What we’re reading (1/23)
“Market Recovery Hinges On Quick Inflation Drop” (Wall Street Journal). “Behind this year’s improved start for markets lies a broad wager that inflation will soon post a once-in-a-generation decline. Market-based gauges of inflation expectations project the annual pace of rising prices will tumble in the months ahead roughly as fast as during the recession that followed the 2008 financial crisis—or when Fed Chairman Paul Volcker used double-digit interest rates to crush the soaring inflation of the late 1970s.”
“Billionaires At Davos Don’t Think COVID Is a Cold” (Slate). “In photos of 2023’s World Economic Forum—or Davos as it is commonly called, after the Swiss resort town where it annually occurs—you might not notice the HEPA filters. They’re in the background, unobtrusive and unremarked upon, quietly cleansing the air of viruses and bacteria. You wouldn’t know—not unless you asked—that every attendee was PCR tested before entering the forum, or that in the case of a positive test, access was automatically, electronically, revoked. The folks on stage aren’t sporting masks (mostly), so unless you looked at the official Davos Health & Safety protocol, you wouldn’t be aware that their on-site drivers are required to wear them. You also might be surprised to learn that if, at any point, you start to feel ill at Davos, you can go collect a free rapid test, or even call their dedicated COVID hotline.”
“In Their 20s, Struggling to Save and Tired of Being Lectured About It” (New York Times). “Young people who are just starting to get their footing as they enter adulthood are grappling with how to balance their incomes and spending priorities so they have money left over to save for emergencies and retirement. Worrying about saving has always been hard for 20-somethings who begin their careers at the bottom of their earning potential. But saving is especially difficult right now because on top of student debt, housing and food costs remain high even as inflation has started to cool.”
“Inside Google’s All-Hands Meeting: Layoffs Shatter The Company’s Aura Of Stability And Abundance.” (Insider). “The internet giant is still wildly profitable and has more than $100 billion cash, along with a reputation for high pay, lavish perks, and job security. So the news, which arrived internally via an abrupt email on Friday, hit many employees hard.”
“Microsoft Announces New Multibillion-Dollar Investment In ChatGPT-Maker OpenAI” (CNBC). “Microsoft declined to provide a specific dollar amount, but Semafor reported earlier this month that Microsoft was in talks to invest as much as $10 billion. The deal marks the third phase of the partnership between the two companies, following Microsoft’s previous investments in 2019 and 2021. Microsoft said the renewed partnership will accelerate breakthroughs in AI and help both companies commercialize advanced technologies in the future.”
What we’re reading (1/22)
“Elliott Management Takes Big Stake In Salesforce” (Wall Street Journal). “While details of the campaign couldn’t be learned, Elliott, one of the biggest and most prolific activists, often seeks board representation and pushes for companies to make operational improvements and other changes.”
“The ‘Greatest Tragedy’ Would Be If Central Banks Don’t Finish The Job On Inflation, Larry Summers Says” (CNBC). “Speaking on a CNBC-moderated panel at the conclusion of the World Economic Forum in Davos, Switzerland, on Friday, Summers said economists and business leaders at the summit were experiencing an ‘exhilaration of relief’ but cautioned policymakers against resting on their laurels.”
“Inside The Battle For The Future Of Amazon” (Vox). “[I]n early 2021, the tech and retail giant reported its largest quarterly profit ever. But a lot can change in just two years: Since then, founder Jeff Bezos stepped down and named a new CEO, the online shopping boom slowed, and Amazon had to dig itself out of a costly and overly aggressive warehouse and staffing expansion. The past two months have been a strange, even frightening, time inside the company, current and former employees told Recode: Amazon announced unprecedented layoffs of more than 18,000 corporate employees and began culling areas of the business, like its Alexa voice assistant division, that Bezos had long championed.”
“Bad News For Millennials: Things Have Never Looked Bleaker For First-Time Homebuyers” (Insider). “For first-time homebuyers like Talej, the outlook has never been bleaker. The double whammy of skyrocketing home prices and surging interest rates has pushed homeownership further out of reach, while a decade of underbuilding has left the latest generation of hopeful owners with fewer options and stiffer competition for listings.”
“Home Prices Hit A Record High Last Year” (CNN Business). “The real estate market took a downward turn in 2022, as rising interest rates rapidly slowed the frenzied sales activity seen the year before — but home prices still hit a record high. The median home sale price in 2022 was $386,300, up 10.2% from 2021 and the highest on record, according to data from the National Association of Realtors released Friday.”
What we’re reading (1/21)
“Google Employees Scramble For Answers After Layoffs Hit Long-Tenured And Recently Promoted Employees” (CNBC). “On Friday, Alphabet-owned Google announced it was cutting 12,000 employees, roughly 6% of the full-time workforce. While employees had been bracing for a potential layoff, they are questioning leadership about the criteria for layoffs which surprised some employees, who woke up to find their access to company properties cut off. Some of the laid-off employees had been long-tenured or recently promoted, raising questions about the criteria used to decide whose jobs were cut.”
“Google, Amazon, And Microsoft Layoffs Will Result In A ‘Bloodbath’ Of 40,000 Jobs Lost. Inside The Tech Industry's Week From Hell.” (Insider). “As employees reel from the anxiety of layoffs that have reached a new peak, many predict an industry that will be irrevocably changed: On the other end is emerging an industry less focused on hyper growth, with more stable share prices, trimmer headcounts, and for employees, much leaner compensation.”
“SBF, Bored Ape Yacht Club, And The Spectacular Hangover After The Art World’s NFT Gold Rush” (Vanity Fair). “In September 2021, Sotheby’s offered up for auction a cache of 101 Bored Ape NFTs as a lot in a special sale called Ape In! The digital art revolution had seemingly remade the art market in the months prior, and this was the finest collection of non-fungible tokens ever assembled by one of the world’s oldest auction houses, founded in 1744. Scrolling through the catalog of cartoon monkeys in funny hats and jackets, one could see one rare Bored Ape with solid gold fur and holographic eyes, but also rarer yet, the Ape with an unshaven face eating a piece of pizza. For digital-art enthusiasts who aspired to membership in the Bored Ape Yacht Club, this was a huge deal.”
“Crypto Banks Borrow Billions From Home-Loan Banks To Plug Shortfalls” (Wall Street Journal). “Two of the biggest banks to cryptocurrency companies are rushing to stem a flood of customer withdrawals by borrowing billions of dollars from Federal Home Loan Banks, the system originally designed to support mortgage lending in the 1930s.”
“Elizabeth Holmes Made An ‘Attempt To Flee The Country’ After Her Conviction, Prosecutors Say” (CNN Business). “Elizabeth Holmes made an “attempt to flee the country” by booking a one-way ticket to Mexico departing in January 2022, shortly after the Theranos founder was convicted of fraud, prosecutors alleged in a new court filing Friday.”
What we’re reading (1/19)
“Netflix’s Reed Hastings Will Cede Co-Chief Executive Role” (New York Times). “Reed Hastings, one of the founders of Netflix, has helmed the company since before it was a streaming service, when its business model revolved around sending DVDs through the mail. Now, after spending a quarter-century building Netflix into the world’s first major streaming company — and dragging the rest of the media industry with him — Mr. Hastings said Thursday that he was ceding his co-chief executive title and becoming the company’s executive chairman.”
“U.S. Nears Debt Ceiling, Begins Extraordinary Measures To Avoid Default” (Wall Street Journal). “The Treasury Department began taking special measures to keep paying the government’s bills on Thursday as the U.S. bumped up against its borrowing limit, kicking off a potentially lengthy and difficult debate in Congress over raising the debt ceiling.”
“The Clock Is Ticking On A TikTok Ban” (Vox). “TikTok is grappling with an increasingly real prospect of being banned in the United States. This wouldn’t just be a mostly performative prohibition of installing the app on federal or state government-owned devices. It could also be more impactful than the legally questionable ban that former President Donald Trump tried and failed to enact in 2020. The ban TikTok is now facing would forbid its China-based parent company, ByteDance, from doing business in the United States, which would block Apple and Google from hosting the TikTok app in their app stores. It wouldn’t make it illegal for you, the consumer, to use TikTok. It would just make it much harder to do so.”
“U.S. Cities Where Homebuyers Are Most Impacted By Rising Interest Rates” (Construction Coverage). “To determine the locations where homebuyers are most impacted by rising interest rates, researchers at Construction Coverage analyzed the latest data from Zillow and Freddie Mac. The researchers ranked metros according to the percentage change in the monthly mortgage payment for a median-priced home from 2021 to 2022. Researchers also calculated the total change in mortgage payment from 2021 to 2022, the mortgage payment for a median-priced home, and median home price.”
“December Consumer Price Index: Curious Acceleration In Rent Clouds The Message” (Regions). “The total CPI fell by 0.1 percent in December with the core CPI rising by 0.3 percent, in each case matching the consensus forecast but a tenth of a point higher than our forecast. As anticipated, lower energy prices were a significant drag on the headline CPI. Our forecast misses mainly reflect rent growth coming in meaningfully higher than we had anticipated, with the CPI measures of rents still more than a little bit out of alignment with market rents and house prices.”
What we’re reading (1/18)
“The Disney Executive Who Made $119,505 A Day” (Wall Street Journal). “Even by show-business standards, former Walt Disney Co. executive Geoff Morrell netted a massive payday from his brief time in Hollywood. Mr. Morrell started working at Disney on Jan. 24, 2022, as the company’s chief corporate-affairs officer. He left less than four months later following a public-relations implosion that led to employee protests and pitted the company and then-CEO Bob Chapek against Florida Gov. Ron DeSantis. For those 70 weekdays, Mr. Morrell made $8,365,403 in total compensation—or about $119,505 a day, according to calculations based on a proxy statement that Disney filed Tuesday.”
“Larry Summers Is Warming Up To The Idea That The Federal Reserve Can Stick A Soft Landing After Previously Warning A Hard Recession Is Imminent” (Insider). “Former Treasury Secretary Larry Summers is starting to grow more optimistic about the US economy and the Federal Reserve's ability to stick a soft landing, according to a recent interview. He told Bloomberg on Wednesday that it’s a good sign inflation is starting to cool down even as the job market remains resilient. ‘I’m still cautious, but with a little bit more hope than I had before. Soft landings are the triumph of hope over experience, but sometimes hope does triumph over experience,’ Summers said.”
“Will It Be Morning In Joe Biden’s America?” (New York Times). “[W]hile consumer expectations haven’t caught up with financial markets, which appear to believe that inflation will stay low for the foreseeable future, consumer expectations of inflation are back down to their levels of a year and a half ago.”
“ChatGPT Has Investors Drooling, But Can It Bring Home The Bacon?” (Ars Technica). “[James] Cham [of Bloomberg Beta] compares the current situation to the early days of the Internet, when some obscure but evocative demos turned out to precede a sea change in the workings of software, tech companies, and wider society. ‘We’ve had decades of great AI demos, but this is the first one where you give it to someone and they are really excited about the possibilities,’ Cham says of ChatGPT.”
“Comparing Your Client To The Mafia Isn’t The Flex MSG's Lawyer Thinks It Is” (Dealbreaker). “Madison Square Garden already enjoys the sort of public approval you’d expect from an organization that kicks a mom escorting a Girl Scout troop out of a Christmas show. The woman worked at a law firm involved in a suit against a restaurant that MSG owns a stake in, and despite this having nothing to do with Radio City Music Hall, MSG pays for advanced facial recognition software to deliver some bush league bullying upon anyone on a firm website. After the Girl Scout story, most companies would launch a public relations campaign to salvage its reputation, but MSG is not most companies.”
What we’re reading (1/17)
“The Crypto Collapse And The End Of The Magical Thinking That Infected Capitalism” (Mihir Desai, New York Times). “The unwinding of magical thinking will dominate this decade in painful but ultimately restorative ways — and that unwinding will be most painful to the generation conditioned to believe these fantasies.”
“Goldman Sachs, Morgan Stanley Profits Dented By Deal Slump” (Wall Street Journal). “Investors have been looking for more clarity about where Goldman is going and what it is trying to be. The bank has pulled back on its ambitions to build a large consumer-facing business, and it has reshuffled its businesses. It continues to focus on steadier units like wealth management and less on the high-risk, high-reward units that were its traditional powerhouses, like investment banking.”
“Hedge Fund Manager Boaz Weinstein Bets Market Is Wrong On Credit Suisse” (Reuters). “Speculators increased bearish bets on the Swiss bank last year on concern about how much capital it would need to bolster its balance sheet in a confidence crisis deepened by unsubstantiated social media reports on the bank's financial health.”
“Sam Bankman-Fried Is Still Filibustering” (Slate). “Sam Bankman-Fried is still desperate to convince the world that he didn’t defraud customers of his bankrupt cryptocurrency exchange, FTX. The disgraced mogul, out on bail as he awaits a federal trial later this year, launched a new Substack on Thursday to make his case.
“I didn’t steal funds, and I certainly didn’t stash billions away,” Bankman-Fried wrote in the newsletter’s first post.”“Commodities Have Largely Erased Last Year’s Spike.” (Fisher Investments). “Amid all the mixed economic data and recession forecasts, some actual good news hit the wires Wednesday: UK gasoline prices have now erased the spike that followed Russia’s invasion of Ukraine. That adds to the growing list of commodity prices that have settled near or below pre-invasion levels—a big disinflationary force.”
What we’re reading (1/16)
“China’s Economy Expanded By 3% In 2022” (CNN Business). “China’s economy expanded by 3% in 2022, far below the government’s target, according to the country’s National Bureau of Statistics on Tuesday. It also marks one of the worst performances in nearly half a century. But economic growth grew by 2.9% in the fourth quarter, beating market expectations. A Reuters poll of economists had previously estimated expansion of just 1.8%.”
“A College Student Created An App That Can Tell Whether AI Wrote An Essay” (NPR). “Teachers worried about students turning in essays written by a popular artificial intelligence chatbot now have a new tool of their own. Edward Tian, a 22-year-old senior at Princeton University, has built an app to detect whether text is written by ChatGPT, the viral chatbot that's sparked fears over its potential for unethical uses in academia.”
“How Europe Is Decoupling From Russian Energy” (Apricitas Economics). “[T]hanks to a rapid buildout of liquefied natural gas capacity, new sources of energy imports, reduced consumption, and fortuitously warm weather, the EU has significantly improved its energy outlook since this summer—and the worst possibilities for this winter look to have been avoided.”
“Scientists Redirect Lightning Strikes Using A Weather-Controlling Super Laser” (StudyFinds). “Researchers with the Polytechnic Institute of Paris guided the strikes from thunderclouds to places where they don’t cause damage. The team says the new technique could save power stations, airports, launchpads, and other buildings from disaster.”
What we’re reading (1/15)
“The Top 1% Captured Nearly Twice As Much New Wealth As The Rest Of The World Over Last Two Years” (CNN Business). “Though their riches have slipped somewhat over the past year, global billionaires are still far wealthier than they were at the start of the pandemic. Their net worth totals $11.9 trillion, according to Oxfam. While that’s down nearly $2 trillion from late 2021, it’s still well above the $8.6 trillion billionaires had in March 2020.”
“BlackRock Vs. Goldman In The Fight Over 60/40” (Wall Street Journal). “BlackRock says the losses—the worst in nominal terms for a 60/40 portfolio since the financial crisis of 2008-9 and the worst in real terms in a calendar year since the Great Depression—show that the structure is outdated. Goldman demurs, arguing that the odd big loss is inevitable in any strategy and that 60/40 remains a valid basic approach. Strategists and fund managers at other large money managers and banks have been piling in on both sides.”
“90% Of Online Content Could Be ‘Generated By AI By 2025,’ Expert Says” (Yahoo! Finance). “Generative AI, like OpenAI's ChatGPT, could completely revamp how digital content is developed, said Nina Schick, adviser, speaker, and A.I. thought leader told Yahoo Finance Live…’I think we might reach 90% of online content generated by AI by 2025, so this technology is exponential,’ she said. ‘I believe that the majority of digital content is going to start to be produced by AI. You see ChatGPT... but there are a whole plethora of other platforms and applications that are coming up.’”
“Tyler Winklevoss Says SEC Charges Over Gemini Are ‘Super Lame’ And A ‘Manufactured Parking Ticket’” (Insider). “Tyler Winklevoss called regulators ‘super lame’ after his company was hit by charges linked to a $900 million funds crisis. On Thursday the Securities and Exchange Commission (SEC) charged Genesis' lending arm Genesis Global Capital and digital currency exchange Gemini for the unregistered offer and sale of crypto asset securities through the Gemini Earn lending program.”
“The Condo King Of Miami Bets His New Fisher Island Luxury Project Can Weather A Recession” (CNBC). “Jorge Perez, also known as ‘the condo king of Miami,’ and his Related Group are behind the 10-story, 50-unit project that boasts a sell-out price of $1.2 billion. They paid $122.6 million for the land, at the top of the market. Units start at $15 million. The project includes a $90 million, 15,000 square foot penthouse and a $55 million ground-floor villa with a half-acre backyard. The building will also have its own slip for mega yachts. Sales just started last month.”
What we’re reading (1/14)
“Just How Common Is Corporate Fraud?” (DealBook). “It suggests that only about a third of frauds in public companies actually come to light, and that fraud is disturbingly common. Mr. Dyck and his co-authors estimate that about 40 percent of companies are committing accounting violations and that 10 percent are committing what is considered securities fraud, destroying 1.6 percent of equity value each year — about $830 billion in 2021.”
“Workers Lose Ground To Inflation Despite Big Wage Gains” (Wall Street Journal). “A historically tight labor market pushed up average hourly earnings by 4.6% in December from a year earlier, the Labor Department said this week, compared with a 6.5% annual inflation rate in the same period. Likewise, average hourly earnings rose 4.9% in December 2021 from a year earlier, compared with a 7% annual inflation rate.”
“5 Unintended Consequences Of The EV Revolution” (Vox). “That’s all about to change. In the next few years, electric vehicles will replace many cars with internal combustion engines, and the White House has called for half of new vehicles to be electric by the end of the decade. This transition is a critical part of adapting to climate change, since EVs don’t produce tailpipe emissions and will reduce the world’s dependence on fossil fuels. But electric cars will also be an awkward fit for today’s transportation infrastructure, and not just because gas stations might one day go the way of horse stables.”
“A Battle Between Disney And Activist Peltz Brews. Here’s How The Situation May Unfold” (CNBC). “Sometimes a board observer position can be beneficial, particularly for investors who do not have a lot of board experience and are less likely to be a regular contributor to board discussions. But offering Peltz a position as a board observer is like saying to Whitney Houston, ‘You can join the band, but you are not allowed to sing.’ There is no way that Disney thought for a second that Peltz would accept this offer, and there is no way he should have accepted it.”
“Goldman Sachs Plans To Nudge Out An Additional 800 Staffers By Skimping On Bonuses After Already Laying Off More Than 3,000 Employees, Report Says” (Insider). “After cutting more than 3,000 jobs on Wednesday, Goldman Sachs is planning to oust about 800 more employees in a less direct fashion, company insiders say. Another round of employees is expected to quit in the coming weeks after Goldman Sachs issues annual bonuses, according to sources close to the company who spoke to the New York Post. The forthcoming bonuses are expected to be ‘so skimpy that disgusted recipients will pack up and leave,’ the sources told the Post.”
What we’re reading (1/13)
“S&P 500 Ends At Highest In Month, Indexes Gain For Week As Earnings Kick Off” (Reuters). “The S&P 500 and Nasdaq finished at their highest levels in a month on Friday, with shares of JPMorgan Chase and other banks rising following their quarterly results, which kicked off the earnings season.”
“America’s Biggest Banks Are Girding For A Recession But Aren’t Feeling One Yet” (Wall Street Journal). “The nation’s largest banks said rising interest rates are likely to push the U.S. into a recession this year, though they are only starting to feel the effects in their quarterly earnings.”
“RIP Meme Stocks. You Were Terrible Investments” (Fast Company). “When struggling retailer Bed Bath & Beyond announced last week that it was unsure it was going to be able to stay in business, and followed that news with a grim earnings report on Tuesday, it felt like the proverbial nail in the coffin of one of the strangest, and most pointless, bubbles in market history: meme-stock mania.”
“U.S. Will Hit Its Debt Limit Thursday, Start Taking Steps To Avoid Default, Yellen Warns Congress” (CNBC). “Treasury Secretary Janet Yellen on Friday notified Congress that the U.S. will reach its statutory debt limit next Thursday. After that, the Treasury Department this month will begin ‘taking certain extraordinary measures to prevent the United States from defaulting on its obligations,’ Yellen wrote in a letter to new House Speaker Kevin McCarthy, R-Calif.”
“Crypto.com Is Cutting 20% Of Its Workforce To Blunt The Blow From FTX's Collapse And The Crypto Winter, Broadening Layoffs In The Industry” (Insider). “Crypto.com said Friday it's letting go a fifth of its employees as the FTX implosion added a fresh layer of pain to an already slumping cryptocurrency market, with the crypto exchange's move the latest in headcount reductions in the industry and the wider tech space.”
What we’re reading (1/12)
“Investors Are Underestimating Inflation Again” (CNN Business). “Investors are holding their breath in anticipation of Thursday morning’s Consumer Price Index inflation report — arguably the most important piece of economic data so far this year. There’s a lot riding on the outcome — if inflation keeps falling, that could support a market rally, while higher-than-expected inflation could send stocks sinking.”
“Elon Musk’s Starlink Is Only The Beginning” (Vox). “Space internet has the reputation for slow service. With its questionable signal strength and hardly Netflix-friendly bandwidth, the internet that’s beamed down from low-Earth orbit is the kind of thing you only turn to as a last resort or if you’re stuck on a long-haul flight. But in 2023, satellite-based internet is getting a major revamp.”
“Apple CEO Tim Cook To Take A 40% Pay Cut This Year” (Wall Street Journal). “Chief Executive Tim Cook has asked for a big cut in compensation this year. Mr. Cook’s total compensation target for 2023 will be $49 million, the company said in a Thursday filing. It said that is more than 40% lower than his target compensation of 2022. The iPhone giant said its board committee on executive compensation took into consideration shareholder feedback as well as a recommendation from Mr. Cook in making the adjustment.”
“The Economics Of Non-Competes” (Marginal Revolution). “The value of noncompete clauses is easy to illustrate. Say you run a hedge fund. Many members of your trading team will have partial access to your firm’s trading secrets, and if they leave they can take those secrets with them. In the absence of noncompete agreements, firms would be more likely to “silo” information — becoming less efficient and less able to pay higher wages. Nondisclosure agreements for workers in such positions are common, but they are difficult to enforce — making noncompete agreements more relevant. How exactly might you find out if some other newly created hedge fund is using your trading algorithms?”
“Crypto’s Tax Shelter Problem” (Institutional Investor). “Bankman-Fried, the 30-year-old crypto wunderkind from California accused by U.S. authorities of money laundering, defrauding customers and lenders, committing securities and commodities conspiracy, and violating campaign-finance laws, seems to have been under the impression that he might sidestep U.S. agencies, regulators, and law enforcement from his beachy tax shelter idyll.”
What we’re reading (1/11)
“Computer Breakdown Sows Chaos Across US Air Travel System” (AP News). “Thousands of flights across the U.S. were canceled or delayed Wednesday after a system that offers safety information to pilots failed, and the government launched an investigation into the breakdown, which grounded some planes for hours.”
“Big Cuts Are Coming to Goldman Sachs” (Wall Street Journal). “Job cuts have begun at Goldman Sachs. A wave that’s expected to grow to as many as 3,200 layoffs, one of the largest by the bank since the 2008 financial crisis, started on Tuesday, including at its premier equity capital markets division, sources told DealBook. More across-the-board cuts are expected to be announced on Wednesday.”
“Why Your Gas Bill Might Be Way Higher This Winter” (Vox). “Compared with last winter, the average household will spend 28 percent more this year to heat a home with gas, according to the US Energy Information Administration. That number will be higher still if the winter turns out to be colder than expected, and it conceals some regional variation: in Southern California, one utility is warning of ‘shockingly high’ January bills.”
“The Great Re-Evaluation” (Arnold Kling, The Great Re-Evaluation). “I think that the pandemic accelerated people’s re-evaluations of many of their commitments. We came out of it more strongly committed to activities we value highly, including passionate interests and family relationships. But we became less committed to jobs and classes that have only instrumental value to us. Young people were affected the most.”
“Forget Core CPI, Market Pros Are Searching For Supercore Inflation” (Wall Street Journal). “When the Labor Department releases its latest inflation reading on Thursday, most investors will still look first at the monthly change in the so-called core consumer-price index, which excludes food and energy categories to provide a better sense of inflation’s longer-term trajectory. Some, though, will quickly look past that number to metrics such as core services excluding housing—or even core services excluding housing and medical care. And even that won’t be entirely satisfying.”
What we’re reading (1/10)
“Oil And Gas Are Back And Booming” (Wall Street Journal). “Thanks to a mix of events, from the Russian invasion of Ukraine to the U.S. economic recovery, fossil fuels are showing surprising resilience, despite President Biden’s push to transition to clean energy and the industry’s own history of boom-bust investing and heavy reliance on debt.”
“The Buy Now, Pay Later Bubble Is About To Burst” (The Atlantic). “As familiar as Americans are with the concept of credit, many of us, upon encountering a sandwich that can be financed in four easy payments of $3.49, might think: Yikes, we’re in trouble. Putting a banh mi on layaway—this is the world that buy-now, pay-later programs have wrought. In a few short years, financial-technology firms such as Affirm, Afterpay, and Klarna, which allow consumers to pay for purchases over several interest-free installments, have infiltrated nearly every corner of e-commerce.”
“Wells Fargo, Once The No. 1 Player In Mortgages, Is Stepping Back From The Housing Market” (CNBC). “Wells Fargo is stepping back from the multitrillion-dollar market for U.S. mortgages amid regulatory pressure and the impact of higher interest rates. Instead of its previous goal of reaching as many Americans as possible, the company will now focus on home loans for existing bank and wealth management customers and borrowers in minority communities, CNBC has learned.”
“Fed Chair Powell: Bringing Down Inflation Requires ‘Measures That Are Not Popular’” (CNN Business). “Federal Reserve Chairman Jerome Powell made his first public appearance of the year on Tuesday, stressing the importance of central bank independence and his commitment to bringing down inflation. The painful rate hikes the Fed is implementing to tackle high prices don’t make officials particularly popular, Powell said during a panel discussion at an event hosted by Sweden’s central bank, the Sveriges Riksbank.”
“FTX Bankruptcy Documents Show List Of Investors Set To Be Completely Wiped Out, Including Tom Brady And Robert Kraft” (Insider). “The spectacular implosion of FTX has led to big investment losses for the football star Tom Brady, the New England Patriots owner Robert Kraft, and the fashion model Gisele Bündchen. As part of its bankruptcy process, FTX Monday released a list of its top equity holders, detailing just how many investors were set to be wiped out from the downfall of the crypto exchange.”
What we’re reading (1/9)
“The Debate Swirling Inside HR Departments: How To Lay Off Workers” (Wall Street Journal). “Executives considering downsizing are currently grappling with the same problem: finding the most effective way to let employees go. Is it better to get layoffs over with all at once even at the risk of cutting too deep? Is firing over Zoom more humane than making an employee come into the office to lose their job? How much severance pay is fair?”
“Where Are The Workers? From Great Resignation To Quiet Quitting” (Lee, Park, and Shin, working paper). “To better understand the tight post-pandemic labor market in the US, we decompose the decline in aggregate hours worked into the extensive (fewer people working) and the intensive margin changes (workers working fewer hours). Although the pre-existing trend of lower labor force participation especially by young men without a bachelor's degree accounts for some of the decline in aggregate hours, the intensive margin accounts for more than half of the decline between 2019 and 2022. The decline in hours among workers was larger for men than women. Among men, the decline was larger for those with a bachelor's degree than those with less education, for prime-age workers than older workers, and also for those who already worked long hours and had high earnings. Workers' hours reduction can explain why the labor market is even tighter than what is expected at the current levels of unemployment and labor force participation.”
“Wall Street Braces For A Weak Earnings Season” (New York Times). “Stocks may have eked out gains so far in the new year, but it may not last. With corporate earnings season kicking off this week, Wall Street is pricing in a rough quarter ahead — including for itself, with Goldman Sachs and other banks preparing for layoffs.”
“The Dystopia We Fear Is Keeping Us From The Utopia We Deserve” (New York Times). “In his fascinating, frustrating book ‘Where Is My Flying Car?’ J. Storrs Hall argues that we do not realize how much our diminished energy ambitions have cost us. Across the 18th, 19th and 20th centuries, the energy humanity could harness grew at about 7 percent annually. Humanity’s compounding energetic force, he writes, powered tthe optimism and constant improvement of life in the 19th century and the first half of the 20th century.’ But starting around 1970, the curve flattened, particularly in rich countries, which began doing more with less.”
“4 Changes In The Labor Market That Could Signal A Recession” (Vox). “The economy is confusing right now. Many economists are predicting the United States will slip into a recession in the next year. Inflation remains stubbornly high, and the Federal Reserve continues to aggressively raise interest rates. But the labor market has held up: Employers are struggling to fill open positions and the unemployment rate remains low.”
What we’re reading (1/7)
“Why Does Private Equity Get To Play Make-Believe With Prices?” (Cliff Asness in Institutional Investor). “Though some will plead the opposite, it’s not that hard to adjust even private marks in line with the market. If you’re levered long equities (and yep, PE’s ‘low-risk and low-beta’ investments are often levered long) and equities fall by 25 percent, you probably dropped at least that. Perfect estimates are not the point, and shouldn’t be the enemy of good estimates (for instance, some argue private equity betas are near 1.0 even with leverage, but nobody serious argues they are near zero). Sure, sometimes it’s more complicated. But remember, PE managers are among the world’s foremost experts in company valuation. You wouldn’t think the question ‘Approximately what would we get if we sold in today’s market?’ would be particularly tricky for them. That is, of course, if they actually wanted to tell you the answer and if you actually wanted to hear it. It does take two to do the nonmarking tango.”
“Ant Group Says Its Founder, Jack Ma, Will Relinquish Control” (New York Times). “One of China’s most influential financial tech companies, Ant Group, said on Saturday that the billionaire entrepreneur, Jack Ma, planned to relinquish control of the company. Mr. Ma’s retreat from the company he founded comes after the ruling Communist Party waged an unprecedented crackdown on Big Tech. Beijing had made Mr. Ma’s Ant Group and its sister company, the e-commerce giant, Alibaba, the crown jewels of his online empire, early targets in the campaign to curb the power of internet giants.”
“Burned By layoffs, Tech Workers Are Rethinking Risk” (TechCrunch). “Tech isn’t as collegial as it used to be. Rocket ships are being unveiled as sputtering messes, mission-driven startups don’t feel so mission oriented when responding to investor pressure, and widespread layoffs offer a loud reminder that jobs are breakable contracts not sacrosanct vows.”
“Poultry Farm Says Millions Of Chickens Could Starve From Rail Delays” (Wall Street Journal). “Service problems at Union Pacific Corp. have sparked a dispute between the railroad and one of the country’s biggest chicken processors, which says the lives of millions of birds are endangered by repeated delays in the delivery of corn. California-based Foster Farms has asked for regulatory intervention for the second time in six months, saying delayed shipments from Union Pacific have dwindled its corn inventory. The company said it has diverted feed from dairy cattle to the chickens, which are susceptible to quicker death.”
“Lumber Market Must Weather A ‘Treacherous’ 2023 After Last Year’s Staggering 66% Price Crash As A US Housing Slump Deepens” (Insider). “Lumber prices plunged 66% last year as the once red-hot US housing market faltered – and the commodity's troubles will likely continue in 2023, according to strategists.”
What we’re reading (1/6)
“Dow Closes 700 Points Higher on Signs Of Slowing Wage Growth” (Wall Street Journal). “The Labor Department’s monthly jobs report showed that employers added 223,000 jobs in December, the smallest gain in two years but more than the 200,000 expected by economists. The ability of U.S. companies to keep hiring shows that the job market has held up even as the Fed’s rate increases have sparked worries about a potential recession.”
“The Bubble Has Not Popped” (Cliff Asness, AQR). Value spreads are still near 30-year highs.
“Got A Stash Of Bed Bath & Beyond Coupons? You’d Better Use Them Soon” (CNN Business). “The struggling home goods retailer issued a dire prediction on Thursday, calling into doubt its ability to stay in business much longer and said it was exploring a path forward that includes filing for bankruptcy. A bankruptcy filing, which reportedly could come in a matter of weeks, might spell the end of its iconic coupon programs, especially if the company pursues a bankruptcy process that involves liquidation rather than just restructuring.”
“St. Louis Fed’s Bullard Presents ‘The Prospects for Disinflation in 2023’” (Federal Reserve Bank of St. Louis). “Federal Reserve Bank of St. Louis President James Bullard presented ‘The Prospects for Disinflation in 2023’ on Thursday at an event hosted by CFA Society St. Louis. Bullard noted that GDP growth appears to have improved in the second half of 2022 and the labor market performance remains strong. Inflation remains too high but has declined recently, he added.”
“In 2022, The IRS Went After The Very Poorest Taxpayers” (Reason). “‘The taxpayer class with unbelievably high audit rates—five and a half times virtually everyone else—were low-income wage-earners taking the earned income tax credit,’ reported TRAC [Syracuse University’s Transaction Records Access Clearinghouse], noting that the poorest taxpayers are ‘easy marks in an era when IRS increasingly relies upon correspondence audits yet doesn't have the resources to assist taxpayers or answer their questions.’”
What we’re reading (1/5)
“ChatGPT Creator Is In Talks For Tender Offer That Would Value It At $29 Billion” (Wall Street Journal). “OpenAI, the research lab behind the viral ChatGPT chatbot, is in talks to sell existing shares in a tender offer that would value the company at around $29 billion, according to people familiar with the matter, making it one of the most valuable U.S. startups on paper despite generating little revenue.”
“Hedge Funds Gave Startups Billions. What Are They Worth?” (Bloomberg). “Mining data from thousands of mutual funds over the past year, Bloomberg tracked down their valuations for 46 private companies that also count the five hedge fund firms as investors. Of those, about 70% of the private companies had been marked down by mutual funds through September last year, with an average decline of 35%. Some holdings were slashed by as much as 85%…In some cases, the data show hedge fund marks haven’t caught up.”
“The Perfect Fraud For Our Times” (Dealbreaker). “The special-purpose acquisition company isn’t bound by many rules. Indeed, that is one point of them—to elide the disclosure and due-diligence rules required by an ordinary initial public offering…But SPACs are bound by at least one rule, and that is: Until a deal is actually consummated, the money collected stays in an interest-earning trust account and not, say, in the CFO’s Robinhood account to play around with meme stocks and crypto, even if those might earn investors a few more basis points than the trust account. Which in the case of the aforementioned now-former CEO, they didn’t.”
“Tesla Isn't Apple, Elon Musk Isn't Steve Jobs, And Its Cars Aren’t The Next iPhone” (Insider). “What should be more concerning to investors is it's becoming less clear by the day how Tesla itself can remain competitive in an EV market that's growing fast and in danger of leaving the company behind.”
“What Is Going Wrong With American Higher Education?” (Marginal Revolution). “In my own field, economics, the prospect of having to do a “pre-doc” and then six years for a Ph.D. is driving away creative talent. On the research side, there is an obsession with finding the correct empirical techniques for causal inference. Initially a merited and beneficial development, this approach is becoming an intellectual straitjacket. There are too many papers focusing on a suitably narrow topic to make the causal inference defensible, rather than trying to answer broader, more useful but also more difficult questions.”
What we’re reading (1/4)
“Alan Greenspan Says US Recession Is Likely” (CNN Business). “Former Federal Reserve Chairman Alan Greenspan believes a US recession is the ‘most likely outcome’ of the Fed’s aggressive rate hike regime meant to curb inflation. He joins a growing chorus of economists predicting imminent economic downturn. His views are particularly important. Not only did Greenspan serve five terms as Fed chair under four different presidents between 1987 and 2006, but he was the last chair to successfully navigate a soft landing, in 1994. In the 12 months that followed February 1994 Greenspan nearly doubled interest rates to 6% and managed to keep the economy steady, avoiding recession.”
“Amazon To Lay Off Over 17,000 Workers, More Than First Planned” (Wall Street Journal). “The Seattle-based company in November said that it was beginning layoffs among its corporate workforce, with cuts concentrated on its devices business, recruiting and retail operations. At the time, the company expected the cuts would total about 10,000 people, but a person with knowledge of the issue said the number could change, The Wall Street Journal reported. Thousands of those cuts began last year.”
“Jeff Bezos May Return To Helm Amazon, Says Forecaster Of Double-Digit Stock Market Losses Last Year” (MarketWatch). “It’s still early enough in the year to look at 2023 predictions, so this time we’ll go with one from an analyst who called the market correctly at the end of 2021. ‘The S&P 500 will have its worst year since 2008,’ said Michael Batnick, managing partner at Ritholtz Wealth Management. ‘I predict this year it will fall more than 15%. The combination of high multiples, high inflation, supply chain issues, and the Fed raising interest rates will prove to be too much for investors to handle.’ The S&P 500 dropped 19% last year.”
“Microsoft And OpenAI Working On ChatGPT-Powered Bing In Challenge To Google” (The Information). “Microsoft could soon get a return on its $1 billion investment in OpenAI, creator of the ChatGPT chatbot, which gives humanlike text answers to questions. Microsoft is preparing to launch a version of its Bing search engine that uses the artificial intelligence behind ChatGPT to answer some search queries rather than just showing a list of links, according to two people with direct knowledge of the plans.”
“The Method In The Markets’ Madness” (The Atlantic). “[I]f fundamentals explain a lot of the market’s overall drop, why all the turbulence? Well, the stock market is a kind of prediction machine, and, as Yogi Berra supposedly said, ‘It’s tough to make predictions, especially about the future.’ They’re especially hard to make at the moment, when so much about what’s going to happen next year is genuinely uncertain.”
What we’re reading (1/3)
“Apple’s Market Cap Falls Under $2 Trillion As Sell-Off Continues” (CNBC). “Apple shares fell more than 3% trading on Tuesday, giving the iPhone maker a market capitalization under $2 trillion for the first time since May. Apple fell $3.74% to a price of $130.20 per share, a 52-week low, giving the company a valuation of $1.99 trillion at market close on Tuesday. Apple first hit a $2 trillion valuation in August 2020, as the pandemic boosted its sales of computers and phones for remote work and school. It briefly hit a market value over $3 trillion during trading in January 2022.”
“Remote Work Is Poised To Devastate America’s Cities” (New York Magazine). “The nation’s office buildings aren’t as empty as they were before COVID vaccines became widely available in spring 2021. But they’re still far less populated than they were in 2019. A recent analysis of Census Bureau data from the financial site Lending Tree found that 29 percent of Americans were working from home in October 2022. In New York City, financial firms reported that only 56 percent of their employees were in the office on a typical day in September.”
“Office Owners Already Reeling From Remote Work Now Face Recession Risk In 2023” (Wall Street Journal). “Owners of office buildings stumbled through 2022, when their holdings underperformed most every other type of commercial real estate. Things look poised to get worse in 2023. Landlords have been longing for employees to head back to office buildings in greater numbers. But the national return rate has crept up slowly. For the past three months, it has plateaued at about half of what it was before the pandemic.”
“Caroline Ellison Wanted To Make A Difference. Now She’s Facing Prison.” (Washington Post). “‘I agreed with Mr. Bankman-Fried and others to provide materially misleading financial statements to Alameda’s lenders,’ she said. ‘I am truly sorry for what I did. I knew that it was wrong.’ The judge asked if she knew it was illegal, too. ‘Yes,’ she said.”
“More Than A Penny’s Worth: Left-Digit Bias And Firm Pricing” (Avner Strulov-Shlain, The Review of Economic Studies). “Firms arguably price at 99-ending prices because of left-digit bias—the tendency of consumers to perceive a $4.99 as much lower than a $5.00. Analysis of retail scanner data on 3500 products sold by 25 US chains provides robust support for this explanation. I structurally estimate the magnitude of left-digit bias and find that consumers respond to a 1-cent increase from a 99-ending price as if it were more than a 20-cent increase.”
What we’re reading (1/2)
“After A Rough 2022, U.S. Stock Futures Rise Ahead Of First Trading Week Of 2023” (MarketWatch). “Markets were closed Monday in observance of the New Year’s holiday. Investors are in for a busy shortened week, with a slew of economic data due, including S&P Global manufacturing PMI and construction spending expected Tuesday, the Job Openings and Labor Turnover Survey on Wednesday and the December jobs report due Friday. On Wednesday, the Fed will also release minutes from its latest meeting.”
“3 Different Paths The Economy Could Take In 2023” (Vox). “Heading into the new year, economists say that 2023 will likely bring changes. Inflation is expected to slow as the effects of the Federal Reserve’s interest rate hikes continue to ripple through the economy. But that could also mean the United States slips into a recession and more people lose their jobs or have a difficult time finding a new one.”
“Stay For Pay? Companies Offer Big Raises To Retain Workers” (Wall Street Journal). “Workers who stay put in their jobs are getting their heftiest pay raises in decades, a factor putting pressure on inflation. Wages for workers who stayed at their jobs were up 5.5% in November from a year earlier, averaged over 12 months, according to the Federal Reserve Bank of Atlanta. That was up from 3.7% annual growth in January 2022 and the highest increase in 25 years of record-keeping. Faster wage growth is contributing to historically high inflation, as some companies pass along price increases to compensate for their increased labor costs.”
“Wealth Across The Generations” (Marginal Revolution). “[Quoting Jeremy Horpendahl] ‘The main takeaways: Millennials are roughly equal in wealth per capita to Baby Boomers and Gen X at the same age. Gen X is currently much wealthier than Boomers were at the same age: about $100,000 per capita or 18% greater[.] Wealth has declined significantly in 2022, but the hasn’t affected Millennials very much since they have very little wealth in the stock market (real estate is by far their largest wealth category)’”
“Warren Buffett Called Out Stock-Market Gamblers, Savaged Bitcoin, And Praised Elon Musk And Jeff Bezos Last Year. Here Are His 10 Best Quotes Of 2022.” (Insider). Among them: “Deceptive ‘adjustments’ to earnings – to use a polite description – have become both more frequent and more fanciful as stocks have risen. Speaking less politely, I would say that bull markets breed bloviated bull.”