April picks available soon
We’ll be publishing our Prime and Select picks for the month of April before Friday, April 1 (the first trading day of the month). As always, we’ll be measuring SPC’s performance for the month of March, as well as SPC’s cumulative performance, assuming the sale of the March picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Thurs., March 31). Performance tracking for the month of April 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 (Friday, April 1).
What we’re reading (3/26)
“The Bond Market Losing $2.6 Trillion Is Actually Good News” (Washington Post). “most investors expect —and market indicators such as breakeven rates on bonds corroborate — that the recent and expected future rate increases by the Federal Reserve will bring slow inflation to the long-term benefit of bondholders. There is a nightmare scenario for bonds in which the Fed cannot control inflation, leading to steep price declines in bonds and sharply reduced purchasing power of the income generated by bonds. But this is a feared future loss, not the past loss. And if you fear it, unhedged foreign bonds are an attractive option
“Big Oil Is No Longer ‘Unbankable’” (OilPrice.com). “It’s an open secret within energy circles that the eventual death of oil and thermal coal won’t come from environmentalists or even directly from renewable energy, but rather when big banks decide to stop financing it…[b]ut the lure of those juicy oil and gas dollars amid an energy boom has been proving hard for Wall Street banks to resist, leading to many throwing their ESG pledges out of the window.”
“U.S. Oil Boom Towns Risk Ghost Town Future” (Bloomberg). “For America’s small oil communities, getting the timing right can mean the difference between losing out on the last great boom and turning into a ghost town. At stake is not only hundreds of thousands of U.S. jobs, but also more than $138 billion generated annually through tax revenues for localities, states, tribes, and the federal government.”
“Scientist Who Predicted Arab Spring: Skyrocketing Wheat Prices Are Creating A Global ‘Regime of Risk’” (Vice). “[In 2010] Dr. Yaneer Bar-Yam, president of the Cambridge, Massachusetts-based New England Complex Systems Institute, sent a note to the U.S. government predicting exactly that a wave of protests would unfold in the Middle East in response to sudden spikes in global food prices. By mapping a range of factors that influence social unrest, he and his team tracked earlier riots to peaks in global food prices, identifying a price threshold above which protests become likely, and delivered an ominous message that a tipping point into conflict was near.”
“SEC Climate Disclosure Proposal Looms As Litigation Risk” (Wall Street Journal). “A U.S. Securities and Exchange Commission proposal that would mandate strict climate reporting from public companies could dramatically increase the exposure of these businesses to costly securities litigation. Lawyers that represent corporations and investors said that the proposal, released earlier this week, could be a potent source of securities fraud litigation, which targets companies over alleged lies or even half-truths told to the investing public.”
What we’re reading (3/25)
“How High Inflation Will Come Down” (New York Times). “Things are very different now. Back then almost everyone expected persistent high inflation; now few people do. Bond markets expect inflation eventually to return to prepandemic levels. While consumers expect high inflation over the next year, their longer-term expectations remain ‘anchored’ at fairly moderate levels. Professional forecasters expect inflation to moderate next year.”
“Clients Plead With Top Custodian Banks To Stay In Russia” (Reuters). “Global banks including Citigroup Inc, JPMorgan Chase & Co and Societe Generale face pressure to commit to remaining as custodian banks in Russia, as rivals and funds fret they may lose services critical to future investment in the country.”
“Veteran Investor Jeremy Grantham Says Putin's Behavior Has Him Reconsidering His Near-Term Market Forecasts” (Insider). “‘[W]hen a war starts, everything is scrambled, and it multiplies all the uncertainties,’ he said. ‘We were certainly in the Vampire Phase. But I'm humble enough to say that when a war of this magnitude occurs — with ramifications that could extend beyond that — all bets are off.’”
“Behind The Scenes, The IPO Playbook Is Changing” (Wall Street Journal). “The IPO market has frozen over. When it thaws, it could look much different. So far this year, just 22 companies have gone public in traditional initial public offerings, raising a combined $2.3 billion through Tuesday, according to Dealogic. That is a huge downshift from last year, when 79 companies had raised nearly $36 billion by this point.”
“A Big Swing At Big Tech” (New York Times). “The European Union has just agreed on one of the world’s most far-reaching laws to rein in the power of tech companies. The Digital Markets Act is aimed at stopping the largest tech platforms from using their interlocking services and considerable resources to box in users and squeeze emerging rivals. It could potentially reshape app stores, online advertising, e-commerce, messaging services and other everyday digital tools, in Europe and beyond.”
What we’re reading (3/24)
“Fidelity Launches Business Mimicking Hedge-Fund Strategies” (Bloomberg). “Fidelity Investments is jumping into liquid alternatives, products that offer regular investors access to hedge-fund like strategies and are raking in billions of dollars amid rising interest rates and increased market volatility. The money-manager has started a new unit, Fidelity Diversifying Solutions, which is hiring staff and rolling out offerings, according to a statement from the entity’s president, Vadim Zlotnikov. The segment also filed to register two funds at the end of last year, Fidelity Global Macro Opportunities and Fidelity Risk Parity.”
“A Top Prosecutor, A Short Seller’s Confession, And A Columbia Professor Offer Clues To The DOJ Probe Of Short Sellers” (Institutional Investor). “Last June, a relatively obscure short seller shook the financial world by settling a defamation lawsuit regarding his 2018 short of Farmland Partners, a real estate investment trust. Such settlements are rare, but in this case, Quinton Mathews, a Dallas-based researcher writing under the pseudonym Rota Fortunae, admitted making false statements about Farmland in a Seeking Alpha blogpost and profiting from short-dated put options ahead of its publication.”
“Morgan Stanley Replaces Executive Tied To Block-Trade Probe” (Bloomberg). “Morgan Stanley tapped Arnaud Blanchard to replace Pawan Passi, the executive put on leave amid a sweeping U.S. probe into how Wall Street handles big stock trades…Passi was placed on leave in November as U.S. authorities examined his involvement in block trades as part of an investigation into whether banks improperly alerted certain clients to market-moving transactions, Bloomberg News reported.”
“Why Energy Insecurity Is Here To Stay” (The Economist). “The longer-term question being asked by many is: how fast can they abandon fossil fuels altogether? The energy strategy announced this month by the eu envisages independence from Russia by 2030—in part by finding new sources of gas, but also by doubling down on renewables. As the folly of relying on Russia becomes clear, nuclear power is back in fashion.”
“War In Ukraine Forces European Bulls To Unwind Bets” (Wall Street Journal). “European stock indexes have clawed back most of the losses suffered since President Vladimir Putin sent Russian troops into Ukraine. That doesn’t necessarily mean traders are feeling optimistic. Investors around the world say they are still looking skeptically at investing within the European continent, even though the pan-continental Stoxx Europe 600 is down just 0.2% from where it closed the day before the invasion.”
What we’re reading (3/23)
“Day Traders Finally Retreat After Standing Firm Amid Stock Market Rout” (Bloomberg). “In what looks increasingly like an uncharacteristic bout of bad timing, retail investors who hung tough during the selloff in January and February are now taking money off the table just as stocks are rallying. Evidence of a retail pullback was visible in data from several Wall Street banks and the U.S. options clearing agency. Data from JPMorgan Chase & Co. showed their flows have slowed from a torrid pace earlier this year. Bank of America Corp.’s retail clients were net sellers of U.S. stocks for the first time this year.”
“Russian Stock Market, Crushed By War, Will Partially Reopen” (ABC News). “Russia plans to reopen its stock market for limited trading on Thursday, nearly one month after shares plunged and the exchange was shut down following the invasion of Ukraine. There will be heavy restrictions on trading intended to prevent the kind of massive selloff that took place on Feb. 24 in anticipation of crushing financial and economic sanctions from Western nations.”
“How ‘Shock Therapy’ Created Russian Oligarchs And Paved The Path For Putin” (NPR). “[Mass privatization] entailed transforming a nation whose almost entire economy consisted of state-controlled industries — manufacturing plants, oil refineries, mines, media outlets, biscuit factories, you name it — into private enterprises. It was, to date, surely the biggest transfer of state assets to private owners in world history.”
“Chinese Stocks: The Road To Nowhere” (Morningstar). “Whether Chinese equities have lost money in real terms, as MSCI’s numbers indicate, or have eked out a modest profit, as reported by S&P/IFCI, matters not. The key point is that, despite the country’s unprecedented economic boom, its stocks have flopped. Investors were better off owning U.S. Treasury notes.”
“An Alleged Fraud Uncovered By A Short Seller Ends In Gunfire” (Wall Street Journal). “The strategy promoted by Mr. Judd was ‘the most obvious Ponzi scheme we’ve ever seen,’ said Nate Anderson, founder of the investment firm that investigated it. In a notice seeking out victims of the alleged fraud, the FBI also called it a Ponzi scheme. Ponzi schemes are investment frauds where early investors are paid with funds raised from later investors. The money raised is generally not invested.”
What we’re reading (3/22)
“The Stock Market Is Set For More Short-Term Upside After Wall Street's Fear Gauge Falls 5 days In A Row, Quant Trading Firm Says” (Insider). “There could be more short-term upside ahead in the stock market based on the five-day decline in Wall Street's fear gauge, according to Chris Murphy of Susquehanna International Group. The VIX, which is a volatility index that helps measure investor fear on Wall Street, has fallen five days in a row to below the 25 level. According to Murphy, that setup has led to strong short-term gains in the stock market, looking back over the past 30 years.”
“‘A Very Significant Moment for Business’” (DealBook). “The S.E.C. voted yesterday on sweeping rule changes that would require public companies to disclose climate-related risks and greenhouse gas emissions. Though many already report some of this information, no mandatory standard exists, making it hard for investors to compare data across companies.”
“When Being One Of—If Not The—First Call A Banker Makes Is Not Such A Great Thing” (Dealbreaker). “[U]nbeknownst to [Frank] Fu [formerly of Laurion Capital Management], the year before he left Laurion the Securities and Exchange Commission and Justice Department began taking a little look at the world of block trades to see if, say, shorting the hell out of a name that the equity syndicate desk at, say, Morgan Stanley just floated as one that might just potentially be on the block might well just constitute insider trading[.]”
“Koch Industries, Built On Oil, Bets Big On U.S. Batteries” (Wall Street Journal). “A Koch Industries unit has made at least 10 investments worth at least $750 million in the U.S. battery supply chain and electric vehicles in the past 18 months, regulatory filings, news releases and FactSet data show. Koch’s battery investments are among the biggest from outside the auto industry, analysts say.”
“The Education-Innovation Gap” (Biasi and Ma, NBER). “Comparing the text of 1.7M syllabi and 20M academic articles, we construct the ‘education-innovation gap,’ a syllabus’s relative proximity to old and new knowledge. We show that courses differ greatly in the extent to which they cover frontier knowledge. More selective and better funded schools, and those enrolling socio-economically advantaged students, teach more frontier knowledge. Instructors play a big role in shaping course content; research-active instructors teach more frontier knowledge. Students from schools teaching more frontier knowledge are more likely to complete a PhD, produce more patents, and earn more after graduation.”
What we’re reading (3/21)
“The Stock Market Liked The Fed’s Plan To Raise Interest Rates. It’s Wrong.” (Larry Summers). “The central principle of anti-inflationary monetary policy is that to reduce inflation it is necessary to raise real rates. Equivalently, it is necessary to raise interest rates by more than the inflation being counteracted and above a neutral level that neither speeds nor slows growth….[y]et because of upward revisions in the inflation forecast, the Fed’s predicted real rates have actually declined in recent months. In other words, the FOMC’s plans do not even call for keeping up with the rising inflationary gap. It is hard to see how interest rates that even three years from now will be about 2 percentage points less than current rates of inflation can reasonably be regarded as providing sufficient restraint.”
“Powell Says Fed Will Consider More-Aggressive Interest-Rate Increases To Reduce Inflation” (Wall Street Journal). “Federal Reserve Chairman Jerome Powell said the central bank was prepared to raise interest rates in half-percentage-point steps and high enough to deliberately slow the economy if it concluded such steps were warranted to bring down inflation.”
“Bonds Extend Drop After Fed Sparks One Of Worst Days in Decade” (Bloomberg). “The U.S. bond market reeled further on Tuesday, extending Monday’s declines after Federal Reserve Chair Jerome Powell’s aggressive rate hike comments drove yields on short-dated Treasuries to one of their biggest daily jumps of the past decade.
“JPMorgan’s Quant Guru Says He's Still Bullish On Stocks But Admits Risks Are Building And Lowers S&P 500 Price Target” (Insider). “‘With positioning light, sentiment weak and geopolitical risks likely to ease over time, we believe risks are skewed to the upside...That said, we revised down some year-end targets to reflect macro and geopolitical risks, which should ease into the second half of the year,’ [Marko] Kolanovic said.”
“Want to Outperform In VC? Don’t Invest In Alumni.” (Institutional Investor). “New research shows that direct investments in university-affiliated startups can result in far fewer successful exits, including initial public offerings and acquisitions, compared to backing independent ventures.”
What we’re reading (3/20)
“The Main Driver Of Inflation Isn't What You Think It Is” (Politico). “The Biden administration has struggled for months to allay Americans’ concerns about the highest inflation in four decades. But when it comes to the single biggest driver of runaway prices, Washington’s hands are mostly tied. Skyrocketing housing costs may create even bigger problems for the administration going forward than oil and food price spikes, which are the result of sudden and unforeseen — but probably temporary — events. That’s because there’s no clear end in sight for shelter inflation.”
“Older Americans, Flush With Housing And Stock Portfolio Wealth, Poised To Revive Spending This Year” (Wall Street Journal). “‘We have this big [older] demographic, their wealth went up tremendously these past two years,’ [Booth professor Constantine Yannelis] said, adding that with ‘much more available cash on hand, it’s quite likely they’re going to boost consumer spending, particularly on experiential categories they’ve not been able to patronize the last two years’ like restaurants and hotels.”
“Bill Gross Warns Fed Rate Rises Will ‘Crack The US Economy’” (Financial Times). “Bill Gross, the influential investor, has warned that even though the Federal Reserve started raising rates this week the US central bank will be unable to push through a planned series of further increases because doing so would ‘crack the economy’. The founder of investment house Pimco told the Financial Times this week he believes inflation is approaching troubling levels but the US central bank will not be able to implement higher policy rates to contain it.”
“The ‘Great Resignation’ Has Gone Global – And It’s Shaking Up The Labor Market For Good” (CNBC). “The term Great Resignation was coined in the United States, describing the tens of millions of Americans who changed jobs or quit working for good during the pandemic. According to the Organization for Economic Cooperation and Development (OECD) data, other developed economies are experiencing similar trends. There are about 20 million fewer jobs across the OECD’s 38 member countries than before the pandemic, while 14 million of these countries’ unemployed are not looking for work.”
“Blackstone Plans Fund For People With Millions Not Billions” (Bloomberg). “Dentists, surgeons and other suburban millionaires don’t loom large on the client rosters of buyout funds run by the most elite investment firms. But inside Blackstone Inc., plans are afoot to develop its first private equity fund targeting such individuals as part of a project codenamed ‘BXPE.’ The goal: build new war chests that would eventually gather tens of billions of dollars to invest in deals piped in from various Blackstone teams, according to people with familiar of the matter.”
What we’re reading (3/19)
“The Fed Must Do Much More to Fight Inflation—And Fast” (Larry Summers, Time). “It is now likely that inflation will continue to accelerate for at least several more months as commodity price hikes work through the system. Then it may recede but not in all likelihood anywhere near the Fed’s 2 percent target.”
“The End Of Zero: Prepare For A World With Higher Rates” (Wall Street Journal). “Warren Buffett has compared interest rates to gravity. That is an especially useful way to think about them right now. For the last two decades the developed world went from living on Mars, with barely a third of Earth’s pull, to the Moon more recently with even less. Now we might finally return to what used to be normal. For consumers, businesses and even governments, the transition will feel alien. Many will find it crushing at first, while others will be reinvigorated by a world where money costs something. Some that grew up on those extraterrestrial colonies simply won’t survive the transition.”
“The Stock Market Faces A Lost Decade Of Zero Returns Through 2031, According To Stifel's Chief Equity Strategist. Here's How Investors Should Prepare.” (Insider). “Instead of the S&P 500's compounded annual rate of return of more than 13% during the 2010's, investors should prepare for the likelihood of a lost decade ahead, or returns of 0% in the US stock market from the end of 2021 through the end of 2031, Bannister told Insider in an interview on Wednesday.”
“Unlike Trump, Biden Has Stock Market Far Down His Priority List” (Bloomberg). “On Twitter, the favored forum for politicians to boast about accomplishments, Trump posted about stocks dozens of times, treating a rising Dow as an alternative approval rating of his administration. Biden has yet to tweet about the market at all, despite a string of records in his first year in office.”
“A Nickel-Trading Fiasco Raises Three Big Questions” (The Economist). “The trading of commodities is an arcane activity that makes it into the public eye only at times of extreme hubris. That is when names like the Hunt brothers, who tried to corner the silver market in 1980, and Hamanaka Yasuo, or ‘Mr Copper’, who in 1996 produced huge losses for Sumitomo, a Japanese trading house, became household ones. Xiang Guangda, a Chinese tycoon known as ‘Big Shot’, vaulted into the news this month by taking a position on nickel that went badly wrong. The result has been one of the biggest tremors in the 145-year history of the London Metal Exchange (LME).”
What we’re reading (3/18)
“St. Louis Fed’s Bullard Says The Central Bank Should Raise Rates Above 3% This Year” (CNBC). “St. Louis Fed President James Bullard said Friday he thinks the central bank should raise interest rates the equivalent of 12 times this year to convince the public it is serious about fighting inflation. As the lone dissenter at this week’s Federal Reserve meeting, Bullard said in a statement that he would like to see the central bank’s benchmark interest rate boosted above 3% from the near-0% level where it had stood.”
“Wall Street Is Starting To Tune Out Ukraine” (CNN Business). “The S&P 500 surged 6% this week, its best weekly performance since November 2020. What? That's right. US stocks had a banner performance even as war raged on in Ukraine, Russia teetered on the brink of default and the Fed hiked rates for the first time since 2018.”
“Inside The Nickel Market Failure: Massive Trades The Exchange Didn’t See” (Wall Street Journal). “The war in Ukraine broke the nickel market. The risks had been building for years. Banks and brokers lent heavily to producers and speculators eager to take a position on the humble metal, a key ingredient in stainless steel and electric-vehicle batteries. The exchange in London where metals have traded for 145 years failed to see the mounting danger.”
“Against Credentialism” (Marginal Revolution). “On average, more education probably does correlate with better job performance — but there are a lot of exceptions. If U.S. society wants to boost opportunity for everyone, it needs to work harder to spot those exceptions and act on that knowledge. In a world where so much information and so many diverse forms of certification are available, there are far better ways to assess a candidate than asking the binary question of whether they have a four-year degree.”
“No, Cryptocurrencies Shouldn’t Be Added To 401(k) Plans” (Washington Post). “The Labor Department essentially just warned the managers of workplace retirement plans: Don’t you dare think about adding cryptocurrency — it’s too risky. The department’s directive follows President Biden’s executive order this month calling for a review of the government’s regulatory approach to cryptocurrencies. Biden’s order talks about the volatility of cryptocurrency, but it also signals an acceptance of the viability of digital currencies and a lot of concern that it could lead retirement plans to prematurely embrace the investment as an option for employees.”
What we’re reading (3/17)
“Inflation vs. Recession: The Fed Is Walking A Tightrope” (New York Times). “The Fed announced Wednesday that it would start raising interest rates for the first time since 2018, and the initial reaction of financial markets was welcoming. The stock market rose, bond yields wavered and commodity prices moderated. But whether the economy can withstand rising rates during a period of geopolitical turmoil and a lingering pandemic is a question without an immediate answer.”
“The Disturbing New Relevance Of Theories Of Nuclear Deterrence” (The Economist). “The problem of credibility becomes far more complicated in a showdown between nuclear-armed powers, which both have sufficient weaponry to retaliate against any first strike with a devastating attack of their own. If the first use of nuclear weapons is all but assured to bring ruin on one’s own country as well, then efforts to use the threat of nuclear attack to extract concessions are likelier to fail. Wars may nonetheless occur. The invasion of Ukraine could be seen as an example of the stability-instability paradox: because the threat of a nuclear war is too terrible to contemplate, smaller or proxy conflicts become ‘safer’[.]”
“Amazon Closes Deal To Acquire MGM” (Wall Street Journal). “The move comes after Amazon certified to the FTC that it had provided all the information requested by antitrust investigators reviewing the transaction. That step put the deal on a regulatory clock with the agency that has now expired, leaving the company free to move forward, a person familiar with the matter said. Amazon provided the FTC with more than three million documents over the past eight months as part of the review process, the person familiar with the matter said.”
“Revising Down The Rise Of China” (Lowy Institute). “The future of China’s ongoing global rise is of great importance to both China and the rest of the world. Predicting long-term economic performance is inherently difficult and open to debate. Nonetheless, we show that substantial long-term growth deceleration is the likely future for China given the legacy effects of its uniquely draconian past population policies, reliance on investment-driven growth, and slowing productivity growth.”
“Are Home Prices Going To Crash? A Real-Estate Expert Who's Written Multiple Books On Investing Strategy Breaks Down Why Prices Could Grow ‘Faster Than We Can Get A Handle On’“ (Insider). “Predicting the market is tricky. While [loan officer David] Greene sees more gains to be had, others caution of a correction. And some experts and industry veterans suggest that anyone who stands to benefit from the continued run on the housing market — particularly investors, real estate agents, and mortgage brokers — are naturally going to keep pumping air into the bubble.”
What we’re reading (3/16)
“Fed Raises Interest Rates For First Time Since 2018” (Wall Street Journal). “Federal Reserve officials voted Wednesday to lift interest rates and penciled in six more increases by year’s end, the most aggressive pace in more than 15 years, in an escalating effort to slow inflation that is running at its highest levels in four decades.”
“US Stocks Trade Higher After Fed Raises Interest Rates And Investors Digest Potential For 7 Hikes In 2022” (Insider). “The Fed raised the Fed Funds rate to a range of 0.25% to 0.50%. The range previously sat at 0.00% to 0.25% since the Fed cut rates amid the onset of the pandemic in March 2020. And more rate hikes are on the way, according to the Fed's dot plot, which tracks expectations from members of the Fed.”
“Is It Time To Buy Travel Stocks?” (RiskHedge). “The world is truly opening up this time. Australia and New Zealand opened their borders last month. Ireland, where I live, just scrapped mask mandates. Vaccine passports are a thing of the past in several European countries. Flown in the past few weeks? If so, you likely noticed airports are packed. TSA data shows passenger numbers are now 90%+ of pre-COVID levels. The number of Americans flying overseas jumped 130% compared to last year.”
“Why Isn’t Crypto An Effective Hedge?” (Marginal Revolution). “The last few months of chaos show what Bitcoin and other crypto assets are good for: They are advanced tools of globalization, luxury goods for complex, well-functioning markets — not protections against the depredations of hostile governments. One common story, especially popular in libertarian circles, has been that when inflation runs rampant and governments confiscate private wealth, crypto will be a vital refuge. It increasingly appears that this story is wrong.”
“How Life As A Trucker Devolved Into A Dystopian Nightmare” (New York Times). “Today, long-haul truckers are some of the most closely monitored workers in the world. Cameras and sensors dot their trucks, watching the road, the brakes and even the driver’s eye movements. Once, when his truck’s cabin heater broke, [driver] Mr. [Jon] Knope was forced to sleep in freezing temperatures for several days while traveling across northern Ohio and New York because an automated system made sure his engine was turned off at night. The company told him there was no way to override the system.”
What we’re reading (3/15)
“Fund Managers Now See Equity Bear Market In 2008-Like Gloom” (Bloomberg). “Most investors now expect global equities to slump into a bear market this year as the growth outlook has tumbled to the lowest level since the 2008 financial crisis amid fears over the impact from the war in Ukraine.”
“How Bloomberg Media Beat The Pandemic Blues With Explosive Growth” (Poynter). “Most print-based media — newspapers and magazines — have been struggling for at least a decade to pick up the pace of digital transformation. Just as momentum was building, two years of COVID-19 and the accompanying downturn interrupted revenue progress as many advertisers pulled back. Not so at Bloomberg Media, whose best-known holding is Bloomberg Businessweek. The company announced some eye-popping 2021 results last week[.]”
“Part-Time Retirement Programs Are On The Rise” (Wall Street Journal). “Phased retirement programs—which allow workers nearing retirement age to cut back on their hours while keeping some pay and benefits—are growing in popularity. Human-resource executives say the pandemic has opened bosses to flexible work arrangements, while the fierce hiring market and higher-than-expected rate of retirements have motivated managers to find ways to retain older workers with key skills.”
“Stock Volatility And The War Puzzle” (Cortes, Vossmeyer, Weidenmier, NBER). “U.S. stock volatility is 33 percent lower during wartime and periods of conflict. This is true even for World Wars I and II, which would seemingly increase uncertainty. In a seminal paper, Schwert (1989) identified the “war puzzle” as one of the most surprising facts from two centuries of stock volatility data. We propose an explanation for the puzzle: the profits of firms become easier to forecast during wartime due to massive government spending.”
“Thieves In The Night: A Vast Burglary Operation Ring From Chile Has Been Targeting Wealthy U.S. Households” (Vanity Fair). “In the coming months, according to an inside source, federal teams are set to fan out and come down hard on the thieves, hoping to finger the shadowy figures they believe oversee the operations: Chilean ringleaders back home and in the U.S. as well as their partners—Colombian coordinators and fences, who manage to turn the stolen caches into cash. But first, some background.”
What we’re reading (3/13)
“My Conversation With The Excellent Sam Bankman-Fried” (Tyler Cowen, Marginal Revolution). “let’s talk about Dogecoin for a second, which I think is the purest of a type of coin, of the meme coin. I think the whole thing with Dogecoin is that it does away with that pretense. There is no sense in which any reasonable person could look at Dogecoin and be like, ‘Yes, discounted cash flow.’ I think that there’s something bizarre and wacky and dangerous, but also powerful about that, about getting rid of the pretense.”
“How The Pandemic Broke Silicon Valley’s Stranglehold On Tech Jobs” (Wall Street Journal). “In a feedback loop that could transform the economic geography of the U.S., millions of Americans are moving, and companies are following them—tech companies in particular. In turn, this migration of companies and investment is attracting more workers to places that in the past usually lost talent wars. This is a reversal of a decadelong trend in the opposite direction.”
“Morgan Stanley Trader Exits After Racking Up Millions In Losses” (Bloomberg). “[The trader], who traded dividends in the New York-based bank’s equities division, will be departing after transactions he oversaw went awry, according to people with knowledge of the matter…[t]rading dividends is a niche of Wall Street financial engineering that lets investors bet on the dividend flows from a basket of shares or even single companies. Market uncertainty in recent weeks has hit dividend books across the street, opening up those trading desks to unexpected losses, one person said.”
“Welcome To Londongrad, Where Kleptocrats Wash Their Money Clean” (New York Times). “For years, Russian wealth has poured into Britain with few questions asked, helping to finance political campaigns and buoying the luxury property market. Russian oligarchs have been so happy to avail themselves of Britain’s laissez-faire regulatory climate to park their wealth and launder dirty money that the nation’s capital has earned the moniker Londongrad.”
“Here’s What The ‘Most Favored Nation’ Status Means — And Why Russia Still Has It” (CNN Business). “As a member of the World Trade Organization, Russia is treated as a most favored nation, which gives it equal access to all of the WTO members' markets and guarantees equal tariffs. In short, the label is like a rubber stamp for permanent normal trade relations. Should Congress vote to approve its removal, normal trade with Russia will effectively end, paving the way for higher tariffs.”
What we’re reading (3/11)
“Stocks Turn Lower To Finish The Week” (Wall Street Journal). “Stocks opened the day higher, as traders bought stocks after Russian President Vladimir Putin said in televised remarks that there had been positive developments during talks with Ukraine, even as Russian forces continue to pound Ukrainian cities. By the afternoon, the S&P 500, Dow Jones Industrial Average and Nasdaq Composite had all turned lower, as investors weighed the risk of heading into the weekend holding stocks.”
“China Has Tools To Help Russia’s Economy. None Are Big Enough To Save It.” (New York Times). “To help Russia evade sanctions, China would have to offer a viable substitute to the American dollar. But Chinese money — the renminbi — is barely used outside of China. Only 3 percent of the world’s business is done using the redback. Even Russia and China conduct their trade mostly in U.S. dollars and euros.”
“Businesses Can't Pay Sufficiently Now, Or In The Future” (RealClear Markets). “[T]he two ‘D’s’ of demography and deglobalization are about to unleash a tidal wave of cost-pushing pressure no economy will be able to withstand. Among those making this case is British Economist Charles Goodhart. In an interview with the Wall Street Journal this week, the former member of the Bank of England’s Monetary Policy Committee (because they’re all Economists) warned that inflation will go higher than it is now and will stay this way ‘for decades.’”
“As SPAC Bubble Burst, Hedge Funds Doubled Their Holdings” (Institutional Investor). “The current glut of SPACs is, in part, due to the difficulty these blank-check companies have had in hooking up with merger partners. Almost 800 SPACs filed for IPOs last year, raising $162.5 billion — more than half of the $300 billion raised since the financial crisis of 2008, SPAC Insider reports. But last year only 71 merger deals were announced, and just 53 completed.”
“War And Sanctions Have Caused Commodities Chaos” (The Economist). “Today Russia’s invasion of Ukraine is unleashing the biggest commodity shock since 1973, and one of the worst disruptions to wheat supplies since the first world war. Although commodity exchanges are already in chaos, ordinary folk have yet to feel the full effects of rising petrol bills, empty stomachs and political instability. But make no mistake, those things are coming—and dramatically so if sanctions on Russia tighten further, and if Vladimir Putin retaliates. Western governments need to respond to the commodity threat as determinedly as to Mr Putin’s aggression.”
What we’re reading (3/9)
“Oil Drops 12% For Worst Day Since November As Wild Ride Triggered By Russia Disruption Continues” (CNBC). “The move in oil lower came amid indications of possible progress by the U.S. in encouraging more oil production from other sources. Reuters reported that Iraq said it could increase output if OPEC+ asks. Secretary of State Antony Blinken also signaled that UAE would support increased production by OPEC+.”
“Food Crisis Grows As Spiralling Prices Spark Export Bans” (Reuters). “The conflict in Ukraine is threatening global grain production, the supply of edible oils and fertiliser exports, sending basic commodity prices rocketing and mirroring the crisis in energy markets. Palm oil is the world's most widely used vegetable oil and is used in the manufacture of many products including biscuits, margarine, laundry detergents and chocolate. Palm oil prices have risen by more than 50% this year.”
“How The Putin Shock Might Affect The World Economy” (Paul Krugman, New York Times). “[F]ood may actually be a bigger issue than energy. Before Putin’s war, Russia and Ukraine combined accounted for more than a quarter of the world’s wheat exports. Now Russia is sanctioned and Ukraine is a war zone. Not surprisingly, wheat prices have shot up from less than $8 a bushel before Russia began massing its forces around Ukraine to around $13 now.”
“January Was The Eighth Straight Month Where More Than 4 Million Americans Walked Out Of Their Jobs” (Insider). “[It’s] an extraordinary streak, both for its length and the intensity of nationwide quitting. Monthly quits trended at about 3.5 million before the pandemic rocked the US economy. Walkouts have now landed well above that level for the better part of the last year. Record-high quits were also seen as recently as November, with 4.5 million workers leaving their jobs that month alone.”
“Amazon Board Approves 20-For-1 Stock Split, $10 Billion Share Repurchase” (Wall Street Journal). I guess Amazon thinks the market is mispricing its shares. On the one hand, they probably have better insight into the company’s prospects. On the other hand, managers’ forecasts tend to biased relative to truth.
What we’re reading (3/8)
“Goldman Sachs Says Investors Unprepared for U.S. Curve Inversion” (Bloomberg). “It’s ‘a matter of arithmetic’ that ‘an extremely inverted inflation curve makes inversions of the nominal yield curve that are either earlier in the cycle or deeper’ than investors have been used to in recent decades, [Goldman Sachs Chief Global Rates Strategist Praveen] Korapaty writes.”
“Russian Default’s Limited Financial Fallout” (Fisher Investments). “Some form of Russian sovereign bond default is looking rather likely, but the implications seem considerably smaller than 1998’s, which played a central role in that year’s correction.”
“You Can Still Find ‘Cheap’ Gas — If You Know Where To Look” (CNN Business). “The data show that there's a wide range of pricing in most markets, even in many of the states where the average price is now well above $4. Most stations try to stay just below that mark, even if that means charging $3.999, which is the most common price for a gallon of regular gas at US stations Tuesday, according to the Oil Price Information Service, which tracks prices for AAA.”
“Making Sense Of Why Executives Are Eager To Get Employees Back In The Office” (CNBC). “‘I’ve heard so many times from executives about the importance of whiteboarding, but that sentiment is always coming from the person who is controlling the pen in that whiteboard sessions,’ [Brian] Elliott [President of the Future Forum] said. ‘The truth is whiteboarding leads to group think. If you allow people to submit ideas on their own, not in a room with others, studies show you’ll get more creativity.’”
“U.S. Probes Options Trade That Gained On Microsoft-Activision Deal” (Wall Street Journal). “Federal prosecutors and securities regulators are investigating large bets that Barry Diller, Alexander von Furstenberg and David Geffen made on Activision Blizzard Inc. shares in January, days before the videogame maker agreed to be acquired by Microsoft Corp., according to people familiar with the matter. The three men have an unrealized profit of about $60 million on the options trade, based on the recent Activision share price of around $80, according to the people.”
What we’re reading (3/7)
“Time for Supply” (John Cochrane and Jon Hartley, Project Syndicate). “Nothing matters more for human flourishing than long-term economic growth. So, no economic trend is more worrisome than growth falling by half, especially for the well-being of the less fortunate. The eruption of inflation settles a long debate. Sclerotic growth is not the result of demand-side ‘secular stagnation,’ fixable only with massive fiscal and monetary stimulus. Sclerotic growth is a supply problem. We need policies to increase the economy’s productive capacity – either directly or by reducing costs.”
“Gasoline Prices Surge Above $4 A Gallon, With No End In Sight” (Wall Street Journal). “Prices at the gas pump are soaring to near record levels across the U.S., threatening to further pressure consumers and an economy already struggling with sky-high inflation. On Monday, the national average price for regular gasoline hit $4.065 a gallon, the highest price since July 2008 and approaching the record of $4.114 reached that same month, according to AAA.”
“Nickel Prices Soar 90% To New Record High On Worries About Shortages From Major Supplier Russia” (Insider). “Nickel prices in London logged a record surge on Monday amid escalating concerns that production in Russia will be disrupted in the wake of Moscow's invasion of Ukraine. The three-month nickel contract leapt 90% to trade above $55,000 a metric ton on the London Metal Exchange, according to pricing from Bloomberg. That marks a new all-time high, and the jump of more than $26,000 marked the biggest single-day dollar gain ever.”
“Investors Are Terrible At Forecasting Wars” (The Economist). “[M]ost investors lose money during wars, because they fail to see them coming…One problem faced by investors is that they are poorly equipped to assess risks associated with “black-swan” events, which have very low probabilities but which can be extremely costly…Philip Tetlock, a Canadian scholar, notes that building predictive abilities requires repeated feedback so that participants can hone their accuracy over time. Once-in-a-career events do not offer that.”
“The Man Behind GameStop Mania Is Coming For Bed Bath & Beyond” (CNN Business). “[Ryan] Cohen's company RC Ventures bought a nearly 10% stake in Bed Bath & Beyond (BBBY), making the investment firm a top-5 shareholder, Cohen said in a letter to the retail chain's board of directors Sunday…Cohen, who took a stake in GameStop (GME) in 2020 and became chairman of the company's board last year, clearly wants to shake things up. In his letter to the board, he criticized Bed Bath & Beyond's current strategy and urged the company to make changes.”
What we’re reading (3/6)
“Visa And Mastercard Suspend Russian Operations” (BBC). “Visa and Mastercard have announced they will suspend all operations in Russia in protest at its invasion of Ukraine. But Russia's major banks, including state-backed Sberbank, have already downplayed the impact the move will have on consumers. Shoppers will still be able to use Mastercard and Visa-branded cards for purchases within Russia until they reach their expiry dates. But cards issued abroad will no longer work at businesses or ATMs in Russia.”
“Russia’s Invasion Of Ukraine Puts Cryptocurrencies At The Heart Of War” (Vanity Fair). “[W]hile the leaders of the tech companies are resolute in the side of history they want to be on, those in the crypto world are clearly struggling with this moral quandary over the role crypto is now playing to help the Russians. ‘The question is, is there any world or any scenario in which breaking the anonymity or decentralized nature of crypto is considered necessary, and if so, would this qualify? If Putin wanted to use crypto to get around certain sanctions, would even the most orthodox crypto maximalist be supportive of that?’ a crypto trader and investor told me.”
“Investors Start Buying Ukraine, Russia Bonds” (Wall Street Journal). “Investors are starting to buy Ukrainian and Russian bonds that plummeted to discounted prices, betting that they will recover if the war between the two countries comes to an end. The trade is high-risk, given uncertainty over what Ukraine will look like after the war and how long the financial cordon around Russia will last. It also poses reputational dangers because of the human cost of the conflict and the increasing unwillingness of many financial institutions and corporations to be associated with Russia in any way.”
“Russia Says Sovereign Bond Payments Depend On Sanctions” (Reuters). “Russia's sovereign bond payments to non-residents will depend on sanctions imposed by the West, the country's finance ministry said on Sunday, stoking fears of a technical default on tens of billions of dollars of eurobonds. The ministry said it would service and pay sovereign debts in full and on time but that payments would depend on the sanctions that Western governments imposed on Russia over the invasion of Ukraine.”
“This Is Peak Subscription” (Vanity Fair). “The maturity of the subscription market varies by industry, but in some of the categories best known for these kinds of services, there are indicators that the ceiling is close, at least in the United States. In streaming video, Netflix has long been the industry standard, but its growth rate has begun to decline, and some analysts believe that it doesn’t have much room left to find new eyeballs in America…when ViacomCBS recently announced that it was changing its name to Paramount to go all in on its subscription streaming platform, Paramount Plus, the company’s stock sank—an indicator, he said, that investors are unsure of how much money is left to be made.”
What we’re reading (3/5)
“A Strong Jobs Report Shows How The U.S. Economy Has Learned To Live With The Coronavirus” (New Yorker). “[T]he February report showed that the economy has displayed sustained strength: the employment figures for December and January were revised upward, and the updated figures show that the economy has created almost 1.75 million jobs over the past three months. That’s close to six hundred thousand a month—roughly three times the rate before the pandemic. Since November, the employment-to-population ratio, which is a broad measure of the labor market’s strength, has risen by six-tenths of a percentage point to 59.9%, the highest since the pandemic began. That, too, is a positive sign—especially during a period when the Omicron wave spread across the country.”
“Lloyd Blankfein, Cold Warrior: The Veteran Banker Watches As The System He Helped Build Turns Into A Weapon.” (New York Magazine). “‘I know this will sound very unbankerlike,’ he said, ‘but I think it crossed everyone’s moral threshold.’ […] ‘What makes these sanctions different has to do with an apparent mistake on Putin’s part: Central-bank reserves aren’t always kept in a big bank vault, and Russia had stored its money in countries that are the most enraged about the invasion…[t]hat left Russia with as little as $12 billion in cash on hand and, with sanctions against its major banks, few avenues to convert its gold and other reserves into hard currency. ‘What does it mean to have $640 billion of reserves?’ Blankfein asked. ‘Putin is not sitting on a bed, throwing it up in the air and watching it fall down on his head like Scrooge McDuck.’”
“IMF Warns That War In Ukraine Will Have ‘Severe Impact’ On Global Economy” (Axios). “‘While the situation remains highly fluid and the outlook is subject to extraordinary uncertainty, the economic consequences are already very serious,’ the IMF said in a statement…The IMF also said it planned to bring Ukraine's request for $1.4 billion in emergency financing to its board for consideration as early as next week.”
“Elon Musk Says Russia’s War Means More Oil Production Needed Now” (Yahoo!Finance). “‘Hate to say it, but we need to increase oil & gas output immediately,’ the billionaire tweeted Saturday, as Russia’s invasion of Ukraine chokes off fuel supplies and drives up gas prices…’Obviously, this would negatively affect Tesla, but sustainable energy solutions simply cannot react instantaneously to make up for Russian oil & gas exports,’ said Musk.”