February 2022 performance results
Hi friends, here with a performance update. The key numbers are:
Prime: -4.60%
Select: -0.13%
SPY ETF: -3.12%
Bogleheads: -2.61%
It was a wild month, with several macro factors materially affecting market conditions and the asset pricing environment writ large. First, the market gained conviction around the path and pace of future rate hikes, which are expected to be significant. A key difference in February compared to prior months, in relation to rate-hike expectations, is a developing view that forward-looking growth may be softer than previously believed. Second, and aggravating concerns about growth, the ongoing invasion and attempted takeover of Ukraine has arguably elevated risk premia across all asset classes, and has shocked input costs that are important for many corporate entities, and therefore the stock prices of those corporate entities. Given that backdrop, it is not surprising that equities experienced significantly higher volatility in the month as markets tried to digest the news flow. In fact, the annualized volatility on the S&P 500 in February was nearly 2x the comparable measure for the prior 12 months.
My thesis with respect to how Stoney Point’s model performs generally in an environment like this remains unchanged from last month: our Prime picks were down significantly in the month, like the market overall but to a greater extent; but our Select picks were basically flat. The average of both portfolios was -2.36%, 75 basis points better than the market overall as measured by the SPY ETF.
My thesis with respect to the potential rotation into a period of secular value stock outperformance relative to growth stock performance also remains unchanged. That thesis is intimately tied to a belief that interest rate normalization will result in more historically “typical” market conditions and that the value premium was typically positive historically. We will see how these predictions play out.
Stoney Point Total Performance History
What we’re reading (3/4)
“How The West Unplugged Russia From The World’s Financial Systems” (Wall Street Journal). “This unplugging of the world’s 11th-largest economy opens a new chapter in the history of economic conflict. In a world that relies on the financial system’s plumbing—clearing banks, settlement systems, messaging protocols and cross-border letters of credit—a few concerted moves can flatten a major economy. Russia now faces a repeat of one of the most painful episodes in its post-Soviet history—the financial crisis of 1998, when its economy collapsed overnight[.]”
“Talking War And Market Volatility With A Giant of Economics” (New York Times). “‘Basically, we’re in a period where we have had an injection of uncertainty into the world, so speculative prices are going to go up and down in response,’ he [2013 Nobel Laureate Eugene Fama] said. ‘People are continuously trying to evaluate information. But it’s impossible for them, given the amount of uncertainty that’s out there, to come up with good answers.’”
“Short Sellers Clean Up On Russian Stocks” (Institutional Investor). “Most of the short seller gains were made after President Biden said the U.S. believed Putin was planning to invade Ukraine, as the Moscow stock market hit its high on February 16, the day before that announcement…[a]s of Wednesday, RSX [VanEck Vectors Russia ETF] shorts were up $310 million in year-to-date mark-to-market gains, Dusaniwsky told Institutional Investor in an email late Wednesday.”
“Western Sanctions On Russia Are Like None The World Has Seen” (The Economist). “Economic measures to cut Russia off from the world’s financial arteries are the most powerful implements a West unwilling to meet a nuclear adversary on the battlefield has dared wield in response to the invasion of Ukraine. But it has wielded them savagely. No major economy in the modern world has ever been hit so hard by such weapons.”
“The Push To Ban Russian Oil Is Gaining Steam. Here’s What That Means For US Energy Prices” (CNN Business). “‘I'm all for that. Ban it,’ House Speaker Nancy Pelosi said this week. A bipartisan bill, unveiled this week by Democratic Sen. Joe Manchin of West Virginia and Republican Lisa Murkowski of Alaska, would do just that.”
What we’re reading (3/2)
“Powell Says Fed Is On Track To Raise Rates In Two Weeks” (Wall Street Journal). “Federal Reserve Chairman Jerome Powell said he would propose a quarter-percentage point rate increase at the central bank’s meeting in two weeks amid high inflation, strong economic demand and a tight labor market, offering an unusually explicit preview of anticipated policy action.”
“War in Ukraine Has Investors Thinking About A Second Cold War” (New York Times). “Financial markets have long been sensitive to geopolitical events — elections, supply disruptions and trade tensions — that can move prices. And in just a few days, the invasion of Ukraine has prompted a series of economic maneuvers that can quickly transform the way countries raise money, where they buy raw materials and with whom they do business.”
“Russian Dollar-Mortgage Holders Feel Ruble Crunch” (RadioFreeEurope). “In March, Yelena Balanovskaya and her husband took out a dollar-denominated mortgage to buy their dream apartment…[p]aying back the $200,000 loan, they thought, would not be a problem. Nine months later, it's an albatross around their neck. As the ruble has collapsed against the dollar, her $2,200 monthly payments have nearly doubled, from 77,000 rubles to 142,000. And if the ruble doesn't recover, Balanovskaya fears she won't be able to make her payments in the future.”
“Russian Stocks In London Wipe Out 98% Of Value In Two Weeks” (Bloomberg). “U.K.-listed depositary receipts of Russian companies are evaporating in value as sanctions take effect. The Dow Jones Russia GDR Index, which tracks London-traded Russian companies, has plunged 98% in two weeks. The slump has wiped out $572 billion from the market value of 23 stocks, including Gazprom PJSC, Sberbank of Russia PJSC and Rosneft PJSC, according to Bloomberg calculations.”
“Nightlife Inflation: The Cost of Going Out Is Going Up” (New York Times). “Ponyboy, a club in Greenpoint, Brooklyn, raised the prices of its drinks by one dollar, said James Halpern, the owner, who added that he felt bad about passing costs on to his customers. ‘Nightlife should be for everybody, not just for the elitists who can afford it,’ he said. He noted that Ponyboy’s electricity costs have nearly doubled and that he is paying more for various staples. A case of limes, which cost $20 or $30 a few years ago, now goes for $100, he said.”
What we’re reading (3/1)
“Russian Ruble Is Now Worth Less Than 1 U.S. Cent After SWIFT Bank Sanctions” (Time). “The ruble plunged to a record low of less than 1 U.S. cent in value Monday after Russia was cut off from the global bank payments system in retaliation for Moscow’s invasion of Ukraine. The Russian currency dropped nearly 26% to 105.27 per dollar, down from about 84 per dollar late Friday.”
“Russia Is A Potemkin Superpower” (Paul Krugman, New York Times). “I’ve been especially struck by reports that the early days of the invasion were hampered by severe logistical problems — that is, the invaders had a hard time providing their forces with the essentials of modern war, above all fuel. It’s true that supply problems are common in war; still, logistics is one thing advanced nations are supposed to be really good at. But Russia is looking less and less like an advanced nation.”
“How Vladimir Putin Miscalculated The Economic Cost of Invading Ukraine” (The New Yorker). “This time last week, it seemed like Putin had sound reasons for being skeptical about the prospect of truly damaging sanctions. Russia supplies the European Union with about forty per cent of its natural-gas imports and about a quarter of its crude oil imports…[l]ess than a week later, Russia is an economic pariah.”
“As The Tanks Rolled Into Ukraine, So Did Malware; Then Microsoft Entered The War” (The Indian Express). “Within three hours, Microsoft threw itself into the middle of a ground war in Europe — from 5,500 miles away. The threat center, north of Seattle, had been on high alert, and it quickly picked apart the malware, named it ‘FoxBlade’ and notified Ukraine’s top cyberdefense authority. Within three hours, Microsoft’s virus detection systems had been updated to block the code, which erases — ‘wipes’ — data on computers in a network.”
“Founder Of Crypto Trading Platform BitConnect Indicted For $2 Billion 'Global Ponzi Scheme’” (Nextgov). “A federal grand jury indicted the founder of a cryptocurrency investment and trading platform on charges related to fraud and creating a “global Ponzi scheme. 36-year-old Indian national Satish Kumbhani is the founder of BitConnect, an online trading platform for investors to exchange virtual currencies. Kumbhani allegedly misled investors about BitConnect’s lending operations, which were said to have used proprietary technology that gave crypto investors large returns on market transactions.”
What we’re reading (2/28)
“Russia’s Money Is Gone” (Matt Levine, Bloomberg). “Russia’s foreign reserves consist, in the first instance, of a set of accounting entries. But in a crisis the accounting entries don’t matter at all. All that matters are relationships, and if your relationships get bad enough then the money is as good as gone.”
“U.S. Escalates Sanctions With A Freeze On Russian Central Bank Assets.” (New York Times). “The Treasury Department on Monday moved to further cut off Russia from the global economy, announcing that it would immobilize Russian central bank assets that are held in the United States and impose sanctions on the Russian Direct Investment Fund, a sovereign wealth fund that is run by a close ally of President Vladimir V. Putin.”
“Blockade On Russia Central Bank Neutralizes Defense Against Sanctions, U.S. Says” (Wall Street Journal). “The coordinated action blocks the central bank from selling dollars, euros and other foreign currencies in its reserves stockpile to stabilize the ruble. Announcing the move Monday in Washington before U.S. markets opened, U.S. officials said they intended the sanctions to stoke already surging inflation, and the actions against the Bank of Russia are intended in effect to neutralize the country’s monetary defenses.”
“Russian Oligarchs Move Yachts As U.S. Looks To ‘Hunt Down’ And Freeze Assets” (CNBC). “The property of targeted Russian executives is likely to take another hit, as the Biden administration recently announced the creation of a taskforce that will take aim at their lucrative assets, including yachts and mansions. France is putting together a list of properties owned by Russian oligarchs, including cars and yachts, that could be seized under sanctions by the European Union.”
“Shell Follows BP Out Of Russia As UK Oil Companies Abandon Putin” (CNN Business). “The UK-based oil company said Monday it would dump its 27.5% stake in the Sakhalin-2 liquified natural gas facility, its 50% stake in a project to develop the Salym fields in western Siberia and its 50% interest in an exploration project in the Gydan peninsula in northwestern Siberia.”
March picks available now
The new Prime and Select picks for March are available starting now, based on a model run put through today (February 27). As a note, we’ll be measuring the performance on these picks from the first trading day of the month, Tuesday, March 1, 2022 (at the mid-spread open price) through the last trading day of the month, Thursday, March 31, 2022 (at the mid-spread closing price).
What we’re reading (2/27)
“Western Allies Agree To Expel Some Russian Banks From SWIFT Payments System” (Axios). “Why it matters: The measures will effectively cut Russia out of the world's most important financial messaging system and undermine the Kremlin's ability to use its central bank reserves to blunt the impact of other sanctions.”
“U.S. Stocks Poised To Plunge Over Ukraine-Russia Worries. Nasdaq Futures Down 3%.” (Barron’s). “On Sunday night, Dow Jones Industrial Average futures lost 466 points, or 1.4%, while the S&P 500 futures lost 2.5% and Nasdaq Composite futures lost 2.9%. The price of West Texas Intermediate, the U.S. benchmark oil, jumped 6.6%, to $97.60 a barrel as of 6:24 p.m. Eastern time Sunday.”
“Car Parts, Chips, Sunflower Oil: War In Ukraine Threatens New Shortages” (Wall Street Journal). “Russia’s invasion of Ukraine is piling new troubles onto the world’s already battered supply chains. The fighting has shut down car factories in Germany that rely on made-in-Ukraine components and hit supplies for the steel industry as far as Japan. It has severed airways and land routes that had become crucial since the pandemic began gumming up sea trade.”
“‘Pharma Bro’ Martin Shkreli Banned for Life From Public-Company Roles” (Bloomberg). “The former pharmaceutical company CEO, better known as “Pharma Bro,” faced Securities and Exchange Commission allegations of misleading investors in a hedge fund he founded and misappropriating funds. He’s ‘unfit to serve as an officer or director of any public company,’ the U.S. District Court for the Eastern District of New York said.”
“Who Buys The Dirty Energy Assets Public Companies No Longer Want?” (The Economist). “The first law of thermodynamics states that energy cannot be created or destroyed, just transferred from one place to another. The same seems to apply to the energy industry itself. Pressed by investors, activists and governments, the West’s six biggest oil companies have shed $44bn of mostly fossil-fuel assets since the start of 2018.”
What we’re reading (2/26)
“ESG And Alpha: Sales Or Substance?” (Institutional Investor). “Trillions of dollars are now invested in light-green ESG funds, and there is little evidence that they will deliver planetary impact or the promised higher returns. What harm will this do?”
“The Case For Bitcoin As ‘Digital Gold’ Is Falling Apart” (CNBC). “With inflation at historic highs, you’d expect this would be bitcoin’s time to shine — U.S. consumer prices last month rose the most since February 1982, according to Labor Department figures. Instead, the cryptocurrency has lost almost half of its value since reaching an all-time high of nearly $69,000 in November. That’s led analysts to question whether its status as a form of ‘digital gold’ still rings true.”
“What Would Paul Volcker Do?” (The Hill). “Volcker would quickly surmise that inflation is undesirably high, similar to the inflation of the late 1960s but less severe than the late 1970s. The Fed would be required to tighten monetary policy — raising rates and unwinding a portion of the Fed’s balance sheet — but by how much? Volcker would keep his eye on the Fed’s longer-run objective of low inflation as the foundation for sustained economic expansion and maximum employment. He would apply lessons learned from the past, in both policies and communications.”
“Russia's War And The Global Economy” (Nouriel Roubini, Project Syndicate). “A major risk now is that markets and political analysts will underestimate the implications of this geopolitical regime shift. By the close of the market on February 24 – the day of the invasion – US stock markets had risen in the hope that this conflict will slow down the willingness of the US Federal Reserve and other central banks to raise policy rates. But the Ukraine war is not just another minor, economically and financially inconsequential conflict of the kind seen elsewhere in recent decades. Analysts and investors must not make the same mistake they did on the eve of World War I, when almost no one saw a major global conflict coming. Today’s crisis represents a geopolitical quantum leap. Its long-term implications and significance can hardly be overstated.”
“Ukraine Could Turn Boomflation Into Stagflation” (Axios). “Russia's invasion of Ukraine creates a new wrench in the gears of the global economy that will simultaneously worsen inflation pressures and damage growth prospects. That makes it a stagflationary shock, essentially making things worse on all economic fronts at once.”
What we’re reading (2/25)
“Putin’s Ukraine Slaughterhouse” (Wall Street Journal). “Ukraine’s forces are putting up brave resistance despite being overwhelmed in firepower. One soldier sacrificed himself to blow up a bridge to stop a Russian tank column. Another offered an expletive to a Russian gunboat demanding surrender before he and a dozen others were killed by shelling. Europe and the U.S. should be ashamed for not doing more to help Ukrainians defend themselves.”
“Russian Forces Advance On Kyiv” (The Economist). “‘Moscow’s thinking on this war seems to have been coloured by war optimism,’ says Michael Kofman of cna, a research group. ‘It looked as though Russian forces were expecting a quicker [Ukrainian] military collapse and easier gains.’ British defence intelligence said that it was unlikely that Russia had achieved its ‘its planned Day 1 military objectives’, noting that “Ukrainian forces have presented fierce resistance across all axes of Russia’s advance.”
“U.S. To Impose Sanctions On Vladimir Putin And Top Aide, White House Says” (CNBC). “The United States will impose a slate of sanctions on Russian President Vladimir Putin and Foreign Minister Sergey Lavrov, the White House announced Friday. The United Kingdom and the European Union had announced similar sanctions earlier in the day. Putin and Lavrov join a growing list of elite Russian government officials the U.S. has sanctioned in response to Russia’s actions in Ukraine.”
“Sanctions And Consequences” (DealBook). “The conflict has whipsawed markets as governments impose more sanctions and companies scramble to ensure the safety of workers in the region. The initial fall in stocks and rise in energy prices after Russia’s invasion has moderated, but the world remains on edge as the broader geopolitical implications of the war take shape.”
“Russian Billionaires Lose $39 Billion In A Day On Ukraine Attack” (Bloomberg). “The damage was across asset classes. Russia’s benchmark MOEX Russia Index closed 33% lower in Moscow, the fifth-worst plunge in stock market history in local currency terms. It marked the first time since 1987’s Black Monday crash that a decline of that magnitude hit a market worth more than $50 billion.”
What we’re reading (2/24)
“Russia's Attack On Ukraine Means These Prices Are Going Even Higher” (CNN Business). “Economists are racing to assess the impact of the attack, which could spark the biggest war in Europe since 1945. The conflict is unlikely to tip the global economy back into recession, they say, but market tumult, the threat of punishing sanctions and potential supply disruptions are already pushing up the wholesale price of energy and some agricultural products. Consumers will pay more for gasoline and food as a result.”
“A Simple Model Of What Putin Will Do For An Endgame” (Marginal Revolution). “In my simple model, in addition to a partial restoration of the empire, Putin desires a fundamental disruption to the EU and NATO. And much of Ukraine is not worth his ruling. As things currently stand, splitting Ukraine and taking the eastern half, while terrible for Ukraine (and for most of Russia as well), would not disrupt the EU and NATO. So when Putin is done doing that, he will attack and take a slice of territory to the north. It could be eastern Estonia, or it could relate to the Suwalki corridor, but in any case the act will be a larger challenge to the West because of explicit treaty commitments. Then he will see if we are willing to fight a war to get it back.”
“Putin’s Attack On Ukraine Echoes Hitler’s Takeover Of Czechoslovakia” (Washington Post). “In March 1938, during the run-up to World War II, Hitler had first engineered the Nazi takeover of Austria, which already had strong pro-Nazi sympathies. Seven months later, he was plotting the seizure of part of Czechoslovakia, claiming that ethnic Germans in the Sudeten regions bordering eastern Germany were being mistreated.”
“Russia-Ukraine Crisis Shakes Markets, But Long-Term Outlook Is Better” (New York Times). “Riding out a storm in the stock market has been a good strategy over the long term. One year after the 1941 bombing of Pearl Harbor, the S&P 500 gained 15 percent. A year after the U.S. invasion of Iraq in 2003, it was up 35 percent. History shows that just one year after most stock-market-shattering crises, the S&P 500 stock index has risen.”
“Citadel Is Further Paring Back $2 Billion Melvin Investment” (Wall Street Journal). “Citadel LLC is further paring back its $2 billion investment in Melvin Capital Management after the hedge fund stumbled in its effort to recover from a near collapse triggered by surges in GameStop Corp. and other ‘meme stocks’ early last year.”
March picks available soon
We’ll be publishing our Prime and Select picks for the month of March before Tuesday, March 1 (the first trading day of the month). As always, we’ll be measuring SPC’s performance for the month of February, as well as SPC’s cumulative performance, assuming the sale of the February picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Mon., February 28). Performance tracking for the month of March will assume the March 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 (Tuesday, March 1).
What we’re reading (2/23)
“Putin Goes To War In Ukraine” (The Economist). “Russia was not threatened by NATO or Ukraine. Its invasion of the sovereign state next door is a war of choice, conjured out of nothing by Mr Putin. History will judge him harshly. If, after a rapid advance, Russia is drawn into a long-lasting partisan war, so will the Russian people.”
“Russian Military Operation in Ukraine Roils Markets” (Wall Street Journal). “Investors rushed for safety, pushing down stocks and lifting the prices of oil, gold and government bonds, after Russia launched a military operation in Ukraine and a Ukrainian official said, ‘The invasion has begun.’”
“How Markets Are Thinking About The Ukraine Battle Lines” (DealBook). “Energy markets are on edge. Crude oil futures are down slightly from yesterday, given that the initial round of sanctions didn’t directly hit Russian energy producers, aside from Germany pausing certification of a major gas pipeline. But oil remains near $100 a barrel, reflecting fears that a prolonged crisis could damage the global supply; analysts say oil could easily rise another $20 a barrel, reaching levels last seen a decade ago. (It’s worth noting that roughly one in 12 barrels that the U.S. imports comes from Russia.)”
“Oil Hits $100, US Stock Futures Slide After Putin Announces Military Operation In Donbas” (CNN Business). “Brent crude oil hit $100 a barrel and stock futures fell sharply late Wednesday after blasts were heard in Ukraine and Russian President Vladimir Putin announced a military operation in Donbas.”
“Ukraine Conflict: President Zelensky Warns Russia: We Will Defend Ourselves” (BBC). “‘As you attack, it will be our faces you see, not our backs,’ the Ukrainian president said.”
What we’re reading (2/22)
“The Economic Stakes Of The Ukraine Crisis” (DealBook). “The global economic implications of the conflict remain hard to figure, with Western sanctions on Russia potentially ramping up in response to how far and how aggressively its troops push into Ukraine. Stock markets fell sharply and the price of commodities like oil soared in early trading today, but these moves moderated in the [later] hours, as investors tried to assess what it all means.”
“Heavily Hedged Traders Have Been Awaiting A Stock-Market Storm” (Bloomberg). “Whatever happens in Ukraine or how it affects Federal Reserve policy, the outcome will land in markets where investors have had time to prepare for the worst. It may be one reason the worst has so far been avoided. They’ve been steadily boosting bets against equities, shaking off a reluctance to short tracing to last year’s meme stock upheaval. Bearish bets on the largest exchange-traded fund tracking the S&P 500 have surged, while put open interest on bond-focused products has risen to historic levels. Meanwhile, professional managers have been hedging their credit exposures.”
“Why This Economic Boom Can’t Lift America’s Spirits” (Wall Street Journal). “[C]onsumers say they feel as bad as they did in the financial-crisis year of 2009, a recent Gallup poll showed. For the first time, Americans who say they are ‘not too happy’ outnumber those who say they’re ‘very happy,’ according to a survey from the nonprofit group NORC at the University of Chicago.”
“Bitcoin Losing Out To Gold Has Analysts Eyeing $30,000 Level” (Bloomberg). “Bitcoin traded near a more than two-week low as fears of a possible Russian invasion of Ukraine prompted some analysts to predict the largest cryptocurrency could slide toward the key $30,000 level.”
“The Chip Shortage Is So Bad GM Dropped Heated Seats In Winter” (CNBC). “General Motors had to temporarily drop heated seats as an option on vehicles in response to the chip shortage. But the largest U.S. automaker is not alone. The move is another sign of how automakers are having to respond to a crisis that has been cratering dealer inventory, spiking prices and delaying orders.”
What we’re reading (2/21)
“Rouble Sinks, Stocks Plunge As Russia Recognises Ukraine Breakaway Regions” (Reuters). “The rouble tanked on Monday, slipping past 80 against the dollar, while stocks plunged to their lowest in over a year as Russian President Vladimir Putin called for the immediate recognition of two breakaway regions in eastern Ukraine.”
“Dow Futures Drop More Than 400 Points As Tensions Between Russia And Ukraine Brew” (CNBC). “Stock futures fell sharply on Monday night, as traders continue to monitor brewing tensions between Russia and Ukraine. Futures tied to the Dow Jones Industrial Average were down by 476 43 points, or 1.4%. S&P 500 futures slid 1.7%, and Nasdaq 100 futures were off by 2.2%. The U.S. stock market was closed Monday due to the President’s Day holiday. Oil prices rose, with West Texas Intermediate futures jumping 3.6% to $94.30 per barrel.”
“JPMorgan Strategists Say Stock Pessimism Is ‘In Vogue,’ But Wrong” (Yahoo!Finance). “‘We believe one should look through the widespread ‘slowdown’ calls that are currently in vogue, and stay bullish on banks, mining, energy, insurance, autos, travel and telecoms,’ [JPMorgan Chase & Co. strategist Mislav] Matejka and his team wrote in a note on Monday. Over the past six months, and in direct contrast to bearish predictions, ‘the internals became more bullish again,’ they said.”
“Is There A Way Out Of America’s Impossible Housing Mess?” (Slate). “It’s not surprising that there are restrictive zoning rules in lots and lots of localities because that’s what current voters want. And their elected officials are essentially providing policies that respond to their voters. Moving things up to the state level offers some opportunities to make things better because the state sees the larger picture, particularly for things like regional labor markets.”
“Peloton’s New C.E.O. On The Tough Road Ahead” (DealBook). “At Peloton, Mr. McCarthy’s immediate task is to right the ship — the company’s chief financial officer said it wanted to save at least $800 million annually, on the same day Peloton announced it would lay off 20 percent of its corporate work force. But he also needs to fend off constant sale speculation, curtail frequent leaks and determine a postpandemic strategy.”
What we’re reading (2/20)
“The Stock Market Is Lower Priced, But It Isn't Cheap” (Briefing.com). “The stock market is sporting its lowest forward 12-month P/E multiple in nearly two years, yet that doesn't necessarily mean that it's ‘cheap.’ On the Contrary[,] [w]hen 2022 began, the S&P 500 was trading at 21.3x forward 12-month earnings. Today it trades at 19.2x forward 12-month earnings. Sounds like a nice discount, yet it is still a premium to the 5-year average of 18.6x and the 10-yr average of 16.7x.”
“Mohamed El-Erian Details ‘Fundamental Change To The Marketplace’ As The Fed Moves” (Yahoo!Finance). “‘When... the most reliable buyer with its own printing press and an incredible willingness to buy – when they step out of the market, that is a fundamental change to the marketplace,’ Mohamed El-Erian, president of Queen’s College at Cambridge University and Chief Economic Advisor at Allianz, told Yahoo Finance Live this week…‘So it shouldn't come as a surprise that [stock prices] are lower, because $120 billion a month of asset purchases are disappearing.’”
“Members Of Congress Should Not Be Trading Stocks, Ever” (New York Times). “It has been a decade since Congress last made a significant effort at policing itself in this area. The Stock Act of 2012, among other measures, made it illegal for lawmakers to trade based on access to nonpublic information. The reforms were well intentioned but inadequate. In practice, there are too many legal shades of gray. A clearer, brighter line needs to be drawn.”
“Carl Icahn Nominates Two To McDonald’s Board” (Wall Street Journal). “At issue is McDonald’s suppliers’ use of so-called gestation crates, which are small cages used to constrain pregnant pigs. In 2012, McDonald’s pledged to stop buying pork by 2022 from producers who use the crates. Few knew at the time that Mr. Icahn quietly had pushed for the changes behind the scenes. Now, 10 years later, Mr. Icahn and the Humane Society are arguing that McDonald’s failed to follow through and changed its interpretation of the pledge. McDonald’s now often has its producers move pigs out of the containers only after confirming they are pregnant, which many wait to do so until the sows are four to six weeks into their 16-week pregnancies.”
“Family Behind Fatburger Under Investigation For Alleged Fraud, Money Laundering, Records Show” (Los Angeles Times). “Federal authorities have been investigating Andrew Wiederhorn, chief executive of the company that owns the Fatburger and Johnny Rockets restaurant chains, and examining one of his family member’s actions as part of an inquiry into allegations of securities and wire fraud, money laundering and attempted tax evasion, court records show.”
What we’re reading (2/19)
“Crypto Will Devour The Stock Market” (RiskHedge). “ALL stocks will move onto a blockchain in the next few years. You won’t be buying Apple ‘stock’ on the NYSE anymore. You’ll be trading Apple ‘tokens’ on a blockchain…[t]okenized stocks are just getting started on places like FTX today. Barely anyone has heard of them. A decade from now, hundreds of billions of dollars of tokenized stocks will trade hands each day.”
“Here’s Why A Whole Group Of Men Is Being Overlooked In The Workforce” (CNN Business). “Criminal records are keeping certain workers from finding good jobs. This is particularly true of men in their 30s. More than half of that group has a history of criminal conviction or arrest that keeps them from fully participating in the labor market, a study from nonprofit research group RAND Corporation released Friday found. As of January, just over one million men between the ages of 24 and 35 were counted as unemployed, the biggest group of jobless males, according to the Bureau of Labor Statistics.”
“Gas-Station ATMs Are A Banking Battleground” (Wall Street Journal). “Banks are cutting off small-business owners who run the independent ATMs found in America’s gas stations, bars and bodegas. ATM operators say it is getting harder to find a bank willing to hold the funds needed to keep their machines stocked with cash. The banks that will work with them, ATM operators say, are jacking up their fees.”
“After Expanding In 2021, Fast Fashion May Be Squeezed Again” (The Economist). “Fashion retailers’ success last year was driven by unusual circumstances that will not last. Pent-up demand triggered a wave of “revenge buying” when shops reopened at last, in particular for “occasion wear” (jargon for pricey stuff). Shoppers’ pockets were lined with infusions of government cash. And the pandemic was the final nail in the coffin for some weaker firms, reducing competition in the crowded market; Topshop, Laura Ashley and tm Lewin went under in Britain, and Ann Taylor, Brooks Brothers and J. Crew did in America.”
“It Has Stopped Being A Good Thing To Be Friends With Morgan Stanley’s Block Trading Head” (Dealbreaker). “For the most part, it’s great to be on an equity syndicate desk chief’s Rolodex, especially if that chief is running the block trades at Morgan Stanley…It's less great to be on said equity syndicate desk chief’s Rolodex, however, when the powers that be decide that block trading may be insider-trading, and that Rolodex gets subpoenaed and the conversations flowing from it get picked over by prosecutors and the Securities and Exchange Commission.”
What we’re reading (2/17)
“Value Stocks Are Back — At Least For Now” (Institutional Investor). “In January, value subfactors outperformed the U.S. market by an average of nearly 3 percent, ‘some of the highest outperformance [we’ve seen] on a monthly basis for factors,’ according to the latest factor performance report by Investment Metrics. Meanwhile, only one growth subfactor — dividend growth — slightly beat the market in January.”
“The Inflation Hedges Haven't Hedged” (Morningstar). “[One] interpretation is that although inflation’s arrival caught market forecasters unawares, it did not surprise investors. They did not know when inflation would surface, any more than did the forecasters, but they knew that sooner or later, the bad news would arrive. Consequently, they had already bid up the prices of inflation hedges. Thus, when inflation did appear, gold and TIPS failed to react, because their values already anticipated the event.”
“Fed's Bullard Repeats Call For 1 Percentage Point In Rate Increases By July 1” (Reuters). “‘We are missing our inflation target on our preferred measure... and policy is still at rock bottom lows and we’ve still got asset purchases going on,’ Bullard said in a television interview with CNN. ‘This is a moment where we need to shift to less accommodation.’”
“Infinity Q Investment Adviser Faces Securities Fraud Charges” (Wall Street Journal). “Federal prosecutors charged James Velissaris, the former chief investment officer of Infinity Q Capital Management, on Thursday with securities fraud and obstruction of justice following the collapse of the investment firm…Prosecutors said he orchestrated a massive scheme to inflate the value of securities in his portfolio at Infinity Q. The Securities and Exchange Commission and Commodity Futures Trading Commission also filed civil complaints against Mr. Velissaris, saying he inflated the value of assets at the firm by more than $1 billion.”
“Mortgage Rates Jump To Nearly 4%” (CNN Business). “Mortgage rates increased again, rising to a level not seen since summer 2019. The 30-year fixed-rate mortgage averaged 3.92% in the week ending February 17, up from 3.69% the week before, according to Freddie Mac. It has not been this high since May 2019 when it was at 3.99%.”
What we’re reading (2/16)
“Fed To Raise Rates 25 Bps In March But Calls For 50 Bps Grow Louder” (Reuters). “The U.S. Federal Reserve will kick off its tightening cycle in March with a 25-basis-point interest rate rise, a Reuters poll of economists found, but a growing minority say it will opt for a more aggressive half-point move to tamp down inflation…now that the economy has recovered its pre-pandemic level, all 84 respondents in a Reuters poll taken Feb. 7-15 expected the Fed to raise the federal funds rate by at least 25 basis points at its upcoming March 15-16 meeting.”
“Note to the Federal Reserve: Don’t Panic About Inflation” (The New Yorker). “Contrary to what many people seem to believe, the Fed doesn’t have a magic wand to bring down inflation quickly and painlessly. It can’t unclog the ports, procure more semiconductors, or persuade millions of Americans who have dropped out of the labor force during the pandemic to return to work….[w]hat the Fed does have the capacity to do fairly quickly, if it gets things wrong, is crash the housing market, the stock market, and the economy.”
“Financial Issuers Are Storming The Bond Market With Floating-Rate Sales” (Bloomberg). “Large banks are tapping the investment-grade bond market in droves, selling floating-rate securities that are in high demand as the Federal Reserve prepares to raise interest rates…[t]he sales come as rapidly rising Treasury yields have caused steep losses for longer-duration bonds. That’s driving investors toward debt that pays interest that can increase, an appealing quality as the Fed looks ready to hike rate beginning in March.”
“Expect A Return To More ‘Normal’ Investing Where Stock Picking Is Rewarded, Goldman Sachs Says” (CNBC). “‘We believe that we are entering a new environment where the influence of technology is rapidly broadening to impact virtually every industry,’ [Paul Oppenheimer] the [Chief Global Equity] strategist [at Goldman Sachs] said. ‘Moving forward it will become less easy to differentiate between what is and what is not a technology company, and this should broaden out the opportunities across more sectors.’”
“Charlie Munger Expects Index Funds To Change The World—And Not In A Good Way” (Wall Street Journal). “Charlie Munger doesn’t think Larry Fink should be running the world. Mr. Munger, the billionaire vice chairman of Berkshire Hathaway Inc. and Warren Buffett’s business partner, said the rise of index funds like those run by Mr. Fink’s BlackRock Inc. has resulted in an ‘enormous transfer’ of the power to sway corporate decision making. That shift will ‘change the world,’ he said, and not for the better.”
What we’re reading (2/14)
“Fed’s Bullard Says The Central Bank’s ‘Credibility Is On The Line,’ Needs To ‘Front-Load’ Rate Hikes” (CNBC). “Bullard rattled markets last week by saying he thinks the Fed should raise its benchmark short-term borrowing rate a full percentage point by July. The position, in a Bloomberg News interview, sent stocks on a volatile ride and caused futures markets to price in as many as seven quarter-percentage point hikes by the end of 2022.”
“Junkiest Debt Acts Like Treasuries As Fed Risk Stirs Up Markets” (Bloomberg). “It’s become tough to love bonds these days as investors face the harsh reality of a more hawkish Federal Reserve. Yet, the junkiest junk bonds are holding up relatively well -- a sign that, for all the angst in markets nowadays, investors aren’t very worried about the state of the economy.”
“Regulators Probe Block Trading At Morgan Stanley, Goldman, Other Wall Street Firms” (Wall Street Journal). “Federal investigators are probing the business of block trading on Wall Street, examining whether bankers might have improperly tipped hedge-fund clients in advance of large share sales, according to people familiar with the situation.”
“A Dark Moment For Goldman Sachs Goes To Trial” (DealBook). “Ng is said to have introduced Goldman colleagues to Jho Low, the businessman accused of masterminding what Ng’s own lawyers called ‘perhaps the single largest heist in the history of the world.’ According to prosecutors, Low, Ng and the onetime star banker Tim Leissner conspired to pay $1 billion in bribes to government officials, in order to win Goldman mandates for $6.5 billion in bond offerings for 1MDB. Money meant for the fund was then spent on a Beverly Hills hotel, a mega-yacht, a transparent grand piano, financing for ‘The Wolf of Wall Street’ and more.”
“The Downfall Of The SPAC: Why One CEO Called It Quits And More Will Follow” (Fortune). “With tech stocks performing poorly on the Nasdaq and interest rates on the rise, the number of IPO filings has, unsurprisingly, skidded to a halt.”
What we’re reading (2/13)
“Fed Rush To Catch Up On Inflation Raises U.S. Recession Risks” (Bloomberg). “Economists from both sides of the political spectrum see rising risks of a recession. Former Fed Governor Lawrence Lindsey, who served in the White House under Republican President George W. Bush, puts the odds of a downturn by the end of next year at above 50% -- triggered by a meltdown on Wall Street.”
“Inflation Is Everywhere, Including Places You Might Not Expect” (Wall Street Journal). “A Wall Street Journal analysis of 280 companies that had reported quarterly earnings as of Feb. 4 showed that 79% had some discussion of inflation in their conference calls. For some companies, the increased costs are contractual. Marlboro cigarette maker Altria Group Inc. expects that inflation will increase the amount it pays from a 1998 landmark tobacco settlement, it said last month. The settlement hit cigarette makers with legal liabilities that led to $200 billion in costs over the years.”
“Car Dealers Are Raising Prices. Automakers Are Pushing Back. Consumers Are Stuck In Between.” (Washington Post). “Ford and General Motors recently upbraided dealers for ignoring the manufacturer’s suggested retail price, or MSRP, a practice that was practically unheard of a year ago and GM calls “unethical.” They’ve threatened to withhold deliveries of their most popular offerings, including Ford’s buzz-generating F-150 Lightning pickup, and other forthcoming electric vehicle models.”
“Investors Appear Poised to Continue Private Credit Allocations, Data Shows” (Institutional Investor). “Virtual data room provider SS&C Intralinks polled 111 investors, 60 percent of whom had more than $1 billion in assets under management, about their views on the debt capital markets. The results showed that these investors are increasing allocations to the debt market generally — not just to private credit. The investors polled included family offices, pension funds, and insurers, among others.”
“The Risks And Rewards Of Investing In The Metaverse Real Estate Boom” (CNBC). “There’s a land rush happening — and it’s not in New York City or Beverly Hills. Early speculators, professional real estate agents, and celebrities are buying up land that doesn’t even exist in the real world. They are investing in metaverse real estate, a concept mind-boggling to most people.”