November picks coming soon
We’ll be publishing our Prime and Select picks for the month of November before Tuesday, November 1 (the first trading day of the month). As always, we’ll be measuring SPC’s performance for the month of October, as well as SPC’s cumulative performance, assuming the sale of the October picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Monday, October 31). Performance tracking for the month of November will assume the November picks are bought at the open price (at the mid-point of the opening bid and ask prices) on the first trading day of the month (Tuesday, November 1).
What we’re reading (10/24)
“Rishi Sunak Calls For Stability And Unity As He Wins Contest To Be PM” (BBC News). “He won the Tory leadership contest after rival Penny Mordaunt failed to secure enough backing from MPs. In his first speech, Mr Sunak said bringing his party and the UK together would be his ‘utmost priority’. Mr Sunak will become the UK's first British Asian prime minister and the youngest for more than 200 years. Mr Sunak - a 42-year-old practising Hindu - is expected to take office on Tuesday after being formally appointed by the King.”
“The Housing Market Decline Is Not A ‘Bubble 2.0’ Due To A Key Difference From The Last Crash, Says Glenmede” (Insider). “The difference between now and the previous housing crisis, the firm noted, is that current conditions are being shaped in large part by underinvestment as opposed to irresponsible lending. The National Association of Realtors has sounded off on this as well, stating last year that decades of underbuilding in the US has helped drive a massive affordability crisis in housing. “
“Builders Say They’re Ready For This Housing Slowdown. ‘I’ve Learned My Lesson.’” (Wall Street Journal). “Mr. McCormick said his new company has less debt and fewer lenders than his former company did heading into the 2007-09 recession, and has grown more slowly and bought less land. ‘I’ve learned my lesson,’ he said. Still, he said, ‘I’ve never seen it change this fast,” referring to the rapid decline in sales.’”
“The Way Los Angeles Is Trying To Solve Homelessness Is ‘Absolutely Insane’” (New York Times). “Six years later, neither the mandate nor the money has proved to be nearly enough. In 2016, Los Angeles had about 28,000 homeless residents, of whom around 21,000 were unsheltered (that is, living on the street). The current count is closer to 42,000 homeless residents, with 28,000 unsheltered. Prop HHH has built units, but slowly, and at eye-popping cost. The city says that 3,357 units have been built, and the most recent audit found the average cost was $596,846 for units under construction — more than the median sale price for a home in Denver. Some units under construction have cost more than $700,000 to build.”
“When Karl Marx Made The Case For Capitalism” (Reason). “In November 1864, Karl Marx wrote a letter congratulating President Abraham Lincoln on his reelection to the White House. ‘From the commencement of the titanic American strife the workingmen of England felt instinctively that the star-spangled banner carried the destiny of their class,’ Marx declared. He was therefore thrilled by the news that Lincoln would continue ‘to lead his country through the matchless struggle for the rescue of an enchained race and the reconstruction of a social world.’”
What we’re reading (10/23)
“Investing In The Shadow Of A Recession” (New York Times). “Deep recessions are horrible experiences for most people, including investors. If you are living off your holdings, with no margin for error, you need safe, fixed-income assets. But if you are lucky enough to have a long horizon, of a decade or more, the best approach may be to keep buying and holding stocks and bonds, even if conditions worsen.”
“Early Earnings Reports Worry Investors Already Battered By Stock Selloff” (Wall Street Journal). “Early results from the third-quarter earnings season haven’t provided much comfort to jittery investors. While some corporate leaders noted glimmers of hope for consumers and the economy, many have reported a host of challenges to profits, including persistent inflation, rising interest rates and a generational surge in the dollar that has pressured revenue generated overseas.”
“Fed's Rx For The Economy Should Be A Tincture Of Time” (Calafia Beach Pundit). “As I've argued in recent posts, there's plenty of evidence to suggest the Fed has already tightened by enough to bring inflation down: the dollar is super-strong, real yields have risen sharply, the yield curve is inverted, commodity prices are plunging, and the housing market has run into a brick wall. Yet the Fed seems determined to tighten even more. I think they're driving by looking into the rear-view mirror. They're trying to burnish their reputation as an inflation fighter, after having fallen miserably behind the inflation curve in 2020 and 2021. And I think that the long-discredited Phillips Curve (which posits that unemployment must rise if inflation is to fall) still haunts the Fed governors' minds. It's all so unfortunate.”
“Here's Why The US Dollar May Be Closer To A Peak Than Markets Think, Even As Inflation Rages And The Fed Remains Hawkish” (Insider). “The US dollar could be closer to peaking than markets think, even as inflation rages and the Federal Reserve remains hawkish, according to Goldman Sachs. The greenback has soared this year, pummeling rivals like the euro, yen, and yuan, thanks to the Federal Reserve's aggressive rate hikes. The central bank has raised its policy rate by 300 basis points so far this year as it scrambles to get a lid on inflation and is expected to keep raising them until next year.”
“Vacancies Show A Hot Labor Market. But They Could Overstate How Hot.” (Washington Post). “For most of the past year there have been roughly two open jobs for each person looking for work in the United States. That’s good news for workers, millions of whom have found higher wages and new opportunities. But the dynamic also has kept the labor market unsustainably hot and fueled persistent labor shortages that have helped push inflation to 40-year highs.”
What we’re reading (10/22)
“How Institutions Game Benchmarks” (Institutional Investor). “In a new paper cheekily entitled ‘Lies, Damn Lies and Performance Benchmarks: An Injunction for Trustees,’ Ennis concludes that the benchmarks that institutions use to judge their returns underperform gauges that are far more representative of the actual market exposures and risks in their portfolios by 1.4 to 1.7 percentage points annually. Not surprisingly, a majority of pensions, endowments, and mutual funds have beaten the benchmarks they devise. By using flawed benchmarks, pensions and endowments are painting a picture that shows that they’ve beaten a low-cost, passive portfolio, when in fact they’ve dramatically underperformed it.”
“Apple, Amazon, McDonald’s Headline Busy Earnings Week” (Wall Street Journal). “Nearly a third of the S&P 500, or 161 companies, are slated to report earnings in the coming week, according to FactSet. Twelve bellwethers from the Dow Jones Industrial Average, including Boeing Co. and McDonald’s Corp., are expected to report as well.”
“How Binance CEO And Aides Plotted To Dodge Regulators In U.S. And UK” (Reuters). “A plan to "insulate" itself from the SEC. A backdated document. An exodus of compliance staff. The world’s biggest crypto exchange and its billionaire founder swerved scrutiny by regulators, Reuters found. Now there are signs the strategy is fraying.”
“Wall Street Warns Of Trouble Brewing In Auto Loans As Prices Dip” (Bloomberg). “Wells Fargo & Co. said that higher loss rates for loans it originated late last year contributed to an increase in write-offs for the period. Ally Financial Inc., the country’s second-largest auto lender, saw charge-offs for retail auto loans quadruple in the third quarter. And Fifth Third Bancorp said it’s pulling back on originations.”
“U.S. Home Prices Could Fall As Much As 20% Next Year” (CBS News). “Home prices have plunged during the second half of 2022 with demand for residential real estate cooling off in a number of states and cities across the U.S.. And prices could continue to fall by as much as 20% next year as mortgage rates climb and the housing market normalizes in wake of the pandemic, according to a noted Wall Street economist.”
What we’re reading (10/20)
“Why I Fear The Fed May Be Overdoing It” (Greg Mankiw’s Blog). “The question is, how much monetary tightening is in order? This question is hard, and anyone who claims to know the answer for sure is not being honest either with you or with themselves. The reason it is hard is that monetary policy works with a substantial lag. It is no surprise that the recent Fed tightening hasn't had much impact on inflation yet. That is no reason to think the Fed needs to tighten a lot more. The Fed made the mistake of waiting for inflation to appear before starting to tighten. It would be a similar mistake to wait for inflation to return to target before stopping the tightening cycle.”
“Valuations and Earnings Growth” (Larry Swedroe). “The historical evidence demonstrates that an investment strategy that bets on growth is a strategy likely to disappoint because growth is neither persistent nor predictable and because value stocks should have an embedded risk premium (noting that risks, of course, can and do show up).”
“U.K. Government Is High-Profile Casualty In World Of Higher Borrowing Costs” (Wall Street Journal). “For the past decade, low inflation and ultralow interest rates gave governments around the world room to spend more and pile on debt without alarming investors. Those days are over. With central banks tightening monetary policy, political leaders are less able to borrow money without raising questions about how they will repay it, in part because higher borrowing costs make debt more expensive and in part because governments already loaded up on debt during the Covid-19 pandemic.”
“How The ‘Black Death’ Left Its Genetic Mark On Future Generations” (New York Times). “When the Black Death struck Europe in 1348, the bacterial infection killed large swaths of people across the continent, driving the strongest pulse of natural selection yet measured in humans, the new study found. It turns out that certain genetic variants made people far more likely to survive the plague. But this protection came with a price: People who inherit the plague-resistant mutations run a higher risk of immune disorders such as Crohn’s disease.”
“A Vision Of Metascience” (Science Plus). “How does the culture of science change and improve? Many people have identified shortcomings in core social processes of science, such as peer review, how grants are awarded, how people are selected to become scientists, and so on. Yet despite often compelling criticisms, strong barriers inhibit widespread change in such social processes. The result is near stasis, and apathy about the prospects for improvement.”
What we’re reading (10/19)
“Oops, We Forgot To Fix The Supply Chain” (Vox). “[T]he structural problems that enabled many of the delays, price hikes, and shortages over the past few years haven’t gone away. Shipping prices have not quite returned to their pre-pandemic levels, truck drivers are still in short supply, and some in the logistics industry are already predicting that there will be problems during the upcoming holiday season.”
“US Chip Sanctions ‘Kneecap’ China’s Tech Industry” (Wired). “Last month, the Chinese ecommerce giant Alibaba revealed a powerful new cloud computing system designed for artificial intelligence projects. It is used by Alibaba’s cloud customers to train algorithms for tasks like chatbot dialogue and video analysis, and was built using hundreds of chips from US companies Intel and Nvidia.”
“Recession Fears Hit Risky Mortgage Debt Amid Default Concerns” (Wall Street Journal). “Investors are unloading securities sold by Fannie Mae and Freddie Mac that shift the risk of mortgage defaults away from taxpayers, a sign of growing concern about defaults if rising interest rates cause a severe recession. The securities, called credit-risk transfers, could incur losses if rising defaults creep into the massive swaths of mortgage debt backed by the housing-finance giants.”
“Jeff Bezos Is The Latest To Warn On The Economy, Saying It’s Time To ‘Batten Down The Hatches’” (CNBC). “In a tweet posted Tuesday evening, the former president and CEO of the online retailing giant echoed comments that Goldman Sachs Chief Executive David Solomon made to CNBC earlier in the day. ‘Yep, the probabilities in this economy tell you batten down the hatches,’ Bezos said in a comment attached to a clip of Solomon’s ‘Squawk Box’ interview.”
“Alleged Fraudsters Who Nearly Settled For $15 Million Now Begging To Explain Why They Should Not Be Indicted” (Dealbreaker). “At first, the allegations against ‘boutique private equity firm’ StraightPath Venture Partners sounded very serious, indeed…[t]hen, it seemed all of that may have been a bit of puffery from the Securities and Exchange Commission, which all of a sudden seemed content to settle for about $15 million. Since then, however, things sound terribly serious once again, including from the mouths of the defendants themselves, and even more so from the court-appointed receiver attempting to sort through the mess. Especially now that the Justice Department has asked everyone else to stand aside and let it handle things.”
What we’re reading (10/18)
“The Rise Of ‘Luxury Surveillance’” (The Atlantic). “Imagine, for a moment, the near future Amazon dreams of. Every morning, you are gently awakened by the Amazon Halo Rise. From its perch on your nightstand, the round device has spent the night monitoring the movements of your body, the light in your room, and the space’s temperature and humidity. At the optimal moment in your sleep cycle, as calculated by a proprietary algorithm, the device’s light gradually brightens to mimic the natural warm hue of sunrise. Your Amazon Echo, plugged in somewhere nearby, automatically starts playing your favorite music as part of your wake-up routine. You ask the device about the day’s weather; it tells you to expect rain. Then it informs you that your next ‘Subscribe & Save’ shipment of Amazon Elements Omega-3 softgels is out for delivery.”
“Goldman Shuffle Aims To Reduce Reliance On M&A” (Wall Street Journal). “Goldman Sachs Group Inc. is so dependent on its investment bank that a slump in deal making sent third-quarter profit down 43%--by far the steepest slide among its big-bank peers. A broad restructuring announced Tuesday is meant to change that: Goldman will fold investment banking and trading into one unit and merge asset and wealth management into another—giving it a higher profile at the same time.”
“Companies Are Being Forced To Reveal What A Job Pays. It’s A Start.” (Vox). “You wouldn’t rent an apartment or even buy a pair of jeans online without knowing the price. Soon, many Americans won’t search for a job without knowing what it pays, either.”
“Globalism Failed To Deliver The Economy We Need” (New York Times). “We don’t yet have a new unified field theory for the postneoliberal world. But that doesn’t mean we shouldn’t continue to question the old philosophy. One of the most persistent neoliberal myths was that the world was flat and national interests would play second fiddle to global markets. The past several years have laid waste to that idea. It’s up to those who care about liberal democracy to craft a new system that better balances local and global interests.”
“The Only Direction For Xi’s Dictatorship” (Project Syndicate). “After a decade in power, Xi Jinping is all but certain to be confirmed as China’s first three-term president at the Communist Party of China’s 20th National Congress this week. But before they make Xi a potential dictator for life, the party faithful should bear in mind that dictatorships never end well. Despite his iron grip on power, Xi’s is no different.”
What we’re reading (10/17)
“Opendoor’s iBuyer Model Is A Canary In The Economic Coal Mine” (Wired). “Opendoor is taking a pounding. Forty-two percent of the homes it sold in August made a loss, according to an analysis by market research firm YipitData. In places like Phoenix, Arizona, where cookie-cutter houses have attracted so-called iBuyers en masse, the numbers are even worse. Here, three out of every four homes Opendoor sold in August lost money. The company blames its current struggles on “the most rapid change in residential real estate fundamentals in 40 years.” It’s a change that’s hitting Opendoor and its competitors hard right now—and it could be coming for millions of homeowners next.”
“Markets Approve Of U.K.’s Reversal Of Tax Cuts” (New York Times). “The British pound and government bonds rose on Monday, after Britain’s finance minister of three days, Jeremy Hunt, reversed nearly all of the government’s promised tax cuts. But the future of the current government remains uncertain, as political analysts and even fellow lawmakers say Prime Minister Liz Truss has all but lost her power.”
“Who Is Going To Buy Cadillac’s $300,000 Hand-Built EV?” (TechCrunch). “[W]ith a price tag more than three times the average transaction price of a vehicle from General Motors’ luxury marque, it’s difficult to imagine many Cadillacs of that heft — no matter how highly customized — will be quietly charging behind suburban garage doors.”
“What Warren Buffet bailing on Chinese Economy Signifies As Tensions Rise” (New York Post). “If Buffett is ditching China, it means that, in his view, the risk/reward ratio has tilted decisively into the red.”
“Why Smartphones Are Getting Cheaper While Everything Else Is Skyrocketing, According To The Government” (CNBC). “It turns out, smartphones aren’t getting cheaper. They’re getting better. And that’s why the CPI shows them deflating instead of inflating like a lot of other goods.”
What we’re reading (10/16)
“Stocks Can Always Get Cheaper” (Wall Street Journal). “My sense is there is more ugly stuff coming. Eighty percent of hedge funds are down and dumping their losers. Short-term interest rates are heading to 5% or higher, which means stocks will trade at a lower price-earnings multiple. Even worse, quarterly earnings misses are starting, and, like cockroaches, you never see only one.”
“A ‘Tectonic Shift’ In Global Wealth That Will Take Years To Recover From” (CNN Business). “ousehold wealth is on track for its first significant reduction since the financial crisis in 2008, according to a new report by financial services company Allianz. Global assets are set to decline by more than 2% in 2022, Allianz reports. That means households, on average, will lose about a tenth of their wealth this year.”
“Retirement Dreams Become Nightmares For Many Older Americans As Inflation Soars” (USA Today). “The news gets worse each month as new inflation data is released. In September, consumer prices increased 8.2% from a year ago. And for people already struggling to pay bills, higher prices for basic necessities cut deeper into already thin budgets. Food prices last month shot up 13% from the previous year and gas prices are up more than 18% from 2021.”
“Liz Truss Versus The Markets” (BBC). “[H]ow can an entity which is impossible to locate, with no central neural function, and with a reputation for being skittish, herd-like, irrational and ethically challenged, force Downing Street to abandon its plans? It has to do with risk and trust. Like an old-fashioned bank manager assessing you for a loan, those who take the individual decisions to buy a UK government bond have to make a judgement on whether the government that issued it is able to pay out interest each year and to repay the face value at the end of its term?”
“We Will See the Return of Capital Investment on a Massive Scale” (The Market NZZ). “According to [investment manager Russell] Napier, financial repression will be the leitmotif for the next 15 to 20 years. But this environment will also bring opportunities for investors. «We will see a boom in capital investment and a reindustrialisation of Western economies,» says Napier. Many people will like it at first, before years of badly misallocated capital will lead to stagflation.”
What we’re reading (10/15)
“What This Year’s Nobel Economists Can Teach Us About Financial Crises” (John Cochrane, National Review). “It’s time for another idea, generated in the 1930s and analyzed in the 2000s with the kinds of contemporary tools our Nobelists brought forth: Banks should fund risky investments by issuing equity, now extremely liquid. Run-prone securities like deposits should be backed 100 percent by reserves or short-term Treasury securities.”
“Monetary Wisdom From Milton Friedman” (Greg Mankiw’s Blog). “From his famous AEA presidential address, still relevant more than a half century later: ‘The reason for the propensity to overreact seems clear: the failure of monetary authorities to allow for the delay between their actions and the subsequent effects on the economy. They tend to determine their actions by today’s conditions—but their actions will affect the economy only six or nine or twelve or fifteen months later. Hence they feel impelled to step on the brake, or the accelerator, as the case may be, too hard.”
“Meet The Army Of Robots Coming To Fill In For Scarce Workers” (Wall Street Journal). “A new wave of robots is arriving—and, in a world short of workers, business leaders are more eager to welcome them than ever. A combination of hard-pressed employers, technological leaps and improved cost effectiveness has fueled a rapid expansion of the world’s robot army. A half-million industrial robots were installed globally last year, according to data released Thursday by the trade group International Federation of Robotics—an all-time high exceeding the previous record, set in 2018, by 22%.”
“Jamie Dimon Says Expect ‘Other Surprises’ From Choppy Markets After U.K. Pensions Nearly Imploded” (CNBC). “JPMorgan Chase CEO Jamie Dimon says investors should expect more blowups after a crash in U.K. government bonds last month nearly caused the collapse of hundreds of that country’s pension funds. The turmoil, triggered after the value of U.K. gilts nosedived in reaction to fiscal spending announcements, forced the country’s central bank into a series of interventions to prop up its markets. That averted disaster for pension funds using leverage to juice returns, which were said to be within hours of collapse.”
“Growth Push Went ‘Too Far, Too Fast’, Says UK Finance Minister Hunt” (Reuters). “Britain's new finance minister Jeremy Hunt said the government had gone "too far, too fast" in its drive for growth after Prime Minister Liz Truss was forced to fire his predecessor and make U-turns on tax-cutting plans amid market turmoil.”
What we’re reading (10/14)
“Stocks Drop After Wild Surge On Wall Street” (Wall Street Journal). “U.S. stocks fell Friday, the latest U-turn for markets after a volatile week marked by big swings in both directions.”
“U.S. Jury Convicts Nikola Founder Of fraud” (Reuters). “During the trial in federal court in Manhattan, prosecutors depicted Milton, 40, as a "con man" who sought to deceive investors about the electric- and hydrogen-powered truck maker's technology starting in November 2019.”
“Will The 60/40 Portfolio Start To Work Again?” (Morningstar). “The failure of so-called 60/40 portfolios to offer investors protection from the bear market in stocks has upended what had become conventional wisdom among the markets: Stock prices and bond prices don’t move in the same direction. That thinking has been a foundation of diversification strategies for many years. Driving this significant shift in market behavior this year has been stubbornly high inflation and the Federal Reserve’s breakneck pace of interest-rate increases.”
“Meta Has Burned $15 Billion Trying To Build The Metaverse — And Nobody’s Saying Exactly Where The Money Went” (Insider). “Meta has spent more than $15 billion on its Reality Labs metaverse venture since the beginning of last year, but so far, the company hasn't shared on what, precisely, money is being spent. Some experts are getting worried the company is spending good money after bad. ‘The problem is that they spend the money, but the transparency with investors has been a disaster,’ Dan Ives, a tech analyst at Wedbush Securities, said.”
“Meta's Shares Are A Hard Sell As Good Old Facebook Days Are Over” (Bloomberg). “Since Mark Zuckerberg’s announcement a year ago of a name change and strategy overhaul for the owner of Facebook, the stock has wiped out more than half the gain it had seen since its initial public offering a decade ago. That’s cost Meta $600 billion in market value and a spot in the elite club of the US’s 10 biggest companies.”
What we’re reading (10/13)
“Dow Closes More Than 800 Points Higher In Volatile Day” (Wall Street Journal). “U.S. stocks closed sharply higher Thursday in a head-spinning reversal, after investors decided that fresh evidence of high inflation wasn’t as bad as it initially appeared. It was the first time that the Dow Jones Industrial Average both fell at least 500 points and rose at least 800 points in a single trading day, according to Dow Jones Market Data. The whipsaw moves were reminiscent of the early stages of the Covid-19 pandemic, another time of deep uncertainty about the economic outlook.”
“Confirmed: Ads Are Coming To Netflix” (Vanity Fair). “The new plan, which will be available in the US on November 3, will cost $6.99 per month and give subscribers access to most of the broad library of movies and TV shows that they have come to expect from Netflix. In exchange for paying a lower price for the service—less than half the cost of Netflix’s popular Standard plan—subscribers can expect between an average of four to five minutes of ads for every hour of content. ‘We believe that with this launch, we’ll be able to provide a plan and a price for every Netflix fan,’ chief operating officer and chief product officer Greg Peters said during a call with press on Thursday morning, which Vanity Fair participated in.”
“You’re Going Back To The Office. Your Boss Isn’t.” (Vox). “The relationship between rank-and-file office workers and their bosses has never been equal. But remote work is creating a new kind of imbalance between certain people in leadership and their employees, and it’s stirring up resentment at work. Many managers — from middle management to the C-suite, depending on the workplace — are continuing to work remotely, but at the same time are calling their employees back to the office. Employees are getting angry and fighting back in the few ways they can: looking for work someplace else.”
“It’s Time For Employers To Stop Caring So Much About College Degrees” (CNN Business). “Despite the need for revamping our existing talent strategies to keep pace, employers have been slow to move on what we see as the most sustainable way to hire and grow more effective, engaged workforces: hiring for skills, instead of just relying on pedigree. The old set of indicators – the right degree from the right school, the right network to endorse you and the right past employers on your resume – are weak predictors of what actually matters: a candidate’s ability to do the job.”
“Who Had Bernie Madoff In Their Last Game Of ‘Six Degrees Of Kevin Bacon’?” (Dealbreaker). “In fact, according to The Oracle of Bacon website (yes, technology has inserted itself even into this extremely stupid game), it’s vanishingly rare to have a Bacon number higher than four: It’s found just over 10,000 actors with fives or sixes, and less than 200 with numbers higher than that—compared to 447,801 with fours or less (including Bacon himself with a Bacon number of zero). Still, even with those statistics—and even taking into account the broader philosophical notion that all people on earth are connectable within six social connections—there’s someone with the surprisingly low Bacon number of one [Bernie Madoff].”
What we’re reading (10/12)
“Fed Minutes Show Concerns Of More Persistent High Inflation” (Wall Street Journal). “Federal Reserve officials expressed concern at their meeting last month over the persistence of high inflation, underscoring their intention to continue raising interest rates in large steps despite the pain that could cause. Policy makers revised higher their expectations for rate increases, though some signaled caution about overdoing them amid risks of economic and financial volatility, according to minutes of the Sept. 20-21 gathering released Wednesday.”
“Heating Costs Forecast To Soar This Winter” (CNN Business). “No matter how you heat your home, the cost of that heat is likely to soar, according to a forecast Wednesday from the Energy Information Administration. Based on current estimates for fuel prices if, as forecast, there’s a slightly colder winter ahead, the EIA estimates that heating a home with natural gas heating costs will rise about $200 on average, or 28% to $931 for the winter.”
“Europe Likely Entering Another COVID Wave, Says WHO And ECDC” (Reuters). “Another wave of COVID-19 infections may have begun in Europe as cases begin to tick up across the region, the World Health Organization and European Centre for Disease Prevention and Control (ECDC) said on Wednesday.”
“‘No Housing Market Is Immune To Home-Price Declines’: Home Values Are Already Falling In These Pandemic Boomtowns.” (MarketWatch). “Rising rates and waning buyer demand is finally weighing on home prices. With the 30-year fixed-rate mortgage averaging at 7.12%, according to Mortgage News Daily, Zillow, Realtor.com, and John Burns Real Estate Consulting, all noted price drops in cities that were hot over the last two years. Most of these cities were pandemic boomtowns, as remote work enabled many workers to find housing outside of big, expensive mega-cities.”
“These Factors Outperform During Recessions” (Institutional Investor). “According to the latest report from Investment Metrics, a Confluence company, growth and value factors have little impact on investment returns during periods of low consumer confidence, with value stocks losing an average of 1 basis point and growth stocks gaining an average of 1 basis point. The numbers are so close to zero that Alex Lustig, author of the report, concluded that neither factor offered any premiums during these periods. Meanwhile, the volatility factor lost 37 basis points, suggesting that highly volatile stocks have consistently underperformed during recessionary periods. Quality and large-cap stocks, on the other hand, have outperformed their respective benchmarks when consumer confidence has plunged into recessionary territory.”
What we’re reading (10/11)
“Nasdaq Falls Into Bear Market After Volatile Day” (Wall Street Journal). “The S&P 500 and the Nasdaq Composite fell Tuesday in volatile trading, upended by Bank of England Gov. Andrew Bailey’s remark that the U.K. central bank’s plan to rescue pension funds hit by interest-rate increases will end as scheduled Friday. The Nasdaq Composite slipped into a bear market, its second of the year. The S&P 500 and the Dow are already in bear markets, defined in Wall Street parlance as a decline of 20% or more from a recent peak.”
“US Stocks Trade Mixed As Investors Struggle To Regain Momentum Ahead Of Earnings Deluge And Inflation Data” (Insider). “Thursday's inflation report will be a key moment for US stocks, JPMorgan said Tuesday in a note. If Consumer Price Index data clocks in above 8.3%, markets could see another swift 5% sell-off, the bank said, with other shocks to the market potentially bringing the S&P 500 down to around 3,000 by the end of the year.”
“Federal Officials Trade Stock In Companies Their Agencies Oversee” (Wall Street Journal). “More than 2,600 officials at agencies from the Commerce Department to the Treasury Department, during both Republican and Democratic administrations, disclosed stock investments in companies while those same companies were lobbying their agencies for favorable policies. That amounts to more than one in five senior federal employees across 50 federal agencies reviewed by the Journal.”
“How Does The Russo-Ukrainian War End?” (Timothy Snyder). “Here I would like to suggest just one plausible scenario that could emerge in the next few weeks and months. Of course there are others. It is important, though, to start directing our thoughts towards some of the more probable variants. The scenario that I will propose here is that a Russian conventional defeat in Ukraine is merging imperceptibly into a Russian power struggle, which in turn will require a Russian withdrawal from Ukraine. This is, historically speaking, a very familiar chain of events.”
“NATO To Hold Nuclear Deterrence Exercise As Russia Rages At Ukraine” (Washington Examiner). “An annual NATO exercise focused on nuclear weapons deterrence will take place next week in a regular show of force displayed against the backdrop of the war in Ukraine.”
What we’re reading (10/10)
“Nobel Prize In Economics Winners Include Former Fed Chair Ben Bernanke” (Wall Street Journal). “A quiet academic who spent most of his career studying the Great Depression and central banking at Princeton University and the Stanford Graduate School of Business, Mr. Bernanke rose to the forefront of policy-making just as the U.S. was entering a potential replay of the subject he mastered from history books. Historians now credit Mr. Bernanke for averting an economic calamity by quickly devising aggressive new monetary policies—rock-bottom interest rates, loans to banks and controversial bond-buying programs—during and after a financial crisis that started in 2007 and spanned nearly two years.”
“The Economic Contributions Of Ben Bernanke” (Marginal Revolution). “Bernanke’s doctoral dissertation was on the concepts of option value and irreversible investment. Modest increases in business uncertainty can cause big drops in investment, due to the desire to wait, exercise “option value,” and sample more information. This work was published in the QJE in 1983. I have long felt Bernanke does not receive enough credit for this particular idea, which later was fleshed out by Pindyck and Rubinfeld. In sum, Ben is a broad and impressive thinker and researcher. This prize is obviously deserved. In my admittedly unorthodox opinion, his most important work is historical and on the Great Depression.”
“Get Ready For Some Earnings” (CNN Business). “There’s lots of anxiety swirling about a possible recession. Is Corporate America starting to get nervous, too? We’ll get a better sense this week when several top financial firms and consumer companies report third-quarter earnings.”
“‘This Is Serious’: JPMorgan’s Jamie Dimon Warns U.S. Likely To Tip Into Recession In 6 To 9 Months” (CNBC). “Dimon, chief executive of the largest bank in the U.S., said the U.S. economy was ‘actually still doing well’ at present and consumers were likely to be in better shape compared with the 2008 global financial crisis. ‘But you can’t talk about the economy without talking about stuff in the future — and this is serious stuff,’ Dimon told CNBC’s Julianna Tatelbaum on Monday at the JPM Techstars conference in London.”
“Cathie Wood Just Wrote An Open Letter To The Fed Accusing It Of Stoking ‘Deflation’ And Looking At The Wrong Economic Indicators” (Fortune). “[Wood] argues that Chair Jerome Powell & Co. are using “lagging indicators”—including employment and headline inflation—to justify tighter monetary policy when they should be using “leading indicators” such as commodity, used car, and home prices that tell a very different story.”
What we’re reading (10/9)
“A Jittery Stock Market Heads Into Earnings Season” (Wall Street Journal). “The S&P 500 has fallen 24% in 2022 as the central bank ratchets up rates and investors attempt to reassess stock valuations and the durability of corporate profits. The third-quarter earnings season that kicks off in earnest this week will give analysts the broadest look yet at how business has held up as costs continue to rise, higher rates threaten demand and a strong dollar squeezes overseas income.”
“‘Last Year Was The Party. This Year Is The Hangover.’” (Tech Crunch). “[According to Mark Goldberg, partner at Index Ventures:] ‘The crude analogy I’ve been using internally is last year was the party and this year is the hangover. That’s really how it feels to me — that we’re starting to understand the excesses of last year. We’ve seen now the retrenchment period after the fact. At Index, we’re probably more aggressively investing in what we think the next generation of fintech companies is going to be right now.’”
“‘Deer In The Headlights’: Young Bankers On Wall Street Have Had It Easy For Years — But They're About To Face A Bloodbath” (Insider). “Merger and acquisition deals for the first nine months of this year are down by 34% compared with the same period last year. And dozens of huge US companies have cut earnings guidance, citing heightened uncertainty due to, well, everything.”
“Risk Of £50bn Bond Sale Sparked Emergency Bank Of England Move” (BBC News). “The aftermath of the mini-budget could have seen a £50bn fire sale of UK government bonds by funds connected to the pensions industry, the Bank of England has said. There was risk of a downward ‘spiral’, it said, as increases in the cost of government borrowing hit the funds. The Bank feared these funds would be forced to sell their government debt holdings, adding to the market turmoil. The cost of borrowing saw record increases for two days, the Bank said. The rise in borrowing costs over four days was ‘three times larger than any other historical move’.”
“The Secret Microscope That Sparked A Scientific Revolution” (Wired). “1674, Antonie Van Leeuwenhoek, a fabric seller living just south of The Hague, Netherlands, burst forth from scientific obscurity with a letter to London’s Royal Society detailing an astonishing discovery. While he was examining algae from a nearby lake through his homemade microscope, a creature ‘with green and very glittering little scales,’ which he estimated to be a thousand times smaller than a mite, had darted across his vision. Two years later, on October 9, 1676, he followed up with another report so extraordinary that microbiologists today refer to it simply as ‘Letter 18’: Van Leeuwenhoek (lay-u-when-hoke) had looked everywhere and found what he called animalcules (Latin for ‘little animals’) in everything.”
What we’re reading (10/8)
“Wharton’s Jeremy Siegel Says Today’s Biggest Threat Isn’t Inflation — It’s Recession” (CNBC). “The U.S. Federal Reserve has been raising rates too quickly, and recession risks will be ‘extremely’ high if it continues to do so, said Jeremy Siegel, professor emeritus of finance at the Wharton School of the University of Pennsylvania.”
“Bill Gross Sides With Pimco Bond Bulls In Seeing Yields Peaking” (Bloomberg). “Bill Gross and his former colleagues at Pacific Investment Management Co. can agree on at least one thing: bonds are attractive now. Why? Because the market is now pricing in the Federal Reserve’s key borrowing costs will peak at 4.5%. That’s too high, according to Gross, the co-founder of Pimco who was ousted from the bond powerhouse in 2014.”
“Low-Price Grocers Like Aldi Are Winning As Consumers Trade Down” (CNN Business). “Aldi, which requires a 25-cent deposit to use grocery carts, sells mostly store brands and doesn’t waste time on elaborate displays, might not be for everyone. But more than one million new households shopped at Aldi in the year through September, helping rack up double-digit sales growth in that period. Foot traffic across most of its 2,200 US stores jumped about 10.5% year over year, according to Placer.ai — even as grocery sector visits were about flat.”
“Howard Schultz’s Fight To Stop A Starbucks Barista Uprising” (Washington Post). “Howard Schultz, the billionaire founder of Starbucks, stood alone beside the auditorium stage at the company’s global headquarters. The room was packed with 200 of his top executives, all waiting for him to speak. But first Schultz wanted them to hear from their employees across the country. The lights dimmed and their recorded voices filled the room. ‘My last three shifts I’ve cried,’ said one barista. ‘We’re stressed out at work. We’re stressed out at home,’ said another.”
“Alleged Fraudster Who Managed To Evade The Cops For All Of Five Days Certainly Doesn’t Sound Like A Special Forces Veteran” (Dealbreaker). “While allegedly drumming up some $35 million in at least five separate but occasionally interrelated alleged scams, Justin Costello allegedly told his alleged victims a great many things: That he was a Harvard M.B.A. That he worked for 14 years on the Street. That he was a hedge-fund billionaire. That he would totally take care of that client’s tax bill. That one company he led had $1.6 billion in its care and 10 acquisition deals in hand, and that another was worth 9,000% more than it really was. That he was a decorated Special Forces veteran.”
What we’re reading (10/7)
“U.S. Job Growth Eases, But Is Too Strong To Suit Investors” (New York Times). “Employers added 263,000 jobs on a seasonally adjusted basis, the Labor Department said Friday, a decline from 315,000 in August. The number was the lowest since April 2021 but still solid by prepandemic standards. The unemployment rate fell to 3.5 percent, equaling a five-decade low.”
“Is ‘Green Capitalism’ Total BS?” (Wired). “It seems like a self-evidently ridiculous question, borderline obscene—whales are majestic creatures whose worth transcends the human impulse to quantify, obviously! Yet it is one which has been seriously considered by economists in an effort to convince governments and corporations to value wildlife. In her new book, The Value of a Whale: On the Illusions of Green Capitalism, Adrienne Buller dissects the asinine logic of ‘green’ capitalist thinking, from putting a dollar value on cetaceans to carbon offsets to financial products like ‘sustainability-linked bonds.’”
“Global Fallout From Rate Moves Won’t Stop The Fed” (New York Times). “It is a recipe for globe-spanning turmoil and even recession. Despite that, the Fed is poised to continue raising interest rates. That’s because the Fed, like central banks around the world, is in charge of domestic economy goals: It’s supposed to keep inflation slow and steady while fostering maximum employment. While occasionally called ‘central banker to the world’ because of the dollar’s foremost position, the Fed goes about its day-to-day business with its eye squarely on America.”
“Holding Airlines Accountable For Flight Delays And Cancellations” (The Hill). “[F]light cancellations are at the highest they have been in more than a decade, and consumer complaints spiked by 270 percent in June 2022 compared to 2019. This is an absolute nightmare for travelers who were already paying more than they should because of fewer flights and a spike in demand. It should never have been allowed to get this bad.”
“Credit Suisse Ramps Up Efforts To Strengthen Finances” (Wall Street Journal). “Credit Suisse Group AG has intensified efforts to sell or shrink holdings in key businesses in recent days, part of a planned restructuring to remake the bank, people familiar with the matter said. Around 10 bidders have submitted offers for the bank’s securitized products group, some of the people said. The Swiss bank put the business, one of its most profitable, on the block in July, saying it wanted to find an outside investor to conserve capital.”
What we’re reading (10/5)
“Markets Break When Interest Rates Rise Fast: Here Are The Cracks” (Wall Street Journal). “Major U.S. stock markets recorded their worst first nine months of a calendar year since 2002, before rallying this week. Treasury bonds, one of the world’s most widely held securities, have become harder to trade. There also are signs of strain in markets for corporate debt and concerns about emerging-market debt and energy products.”
“Is The Era Of Low Interest Rates Over?” (Paul Krugman, New York Times). “Many commentators have asserted that the era of low interest rates is over. They insist that we’re never going back to the historically low rates that prevailed in late 2019 and early 2020, just before the pandemic — rates that were actually negative in many countries. But I don’t see that happening. There were fundamental reasons interest rates were so low three years ago. Those fundamentals haven’t changed; if anything, they’ve gotten stronger. So it’s hard to understand why, once the dust from the fight against inflation has settled, we won’t go back to a very-low-rate world.”
“Housing Is Slumping, But This Real Estate CEO Explains Why It’s Not 2008 All Over Again” (CNN Business). “‘We probably are technically in a housing recession,’ he [Howard Hughes Corp. CEO David O’Reilly] said, referring to a term used to describe a decline in home sales for at least six months. ‘We are clearly in a downturn, but this is much different.’ O’Reilly said that in the years leading up to the 2008 collapses of Bear Stearns, Lehman Brothers, Washington Mutual and others, there was a glut of new homes that had been built. ‘We had a massive oversupply when Lehman hit the wall,’ he said. ‘But housing starts now have significantly trailed formations.’”
“Is The Efficient Market Hypothesis True?” (U.S. News & World Report). “A 2003 study published in the Journal of Finance pointed to another stock market quirk. The study examined "the relationship between morning sunshine in the city of a country's leading stock exchange and daily market index returns" in 26 countries between 1982 and 1997. ‘Sunshine is strongly significantly correlated with stock returns,’ it reads, noting that sunny weather is associated with positive moods.”
“Fugitive Justin Costello Arrested For $35 Million Fraud Based On ‘Mirage’ Of Being Billionaire, Harvard MBA, Iraq Vet” (CNBC). “Las Vegas resident Justin Costello, 42, is accused by federal prosecutors and the Securities and Exchange Commission of swindling thousands of investors and others as part of a complex scam that touted his purported efforts to build a cannabis conglomerate, among other things.”
What we’re reading (10/4)
“Twitter Shares Surge 22% After Elon Musk Revives Deal To Buy Company At Original Price” (CNBC). “Elon Musk has reversed course and is again proposing to buy Twitter for $54.20 a share, according to a regulatory filing on Tuesday. Twitter shares closed up more than 22% on the news. The social media company issued a statement saying it had received the letter and said, “The intention of the Company is to close the transaction at $54.20 per share.”
“Dow Surges More Than 800 Points In Second Day Of Big Gains” (Wall Street Journal). “The S&P 500 surged 112.50, or 3.1%, to 3790.93, its best day in more than four months. The technology-heavy Nasdaq Composite climbed 360.97, or 3.3%, to 11176.41. The gains were broad-based, spanning different sectors, and encouraged market optimists hoping for a more enduring recovery.”
“Credit Suisse CDS Hit Record High As Shares Tumble” (Financial Times). “Credit Suisse’s five-year CDS soared by more than 100 basis points on Monday, with some traders quoting it as high as 350bp, according to quotes seen by the Financial Times. The bank’s shares tumbled to historic lows of below […] 3.60, down close to 10 per cent when the market opened, before paring losses. The market moves were even more dramatic in the bank’s shorter-term CDS, with one trading desk quoting Credit Suisse’s one-year CDS at 440bp higher than on Friday at 550bp.”
“The First Global Deflation Has Begun, And It’s Unclear Just How Painful It Will Be” (New York Times). “The outline of this pattern is familiar. But the breadth is new. We now find ourselves in the midst of the most comprehensive tightening of monetary policy the world has seen. While the interest rate increases are not as steep as those pushed through by Paul Volcker as Fed chair after 1979, today’s involve far more central banks.”
“Ray Dalio Makes His Exit From Bridgewater” (Institutional Investor). “Dalio turned Bridgewater into the best money manager of all time, according to an annual list compiled by by Rick Sopher, chairman of LCH Investments in London. As of the end of last year, Bridgewater had made investors $52.2 billion since 1975, according to Sopher — even though Bridgewater’s returns in 2021 were only $5.7 billion on assets under management of $99.2 billion.”