What we’re reading (5/2)
“10-Year Treasury Yield Hits 3% For First Time Since 2018” (Wall Street Journal). “The yield on the benchmark 10-year Treasury note, which rises when bond prices fall, surged at the start of U.S. trading and reached as high as 3.008% in the afternoon, as traders braced for the outcome of this week’s Federal Reserve meeting. It then slipped below 3% to settle at 2.995%, according to Tradeweb, up from 2.885% Friday.”
“US Stocks Reverse Course To Close Higher Even As 10-year Treasury Hits 3% And Fed Rate Hike Looms” (Insider). “The S&P 500 led stocks lower for much of the day, falling as much as 1% before investors began to buy the dip and push the broader market higher near the end of the day. The Nasdaq finished up by nearly 2%.”
“What's Driving The Historic Bear Market For Bonds?” (Morningstar). “The culprits are the usual suspects when bond prices decline. It’s the surge in inflation and the Federal Reserve’s moves to raise interest rates which are to blame. The central bank will be front and center this week when its policy-setting Federal Open Market Committee meets for the first time since it raised rates in March. The Fed is expected to raise interest rates by another half a percent Wednesday, which would be the first rate hike of that magnitude in 22 years.”
“Has Inflation Reached A Peak? Three Signs That Prices Could Soon Come Down” (CNN Business). “During the stagflation of the 1970s, both sticky and flexible inflation grew. But so far sticky inflation has remained relatively flat compared with flexible inflation, a good sign that this could still be temporary.”
“Measuring Knowledge” (James Heckman and Jin Zhou, NBER). “We examine if conventional, broadly-defined measures of skill are the same across people who are comparable on detailed knowledge measures. We reject the hypothesis of aggregate scale invariance and call into question the uncritical use of test scores in research on education and on skill formation. We compare different measures of skill and ability and reject the hypothesis of valid aggregate measures of skill.”
What we’re reading (5/1)
“Wall Street Reluctantly Embraces Crypto” (Wall Street Journal). “Hedge funds and other professional investors were already trading cryptocurrencies, but many money managers—from mutual-fund giants to pension funds—are increasingly eager to find a way into the crypto markets, executives said. Inflation and rising interest rates have damped expectations for returns on stocks and bonds, making cryptocurrencies more attractive.”
“Bonds Are Suddenly Getting Love From Investors Hedging Recession” (Bloomberg). “Investors plagued by fear and shunning stocks are rediscovering a time-honored antidote: U.S. government bonds. That may seem surprising, given that the Treasury market has been battered by its worst losses on record this year. But with yields holding at the highest in years, the Federal Reserve on course to raise interest rates aggressively in the face of surging inflation, and growth sputtering overseas, cash is flowing back in as investors seek to protect against the risk that the economy will tumble into a recession -- pulling the stock market further down with it.”
“Why A Fragile Stock Market Faces Danger From Rising Real Yields As ‘TINA’ Trade Fades” (MarketWatch). “Rising inflation-adjusted yields in the U.S. are undermining the long-running trade in which investors favor stocks over other asset classes, and are poised to hit the technology sector even harder. That trade — known as ‘TINA,’ an acronym for ‘There Is No Alternative’ to equities — is being increasingly tested by real yields, which have risen from below zero on expectations of aggressively higher interest rates by the Federal Reserve. Five-, 10- and 30-year inflation-adjusted yields are at their highest or least negative levels of roughly the past two years, according to Tradeweb.”
“Dissecting The Equity Premium” (Tyler Beason and David Schreindorfer, University of Chicago Press). “We use option prices and realized returns to decompose risk premia into different parts of the return state space. In the data, 8/10 of the average equity premium is attributable to monthly returns below -10%, but returns below -30% matter very little. In contrast, prominent asset pricing models based on habits, long-run risks, rare disasters, undiversifiable idiosyncratic risk, and constrained intermediaries attribute the premium predominantly to returns above -10% or to the extreme left tail. We show that the discrepancy arises from an unrealistically small price of risk for stock market tail events in the models.”
“Netflix’s Big Wake-Up Call: The Power Clash Behind The Crash” (The Hollywood Reporter). “Sources say some Netflix executives began to worry about the burgeoning number of shows. ‘It was, ‘Hey, guys, do we think this is enough? Because we are cannibalizing our own shit,’ ’ says a former insider. And then there was Holland’s concern about the lack of curation and quality control. An important creative talent who had successes working with Holland muses: ‘I wonder if, say, a bonobo throwing shit at a whiteboard full of titles as a method of deciding what projects to make would have more or less success than all of these other ‘deciders’ who think they know what people want or don’t want.’”
April 2022 performance update
Friends, here with a monthly performance update. The key numbers are:
Prime: -1.21%
Select: -10.68%
SPY ETF: -9.11%
Bogleheads Portfolio (80% VTI, 20% BND): -8.29%
It goes without saying, but I am elated by this month’s results. As has been widely reported, it was the worst April for the U.S. stock market (as measured by the S&P 500) in 52 years. Discount rates continued rising sharply in the month, U.S. GDP declined, and the geopolitical crisis in Ukraine worsened. All told, trillions of dollars of notional financial asset value evaporated before our eyes. Against that backdrop, Prime mostly stayed afloat, falling negative only toward the end of the month, with the market as a whole performing nearly 9x worse. As I have said before, for a quasi-activist investor (even a model-driven one), volatility is a friend, as it is hard to beat the market when it is rising linearly in a low-volatility environment like 2021. The important point is that it is easy to achieve mechanically “amplified” market returns that go up more than the market when it is up and go down more than the market when it is down (e.g., through leverage). But it is very hard to beat the market on average when it is up and still outperform it when it is down.
Select fell along with the broader market, but a silver lining is that the gap between it at the Bogleheads benchmark widened somewhat. Let’s see what May brings.
Stoney Point Total Performance History
May picks available now
The new Prime and Select picks for May are available starting now, based on a model run put through today (April 30). As a note, we’ll be measuring the performance on these picks from the first trading day of the month, Monday, May 2, 2022 (at the mid-spread open price) through the last trading day of the month, Tuesday, May 31, 2022 (at the mid-spread closing price).
What we’re reading (4/30)
“As Odds Rise For A Recession, What's Your Investment Strategy?” (USA Today). “Odds for an economic recession in the U.S. seem to be rising by the day, so what should people do to prepare? Not much, financial advisers say. That answer may surprise newer investors who’ve been fortunate to see mostly economic expansion and stellar stock returns in the past 25 years. But to those who have lived a bit longer and seen a few cycles, they know to just stay focused and patient.”
“Investment Adviser’s Stock Market Formula Paid Dividends” (Wall Street Journal). “She recommended stocks largely on the basis of dividend yields. ‘Dividends are real money—not just figures on a balance sheet,’ she and Janet Lowe wrote in a 1988 book, ‘Dividends Don’t Lie.’ Earnings could be manipulated, she reminded investors. ‘If a company doesn’t pay a dividend, it’s a speculation,’ she said…Ms. Weiss died April 25 at her home in San Diego’s La Jolla neighborhood. She was 96.”
“Don’t Take The Surprising Drop In G.D.P. At Face Value” (The New Yorker). “If you add these three volatile factors [imports, inventories, government spending] and affecting G.D.P. together, they reduced the headline growth figure by roughly 4.5 percentage points, which explains why it came in negative even though underlying spending by households and businesses was strong.”
“What To Know Before You Add Bitcoin To Your 401(k)” (Washington Post). “Fidelity Investments announced that it will allow employers to offer their employees bitcoin in their workplace retirement plans. It was, in many ways, inevitable, but the timing is problematic, as the U.S. economy may be stumbling into some harder times.”
“Working 9 To 2, And Again After Dinner” (New York Times). “Time spent working after traditional hours has grown 28 percent since March 2020, according to data from Microsoft Teams users, and weekend work has increased 14 percent.”
What we’re reading (4/29)
“US Stocks Crater As The Dow Sheds 939 Points And Nasdaq Notches Its Worst Month Since 2008” (Insider). “US stocks fell Friday, as each of the three major indexes capped off losing months. The tech-heavy Nasdaq closed out its worst-performing month since 2008, shedding more than 3% for the day as investors fled the e-commerce giant after downbeat earnings.”
“America’s S&P 500 Suffers Its Worst April In 52 Years” (The Economist). There are a few glimmers of hope, however. First, corporate profits remain healthy. S&P 500 companies are so far reporting an average growth of 6.6% in second-quarter earnings, according to FactSet, a data provider. Second, many firms are sitting on big cash piles that they can use to make their shares more attractive with dividends, share buybacks and acquisitions.”
“Escape To Zoom Island” (GQ). “With the rest of the planet facing restrictions and isolation, the Savoyians reveled in their strange dystopian paradise. ‘I call it the Madeira magic,’ Dijan says. ‘People just kept extending their trips or canceling their flights, and the crazier and crazier it got.’ Much of the craziness was due to the other part of Madeira’s magical storm: the boom in cryptocurrency.”
“The U.S. Wants To Tackle Inflation. Here’s Why That Should Worry The Rest Of The World.” (New York Times). “The trade-off faced by the Fed — between price stability and employment — is usually framed in strictly domestic terms. But aggressive efforts to quell inflation in the United States can have major, unpredictable effects around the world, often with long-lasting, negative consequences for countries in the Global South.”
“Warren Buffett Is Still Setting Berkshire’s Direction. For How Much Longer?” (Wall Street Journal). “More than 40,000 people are expected to descend on Omaha this weekend for Berkshire’s first in-person shareholder meeting since 2019. They will be traveling hundreds, and in some cases, thousands of miles just to have a chance to hear from the famed ‘Oracle of Omaha,’ who turned 91 in August. But even as Berkshire thrives, it is contending with an unusual number of big challenges.”
What we’re reading (4/28)
“Amazon Shares Plunge 10% After Company Issues Disappointing Revenue Forecast” (Yahoo!Finance). “Shares of Amazon (AMZ) dropped after the company revealed a revenue forecast that missed analyst estimates as consumers curb online spending in the face of economic uncertainty and a return to in-person activities. The company also reported a loss on its investment in electric-vehicle maker Rivian Automotive.”
“Teladoc Stock Plunges As The Stay-At-Home Economy Fizzles” (CNN Business). “The huge pandemic boom for virtual health company Teladoc appears to be over. More people are willing to leave home for doctor visits, and shares of Teladoc (TDOC) plunged more than 45% Thursday. The company warned of a weak sales outlook and higher costs in its earnings report after the closing bell Wednesday.”
“One Of Cathie Wood’s Top Stock Picks Just Plunged 40%” (Wall Street Journal). “Cathie Wood suffered another setback, this time courtesy of Teladoc Health Inc. The digital-health company at one point lost roughly half its market value on Thursday following its disappointing financial forecast. Teladoc’s stock finished down 40%, its worst day in its nearly seven-year history as a publicly traded company.”
“Fixed Income: Class 5 Rapids” (Comerica). “It is clear that inflation and volatility will be part of the fixed income environment for the next several years. Investors will need to continue to manage their fixed income exposure with this in mind, and structure portfolios that provide some degree of protection from inflation.”
“Musk Is Already Shaking Up Twitter” (DealBook). “Elon Musk doesn’t own Twitter yet, but he’s already making his presence felt there. Musk took aim at Twitter employees and others this week in a round of tweets that raised new concerns about the company’s future under his freewheeling approach to content moderation. (He also said — with tongue presumably in cheek — that he would buy Coca-Cola next, ‘to put the cocaine back in.’).”
May picks available soon
We’ll be publishing our Prime and Select picks for the month of April before Monday, May 2 (the first trading day of the month). As always, we’ll be measuring SPC’s performance for the month of April, as well as SPC’s cumulative performance, assuming the sale of the April picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Fri., April 29). Performance tracking for the month of May will assume the May 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 (Monday, May 2).
What we’re reading (4/27)
“Investment Firm Head Arrested On Charges Of Multibillion-Dollar Fraud And Racketeering” (CNN Business). “Federal agents arrested Archegos Capital Management founder Sung Kook ‘Bill’ Hwang on Wednesday morning on fraud charges, roughly one year after the investment firm's spectacular meltdown sent shock waves through Wall Street.”
“Stock Rout Is Fed’s ‘Best-Case Scenario’ As Powell-Put Era Ends” (Bloomberg). “Financial conditions -- a cross-asset measure of market health from equities to fixed income -- have finally started to tighten over the past week in sympathy with the recent plunge in equities, led by richly priced technology companies.”
“Judge Rules Elon Musk Didn’t Act Unlawfully In SolarCity Takeover” (Wall Street Journal). “Elon Musk won a major victory in Delaware court on Wednesday, when a judge ruled the Tesla Inc. chief executive didn’t act unlawfully in the electric-vehicle maker’s roughly $2.1 billion takeover of SolarCity Corp.”
“Michael Lewis On Why Americans Don’t Trust Experts” (Vox). “Why don’t Americans trust the experts? One answer is that experts get a lot of things wrong and often they pay a big price for those mistakes. From the forever wars to the 2008 financial crisis to the botched pandemic response, it seems Americans are constantly careening from one avoidable catastrophe to another. Another answer is…[that] [t]he digital revolution has transformed the information space in ways that have empowered individuals and undermined the dominant institutions in society — government, media, the academy — and the elites who run them.”
“Mom And Pop Investors Took A Billion-Dollar Bath Trading Options During The Pandemic” (Yahoo!Finance). “Turns out, taking leveraged flyers on meme stocks mentioned on Reddit’s WallStreetBets trading forum is harder than it looks. New research from economists at the London Business School found that mom-and-pop day traders managed to lose more than $1 billion during the bull market. The bill climbs to $5 billion when the cost of doing business with market-makers is factored in.”
What we’re reading (4/26)
“3 Recession Indicators Are Flashing Red…Here’s Why You Shouldn’t Panic” (RiskHedge). “Here’s something I bet you didn’t know about recessions. Stocks typically eke out a small gain during recessions. The S&P 500 rose in seven of the past 13 recessions[.]”
“A Major Recession Is Coming, Deutsche Bank Warns” (CNN Business). “Deutsche Bank raised eyebrows earlier this month by becoming the first major bank to forecast a US recession, albeit a ‘mild’ one. Now, it's warning of a deeper downturn caused by the Federal Reserve's quest to knock down stubbornly high inflation. ‘We will get a major recession,’ Deutsche Bank economists wrote in a report to clients on Tuesday.”
“Alphabet Earnings Show Slowing Sales Growth On Digital-Ad Tumult” (Wall Street Journal). “The company said first-quarter sales rose 23% from the year-ago period, the lowest rate for the tech giant since late 2020. In the interim, the company saw a period of massive sales growth, as small and large businesses alike flooded into the ad market seeking to win customers who spent the early period of the pandemic sequestered in their homes. Company sales advanced 41% last year.”
“Credit Funds Lay Low And Even Prosper In A Tough First Quarter” (Institutional Investor). “Fresh off their best year in about a decade, credit funds were mostly flat or barely back in the black in the first quarter. But given the economic environment, things could have been worse.”
“The Age Of The Tyrannical Boss Is Over — And Managers Who Don't Give Employees More Freedom Will Face A Talent Reckoning” (Insider). “Over the past few years, white-collar workers have started to see their job as many blue-collar, hourly workers already do: an economic transaction where they are being paid to do work assigned to them and deliver a product. What they think a lot less about are things like company loyalty and being a member of a white-collar ‘family’ — ideas that benefit management more than workers.”
What we’re reading (4/25)
“Twitter Accepts Elon Musk’s Offer To Buy Company In $44 Billion Deal” (Wall Street Journal). “The [$44 billion] takeover, if it goes through, would mark one of the biggest acquisitions in tech history and will likely have global repercussions for years to come, including possibly reshaping how billions of people use social media. Mr. Musk will bring his commitment to a more hands-off approach on speech to a company that has struggled to reconcile freewheeling conversation with content that appeals to advertisers.”
“Elon Closes In” (Matt Levine, Bloomberg). “Incidentally, the legal standard here is a bit odd. Roughly speaking, the way Delaware law works is that a board can reject a cash acquisition for stakeholder-y reasons, but it can’t really accept one for those reasons. ‘We will not sell to Elon Musk because it would be bad for the world for him to own Twitter, even though the price is right,’ is a controversial but possible thing for the board to say. ‘We will sell to Elon Musk because it would be good for the world for him to own Twitter, even though the price is wrong,’ would not be okay.”
“It’s Not Just High Oil Prices. It’s A Full-Blown Energy Crisis.” (Helen Thompson, New York Times). “Americans are worrying about their gas prices. Germans are turning down their heating. Peru has seen violent protests — and a violent crackdown on them — over rising fuel costs. Nigeria’s national energy grid recently collapsed. And that’s just this spring. Focused on the future, the United Nations Intergovernmental Planet on Climate Change warned in a report on April 4 that too much investment is going into fossil fuels and too little into the energy transition that could prevent a devastating increase in global temperatures.”
“The Gathering Stagflationary Storm Will Rattle Markets, Economies And Societies” (Nouriel Roubini, Project Syndicate). “The new reality with which many advanced economies and emerging markets must reckon is higher inflation and slowing economic growth. And a big reason for the current bout of stagflation is a series of negative aggregate supply shocks that have curtailed production and increased costs. This should come as no surprise.”
“Prosecutors Spoof Spoofer Into Guilty Plea For Spoofing” (Dealbreaker). “Federal prosecutors and authorities more generally have spent the better part of the last few years trying to demonstrate that spoofing—goosing the market you actually intend to trade in with a raft of rather large orders you have no intention of actually executing—is, in fact, illegal. And, like, properly, prison-worthy illegal, whatever those bleeding hearts at the U.S. Probation Office say.”
What we’re reading (4/21)
“The Gap Between The Best And Worst Hedge Fund Strategies Just Widened” (Institutional Investor). “Hedge fund investors might be having wildly different performance experiences. Take managed futures funds, for example, which have turned in monthly performance numbers that haven’t been this good since 2003. In fact, if 2022 were to end in March, the category’s 9.7 percent return would be its best calendar year since 2014. On the other end of the performance spectrum, the equity sector index returned – 7.6 percent for the first three months of the year. If 2022 ended now, equity sector funds would have had their worst calendar year since 2008.”
“Fed’s Powell Seals Expectations Of Half-Point Rate Rise in May” (Wall Street Journal). “A rate increase in May, following the Fed’s decision to lift rates from near zero by a quarter percentage point last month, would mark the first time since 2006 that the central bank increased its policy rate at back-to-back meetings. A half-point increase would be the first such move since 2000.”
“How America’s Farmers Got Cut Out Of The Supply Chain” (New York Times). “Beyond a logistical torment, the crisis assailing almond producers is inflicting deep financial consequences, from diminished revenues to higher costs for storage. The same can be said for a broad array of other American agricultural exporters — from wheat growers in North Dakota to soybean producers in Nebraska — as shipping crops to customers has become maddening to the point of futility.”
“Rising Gas Prices Alter The Notion Of The Car, Moke Will Alter Your View Of EV” (RealClearMarkets). “It doesn’t take an automotive engineer or a crystal ball to conclude that the hit on American wallets every time consumers fill up will likely result in greater interest in electric vehicles (EVs). But the switch towards EVs isn’t just about gas prices. Momentum has been building for a while and EVs are playing an increasing part in the overall automotive equation.”
“Blackstone’s Jonathan Gray Doubles Down On Logistics And Rental Housing As Real Estate Sectors That Will ‘Outrun’ Inflation” (Insider). “Over the past year, Blackstone's $280 billion real estate business — the largest portion of a $880 billion investment portfolio — has been focused on three key types of real estate it says will come out ahead of inflation: rental housing, logistics real estate and buildings tailored for life sciences businesses.”
What we’re reading (4/19)
“After Getting Inflation So Wrong, Can The Fed Now Get It Right?” (The Economist). “Many factors explain the latest burst in inflation, with snarled supply chains, tight job markets, generous fiscal policy, loose monetary policy and, more recently, the war in Ukraine all part of the fabric. But one thread runs through them all. Investors, analysts and, crucially, central bankers believed that high inflation in America had been consigned to history, a problem more for academic studies than for current policy.”
“What If The Future Of Work Is Exactly The Same?” (Vox). “But what does the future of work actually look like for the majority of Americans whose jobs require them to show up in person? Despite all the buzz about high-profile union efforts last year, union membership actually fell in 2021. Wages aren’t going up as fast as they were, and any hope for an increase in the federal minimum wage is, at least for now, dead. Many of the circumstances that have made the current moment possible, including unprecedented support from the federal government, are fading or already have expired in the super-speed recovery.”
“Twitter Stock Swings Sharply As Individual Investors Pile In” (Wall Street Journal). “The social-media company’s stock has been on a head-spinning ride since the Tesla Inc. chief executive took a stake in the company and said he was angling to take it private in a $43 billion deal. The shares, which were trading below $40 before he disclosed his position, jumped 27% in a single session on the news.”
“The World May Dodge Another Recession. But Risks Are Growing” (CNN Business). “As the World Bank and the International Monetary Fund kick off their spring meetings this week, both are sounding a warning: The global economy, they say, is quickly losing steam. What's happening: The World Bank has slashed its forecast for global growth in 2022 to 3.2% from 4.1%, anticipating a sharp deceleration from estimated growth of 5.5% in 2021. The IMF's latest outlook arrives later Tuesday.”
“Netflix Is Bleeding Subscribers For The First Time In Over A Decade — And It's Expecting To Lose Another 2 Million Subscribers In Coming Months” (Insider). “Netflix's earnings report revealed subscriber losses for the first time in over a decade. The earnings miss sent the stock plummeting 21% in after-hours trading as Wall Street reacted to Netflix losing 200,000 subscribers in the first quarter and predicting further losses in the second quarter.”
What we’re reading (4/18)
“Portfolio Diversification: Harder Than It Used to Be?” (CFA Institute). “In theory, ever-greater access to world equity markets should have made it easier for investors to build and harvest the benefits of diversified global stock portfolios. But has it really? Has diversifying across world equity indices actually helped reduce portfolio risk?”
“Cathie Wood's Ark Invest Says Tesla Stock Will More Than Quadruple In Price By 2026 If It Can Deliver A Network Of Self-Driving Taxis” (Insider). “Ark's bullish thesis on Tesla hinges on the company's ability to successfully develop and roll out a network of self-driving robo taxis. That network of taxis would operate an Uber-like service of shuttling people to and from different destinations, according to the research published by Ark.”
“Apollo Global Considers Participating In A Bid For Twitter” (Wall Street Journal). “Apollo, one of the world’s largest buyout firms, has held discussions about backing a possible deal for Twitter and could provide Mr. Musk or another bidder like private-equity firm Thoma Bravo LP with equity or debt to support an offer, the people said.”
“Gary Gensler Reflects On His First Year As S.E.C. Chair” (DealBook). “As the nation’s top markets regulator, Mr. Gensler was always going to be busy. But he was nominated during the unexpected trading frenzy in so-called meme stocks like GameStop and AMC Entertainment, which was driven in part by commission-free trading apps. He was confirmed for a five-year term on the day the crypto exchange Coinbase went public, a sign that the once-fringe industry was rapidly moving into the mainstream.”
“A Russian Default Is Looming. A Bitter Fight Is Likely To Follow.” (New York Times). “The coming fight, which would probably pit Russia against big investors from around the world, raises murky questions over who gets to decide if a nation has actually defaulted in the rare case where sanctions have curbed a country’s ability to pay its debts.”
What we’re reading (4/17)
“The Biggest Risk To The Global Economy No One Is Talking About” (CNN Business). “Nearly 400 million people across 45 cities in China are under full or partial lockdown as part of China's strict zero-Covid policy. Together they represent 40%, or $7.2 trillion, of annual gross domestic product for the world's second-largest economy, according to data from Nomura Holdings.Analysts are ringing warning bells, but say investors aren't properly assessing how serious the global economic fallout might be from these prolonged isolation orders.”
“Bond Rout Promises More Pain For Investors” (Wall Street Journal). “Battered by high inflation readings and sharp messages from Federal Reserve officials about the need for interest-rate increases, bond prices have tumbled this year at a pace investors have rarely seen. In the first quarter, the Bloomberg U.S. Government bond index returned minus 5.5%, its worst performance since 1980. This month, it has lost another 2.4%.”
“Buyout Funds Are Unlikely To Escape Inflation’s Pain” (Institutional Investor). “After a banner year for the mergers and acquisitions markets, dealmakers have slowly found themselves trapped in an environment in which rising prices pose real threats to the valuations of their target companies. And without valuation certainty, they’re in no rush to make deals happen.”
“Bitcoin Risk-Reward Calculation Is Being Upended By Rising Rates” (Bloomberg). “The aggregate 30-day moving-average volume for Bitcoin across Coinbase, Bitfinex, Kraken and Bitstamp is at its lowest level since August 2021, according to data compiled by Strahinja Savic at FRNT Financial. Over the last month, the aggregate daily volume on those venues has averaged just over $1 billion. That reading stood at $2.57 billion in May 2021, a nearly 60% decline.”
“The State Of Globalization In 2022” (Harvard Business Review). “[G]lobal cross-border flows have rebounded strongly since the early part of the pandemic. In our view, the war [in Ukraine] will likely reduce many types of international business activity and cause some shifts in their geography, but it will not lead to a collapse of international flows.”
What we’re reading (4/16)
“The Sky-High Pandemic Housing Market Finds Gravity Does Exist” (New York Times). “[T]here are so few homes for sale that even a slower market is unlikely to create enough inventory to satisfy demand anytime soon. For years the United States has suffered from a chronically undersupplied housing market. Home building plunged after the Great Recession and remained at a recessionary pace long after the economy and job market had recovered. Even today, the pace of home building remains below the heights of the mid-2000s[.]”
“Decade-High Mortgage Rates Pose Threat To Spring Housing Market” (Wall Street Journal). “‘We’ve never seen a time where mortgage rates have risen as quickly as they have and the market hasn’t cooled off,’ said Ralph McLaughlin, chief economist at Kukun, a real-estate data firm…‘If half of our buyers got priced out of the market, we would still have eight buyers for every listing,’ said Nick Painz, managing broker at Re/Max Alliance in Westminster, Colo., a suburb of Denver. ‘The people that think it’s got to stop somewhere, I think they’re in for a rude awakening.’”
“Housing Market Fever Starts To Break In Boise” (Bloomberg). “If you’re wondering where the U.S. real estate market might start to show its first cracks, keep an eye on Boise, Idaho. The pandemic work-from-anywhere revolution transformed it into one of the hottest markets in the U.S., but home prices are leveling off there. Typical home values in Boise rose just 0.4% last month, down from a 4.1% monthly pace in June, according to Zillow data. That makes it the first of the country’s top 100 housing markets to flirt with falling prices this year.”
“The End Of An Economic Illusion” (John Cochrane, Project Syndicate). “Inflation’s return marks a tipping point. Demand has hit the brick wall of supply. Our economies are now producing all that they can. Moreover, this inflation is clearly rooted in excessively expansive fiscal policies. While supply shocks can raise the price of one thing relative to others, they do not raise all prices and wages together. A lot of wishful thinking will have to be abandoned, starting with the idea that governments can borrow or print as much money as they need to spray at every problem.”
“U.S. Bond Market Gives Notice It’s No Longer A One-Way Street” (Bloomberg). “‘It’s an awkward period at the moment for the bond market,’ said Gregory Faranello, head of U.S. rates trading and strategy for AmeriVet Securities. ‘Inflation is at extreme levels and we just don’t know what level it declines to from the peak.’”
What we’re reading (4/14)
“Elon Musk Offers To Buy Rest Of Twitter At A Valuation Of More Than $43 Billion” (Wall Street Journal). “On Thursday, Mr. Musk reiterated Twitter’s potential to be the platform for free speech, saying the company ‘will neither thrive nor serve this societal imperative in its current form.’”
“Is Elon Musk Really Going To Buy Twitter For $43 billion?” (Vox). “Musk has offered $54.20 per share for Twitter, which was trading for $45 per share Thursday morning before his offer became public. But Twitter was trading for more than $70 per share a year ago. Investors may simply decide that Musk’s offer isn’t good enough, and nothing else happens.”
“Elon Musk Makes Totally Serious, Good Faith Offer To Buy Twitter” (Dealbreaker). “Even given the extra time he awarded himself, Elon Musk wasn’t able to buy up every Twitter share ahead of announcing his passive stake/pressure point/practical joke. But now the richest man on earth would like to rectify that oversight and, instead of simply joining the board of the social media platform he loves to hate and hates to love, become the board unto himself.”
“Even in A Hot Economy, Wages Aren’t Keeping Up With Inflation” (Jason Furman, Wall Street Journal). “In addition to spurring inflation that outpaces wage growth, moving from a hot economy to an overheated one, as we have done, can also threaten the sustainability of job growth itself. Some combination of the Federal Reserve’s skill and luck may save the day. Next time, let’s remember that it’s better to heat the economy by putting one log on the fire at a time instead of throwing them all on at once.”
“The Great Billionaire Space Caper” (Matt Taibbi). “Whoever comes out of the Artemis capsule first, a primary winner of the mission will be a billionaire with his teeth in your wallet. Maybe two, if congress gets its way.”
What we’re reading (4/13)
“Valuation Bloat In Stocks And Bonds Is Catching Up With The Bull Market” (Bloomberg). “The economic cycle is advancing to a point where valuations may finally matter again for stock and bond investors. Fortress-like in their refusal to bend for the better part of a decade, both asset classes have come under pressure thanks to the ever-stiffening resolve of central banks to restore order to the global economy. The S&P 500 has dropped in five of the last six days while yields on 10-year Treasury notes is set to break a streak of seven straight increases.”
“The Fed Is Going To Have To Curb Economic Activity To Bring Down Soaring Inflation, Fed's James Bullard Says” (Insider). “‘There's a bit of a fantasy, I think, in current policy in central banks,’ Bullard told the FT in an interview published Wednesday. ‘Neutral is not putting downward pressure on inflation. It's just ceasing to put upward pressure on inflation.’”
“JPMorgan CEO Jamie Dimon Says ‘Powerful Forces’ Threaten U.S. Economy” (Wall Street Journal). “Chief Executive Jamie Dimon said the economy is strong and growing, citing double-digit growth in card spending, low delinquencies and healthy household and consumer balance sheets. But the bank surprised Wall Street by setting aside $900 million in new funds to prepare for economic turmoil; a year ago, it freed up $5.2 billion it had reserved for potential loan losses in the pandemic’s early months.”
“The Reports Of American Decline Are Greatly Exaggerated” (The Week). “What we are lacking a sense of self-belief, of confidence in our competence. We believe we are powerless and so become powerless. If you believe you will fail before you start, you probably will.”
“Anonymous Buyer Pays Over $1 Million For A Piece Of Invisible Art” (Smithsonian Magazine). “Before NFTs upended the art world, the artist Yves Klein sold nothing in exchange for solid gold. One of the key figures of the nouveau réalisme (New Realism) movement, Klein was a pioneer of conceptual art. Between 1959 and his death in 1962, he made one of the most outrageous artistic statements of his career, selling a series of receipts for invisible “zones” and accepting payment only in gold bullion. Now, six decades later, one of those receipts has sold for over $1 million at auction.”
What we’re reading (4/12)
“The Safe Investment That Will Soon Yield Almost 10%” (Wall Street Journal). “There’s no such thing as a free lunch in finance. Except maybe this: The interest rate on inflation-adjusted U.S. savings bonds will approach 10% beginning in May. U.S. Treasury Series I Bonds, or I Bonds, will offer annual interest payments of 9.6%, based on the bond’s latest inflation rate calculation, which is tied to March’s consumer-price index. Prices rose by 8.5% year over year in March, the fastest pace since December 1981, according to the Bureau of Labor Statistics.”
“'Recession shock’ Is Coming, Bank Of America Warns” (CNN Business). “Bank of America is warning that high inflation poses a credible threat to the economic recovery that began just two years ago. “‘Inflation shock’ worsening, ‘rate shock’ just beginning, ‘recession shock’ coming,” Bank of America chief investment strategist Michael Hartnett wrote in a note to clients on Friday.”
“Lumber Falls To Fresh 2022 Lows As Spike In Mortgage Rates Cools Housing Demand And Inflation Puts Dent In Home Renovations” (Insider). “Lumber prices fell more than 6% to $829 per 1,000 board feet on Tuesday, representing a fresh lows for the commodity in 2022 as rising mortgage rates and higher prices take a bite out of the housing market.”
“PE Activity Is Slowing Down. Investors Appear ‘Unfazed.’” (Institutional Investor). “The first sign of a moderation in activity came from a drop in fundraising. In the first quarter of 2022, global private equity firms raised a total of $116 billion, down 10 percent from last quarter and down 38 percent from the same period last year, according to the latest private equity report by Preqin. In particular, deal activity in Europe cooled down, with the number of buyout deals in the first quarter declining 29 percent year-on-year, according to the report.”
“Report: Saudi Arabia Concluded Jared Kushner’s Investment Firm Was A Joke, Gave Him $2 Billion Anyway” (Vanity Fair). “[T]he cash alone is not even the funniest part, and by funniest we mean insanely unethical and wildly corrupt. No, the unethical and corrupt part is that the people who perform due diligence for the Saudis’ Public Investment Fund concluded Kushner’s firm was a joke and that he might make them look bad…and then the board, headed by MBS, gave him the money anyway. Because…y’know.”
What we’re reading (4/11)
“Investors Turn Cautious On Consumer Debt” (Wall Street Journal). “Buyers of bonds backed by subprime car loans or credit cards are demanding the highest premiums over interest-rate benchmarks since mid-2020. Meanwhile, investors have punished shares of some financial-technology companies that helped fuel a recent surge in consumer borrowing, such as Affirm Holdings and Upstart Holdings.”
“You Get The Government You Pay For” (City Journal). “No one likes to see employees of a dysfunctional government handsomely rewarded. But the idea [of capping government employee pay] is extraordinarily bad. Limiting spending on upper-level staff is a penny-wise, pound-foolish method of controlling government spending that is sure to produce worse and more wasteful government, one that will remain in thrall to special interests such as government contractors and industry lobbyists.”
“Always Buy High Uncertainty. Certainty In The Stock Market Is Very Expensive” (Ken Fisher, Real Clear Markets). “The old adage that stocks hate uncertainty is true—but only partially. Stocks hate high and rising uncertainty. High but falling uncertainty, however, is the absolutely best stock market fuel anyone could ever ask for. And that is dead ahead now.”
“Welp, Maybe This Is How We Get Truck Guys To Buy Electric Vehicles” (Slate). “The electric resurrection of the Hummer, first announced in 2020, has produced a vehicle that does not emit the carbon pollution that overheats the planet, nor many of the other toxins that routinely kill thousands of Americans—and millions worldwide—who inhale befouled air. But in many ways it still pushes the boundaries of absurdity. The vehicle weighs more than 4.5 tons, a bulk closer to that of a small bulldozer than the sort of cars that were typically seen on American streets a decade or so ago. The huge Ultium battery that powers the vehicle is nearly 3,000 pounds, about the same weight as two grand pianos. The wheels look like they could traverse Mars.”
“A 4-Year Degree Isn’t Quite The Job Requirement It Used To Be” (New York Times). “In the last few years, major American companies in every industry have pledged to change their hiring habits by opening the door to higher-wage jobs with career paths to people without four-year college degrees...[m]ore than 100 companies have made commitments, including the Business Roundtable’s Multiple Pathways program and OneTen, which is focused on hiring and promoting Black workers without college degrees to good jobs.”