What we’re reading (8/23)
“Global Economies Flash Warning Of Sharp Slowdown” (The Wall Street Journal). “Business activity in the U.S., Europe and Japan fell in August, according to new surveys, pointing to a sharp slowdown in global economic growth as higher prices weaken consumer demand and the war in Ukraine scrambles supply chains.”
“We’re In A ‘Housing Recession,’ Experts Say. Here’s What That Means For Homeowners, Sellers And Buyers” (CNBC). “For example, sales of existing homes in July fell by 5.9% from June, marking the sixth straight month of a decline — and a drop of more than 20% from a year earlier. What’s more, there have been layoffs and slower job growth in the industry, homebuilder sentiment has turned negative and buyers are canceling contracts in the face of interest rates that have jumped to 5.72% from below 3.3% heading into 2022.”
“Endless Demand Spurs U.S. Natural-Gas Prices To Shale-Era Highs” (Wall Street Journal). “The 14-year highs reached this week by U.S. natural-gas futures show the unceasing demand for U.S. shale gas across the Atlantic—and likely point to rising prices and market volatility ahead.”
“US Business Activity Falls At Its Fastest Rate Since May 2020” (CNN Business). “The rate at which business activity slowed was the fastest recorded since May 2020 when the pandemic shutdowns first took hold, according to S&P Global. This marks five consecutive months that the activity index has fallen and the second consecutive month that it has been in contraction territory.”
“Legendary Investor Julian Robertson Has Passed Away — But Leaves Behind Many Powerful Mentees” (Tech Crunch). “Julian Robertson’s hedge fund investors didn’t want to listen to him when, in 1999, he questioned the sanity of the prices being paid for shares in nascent internet companies. So months after being berated for 15 minutes at an annual shareholders meeting at the Plaza Hotel in New York in October 1999, he began the process of closing up his shop. “There is no point in subjecting our investors to risk in a market which I frankly do not understand,” Robertson reportedly wrote to them in March of 2000. “After thorough consideration, I have decided to return all capital to our investors, effectively bringing down the curtain on the Tiger funds.” In April 2000, the tech market began to implode.”
What we’re reading (8/22)
“Wall Street Bears Take Revenge After A $7 Trillion Rally” (Bloomberg). “Stocks and bonds are set to tumble anew even though inflation has likely peaked, according to the latest MLIV Pulse survey, as rate hikes reawaken the great 2022 selloff. Ahead of the Jackson Hole symposium later this week, 68% of respondents see the most destabilizing era of price pressures in decades eroding corporate margins and sending equities lower.”
“Dow Falls More Than 600 Points On Fed Worries” (Wall Street Journal). “Fears of additional sharp interest-rate increases by the Federal Reserve sent the Dow Jones Industrial Average down 643 points on Monday, taking some of the wind out of this summer’s stock-market rally.”
“Home Prices Plunging In ‘Pandemic Boomtowns’ As Market Slumps” (New York Post). “Across the US, 21% of home sellers dropped their asking prices in July – the highest share since Redfin began tracking the metric in 2012, according to the firm. The shares of homes with price drops in July compared to one year ago increased in 94 of 97 metro areas surveyed.”
“McDonald’s Orders A Board Shake-Up” (DealBook). “McDonald’s, the world’s largest restaurant chain, today is announcing a major shake-up of its board of directors as the company faces inflation, war in Europe and tensions with franchisees. Sheila Penrose will retire after more than 15 years, and three new executives will join: Anthony Capuano of Marriott International, Jennifer Taubert of Johnson & Johnson and Amy Weaver of Salesforce.”
“Paul Singer Notices Company That Keeps Screwing Up Keeps Screwing Up” (Dealbreaker). “It’s hard to screw up in the drug distribution game. You’ve only got two competitors and you don’t have to spend heavily on developing those drugs. All you have to do is get them from point A to point B and watch the money roll in. That’s why AmerisourceBergen shares are up nearly 80% over the past two years, and why McKesson Corp. shares have more than doubled. It’s also why Paul Singer wants to know why Cardinal Health shares… haven’t.”
What we’re reading (8/21)
“More Stocks Are Taking Part In Bounceback Rally” (Wall Street Journal). “The share of S&P 500 stocks closing above their 50-day moving averages rose earlier this month to 93%—the highest level since the summer of 2020—and held above 90% for most of last week, according to FactSet and Dow Jones Market Data. In the past two decades, the benchmark has on average risen in the months and year after initially crossing the 90% threshold.”
“Student, 20, Makes $110 Million Trading Meme Stock Bed Bath & Beyond” (Washington Post). “Jake Freeman, a math major, had amassed a 6.2 percent stake in the struggling housewares chain in July. He bought 4.96 million shares at $5.50 each through a Wyoming-based holding company he set up. On Tuesday — a day when the stock spiked above $27 a share before closing at $20.65, up 31 percent — he sold his stake. The Financial Times reported that his holdings were worth more than $130 million at the time.”
“Why Are C.E.O.s Suddenly Obsessed With ‘Elasticity’?” (New York Times). “Fittingly, the number of mentions of elasticity on the earnings calls mimics the inflation rate: bumping along at a relatively low level of about 2 percent for years before soaring to new heights in recent months, above 9 percent in June.”
“A Conversation With Andreessen Horowitz’s Fintech Leads” (Tech Crunch). “Many may underestimate just how much the pandemic really pushed this acceleration in the financial services world and people are now kind of commenting, “Oh, there’s this slowdown and, like, look at how much decreased investment is in fintech.” You have to put it in perspective — we’re still way, way up from 2020 in terms of how much money is going into this space. And fintech is still taking almost a fifth of all venture capital dollars.”
“China Cuts Lending Benchmarks To Revive Faltering Economy” (Reuters). “China cut its benchmark lending rate and lowered the mortgage reference by a bigger margin on Monday, adding to last week's easing measures, as Beijing boosts efforts to revive an economy hobbled by a property crisis and a resurgence of COVID cases. The People's Bank of China (PBOC) is walking a tight rope in its efforts to revive growth. Offering too much of stimulus could add to inflation pressures and risk capital flight as the Federal Reserve and other economies raise interest rates aggressively.”
What we’re reading (8/20)
“Target Just Went From Great To Bad To Ugly. But The Worst May Be Over” (CNN Business). “Target just demonstrated how quickly things can change in the world of retail, posting a terrible quarter after nearly two years of soaring profits and record revenue growth. But the big box retailer is promising things will change in the other direction just as fast.”
“Tiger Funds Stick To Their Guns” (Institutional Investor). “Talk about conviction. Many of the worst performing tech and consumer-driven Tiger Cubs and related felines more or less stuck with their biggest positions in the second quarter. And given the market’s recent sharp rally, this may well have been the best strategy.”
“Making Sense Of The Housing Market” (City Journal). “[W]hat we sort of saw over the COVID pandemic is interest rates went down a lot, and in tandem, we saw that price-to-rent ratios really rose a lot. So we're applying a much larger multiple to rents in evaluating house prices. That's sort of why house prices kind of went up so dramatically over the course of the pandemic, in addition to other factors like remote work. And what's really interesting and surprising is that we haven't seen that work in reverse. So as interest rates are heading up, we haven't really seen prices really adjust. We haven't really seen price-to-rent ratios really adjust the way that we would naturally expect.”
“Despite Recession Fears And Fueled By ‘Revenge Spending,’ Americans Spend $314 A Month On Impulse Purchases” (CNBC). “As the cost of living surges and more Americans say they are stretched too thin amid concerns about a possible recession, they’re dipping into their cash reserves and nearly half are falling deeper in debt. Still, 73% of adults said most of their purchases tend to be spontaneous, according to a survey by SlickDeals.net — a significant jump from 59% who said the same just one year ago.”
“Chicken Wing Prices Have Plunged To Pre-Pandemic Levels. Here’s Why That’s Great News For The Stock Market.” (Insider). “Chicken wing prices have fallen 62% from their peak to levels not seen since 2019. ‘That is not ‘cooling’ inflation... This is outright deflation. Prices falling to 2019 levels is a 3-year decline,’ [Fundstrat’s Tom] Lee said.”
What we’re reading (8/19)
“The Pandemic Home-Building Boom Is Over” (Reason). “Kevin Erdmann, a senior affiliated scholar at George Mason University's Mercatus Center, cautions against reading the fall in housing starts as a sign of a housing recession or more general economic contraction. Rather, he says it's a product of temporarily inflated housing starts falling to reflect the actual capacity of builders to construct new housing.”
“Private Equity Wants To Wash Your Car” (Wall Street Journal). “The strategy of buyout firms, flush with cash and facing stiff competition to invest it, is to bundle these modest businesses—a move known in the private-equity industry as a ‘roll up’—and find new ways for them to make money. The goal is to create bigger, more valuable companies that can be sold down the line for multiples of what they paid.”
“For Allocators Evaluating Hedge Fund Performance, Context Matters.” (Pivotal). “After a challenging fist half and especially June, financial markets and hedge funds recovered in July. The PivotalPath Hedge Fund Composite Index gained 0.9% in July, compared to a decline of 1.8% in June. Year-to-date the PivotalPath Composite is down 2.2% compared to the S&P 500 which has lost 12.6% and the Nasdaq index which has declined 20.8%.”
“What Does Brian Stelter’s Exit Mean For The Future Of CNN?” (Vanity Fair). “What to make of Brian Stelter’s sudden departure from CNN after almost a decade with the network? As one well-placed source suggested to me when the news began leaking out on Thursday afternoon, “John Malone, John Malone, John Malone.” That would be the billionaire media mogul and Warner Bros. Discovery shareholder who is a close confidant of CEO David Zaslav. There’s been some underlying anxiety at the network ever since Malone went on CNBC last year and said he ‘would like to see CNN evolve back to the kind of journalism that it started with, and actually have journalists, which would be unique and refreshing.’”
“Iowa State Fair’s Big Board Contest Has Only 2 Entries Amid Soaring Inflation, Heat” (Successful Farming). “It’s possible that the cost to feed giant pigs was too much. Or maybe the summer’s unrelenting heat made those 1,000-plus-pound bruisers lose their appetites. Either way, there were just two entries in the Iowa State Fair’s Big Boar Contest this year — the smallest number in at least two decades, according to Ernie Barnes, who oversees the fairgrounds’ Swine Barn and emcees the contest. Usually there are between five and 10 entries. ‘Those boars are going to eat 25 to 30 pounds of feed a day, and feed cost is higher than we’ve ever seen in the history of pork production or livestock production,’ Barnes said. ‘So, if a boar is eating that much feed and a guy is doing it as a hobby or as a fun deal, do you really want to feed a boar for a year with high-priced feed?’”
What we’re reading (8/18)
“‘If You F--k Up In The Biggest Ways, You Can Be Redeemed’: Silicon Valley Just Handed $350 Million To The Guy Who Crashed WeWork” (Insider). “The economic optimists on Monday got a big point in the "not a recession" column. You see, when the economy is in a recession, Silicon Valley venture-capital firms generally do not hand $350 million to ousted founders to reproduce their same failed idea in a slightly different market. Yet that is what happened when Marc Andreessen, a cofounder of the vaunted VC fund Andreessen Horowitz, announced a massive investment in Flow, a new real-estate company from Adam Neumann.”
“Wall Street Bets The Fed Is Bluffing In High-Stakes Inflation Game” (Wall Street Journal). “Markets pummeled by the Fed’s rate increases in the first half of the year are racing upward. The S&P 500 is up 17% from its mid-June low. The yield on the 10-year U.S. Treasury note, which is used to help set rates on debt such as mortgages and student loans is down more than half a percentage point from its June peak. Even battered cryptocurrencies have jumped. For many investors, the rebound reflects a belief that inflation has peaked, and expectation that the Fed will shift from raising rates to lowering them sometime next year.”
“The Fed Sees Housing Trouble Ahead” (DealBook). “Federal Reserve officials are predicting a slowdown in the housing market. There have been conflicting signals: Home sales have slowed, while housing prices remain high. But a mere slowdown is unlikely to stop the Fed in its crusade to crush inflation, which has led to an increase in interest rates, putting pressure on mortgage rates.”
“Turkey Shocks Markets With Rate Cut Despite Inflation Near 80%” (CNBC). “Turkey’s central bank shocked markets Thursday with a cut to its benchmark policy rate, despite inflation in the country sitting near 80%. The lira, Turkey’s currency, slid 0.9% against the dollar, trading at more than 18.1 to the greenback after the news — near a record low.”
“Bed Bath & Be Owned” (Dealbreaker). “For the three weeks since it put out a truly ghastly set of quarterlies, Bed Bath & Beyond shares have been steadily rising. A lot. From about $5 to as high as $28, much to the benefit of one college student and his family. Why? Why not! What does a question like “why” even mean when you’re dealing with a meme stock? What are you, one of those old-fashioned losers who still believe in ‘fundamentals’ and ‘results’ and ‘making money’? Pshaw. Encrust your hands in diamonds and enjoy the rocket ride moon-bound.”
What we’re reading (8/17)
“If the Job Market Is So Good, Why Is Gig Work Thriving?” (New York Times). “American workers are experiencing, by many measures, one of the best job markets ever. The unemployment rate has matched a 53-year low. Job listings per available worker are at historic highs. Wages, while not quite keeping up with inflation, are rising at their fastest pace in decades. So why would people keep doing gig work, a notoriously difficult and insecure way to make a living?”
“Greed Is Back On Wall Street” (CNN Business). “It's silly season on Wall Street. With all this in mind, it should come as no surprise that the CNN Business Fear & Greed Index, which looks at seven gauges of market sentiment, recently edged back into moderate Greed territory. Just a month ago the index was showing signs of Fear, and it wasn't far from Extreme Fear levels.”
“Fed Officials See Need For Continued Interest-Rate Increases, But Less Certainty Over Destination” (Wall Street Journal). “The first concern, which the minutes described as significant, is that they [the Fed] might need to raise rates more than currently anticipated if price pressures have spread more broadly through the economy. But officials, for the first time, acknowledged they might also raise borrowing costs more than needed—causing unwarranted economic weakness, because of the delay between when borrowing costs go up and when that is reflected in economic activity.”
“Why The 1 Percent Buyback Tax Doesn’t Scare Investors” (New York Times). “Investors and financial analysts appear unmoved by the passage of a 1 percent tax on companies’ repurchases of their own stock, saying the new legislation is unlikely to have much effect on corporate behavior. The tax is part of the sweeping climate and health bill, the Inflation Reduction Act, that President Biden signed into law on Tuesday.”
“The Summer Of SPAC This Ain’t” (Dealbreaker). “It seems, after all the sound and fury, Securities and Exchange Commission Chairman Gary Gensler didn’t actually have to do anything to put an end to the special-purpose acquisition company…So, what sayeth SPAC King Chamath Palihapitiya of those doleful milestone? Well, uh, not much, which is also what he has to say about two of his own remaining unbetrothed blank checks, whose kicking the can into next year merited nary a tweet, only a couple of routine securities filings.”
What we’re reading (8/15)
“‘Big Short’ Investor Michael Burry Dumps Stock Portfolio After Market Crash Warnings” (New York Post). “Michael Burry’s Scion Capital Management dumped his entire stock portfolio in the second quarter as the “Big Short” hedge fund legend stepped up his warnings about a looming stock market crash, a filing showed on Monday…The holdings were cumulatively worth $165 million at the end of the first quarter.”
“The Crypto Geniuses Who Vaporized A Trillion Dollars” (New York Magazine). “Crypto companies from New York to Singapore were the direct victims of Three Arrows. Voyager Digital, a publicly traded crypto exchange based in New York that once had a multibillion-dollar valuation, filed for Chapter 11 in July, reporting that Three Arrows owed it more than $650 million. Genesis Global Trading, headquartered on Park Avenue, had lent Three Arrows $2.3 billion. Blockchain.com, an early crypto company that provided digital wallets and evolved into a major exchange, faces $270 million in unpaid loans from 3AC and has laid off a quarter of its staff.”
“There’s A Glorious Website Where You Can Bet On Politics, And The U.S. Is About To Kill It” (Slate). “[F]ederal regulators are about to shut down PredictIt, which is actually an academic research project. I hope they change their mind—not just because I would like to continue deriving entertainment and profit from questions like, “Will any Republican Representatives who voted to impeach Trump be reelected,” but because PredictIt has become an invaluable source of information for journalists and the public about future political outcomes. Instead of shutting it down, regulators should change the rules it operates under to more fully and ethically harness the predictive power of market forces for society.”
“Dan Loeb’s Third Point Calls For Disney To Spin Off ESPN, Refresh Board” (Wall Street Journal). “Mr. Loeb on Monday said his firm, which liquidated a large Disney stake earlier this year, has repurchased a “significant stake” in the company and sent a letter to Disney Chief Executive Bob Chapek urging the company to engage with Third Point on a number of issues.”
“Stock Buybacks And Dividends Become A $1.5 Trillion Political Target” (New York Times). “Despite the rocky stock market and the slowing economy, corporate America is sending more money to shareholders than ever before. The amounts are staggering, which is why these huge sums, sometimes called “windfall profits,” have become a political target. The landmark climate and tax legislation that now goes to President Biden for his signature includes a new 1 percent tax on buybacks, for example.”
What we’re reading (8/14)
“Market Rebound Draws Wary Eye From Some Investors” (Wall Street Journal). “Stocks reached another milestone in their comeback last week, with the Nasdaq Composite rising more than 20% from its mid-June low to end its longest bear market since 2008. The rally has stirred a familiar debate: Will the rebound continue?”
“Activist Investor ValueAct Takes Stake In The New York Times” (New York Times). “ValueAct, an activist investor that has taken stakes in major companies including Microsoft, Reuters and 21st Century Fox, said on Thursday that it had bought nearly 7 percent of The New York Times Company’s common stock and would push for changes to some of the publisher’s business operations.”
“Rate Hikes And Recession Are Still In The Cards” (CNN Business). “There appears to be some confusion about the trajectory of prices in the US. That's partially because month-over-month inflation eased in July while year-over-year, it remained near historic highs. That raises an important question for consumers and investors alike: Is inflation peaking or not?”
“Can The F-150 Lightning Make Everyone Want A Truck That Plugs In?” (New York Times). “In the near future, the so-called Rust Belt, along with the Deep South, could become the Battery Belt. And the F-150 Lightning, paired with its growing slate of American-made competitors, could offer an all-around win: manufacturing revitalized, gas money saved, and the potential to curb the transportation sector’s leading 27 percent share of U.S. greenhouse gas emissions. A clean energy transition temptingly driven by strong, spacious, all-American vehicles with cultural cachet. A solution without sacrifice. Carrots, not sticks.”
“Asia Shares Edge Higher, Wary Of Fed Words” (Reuters). “Asian shares inched higher on Monday with investors anxious to see if Wall Street can sustain its rally as hopes U.S. inflation has peaked will be tested by likely hawkish commentary from the Federal Reserve this week.”
What we’re reading (8/13)
“The Bond Market Can “Fight The Fed” (And Sometimes Win)” (Cato Institute). “A favorite Wall Street Journal columnist, James Mackintosh, quotes an economist saying that because the price‐earnings ratio for stocks rises when bond yields fall, ‘The most capitalist valuation metric in the world, the P/E of the S&P 500, is now just completely dominated by monetary policy.’ That would make sense if increases in the Fed’s policy rates were matched by increases in 10‐year bond yields. On the contrary, bond yields have instead fallen from 3.49% on June 14 when the fed funds rate was 0.33 to 2.78% on August 10 when the funds rate has risen to 2.32%.”
“Affirm CEO Says Next Recession Will Silence Fintech Lender’s Doubters” (Wall Street Journal). “Affirm’s stock is down 77% since hitting its peak in November, compared with a 9% decline in the S&P 500 during the same period. Investors are worried about future costs of borrowing, growing competition and whether Affirm’s borrowers will fall behind on payments during a downturn. The company’s total valuation stands at about $11 billion, down from a peak of $47 billion. Mr. Levchin is confident that Affirm has safely cracked the code to underwriting more consumers than banks would. Like many lenders, Affirm tightened underwriting standards early in the pandemic. Last year, it began loosening them.”
“Sinema Took Wall Street Money While Killing Tax On Investors” (Associated Press). “Sen. Kyrsten Sinema, the Arizona Democrat who single-handedly thwarted her party’s longtime goal of raising taxes on wealthy investors, received nearly $1 million over the past year from private equity professionals, hedge fund managers and venture capitalists whose taxes would have increased under the plan.”
“How To Build A Recession-Proof Portfolio” (Morningstar). “On the equity side…[s]ome of the areas that have held up best in 2022--so commodities, energy investments--could actually underperform in a period of slack economic growth, which I think is an argument for not loading the boat with them even though their performance has been really great, and they've probably held your portfolio aloft to the extent that you've had them in your portfolio. You want to be careful about overdoing them because of their sensitivity to the economic environment.”
“Signs Of BP's Deepwater Horizon Oil Spill Persist Over A Decade Later” (Gizmodo). “At its peak, the damaged underwater oil well was dumping more than 60,000 barrels of crude oil into the ocean daily, according to U.S. estimates. In total, the spill poured about 210 million gallons of crude oil into the Gulf of Mexico. Marine and coastal life suffered terribly, and tens of thousands of sea turtles, millions of fish, thousands of whales and dolphins, hundreds of thousands of birds, and untold numbers of other organisms died in the aftermath.”
What we’re reading (8/12)
“Is Private Credit A Bubble, Or Just A Little Frothy?” (Institutional Investor). “Leverage for the typical direct lending structure is higher than what you often find for high-yield bonds. Many direct lenders today are willing to lend to private equity–sponsored companies at five or six times EBITDA. According to Cambridge data, a full one-third of buyout debt transactions are done at north of six times EBITDA. On the other hand, BB bonds have an average leverage closer to 3.5 times EBITDA. So it is possible that the companies that direct lenders finance could run into financial difficulty sooner than the high-yield–funded ones; leverage ratios are highly correlated with subsequent default rates.”
“Buy Now, Pay Later Sounds Too Good To Be True Because It Is” (Vox). “The thing about buy now, pay later is that the later part always comes. Sometimes, the pay ends up being more than you think you’re signing up for, and often for stuff you shouldn’t have bought in the first place.”
“Running A Mutual Fund: Performance And Trading Behavior Of Runner Managers” (Arash Dayani and Sima Jannati, Journal of Empirical Finance). “This paper examines the relationship between the representation of marathon runners in a fund management team and its future performance. We find that funds with a larger proportion of runner managers have a higher level of risk-adjusted excess returns. We also find that these funds have a lower level of the disposition bias, deviate more from their benchmark portfolios, hold fewer stocks in their portfolios, and hold their stocks for a longer duration. Also, they tend to hold more stocks that are about to experience desirable earnings outcomes. Overall, the results suggest that personality traits that affects achievement in other dimensions of life may translate into fund management success.”
“U.S. Housing Affordability In June Was the Worst Since 1989” (Wall Street Journal). “The National Association of Realtors’ housing-affordability index, which factors in family incomes, mortgage rates and the sales price for existing single-family homes, fell to 98.5 in June, the association said Friday. That marked the lowest level since June 1989, when the index stood at 98.3.”
“Airline Seats Have Been Getting Smaller For Years. Is The Shrinking Coming To An End?” (Los Angeles Times). “Over the last 15 years or so, airlines have found a new way to drive up revenue: squeezing more seats into each plane. The result has been frustration and pushback from passengers who now endure narrower airline seats with less legroom. But relief may be in sight: After years of delays, federal regulators have begun taking public comments on a proposal to impose minimum standards on airline seat width and legroom to put a halt to the many years of seat shrinkage.”
What we’re reading (8/11)
“U.S. Stock Market: Is it A Bull, A Bear, Or A Bull In A Bear?” (Reuters). “The U.S. stock market's rebound in recent weeks has analysts and investors questioning whether 2022's deep downturn has ended, but how to spot an expiring bear market or a new bull market is not something everyone on Wall Street agrees on.”
“Stock Rally Fades As Investors Weigh Next Steps On Inflation” (Wall Street Journal). “Stocks have rallied from their trough in mid-June. The Nasdaq Composite on Wednesday closed up more than 20% from its low, kicking off a new bull market, though it remains down 18% year-to-date. The Russell 2000, an index of small-company stocks, flirted with the same milestone Thursday, before pulling back.”
“The Rise Of The Side Startup” (Vox). “To many of the people we spoke with, a side startup isn’t just about earning extra cash. It’s about pursuing something they’re passionate about, doing it their own way, and eventually leaving their bosses to become the boss themselves. And while people have always worked nights and weekends to start their own businesses, remote work gives them more time and flexibility to do so and a better hedge against failure.”
“Turns Out Spoofing Isn’t Harder To Prove Than Racketeering” (Dealbreaker). “Three years ago, when prosecutors were building a securities fraud case against three JPMorgan Chase precious metals traders, they were worried. The illegal activity they planned to allege, spoofing, was notoriously difficult to make stick—especially in shiny objects. So the U.S. Attorneys Office in Chicago got a little creative: In addition to charging Michael Nowak and Gregg Smith with all of the usual securities fraud counts—fraud, market manipulation and, of course, the spoofing itself—it added a few racketeering and conspiracy charges against the two and their hedge-fund sales specialist, Jeff Ruffo. Sure, RICO charges are every bit as slippery and difficult to prove as spoofing ones, but the government had a hell of a lot better track record on those than it did in spoofing cases.”
“6 Cities Around The World Where You Can Live On $1,000 A Month Or Less” (Insider). Buenos Aires, Santiago, Sofia, Bursa, Monterrey (Mexico), Cape Town.
What we’re reading (8/10)
“Value Spreads Are Back To Tech Bubble Highs: Is Everyone Out There Cray-Cray?” (Cliff Asness, AQR). AQR says value spreads are at an all-time high.
“A Small-Cap Renaissance?” (All Star Charts). “Are you seeing Small-caps breaking out to new 4-month highs relative to Large-caps? This underperformance in Small-caps began in Q1 2021 which, among other things, sparked the beginning of the bear market. This week would mark the 18-month point, if a bear market is even something we’re still in.”
“The Nasdaq Composite Is Back In A Bull Market” (Wall Street Journal). “The Nasdaq Composite is officially in a new bull market. The technology-focused index rose 2.9% Wednesday, reflecting a rise of more than 20% from its low in mid-June. It climbed with other major indexes after a softer-than-expected inflation reading raised investors’ hopes that the Federal Reserve may soon moderate the pace of its campaign of interest-rate increases.”
“How Big Is The Housing Shortage?” (Market Urbanism). “Two teams of researchers recently released estimates of the U.S. housing shortage – and they differ by a factor of five. Is the national shortage 20 million homes or just 4 million? With a range that big, both published by pro-housing groups, you’d be forgiven for thinking this is an exercise in futility.”
“How This Investing Startup Is Making A Play For Struggling Fintechs In Hopes Of Scaling Its Business Quicker” (Insider). “Investing startup Titan's looking to absorb a few fintechs to scale up, co-CEO and co-founder Joe Percoco told Insider in an interview.”
“Inflation Drops To Zero In July Due To Falling Gas Prices” (Axios). To be clear, that is month-over-month. Year-over-year was +8.5 percent.
What we’re reading (8/9)
“How This Economic Moment Rewrites The Rules” (New York Times). “Recessions…[in general] are about too much supply and too little demand. What the U.S. economy is facing is the opposite. Just like North Dakota in 2010.”
“Coinbase Posts Steep Second-Quarter Loss Amid Crypto Meltdown” (Wall Street Journal). “The entire sector has been badly stung by a selloff that began in November. Firms such as Celsius Network LLC and Voyager Digital Holdings Inc. have filed for bankruptcy protection. More than 20 smaller exchanges have shut down. Earlier this week, two other public crypto companies, Galaxy Digital Holdings Ltd. and Marathon Digital Holdings, reported wider losses than a year ago.”
“Walmart Ponders Streaming Deal With Paramount, Disney And Comcast” (New York Times). “In recent weeks, executives from Paramount, Disney and Comcast have spoken with Walmart, the people said, as the retailer ponders which movies and TV shows would add the most value to its membership bundle, called Walmart+. The people spoke on the condition of anonymity because the discussions were private.”
“Biden’s Ongoing Struggle With The Utter Hypocrisy Of Stock Trading In Congress” (MSNBC). “The problem that Paul Pelosi’s trade illustrates isn’t new. As far back as 1789, members of Congress traded in securities affected by their official duties. This included the states’ Revolutionary War debt securities that members of Congress furiously bought up on the market at a fraction of their face value before passing a bill, the Assumption Act, paying off these same debt securities at full face value. Sen. William Maclay of Pennsylvania complained at length about this and other unethical conduct in Congress in a diary.”
The Wage Curve After The Great Recession” (David G. Blanchflower, et al., NBER Working Paper). “Most economists maintain that the labor market in the United States is ‘tight’ because unemployment rates are low. They infer from this that there is potential for wage-push inflation. However, real wages are falling rapidly at present and, prior to that, real wages had been stagnant for some time. We show that unemployment is not key to understanding wage formation in the USA and hasn’t been since the Great Recession. Instead, we show rates of under-employment (the percentage of workers with part-time hours who would prefer more hours) and the rate of non-employment which includes both the unemployed and those out of the labor force who are not working significantly reduce wage pressures in the United States…The implication is that the reserve army of labor which acts as a brake on wage growth extends beyond the unemployed and operates from within and outside the firm.”
What we’re reading (8/8)
“Stocks Finish Mixed With Earnings In Focus” (Wall Street Journal). “Stocks have swayed in recent days, buffeted by shifting views on central bank policy. Friday’s better-than-expected jobs report divided investors and analysts. Some raised concerns that the Federal Reserve could continue lifting interest rates aggressively, while others questioned whether the U.S. economy could really be in recession.”
“Fed’s Soft-Landing May Have Just Touched Down, Despite Hang-Ups On The Word ‘Recession’” (Dealbreaker). “In an ideal world, of course, the Fed could still achieve its aspirational soft landing: reigning in inflation without plunging the U.S. into a severe recession. Despite a lot of anxiety, and a lot of criticism, it seems the Fed is doing exactly what it’s supposed to be doing. Americans’ top concern right now is not employment, the business climate, or GDP. It’s inflation, which is exactly what the Fed’s rate hikes are targeting.”
“We Can Finally Retire The Scariest Jobs Chart You’ll See Today” (Washington Post). “Some industries have expanded massively. Those include construction, information (data processing, publishing, motion pictures, etc.), transportation and warehousing, and professional and business services. But some industries remain a shell of their pre-pandemic selves. For example, local governments have 555,000 fewer filled jobs, a decrease of 3.8 percent, with the losses divided between education and noneducation jobs.”
“The Market Read The Federal Reserve All Wrong” (CNN Business). “After the Federal Reserve's July meeting, investors quickly reached a consensus: The central bank was turning slightly dovish. After embarking on an aggressive rate-hike spree this year in a bid to fight inflation, the Fed indicated it could downgrade the size of its hikes moving forward.”
“Axios Agrees To Sell To Cox Enterprises For $525 Million” (Axios). “Axios has signed a deal to sell to its most recent lead investor, Cox Enterprises, the companies announced Monday. The cash deal values the company at $525 million, according to sources familiar with the deal.”
July 2022 performance update
Hi friends, here with results from last month:
Prime: +6.20%
Select: +8.49%
SPY ETF: +9.41%
Bogleheads (80% VTI, 20% BND): +7.98%
July was a fantastic month for U.S. equities overall—the best since November 2020. Both Prime and Select benefitted from the tailwinds. The tech-heavy Nasdaq returned over 12 percent, which helps rationalize the outperformance of the also-tech heavy S&P 500 relative to Prime and Select.
It is too early, I think, to call the current environment an inflection point as there are lots of indicia that investors may in fact be re-rating forward earnings expectations downward. To the extent that plays out, prices will need to come down further yet to bring multiples in line with the baseline average for the market overall. Let’s hope it doesn’t come to that.
Stoney Point Total Performance History
What we’re reading (8/7)
“Investors Brace For More Market Volatility As Earnings Estimates Slump” (Wall Street Journal). “Wall Street often uses the ratio of a company’s share price to its earnings as a gauge for whether a stock appears cheap or overpriced. By that metric, the market as a whole had been especially pricey for much of the past two years when easy monetary policy propelled major stock indexes to dozens of new highs. That environment has disappeared…Yet even as stock prices dropped, the earnings half of the P/E equation remained relatively resilient. Now that Wall Street analysts are cutting profit estimates at a faster pace than usual, some investors are bracing for another stretch of volatility in the stock market.”
“Rate Hikes Are Not The Right Answer To ‘Wage-Price Persistence’” (James K. Galbraith, Project Syndicate). “There is no actual evidence that demand, rather than cost, caused the non-energy, non-food price increases – and there are good reasons to be skeptical. Costs are wages and raw materials plus profits; they are paid for by sales, also known as demand. Thus demand and cost are nearly inseparable; they are opposite sides of the same economic accounts.”
“The Newsletter Boom Is Over. What’s Next?” (Vox). “Now newsletters are less ... heated. Some writers who’ve gone out on their own have decided that they’d like a full-time job working for someone else, just like the old days. Substack has struggled to raise funding and has laid off some of its staff. Twitter doesn’t talk much about its newsletter plans anymore. And a year after launching Bulletin, its own Substack platform, Facebook has put the project on the ‘back burner.’”
“Inside The ‘Messy’ End Of A Facebook Contractor’s Job. Break Time Was Tracked Intensely, Perks Evaporated, And Workers Were Put On Performance Plans For Showing Up Late.” (Insider). “Many Facebook contractors in Austin, Texas recently lost their jobs after seeing perks evaporate, their work habits monitored intensely, and being put on more performance-improvement plans, Insider has learned. The cuts started late last month and impacted people contracted through Accenture to work for Facebook, according to a former worker whose role was eliminated. No other work was offered, but people affected were told that the loss of work wouldn't affect their ability to be rehired by Accenture in the future, said this person, who got no severance.”
“Buffett’s Berkshire Hathaway Reports $44 Billion Loss As Portfolio Value Falls” (MarketWatch). “Warren Buffett’s company reported a $43.76 billion loss in the second quarter as the paper value of its investments plummeted and he bought significantly fewer stocks, but Berkshire Hathaway’s many operating companies generally performed well.”
What we’re reading (8/6)
“How Amazon Consumed All Of Commerce” (Gizmodo). “[Amazon] controls a third of the world’s cloud computing tech while also being a market leader in home security systems. It develops vaccines and drones and is equally cozy with law enforcement and luxury clothing brands, and owns the leading platforms for gamers, movie buffs, and deeply dehumanizing on-demand labor. In 2019, the company’s sprawling worldwide warehouse presence took up more than 38 Pentagons-worth of physical space. Over the past two years, that footprint’s nearly doubled.”
“Before Crypto Lender Celsius Crashed, CEO Alex Mashinsky Was Known For Big Ideas And Battles” (Wall Street Journal). “For some 30 years, Alex Mashinsky barreled into whatever was the hot technology of the time, promising revolutions in long-distance calling, airport rides and, most recently, crypto. He often left a trail of unhappy friends, colleagues and investors. His latest venture, Celsius Network LLC, pitched itself as both safe and subversive. It was a way for regular people to tap the moneymaking potential of crypto, and to upend traditional banking. Last month, Celsius filed for bankruptcy protection, and its customers worry they might never get their money back.”
“Fed Governor Bowman Sees ‘Similarly Sized’ Rate Hikes Ahead After Three-Quarter Point Moves” (CNBC). “Federal Reserve Governor Michelle Bowman said Saturday she supports the central bank’s recent big interest rate increases and thinks they are likely to continue until inflation is subdued.”
“Why We Expect the Fed To Cut Interest Rates In 2023” (Morningstar). “We think the Fed is slowing the economy enough to help rein in inflation without provoking a major slowdown, and we're projecting annual real GDP growth rates to remain in positive territory. Although real GDP dropped in the first half of 2022, we don’t think this marks a true recession, and we expect growth to bounce back later in 2022.”
“The Labor Market Today Is Hotter Than During The 2008 Financial Crisis But Fed Tightening Will Weaken It, Bank Of America Says” (Insider). “The current labor market matches the hot conditions of the late 1990s and during the run-up to the 2008 financial crisis, but momentum has deteriorated and central bank moves are likely to stem upside further, according to Bank of America.”
What we’re reading (8/5)
“Payrolls Increased 528,000 In July, Much Better Than Expected In A Sign Of Strength For Jobs Market” (CNBC). “Nonfarm payrolls rose 528,000 for the month and the unemployment rate was 3.5%, easily topping the Dow Jones estimates of 258,000 and 3.6%, respectively. The unemployment rate is now back to its pre-pandemic level and tied for the lowest since 1969, though the rate for Blacks rose 0.2 percentage point to 6%. Wage growth also surged higher, as average hourly earnings jumped 0.5% for the month and 5.2% from the same time a year ago.”
“Jobs Report To Keep Fed On Aggressive Tightening Path” (Wall Street Journal). “The Fed is trying to slow economic activity and hiring to bring down inflation that is running at 40-year highs. Friday’s job report shows the economy is still firing on many cylinders, making it more likely central bank officials conclude they need to raise rates to higher levels and to keep rates at those levels for longer to cool the economy. The Fed raised rates by 0.75 percentage point at its meeting last week, following a similar increase in June, which was the largest since 1994. ‘Another unusually large increase could be appropriate at our next meeting,’ but the decision ‘will depend on the data we get between now and then,’ Fed Chairman Jerome Powell said at a July 27 news conference.”
“Summers Warns Fed On 1970s-Style Mistake With CPI Set To Slow” (Bloomberg). “‘I’m worried we’re going to see some good news on non-core inflation,’ Summers said on Bloomberg Television’s ‘Wall Street Week’ with David Westin, ahead of consumer price data due Wednesday that are set to show a retreat in inflation, thanks especially to a slide in gasoline costs. Combined with some signs of economic slowing, the danger is that that’s ‘going to lead the Fed to think that things are under control.’”
“A Tax Loophole’s Powerful Defender” (DealBook). “Sinema had one main request before she would sign on [to the so-called Inflation Reduction Act]: Remove a provision that would have partly closed the carried interest loophole. This bit of wiggle room in the tax code mainly benefits private equity professionals, allowing them to pay lower investment tax rates on compensation that should almost certainly be considered ordinary income. The loophole’s expected survival is being cheered by the private equity and real estate industries, but it is also causing a lot of head-scratching.”
“Asset Management Compensation Takes a Hit — And Headcount Could Be Next” (Institutional Investor). “At traditional asset management firms, employee incentives declined 17.5 percentage points from 2021 to the end of fiscal year 2022, according to a Johnson Associates report expected to be released Thursday. Incentives are a massive part of the allure of asset management firms, making up any compensation — primarily bonuses — that isn’t a part of the employee’s initial base salary.”
What we’re reading (8/4)
“DoorDash Stock Pops 18% After Company Posts Record Number Of Orders” (CNBC). “DoorDash said the total number of orders it delivered grew 23% year over year to 426 million, an all-time high. Revenue grew 30% year over year, which the company attributed to increased order frequency and more monthly active users.”
“Goldman Sachs Credit-Card Business Investigated By Consumer Watchdog” (Wall Street Journal). “The bank said in a securities filing that the Consumer Financial Protection Bureau is looking into several areas, including how the bank handles customer refunds and resolves billing disputes. The regulator is also looking into Goldman’s advertisements and how it reports consumer information to credit bureaus, the bank said.”
“The New Deciders On Corporate Taxes” (DealBook). “The Senate could vote as soon as this week on a climate and tax bill that, if passed, would hand a good deal of power to an obscure group of accountants in Norwalk, Conn. Yesterday a bipartisan group of former Treasury secretaries, including Hank Paulson and Timothy Geithner, endorsed the bill, the Inflation Reduction Act, saying it would fight inflation and address climate issues. The group also said the legislation was ‘financed by a prudent tax policy.’”
“Startup Founders’ Mental Health Is Crumbling Under The Stress Of A Turbulent Economic Year And Uncertain Funding. Yet Many Suffer In Silence.” (Insider). “The economic fear and uncertainty of the past six months has piled stress on founders who are already trying to do the impossible: build iconic tech companies. Founders are trying to save face for employees and investors while knotted up with the anxiety of a tech crash that has sapped funding for startups. Startups like Fast and Airlift have folded in the bust. Layoffs are rampant. And in an otherwise turbulent year, founders are also reeling from a global war, mass shootings, and a lingering pandemic.”
“Bonus Watch ’23: Your Bonus Is Keeping Your Job” (Dealbreaker). “Even with the job market tightening a bit and a recession looming, some employers remain wary of cutting staff. Those employers do not boast Wall Street addresses…Those who still have jobs in February won’t be enjoying themselves, either, longing for the days when they thought their bonuses would only drop 17% this year, or even 35%.”