7 billion in profits this year, and the CEO took home $15.6 million in 2020—a 160 percent raise from 2019. And last year Kellogg’s authorized $1.5 billion in stock buybacks to pad its shareholders’ pockets, yet these corporations and executives want to cry poor when it comes to sharing the wealth with the workers who created it.”
“Pricing Power Is Highly Prized On Wall Street” (The Economist). “A growing number of companies are raising prices as costs for labour and raw materials rise, often with no ill effects. This summer PepsiCo, an American food giant, lifted prices for its fizzy drinks and snacks to offset higher commodity and transport costs; it plans further increases early next year. Ramon Laguarta, the firm’s boss, suggested in an earnings call in October that customers do not seem bothered. ‘Across the world consumers seem to be looking at pricing a little bit differently than before,’ he said.”
“Kroger Looking Into Fake Press Release Touting Acceptance Of Bitcoin Cash” (Reuters). “Kroger Co is looking into the publication of a fake press release, claiming the acceptance of bitcoin cash at its stores, the grocer said on Friday, after becoming the second major retailer in recent weeks to get entangled in a crypto hoax. The release, which said the grocer would accept the cryptocurrency this holiday season, appeared on Kroger's investor relations page and was later deleted. The company said the page, which gets automatically updated, receives a direct feed from PR Newswire (PRN), where the fake release also appeared.”
What we’re reading (11/5)
“Fed Chair Powell Seen Visiting White House On Thursday” (Wall Street Journal). “Federal Reserve Chairman Jerome Powell was seen visiting the White House on Thursday, according to people familiar with the matter. Mr. Powell’s term leading the central bank is set to expire next February. President Biden told reporters on Tuesday that he would announce decisions ‘fairly quickly’ on whether he was offering Mr. Powell another term or tapping someone else to succeed him.”
“‘The Great Resignation’ Misses the Point” (Wired). “[P]erhaps what’s most notable about the name the Great Resignation is that its main substance—resignations—may be the least consequential thing about the moment that it’s come to represent. The real takeaway is why people are leaving their jobs in the first place—rampant stress, the shift to remote work, a forced reckoning with what matters in light of the pandemic—and what resigning is leading them to do next. Taken on its surface, the Great Resignation foregrounds the language of job status, but misses a parallel, arguably bigger story: the radical realignment of values that is fueling people to confront and remake their relationship to life at home, with their families, with their friends, and in their lives outside of labor.”
“Zillow Torched $381 Million Overpaying For Houses. Spectacular.” (Slate). “On the one hand, Zillow’s failure is a typical infuriating business story. Some execs dreamed up something they could not execute, it blew up spectacularly, and the most obvious people to suffer from their decision are the many employees they’ll fire. (Zillow’s shareholders are also losing, which happens when companies release news of this kind on earnings calls with their investors.) On the other hand, I hope they try again? Or that another company does it better? The idea of selling houses like they’re something less complicated than houses is worth someone getting right, even if Zillow came nowhere close.”
“Redfin Execs Attempted To Distance The Company's Home-Flipping Business From Zillow's Recent Implosion — Without Ever Mentioning Zillow” (Insider). “Executives at real-estate brokerage Redfin never mentioned Zillow by name during an hourlong earnings call with investors and analysts on Thursday. But make no mistake: Zillow's home-flipping debacle was top of mind for everyone involved. Redfin executives spent much of their time attempting to distance their own "instant buying" business, RedfinNow, from the soon-to-be-defunct Zillow Offers, while reassuring investors that the company would avoid the kinds of mistakes that led to Zillow suffering hundreds of millions of dollars in losses on homes.”
“US Productivity Dropped To Its Lowest Level In 40 years” (CNN Business). “[Productivity] decreased at a seasonally adjusted annual rate of 5% between July and September. That's the sharpest decline since the second quarter of 1981, the Bureau of Labor Statistics said Thursday, when the United States was in the midst of a 16-month recession. In the third quarter of this year, output increased by 1.7%, while hours worked jumped by 7%.”
What we’re reading (11/4)
“When Will America’s Oil Industry Open The Taps?” (OilPrice.com). “So now that oil companies are rolling in the dough will they increase production to help out the world’s energy supply squeeze? Don’t count on it. ‘Exxon Mobil Corp., Royal Dutch Shell Plc and Chevron Corp. confirmed this week that, for the most part, they’ll spend their windfall profits on share buybacks and dividends,’ Bloomberg recently reported. While capital expenditures will increase in 2022, the report continues, ‘the increases come off 2021’s exceptionally low base and within frameworks established before the recent surge in fossil-fuel prices.’”
“Billionaire Investor [Charlie Munger]: Democrats’ Plan To Tax Stock Buybacks Is ‘Literally Insane’” (CNN Business). “‘I don't think the dividend policies of American corporations ought to be determined from Washington,’ Munger told CNN. The Biden administration fired back after Munger's criticism.”
“Where Are All The Truck Drivers? Shortage Adds To Delivery Delays” (Wall Street Journal). “Truck driver Chris Wagner pulled his big rig into a grain processing plant in Sidney, Ohio, on a recent afternoon to pick up a load bound for the Chicago suburbs. He’d lost his scheduled place in line because of delays at an earlier delivery, so it was 10:45 p.m. before the plant was ready to load his trailer. By then, the clock had run out on his federally mandated 14-hour workday, so Mr. Wagner couldn’t pull up to the dock. He slept that night in his truck on the plant’s lot and left empty-handed the following morning, unable to reschedule the pickup.”
“Once A Startup Unicorn, Mattress Brand Casper Is Now Scrambling To Raise $150 Million As It Bleeds Cash” (Insider). “Casper is trying to raise as much as $150 million in a secondary offering as it confronts mounting losses, a plunging stock, and potential solvency issues. The mattress company and direct-to-consumer pioneer disclosed plans to raise capital through a variety of securities offerings in an S-3 filing on Oct. 25, and is seeking to raise $50 million in common shares and the rest through a combination of preferred shares, debt, and other instruments.”
“Kevin Durant Launches Second SPAC To Buy A Crypto Business Because Everything Is Perfectly Normal And Reasonable And It’s A Totally Sensible Thing To Do” (Dealbreaker). “Donald Trump’s nascent hacker’s dream of a social media platform is off the table, legally or otherwise. So, too, is WeWork, thanks to Shaquille O’Neal. SeatGeek’s no longer available after signing a deal with a SPAC backed by Brooklyn Nets star Kevin Durant. Still, Durant has got a taste for the blank check now and he can’t stop, even as there remain hundreds of SPACs desperately seeking dance partners, and the legal and regulatory future of the space remains very much up in the air.”
What we’re reading (11/3)
“Fed Dials Back Bond Purchases, Plots End To Stimulus By June” (Wall Street Journal). “The Federal Reserve closed a chapter on its aggressive, pandemic-driven stimulus when it approved plans Wednesday to begin scaling back its bond-buying program this month amid concerns that inflationary pressures could last longer than officials expected earlier this year. Fed officials agreed to wind down their $120-billion-a-month asset-purchase program by $15 billion each in November and December, a pace that could phase out the purchases entirely by next June.”
“Wall Street Hits Highs Again After Fed Confirms Tapering Plans” (Financial Times). “The S&P 500, which had slipped slightly earlier in the day, swung to a gain after the Fed’s announcement and extended its gains as chair Jay Powell spoke to reporters. Powell said the Fed could adjust the pace of its tapering but stressed that ‘we wouldn’t want to surprise markets’ and would provide ample warning ahead of any change. He added that the central bank would not rush to raise interest rates.”
“Zillow Thought It Could Rule The Housing Market. It Was Very Wrong.” (MarketWatch). “Zillow Group had a wealth of data, access to millions of dollars in capital and executives with the hubris to believe they could use these tools to outsmart both a volatile housing market and startups specializing in buying and selling houses. They failed, and lost more than half a billion dollars in the process.”
“On Elon Musk And The Dangerous Power Of Insecure Billionaires” (Paul Krugman, New York Times). “Elon Musk doesn’t think visionaries like him should pay taxes the way little people do. After all, why hand over his money to dull bureaucrats? They’ll just squander it on pedestrian schemes like … bailing out Tesla at a crucial point in its development. Musk has his sights set on more important things, like getting humanity to Mars to ‘preserve the light of consciousness.’ Billionaires, you see, tend to be surrounded by people who tell them how wonderful they are and would never, ever suggest that they’re making fools of themselves.”
“The Uses And Abuses Of Green Finance” (The Economist). “In principle, [Green finance] has a huge role to play in slowing climate change. Shifting the economy from fossil fuels to clean sources of energy requires a vast reallocation of capital. By 2030, around $4trn of investment in clean energy will be needed each year, a tripling of current levels. And spending on fossil fuels must decline. In an ideal world the profit incentive of institutional investors would be aligned with reducing emissions, and these owners and financiers would control the global assets that create emissions. If so, asset owners would have both the motive and the means to reinvent the economy. But the reality of green investing falls short of this ideal.”
What we’re reading (11/2)
“A World Running On Empty” (Paul Krugman, New York Times). “Probably the best parallel is not with 1974 or 1979 but with the Korean War, when inflation spiked, hitting almost 10 percent at an annual rate, because supply couldn’t keep up with surging demand…[during the pandemic] the composition of demand has changed. During the worst of the pandemic, people were unable or unwilling to consume services like restaurant meals, and they compensated by buying more stuff…[s]omething similar seems to have happened around the world.”
“Money Talks: The Couple Who Used Lessons From 2008 To Navigate 2020” (Vox). “Krystal: We realized ownership was extremely valuable, especially in a market that was growing. Then, in this situation, we realized the people who were doing really well were the people who had ownership. It made sense that people who own property, people who have income sources that aren’t tied to employers, are doing okay.”
“Zillow Stock Dives After Analyst Highlights Two-Thirds Of Homes Bought Are Underwater” (MarketWatch). “Shares of Zillow Group Inc. took a dive Monday, after KeyBanc analyst Edward Yruma highlighted how most of the homes the real estate services company purchased, with an aim to flip them, were now worth less than what they paid for them…Yruma said it completed an analysis of 650 homes in Zillow’s inventory, or about one-fifth of the homes owned, and found that 66% are currently listed below the purchase price at an average discount of 4.5%.”
“Farewell Offshoring, Outsourcing. Pandemic Rewrites CEO Playbook.” (Wall Street Journal). “With the machinery of international trade slowed, business leaders are ditching, at least temporarily, overseas partners and the conventional wisdom of the global economy in favor of reliability, even if it costs more. Some are moving workers and production facilities closer to home and relocating plants closer to suppliers. Others are buying their suppliers or bringing former contract work in-house.”
“Of Course Trump’s SPAC Deal May Have Broken Securities Laws” (Vanity Fair). “Just days after Donald J. Trump left the White House, two former contestants on his reality show, The Apprentice, approached him with a pitch. Wes Moss and Andy Litinsky wanted to create a conservative media giant. Mr. Trump was taken with the idea. But he had to figure out how to pay for it…. To get his deal done, Mr. Trump ventured into an unregulated and sometimes shadowy corner of Wall Street, working with an unlikely cast of characters: the former Apprentice contestants, a small Chinese investment firm and a little-known Miami banker named Patrick Orlando.”
What we’re reading (11/1)
“G-20 Needs A ‘Sputnik Moment’ On The Global Economy” (Mohamed El-Erian, Washington Post). “central banks must now confront two policy requirements that would have been much easier to handle with better sequencing over a longer period: easing off the accelerator by reducing large-scale asset purchases (a QE taper) and tapping on the brakes through interest rate increases. The Bank of England has been the best at recognizing the underlying inflation dynamics and the urgent need to adjust its forward policy guidance. The Fed continues to notably lag behind, while the European Central Bank’s own sluggishness has a better economic rationale.”
“Even After A Weak Patch, America’s Economy Is Still In High Gear” (The Economist). “An end to stimulus would usually augur poorly for growth. Yet other factors could insulate the economy. The consumption of goods is about 15% higher than its trend level, partly because people have spent much less money than usual on holidays and restaurants and much more on sofas, exercise bikes and stay-at-home essentials. But with the pandemic now apparently petering out, people are buying experiences again—a fillip for growth, given that services account for nearly 80% of output[.]”
“How Robinhood Cashes In On The Options Boom” (Wall Street Journal). “In the 12 months through June, the 11 largest U.S. retail brokerages collected $2.2 billion for selling customers’ options orders, according to Larry Tabb, head of market-structure research at Bloomberg Intelligence. That was about 60% higher than their take from selling equities orders. During that period, major brokers were paid an average of about 16 cents for each 100 shares of their customers’ stock orders, compared with about 54 cents for equivalent-sized options orders, Mr. Tabb’s data show.”
“Jobs People Want — And Don't Want — After The Pandemic” (Axios). “Interest in IT and media jobs is surging, but no one wants to fill the sorely needed child care and home health roles…only around 37% of U.S. jobs can be done from home, per an analysis by economists at the University of Chicago. But more and more people are eager to secure those jobs for the flexibility they provide during the pandemic and beyond, says Indeed economist AnnElizabeth Konkel…Indeed's report shows that interest in loading and stocking jobs at warehouses has cratered 40%. Clicks for food service jobs are down 18%. And interest in personal care and home health jobs and child care jobs is down 33% and 15%, respectively.”
“Catastrophe Bonds Storm Into Mainstream As Climate Threat Grows” (Financial Times). “A cyclone that sweeps through Jamaica, a typhoon that hits China’s Greater Bay, an earthquake that damages Google’s facilities in California — just a few examples of the growing range of hypothetical events that investors are queueing up to underwrite. Catastrophe bonds were first created in the 1990s as a niche form of risk transfer from insurers to investors. They have expanded steadily to a market of more than $30bn in terms of debt outstanding.”