What we’re reading (9/6)
“Junk-Loan Defaults Worry Wall Street Investors” (Wall Street Journal). “Defaults on so-called leveraged loans hit $6 billion in August, the highest monthly total since October 2020, when pandemic shutdowns hobbled the U.S. economy, according to Fitch Ratings. The figure represents a fraction of the sprawling loan market, which doubled over the past decade to about $1.5 trillion. But more defaults are coming, analysts say.”
“One Of The Biggest Strikes In US History Is Brewing At UPS” (CNN Business). “Over the past year, the nascent labor movements at mighty corporations like Starbucks and Amazon have grabbed national attention. But less well-known is a looming high-stakes clash between one of America's oldest unions and the world's biggest package courier. Contract negotiations are set to begin in the spring between UPS and the Teamsters Union ahead of their current contract's expiration at the end of July, 2023. Already, before the talks have even started, labor experts are predicting that the drivers and package handlers will go on strike…If that happens, a strike at UPS would affect nearly every household in the country. An estimated 6% of the nation's gross domestic product is moved in UPS trucks every year.”
“How Passive Are Markets, Actually?” (Financial Times). “The harsh reality is that the investment industry as a whole makes a staggering amount of money — listed US asset managers had an average profit margin of almost 26 per cent in 2021, more than twice the S&P 500’s average — and yet do a bad job on average. Despite the march of passive over the decades, there are still more mutual and hedge fund managers than ever before, many of which in practice do little more than extract rents from the financial system.”
“The Other Doomsday Scenario Looming Over Markets” (Wall Street Journal). “The Fed doubles the pace of its bond runoff this month, aiming to reduce its Treasury holdings by $60 billion and its mortgage-backed securities by $35 billion monthly. Those concerned about the impact include hedge fund giant Bridgewater, which thinks markets will fall into a ‘liquidity hole’ as a result.”
“Politico’s New German Owner Has A ‘Contrarian’ Plan For American Media” (Washington Post). “A newcomer to the community of billionaire media moguls, Döpfner is given to bold pronouncements and visionary prescriptions. He’s concerned that the American press has become too polarized — legacy brands like the New York Times and The Washington Post drifting to the left, in his view, while conservative media falls under the sway of Trumpian ‘alternative facts.’ So in Politico, the fast-growing Beltway political journal, he sees a grand opportunity.”
August 2022 performance update
Hi friends,
Here with a performance update for August:
Prime picks: -3.28%
Select picks: -5.70%
SPY ETF: -3.41%
Bogleheads (80% VTI, 20% BND): -3.10%
After a big July, the market was a little less sanguine about economic conditions in August. Jerome Powell’s Jackson Hole warning of “some pain” ahead apparently persuaded investors that the Fed means business when it comes to tamping down demand to break the back of inflation. Corroborative indicia of slowing demand seemed to be everywhere. Transaction volume is way down and inventories are way up in interest-rate sensitive industries (e.g., real estate). Consumer products companies have had some bad earnings reports—Walmart cut guidance at the end of July and Bed Bath and Beyond’s bad results have prompted store closures, layoffs, and, apparently, the suicide of its CFO. Asset prices have come down across most markets, including markets that purport to be uncorrelated to other asset classes (e.g., crypto), and U.S. stock funds are down nearly 20 percent this year. For us, it was a slight win for Prime and certainly a loss for Select. Let’s see how this plays out.
Stoney Point Total Performance History
What we’re reading (9/4)
“U.S.-Stock Funds Are Down 17.3% So Far In 2022” (Wall Street Journal). “The average U.S.-stock mutual fund or exchange-traded fund is down 17.3% for the year to date, through August, according to Refinitiv Lipper data. That includes a 3.5% average decline in August, reflecting the stock market’s reaction to Fed Chairman Jerome Powell’s comments that the central bank will keep raising interest rates to fight inflation, despite recession risk.”
“Flash Boys Face Fund Managers In Treasury-Market Feud Over Data” (Bloomberg Law). “There’s a battle raging in the $23 trillion US Treasury market, and it’s not over the trajectory of interest rates. Rather, it’s all about data. On one side, you have high-speed traders, hedge funds and electronic market makers. On the other, some of the biggest US banks and asset managers. At issue: whether the publication of real-time transaction figures will help or harm a market already suffering from faltering liquidity.”
“Car Companies Are Making A Deadly Mistake With Electric Vehicles” (Slate). “On Aug. 16, President Biden signed the Inflation Reduction Act, whose climate investments include a muscular effort to convince more Americans to purchase an electric vehicle. The new law offers $7,500 off many new electric or plug-in hybrid cars or trucks, without restricting the number of credits that a carmaker can receive. A day later the National Highway Traffic Safety Administration announced that American road deaths soared once again in the first quarter of 2022, rising 7 percent to 9,560 fatalities—the highest quarterly toll since 2002. The two news items may seem unrelated, but they are not.”
“The Family That Mined The Pentagon’s Data For Profit” (Wired). “What turned into a business opportunity for the Poseys began as a Cold War-era fight for government transparency. In 1947, President Harry Truman signed an executive order that gave the executive branch power to investigate and fire any federal employee who was deemed to be disloyal to the country, without having to supply evidence. The results of those investigations were held in secret FBI files. In the mid-1950s, the US government, and the Pentagon, in particular, hoarded information as compulsively as atom bombs. In the midst of the Red Scare, the design of a bow and arrow was deemed too sensitive for public release. The amount of peanut butter American soldiers consumed annually was a military secret. Shark attacks on sailors could neither be confirmed nor denied.”
“Jefferies CEO Pushes Return To Office, End To ‘Lonely Home Silos’” (New York Post). “Jefferies CEO Richard Handler signaled the firm will take a lighter approach than other firms by not tracking office attendance and allowing staffers to occasionally work from home.”
What we’re reading (9/3)
“Entering The Superbubble’s Final Act” (GMO). “The U.S. stock market remains very expensive and an increase in inflation like the one this year has always hurt multiples, although more slowly than normal this time. But now the fundamentals have also started to deteriorate enormously and surprisingly: between COVID in China, war in Europe, food and energy crises, record fiscal tightening, and more, the outlook is far grimmer than could have been foreseen in January. Longer term, a broad and permanent food and resource shortage is threatening, all made worse by accelerating climate damage.”
“Enough, Bosses Say: This Fall, It Really Is Time To Get Back To The Office” (Wall Street Journal). “After months of encouraging white-collar employees to return, or attempting to coax them back with free pizza, warm cookies and catered lunches, many executives now say they feel emboldened to take a tougher stance. No longer can workers merely come to the office if they so choose; this fall, executives say, attendance is expected and the office resisters will be put on notice.”
“Interview: Vitalik Buterin, Creator Of Ethereum” (Noahpinion). Per Vitalik: “I was surprised that the crash did not happen earlier. Normally crypto bubbles last around 6-9 months after surpassing the previous top, after which the rapid drop comes pretty quickly. This time, the bull market lasted nearly one and a half years. People seemed to adjust into the mentality that the higher prices are a new normal. The whole time, I knew that eventually the bull market will end and we’re going to get the drop, but I just did not know when. Today, it feels like people are reading too much into what is ultimately cyclical dynamics that crypto has always had and probably will continue to have for a long time. When the prices are rising, lots of people say that it's the new paradigm and the future, and when prices are falling people say that it's doomed and fundamentally flawed. The reality is always a more complicated picture somewhere between the two extremes.”
“1 In 5 Home Sellers Are Now Dropping Their Asking Price As The Housing Market Cools” (CNBC). “Homes are simply not selling at the breakneck pace they were six months ago, when strong demand butted up against tight supply, bidding wars were the norm, and a seller could often get a signed contract in under a weekend. Homes in August sat on the market an average five days longer than they did a year ago — the first annual increase in time on the market in more than two years.”
“The Optimal Amount Of Fraud Is Non-Zero” (Bits About Money). “This fraud [payments fraud] is possible by design. The very best minds in government, the financial industry, the payments industry, and business have gotten together and decided that they want this fraud to be possible. That probably strikes you as an extraordinary claim, and yet it is true.”
What we’re reading (9/2)
“Recession Or Not, There Will Be Pain” (Morningstar). “When is a recession not really a recession? When it’s a ‘rolling’ recession. A rolling recession occurs when different segments of the economy slump at different times, resulting in very low overall growth in gross domestic product output. By maintaining the barest minimum of growth and avoiding a sharp and prolonged economic contraction, rolling recessions sidestep being labeled as official recessions. Rolling recessions are also referred to frequently as ‘growth’ recessions.”
“Meet Starbucks’s New Chief Executive” (DealBook). “He’s a veteran of American and British companies. Born in Pune, India, Narasimhan studied engineering and moved to the U.S. to attend the University of Pennsylvania’s Wharton School. He then joined McKinsey & Company, becoming a senior partner, before shifting in 2012 to PepsiCo, where he oversaw operations in regions including Latin America and Europe. In 2019, he was hired to lead Reckitt Benckiser, the British conglomerate that makes Lysol disinfectant and Durex condoms.”
“CVS Is In Advanced Talks To Buy Signify Health For Around $8 Billion” (Wall Street Journal). “CVS Health Corp. is in advanced talks to acquire the home-healthcare company Signify Health Inc. for around $8 billion, according to people familiar with the matter. CVS appears to have beat out other heavy hitters including Amazon.com Inc. and UnitedHealth Group Inc., which had been circling Signify for a deal that could be announced soon. UnitedHealth never submitted an official bid, one of the people said. There is still no guarantee that CVS will reach a deal for Signify, which has been exploring strategic alternatives since earlier this summer.”
“The Fed’s Hawkishness Dents Pershing Square’s Turnaround” (Institutional Investor). “Until recently, Bill Ackman had been browbeating the Federal Reserve to raise interest rates aggressively. But the Fed’s recent signals that it plans to keep doing so isn’t helping the stock market as the hedge fund manager hoped. Nor is it helping Ackman’s Pershing Square Capital hedge funds.”
“This Remote Mine Could Foretell The Future Of America’s Electric Car Industry” (New York Times). “mines that extract metal from sulfide ore, as this one would, have a poor environmental record in the United States, and an even more checkered footprint globally. While some in the area argue the mine could bring good jobs to a sparsely populated region, others are deeply fearful that it could spoil local lakes and streams that feed into the Mississippi River. There is also concern that it could endanger the livelihoods and culture of Ojibwe tribes whose members live just over a mile from Talon’s land and have gathered wild rice here for generations.”
What we’re reading (9/1)
“Benchmarking A Fed Pivot” (Deutsche Bank). “[A]t some point, slower growth will take its toll on inflation and the outlook will justify a Fed pivot. The quit rate could be useful in that context. It is well documented that the quit rate is the most reliable predictor of real wages. The quit rate peaked at 3.4% a few months ago and has recently been stable around 3.1%. Prior to covid, the quit rate never exceeded 2.7% (on a 3m moving average basis). Thus, allowing for the fact that the labour market lags and the downward momentum, a quit rate at 2.7% could open the door to a Fed pivot.”
“Microsoft Activision Deal Could Lessen Competition, UK Watchdog Finds” (BBC). “[T]he UK's Competition and Markets Authority (CMA) says its concerns mean it may now carry out an in-depth probe. Microsoft said it was ready to work with the CMA on the ‘next steps’. If the deal goes through it will be the Xbox maker's largest ever acquisition. The games Activision Blizzard make are some of the most popular in the world. But it has previously faced accusations of permitting a toxic and sexist work-place culture.”
“Firm Selling Hot Pre-IPO Shares Didn’t Actually Own Those Pre-IPO Shares, Per Se” (Dealbreaker). “Remember StraightPath Venture Partners? The “boutique private equity firm” accused of overselling the extremely hot and hotly-desired pre-IPO shares it flogged to its 2,200 investors, thereby necessitating—according to the Securities and Exchange Commission, anyway—a bit of fund commingling and Ponzi schemery? Well, a court-appointed receiver has had a bit of a look around. It turns out that saying StraightPath sometimes sold more of those shares than it actually had in its possession—a fact that StraightPath itself acknowledges—may have been a rather generous interpretation.”
“As The U.S. Dollar Surges, American Buyers Splurge On European Homes” (Wall Street Journal). “Laetitia Laurent, a South Florida interior designer, has long had her heart set on a Parisian pied-à-terre. This summer, with the dollar soaring and Parisian real-estate prices holding steady, she took the leap. The 42-year-old, who lives in Boca Raton, paid 758,000 euros, or $758,606, for a 460-square-foot, one-bedroom in the Golden Triangle—the prime residential and commercial area between the Seine and the Champs-Élysées, in the French capital’s pricey 8th arrondissement.”
“British Pound Could Near Parity With The US Dollar Next Year As Energy Crisis Sends Economy Into Recession, Analyst Says” (Insider). “Europe’s energy crisis will push the both the eurozone and UK into recession while the US experiences a milder slowdown, Capital Economics chief UK economist Paul Dales wrote in a report Wednesday. That sets up the euro and British pound to weaken further against the dollar, he added. The euro has already fallen below parity against the dollar, with one euro trading at $0.9938 on Thursday. And by next year, the pound could get close to parity too.”
What we’re reading (8/31)
“Fed Expects To Launch Long-Awaited Faster Payments System By 2023” (forkast). “The new payments system will allow faster payments of bills, paychecks and other transfers around-the-clock instead of days. The U.S. Federal Reserve expects to launch the payments system between May and July of 2023, after a testing phase beginning next month.”
“Oil Posts Third Straight Month Of Declines” (Wall Street Journal). “Benchmark U.S. oil futures ended Wednesday at $89.55 a barrel, down from Monday’s closing price of $97.01. Brent crude, the main international price, fell 12% in August to $96.49 a barrel.”
“How Quitting a Job Changed My Relationships” (New York Times). “Faced with choosing between their careers and their loved ones, many opted to put their professional dreams on hold after enduring the stresses brought on by the pandemic.”
“How Unions Are Winning Again, In 4 Charts” (Vox). “Workers are organizing at some of the most well-known companies in America and in industries previously thought un-unionizable. They’re also doing so against the tide of a decades-long decline in union membership, which led to eviscerated benefits and wages that haven’t kept pace with the cost of living. Lately, the news has been filled with stories of everyone from baristas to warehouse workers voting for unions and bargaining for contracts — a trend that makes it look like unions are at last on the rise again.”
“Meet The Newest Member Of Morgan Stanley’s Block-Trading Desk” (Dealbreaker). “It must have been a rude surprise for those manning Morgan Stanley’s block-trading desk (and, of course, their customers) to learn that their conversations were being monitored, retrospectively, by the Justice Department and Securities and Exchange Commission. (Although exactly when that surprise came is open to interpretation.) Seems the Feds had gotten it into their heads that block-trading, as much a cornerstone of what investment banks do as anything, is just a big old square fig leaf for a whole lot of insider-trading.”
September picks available now
The new Prime and Select picks for September are available starting now, based on a model run put through today (August 30). As a note, we’ll be measuring the performance on these picks from the first trading day of the month, Thursday, September 1, 2022 (at the mid-spread open price) through the last trading day of the month, Friday, September 30, 2022 (at the mid-spread closing price).
What we’re reading (8/29)
“Stocks End Lower, Yields Rise After Powell’s Hawkish Remarks” (Wall Street Journal). “U.S. Treasury yields climbed Monday as a selloff in government bonds gathered pace, highlighting investor unease at the likely impact of the Federal Reserve’s promise to hold the line against inflation. The yield on the two-year Treasury note, which is more sensitive to near-term Fed policy expectations, rose to 3.427% from 3.391% Friday.”
“Dollar Sags Below 20-Year Peak As Euro Lifted By ECB Bets” (Reuters). “The dollar languished on Tuesday after being beaten back from a two-decade high versus major peers by a reinvigorated euro. The tables turned for the two currencies as traders began ramping up bets for a super-sized 75 basis-point rate hike by the European Central Bank, while paring the odds for one by the U.S. Federal Reserve.”
“You Want An Electric Car With A 300-Mile Range? When Was The Last Time You Drove 300 Miles?” (New York Times). “Rather than unleashing a mass market of affordable E.V.s, more than a decade of subsidies favoring large batteries has created an overheated market for premium E.V.s. A serious electrification policy will have to be tailored to the way we actually drive, not the way we think we do.”
“Home Sale Cancellations Rise In ‘Remarkably Uncertain Time’ For Market: Redfin CEO” (New York Post). “RedFin CEO Glenn Kelman noted housing demand plummeted because buyers were ‘absolutely freaked out’ in May and June as the Federal Reserve’s sharp interest rate hikes prompted an increase in mortgage rates.”
“Boomerang College Kids: Unemployment, Job Mismatch And Coresidence” (Albanesi, et al., NBER Working Paper). “Labor market outcomes for young college graduates have deteriorated substantially in the last twenty five years…Our hypothesis is that the declining availability of ‘matched jobs’ that require a college degree is a key factor behind these developments. Using a structurally estimated model of child-parent decisions, in which coresidence improves college graduates' quality of job matches, we find that lower matched job arrival rates explain two thirds of the rise in unemployment and coresidence between the 2013 and 1996 graduation cohorts.”
What we’re reading (8/28)
“When Private Equity Takes Over A Nursing Home” (The New Yorker). “Within two weeks, management laid out plans to significantly cut back nurse staffing. Some mornings, there were only two nursing aides working at the seventy-two-bed facility. A nurse at the home, who spoke on condition of anonymity for fear of retribution, told me, ‘It takes two people just to take some residents to the bathroom.’ (When reached by e-mail, a Portopiccolo [Group] spokesperson said, ‘We never made any staffing cuts during the transition.’) The home was renamed Karolwood Gardens, and the new management filed for a license to admit higher-needs residents, who can be billed at higher rates through Medicare. The aquarium on the second floor disappeared. So, too, did the aviary. Residents’ crafts were removed from the gift shop. No longer did the kitchen serve an eclectic variety of main dishes: turkey tetrazzini, salmon with lobster sauce, or Reuben sandwiches. Now residents were commonly given an option of ground beef. Some days, the kitchen was so short-staffed that the dining hall wasn’t set up, and residents took meals alone in their rooms.”
“For Private Equity Firms, Buying New Companies And Laying Off Employees Isn’t Cutting It Anymore” (Institutional Investor). “One reason is that the M&A market is getting more competitive, with more capital chasing a shrinking pool of quality companies. ‘Prices are going up, and that’s putting pressure on returns,’ Mooney said. For this reason, PE firms have begun to contemplate generating cash flows by transforming businesses, instead of acquiring new ones.” [An observation: “transforming businesses” is a stunning, albeit seemingly accurate, euphemism for the nursing home story above, to the extent that is an example of what Institutional Investor is talking about.]
“Investors Ramp Up Bets Against Stock Market As Summer Rally Fizzles” (Wall Street Journal). “Net short positions against S&P 500 futures have grown in the past couple months, reaching levels not seen in two years. That means traders are increasing their bets that the index will fall, or at least hedging against that risk. Meanwhile, short interest has picked up in the fund tracking popular technology shares, whose recent declines have signaled that a strong summer rally is stalling out.”
“Why Investors Went Bananas Over AMC Stock” (Wall Street Journal). “Forget about EMH, or the efficient market hypothesis. What we need is SMH: the simian market hypothesis. Under the EMH, market prices of assets like stocks and bonds reflect all available information. Under the SMH, market prices reflect whatever homo mercans—the ape who trades—happens to feel like paying attention to.”
“Half Cows, Entire Pigs: Families Are Buying Meat In Bulk To Save Money” (Washington Post). “Inflation has been at or near 40-year highs since the spring, but families have been pinched by higher food prices for two years. Meat prices in particular have surged 17 percent since July 2020, spurring families around the country to change their purchasing patterns and eating habits.”
What we’re reading (8/27)
“Shorting Zillow Is Your Best Bet In Housing This Year” (Zillow). “U.S. home seekers are desperately eyeing an expected turn in housing prices, but the best near-term deal in real estate could come from yet another price cut to Zillow’s stock. Having lost two-thirds of its value over the past 12 months on the heels of its home-flipping implosion, Zillow Group has already fallen to a market capitalization of barely $8 billion, despite the fact that virtually every U.S. adult is still “surfing” its namesake site monthly.”
“Is America On The Verge Of A House Price Collapse? Prices Could Crash By Up To 20% And Homes Are Overvalued By As Much As 72%, Expert Warns” (The Daily Mail). “housing inventory is at its highest level since April 2009, as sellers struggle to get rid of their property because mortgages have become more expensive, and other financial pressures - high gas prices, soaring costs of groceries - continue to be felt.”
“The Rent Crisis On Main Street Just Took A Turn For The Worse” (CNBC). “Nationally, apartment rental prices, which have soared, are among the inflation indicators that may have recently peaked. But the Alignable data shows that the rent inflation crisis for small businesses is actually getting worse. Forty percent of small business said they could not pay their rent in full this month, up 6% month over month and setting a record for 2022.”
“Get Used To Startups Trying To Reinvent Housing” (Wired). “For the past two decades, a confluence of factors has caused young Americans to give up on buying houses, a pattern also seen in the UK and some other European countries. New construction has stalled, existing supply has remained tied up, and population booms in urban areas have driven up housing costs. Nearly one in five homes in the US is now bought by institutional investors—not individuals—adding further competition. As a result, the share of first-time home buyers has shrunk, leading more millennials to rent well into their thirties and forties.”
“China’s Overextended Real Estate Sector Is A Systemic Problem” (Michael Pettis, Carnegie Endowment for International Peace). “[W]hat happened in Henan was not the first adverse credit event to hit the Chinese financial system. It was just the most recent in the country’s latest string of notable financial events, which can be said to have started back in May 2019 with the intervention in Baoshang Bank. A little over a year later, Baoshang became the first Chinese bank to be shut down since Shantou Commercial Bank closed shop in 2001.”
September picks available soon
We’ll be publishing our Prime and Select picks for the month of August before Thursday, September 1 (the first trading day of the month). As always, we’ll be measuring SPC’s performance for the month of August, as well as SPC’s cumulative performance, assuming the sale of the August picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Wed., August 31). Performance tracking for the month of September will assume the September 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 (Thurs., September 1).
What we’re reading (8/25)
“US Stocks Rise As Investors Await Policy Clues From Fed Chair Powell At Jackson Hole” (Insider). “US stocks rose Thursday as investors embraced some risk before Federal Reserve Chair Jerome Powell grabs the attention of global financial markets with a speech on monetary policy at the central bank's marquee annual conference in Jackson Hole, Wyoming.”
“Why Does The WeWork Guy Get To Fail Up?” (Vox). “In a blog post, a16z co-founder Marc Andreessen wrote that Neumann is returning to ‘the theme of connecting people through transforming their physical spaces and building communities where people spend the most time: their homes.’ Andreessen added that solving housing problems ‘requires combining community-driven, experience-centric service with the latest technology in a way that has never been done before to create a system where renters receive the benefits of owners.’ What any of that means is not exactly clear.”
“IRS To Start Spending Its $80 Billion Budget By Hiring People To Answer The Phone” (Wall Street Journal). “The Internal Revenue Service is planning to spend the first big chunk of its $80 billion expanded budget to hire people who will answer taxpayers’ telephone calls during the 2023 tax-filing season.”
“Twitter’s Whistleblower Problem Is Way Bigger Than Elon Musk’s Bot Complaints” (Vox). “When Peiter Zatko, the famous hacker best known as Mudge, got the job heading up Twitter’s security in November 2020, internet archivist Jason Scott tweeted, ‘you have my full support to walk away after setting the place on fire.’ Zatko may have done just that, if not quite in that order. Several months after he was fired by CEO Parag Agrawal, Zatko blew the whistle on the company, telling the Securities and Exchange Commission (SEC) that Twitter did basically nothing to improve its terrible security — the reason for Zatko’s hiring in the first place — and that the company has a pattern of lying to or misleading the government, investors, and Elon Musk.”
“California E.V. Mandate Finds A Receptive Auto Industry” (New York Times). “The automakers are hurrying to close deals with mining companies and other suppliers that can meet the escalating demand for battery materials. Some are teaming up with smaller companies to expedite the build-out of a nationwide charging network. And they are breaking up their own corporate structures and refashioning them to ensure that the electric vehicle transition is not held back by the conventions of making gasoline-powered products.”
What we’re reading (8/24)
“Is Value Just An Interest Rate Bet?” (Cliff Asness, AQR). “It seems obvious to so many that interest rates drive the value trade. After all, growth stocks have much longer-dated cash flows than value stocks and thus should be a “longer duration” asset and move more with longer-term interest rates, right? “Growth (or often just 'tech') stocks soar on plunging interest rates” (or vice versa) has become a common wise-sounding observation in the last few years. In fact, this is all taken as an axiomatic given in countless pundit and press observations. However it’s not nearly that simple, and mostly it’s just not true.”
“What Wall Street Hopes To Hear From The Federal Reserve At Jackson Hole” (CNN Business). “Whether the market will get the feel-good story it wants, or remarks that throw cold water on those hopes, is an open — and hotly debated — question. ‘What they are hoping to hear from Jay Powell is that the Fed will move to reduce inflation, but will be sufficiently confident that it can reverse course early next year. I don't think they're going to hear that,’ said Randall Kroszner, a former Fed governor and deputy dean for executive programs and economics professor at the University of Chicago Booth School of Business.”
“Jerome Powell’s Dilemma: What If The Drivers Of Inflation Are Here To Stay?” (Wall Street Journal). “Central bankers worry that the recent surge in inflation may represent not a temporary phenomenon but a transition to a new, lasting reality. To counter the impact of a decline in global commerce and persistent shortages of labor, commodities and energy, central bankers might lift interest rates higher and for longer than in recent decades—which could result in weaker economic growth, higher unemployment and more frequent recessions…This new era would mark an abrupt about-face after a decade in which central bankers worried more about the prospects of anemic economic growth and too-low inflation, and used monetary policy to spur expansions. It also would be a reversal for investors accustomed to low interest rates.”
“America’s Growth Challenge” (City Journal). “What explains the combination of a robust labor market and a slow-growing economy? Part of the answer lies in long-term developments in the U.S. labor force…A growth rate of around 2 percent per year, or less than half the rate of the 1960s, appears to be the new normal. If the economy had kept growing over the decades at those earlier rates, then real GDP in 2022 would be more than double its current level. Lackluster growth goes a long way to explain income inequality, stagnant wages, and perhaps even the sour mood of the American electorate.”
“What’s Hollowing Out the US Workforce?” (Michael Strain, Project Syndicate). “[U]nfavorable demographics do not explain the entire drop. People in their early twenties are 3% less likely to be in the workforce now than they were when the pandemic began. And for people in their ‘prime working years’ – ages 25 to 54, when they are generally too old to be in school but too young to be retired – the rate is 0.7 percentage points lower than it was in February 2020.”
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.”