May picks available soon
We’ll be publishing our Prime and Select picks for the month of May before Monday, May 1 (the first trading day of the month). As always, we’ll be measuring SPC’s performance for the month of April, as well as SPC’s cumulative performance, assuming the sale of the April picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Friday, April 28). Performance tracking for the month of May will assume the May picks are bought at the open price (at the mid-point of the opening bid and ask prices) on the first trading day of the month (Monday, May 1).
What we’re reading (4/24)
“‘Nobody Knows When It’s Going To Happen’: Wall Street Wakes Up To Default Threat.” (Politico). “As the drop-dead date to raise the nation’s $31.4 trillion debt ceiling looms with no deal in sight, traders and executives are starting to get nervous that President Joe Biden and Republicans won’t resolve the impasse until it’s too late. That’s sparked increasing concern about a potential threat that could rock markets and tilt the world’s largest economy into recession.”
“The Fabulous Yields, And Lurking Risks, Of Money Market Funds” (New York Times). “[I]t’s been a glorious time for one part of the financial world: money market mutual funds. The biggest money funds tracked by Crane Data are paying more than 4.6 percent interest, and a handful have yields around 5 percent. Their gaudy interest rates closely follow the Fed funds rate, set by the central bank. The effective Fed funds rate is now about 4.83 percent. That’s onerous for people who need to borrow money, and deliberately so: The Fed is raising rates because it is trying to squelch inflation by slowing the economy.”
“‘Crypto Is Dead In America,’ Says Longtime Bitcoin Bull Chamath Palihapitiya” (CNBC). “Palihapitiya blamed crypto’s demise largely on regulators, who have gotten much more aggressive in their pursuit of bad actors in the industry. Securities and Exchange Commission Chairman Gary Gensler has said crypto trading platforms should abide by strict U.S. securities laws.”
“How Washington Allowed Bank CEOs To Pocket Huge Bonuses Amid Failures” (Washington Post). “Years of research showed that the existing structure for paying Wall Street executives led them to take much bigger gambles with their institutions because they benefited from stock price increases, Sanjai Bhagat, a finance professor at the University of Colorado at Boulder, warned Securities and Exchange Commission attorneys and economists in a closed-door meeting in November 2016. The best fix would be to require top bank officials to hold any stock until one to three years after they left their companies, Bhagat told them. The idea was one of dozens of ways to change how bank CEOs are compensated that federal authorities spent years discussing. But regulators never acted[.]”
“Everything You Don’t Actually Need To Know About The Economics Of Succession” (Financial Times). “Despite the sound, fury and personal drama, in a strictly business sense . . . not much has actually happened. Still, it has got a bit confusing, and even seasoned financial analysts or FT columnists could be forgiven for losing track of things. So FT Alphaville sat down for a fevered quasi-binge of the show and tried to make sense of Succession’s financial plotline(s).”
What we’re reading (4/23)
“Individual Investors Are Still Hungry for Stocks—While Shunning Risk” (Wall Street Journal). “Individual investors scooped up shares of single stocks and exchange-traded funds at a near-record clip in the first quarter. They appear to have learned some lessons in risk taking as well. Individuals bought a net $77.7 billion in equities and ETFs on U.S. exchanges in the first three months of the year, according to Vanda Research data, which excludes contributions to 401(k)s and other retirement accounts. That sum trails only the first quarters of 2021 and 2022, when they bought about $80 billion.”
“Perspective: Housing Prices Take Some Buyers Out Of The Market” (Washington Post). “There has been much debate over whether the economy will or will not suffer a recession this year. There is no debate that housing is in recession. Home sales, the construction of single family homes, and house prices are falling.”
“Fed Officials On Track To Hike Rates And Signal Potential Pause” (Bloomberg). “Federal Reserve officials are on track to raise interest rates a quarter percentage point next month and signal a potential pause from the steepest hiking campaign in decades.”
“Here’s a Better Way To Identify Quality Stocks” (Institutional Investor). “According to the research, the annual return on a portfolio of quality stocks can be enhanced by an average of .60 percent when investors include intangible assets in their definition of quality. Intangible assets include investments in research and development, software expenses, and costs associated with branding and human capital.”
“The 60/40 Portfolio Is Back! *After Not Going Away” (The Big Picture). “One outlier year every 4 decades or so makes for a pretty reliable investment strategy. The academic evidence that this sort of investing outperforms all others over a long enough timeline is overwhelming.”
What we’re reading (4/22)
“Alphabet CEO’s Pay Soars To $226 Million On Huge Stock Award” (Bloomberg). “The pay package awarded to Alphabet Inc. Chief Executive Officer Sundar Pichai soared to $226 million in 2022, boosted by a triennial stock grant, making him one of the world’s highest-paid corporate leaders.”
“Americans Escaping Pricey Cities Bring Higher Housing Costs, Inflation With Them” (Wall Street Journal). “Tampa, Fla., residents face some of the hottest inflation in the country, but when excluding sizzling housing costs, price increases are nearly as cool as in Minneapolis. The disparity shows regional inflation is heavily influenced by home prices and rent costs.”
“Why BuzzFeed Is Closing Its News Division” (DealBook). “BuzzFeed’s decision to shut its news division — an innovator in digital journalism that published both prizewinning investigations and listicles designed to get clicks — drew many bittersweet tributes online. But its closure is the latest reminder that digital media start-ups, which deep-pocketed investors once valued at astronomical sums, are facing headwinds.”
“IPO Market Shows Signs Of Life Even As Recession Fears Persist” (Bloomberg). “The global market for initial public offerings is showing signs of life as a rebound in the stock market has emboldened companies to test investor appetite for new listings, particularly in Asia. But a full-fledged recovery looks distant.”
“Testing Political Antitrust” (New York University Law Review). “Our findings do not support the political antitrust movement’s central hypothesis that there is an association between economic concentration and the concentration of lobbying power. We do not find a strong relationship between economic concentration and the concentration of lobbying expenditure at the industry level. Nor do we find a significant difference between top firms’ and other firms’ allocation of additional revenues to lobbying.”
What we’re reading (4/21)
“Double-Digit Price Increases Bolster Profits At Procter & Gamble” (New York Times). “Another round of price increases on household products like Gillette razors, Dawn dish soap and Swiffer dusters bolstered Procter & Gamble’s bottom line last quarter, the company said on Friday, a sign that stubborn inflation may linger as companies defend their profit margins.”
“Billion-Dollar Hedge Fund Startups Rise To Pre-Pandemic Levels” (Bloomberg). “The biggest new hedge funds are raising more money, at levels not seen since before the pandemic, and the 2024 crop could include one of the largest startups in years. At least four new firms are poised to eclipse $1 billion by year-end, collectively bringing in at least $6.5 billion from investors, according to people with knowledge of the fundraising activities.”
“Gen Z Is Buying Up Homes. How They Got So Lucky — And Millennials Got Screwed.” (Insider). “Gen Zers may be the new kids on the block, but when it comes to home buying they are coming out on top. That's according to a report from Redfin that has found the generation has surpassed their peers in homeownership at the earliest stages of their adulthood. In 2022, 30% of 25-year olds owned their home, slightly higher than the 28% rate for millennials and 27% rate Gen Xers when they were that age, data from the real estate brokerage shows. So how did Gen Z gain the competitive edge? It all comes down to a healthy labor market, Daryl Fairweather, the chief economist at Redfin, told Insider.”
“The Economics Of Dating During High Inflation” (The Hustle). “The recent bout of inflation has impacted nearly every component of dating life — food, drinks, transportation — and has added additional financial pressure to courtship.”
“Miller High Life Cans Destroyed In Europe Over ‘Champagne of Beers’ Logo” (Wall Street Journal). “Comité Champagne, a trade organization that oversees which bubbly can call itself Champagne, was told about the beer and ‘requested the destruction of these illicit goods,’ a statement by Belgian customs authorities and Comité Champagne said. Only sparkling wines made in France’s Champagne region can use the name on their labels, according to French laws.”
What we’re reading (4/20)
“Blackstone Is The Latest Victim Of The Weakening Commercial Real Estate Market” (CNN Business). “The ongoing commercial real estate slowdown has a new victim: Blackstone, the largest owner of commercial real estate globally. The company saw its distributable earnings — the profit distributed to shareholders after expenses — plunge 36% since last year. That’s raising eyebrows on Wall Street as investors assess the fallout from last month’s regional banking crisis.”
“Making Manufacturing Greater Again” (Paul Krugman, New York Times). “Instead of offering corporations broad tax cuts, they [Biden administration policies] provide incentives for the transition to an economy that runs on renewable energy: tax credits for production of or investment in clean energy, for consumers who purchase electric vehicles or energy-efficient appliances, and so on. Combined with Buy American provisions, these incentives will create increased demand for a wide range of U.S.-produced manufactured goods, from batteries to electric motors.”
“Home Prices In March Posted Biggest Annual Decline In 11 Years” (Wall Street Journal). “Home sales fell across the U.S. in March, a sluggish start to the crucial spring selling season as higher mortgage rates squashed momentum from the previous month. U.S. existing-home sales decreased 2.4% in March from the prior month to a seasonally adjusted annual rate of 4.44 million, the National Association of Realtors said Thursday. March sales fell 22% from a year earlier.”
“BuzzFeed News, A Digital Media Pioneer, To Shut Down” (Washington Post). “BuzzFeed News, a pioneering digital news site that won a Pulitzer Prize and stirred controversy by publishing the Steele dossier, said Thursday it will close after 12 years. The news was broken to dismayed employees in an email from the site’s co-founder and chief executive, Jonah Peretti, who wrote the company couldn’t maintain a stand-alone news organization and cited “more challenges than I can count,” including the pandemic, declining advertising and ‘a tech recession.’”
“CEO Says Many Of His Remote Workers Didn't Open Their Laptops For A Month, And ‘Only The Rarest Of Full-Time Caregivers’ Can Be Productive Employees” (Insider). “Clearlink's CEO James Clarke reportedly told employees that he believed many remote workers have ‘quietly quit’ and become so brazen that dozens at his company ‘didn't even open’ their laptops for a month.”
What we’re reading (4/19)
“Bed Bath & Beyond Preparing For Bankruptcy Filing Within Days” (Wall Street Journal). “The embattled retailer recently said it needed to raise $300 million from share sales by April 26 to stay out of chapter 11. The company will have to stop selling stock by that date, when it would lose eligibility to continue under its share registration documents. Given the stock’s closing price on Wednesday of 46 cents, Bed Bath & Beyond faces long odds to raise that amount of money within that time.”
“The Plan To Get Rupert Murdoch To Pay Up” (DealBook). “The game plan revolved around getting damaging evidence out in public, Hootan Yaghoobzadeh of Staple Street Capital, which owns Dominion, said on CNBC today. That contributed heavily to what was a stacked deck against Fox News, with the broadcaster facing what one legal expert told The New York Times was ‘unquestionably the strongest defamation case we’ve ever seen against a major media company.’”
“What Beat The S&P 500 Over The Past Three Decades? Doing Nothing” (Morningstar). “A strategy of buying a basket of stocks and leaving them untouched outperformed the index, not to mention scores of active managers.”
“Crypto-Influencers Give Poor Investment Advice — And The SEC Is Taking Notice” (ProMarket). “The new research study Crypto-Influencers, that I co-authored with Ken Merkley, Mark Piorkowski, and Brian Williams, finds that, on average, following the advice of crypto-influencers generated significant negative returns depending on the holding period. In addition, the more expert the adviser claimed to be, the steeper the loss.”
“America’s Richest Banker Quadrupled His Firm’s Assets Last Year By Making A Massive Bet That Inflation Would Spike” (Insider). “While many of America's regional banks were making risky investments to generate yield during a prolonged period of low interest rates, Andy Beal, the founder and chairman of Beal Bank, was on the sidelines waiting to capitalize on a trade that would ultimately quadruple his firm's assets in a year.”
What we’re reading (4/18)
“Commercial Real Estate Is Bruised But Not Broken” (Financial Times). “Commercial real estate is facing a trifecta of challenges. Rising interest rates have reduced the net present value of properties and have pushed up mortgage costs. According to the RCA CPPI National All-Property Index, US commercial property prices have fallen 9 per cent over the past seven consecutive months. This drop, when annualised, is the biggest since 2010. According to Trepp, $270bn in commercial mortgages held by banks are set to mature this year, the highest on record. Higher interest rates mean rolling that debt over will be costly. Consequently, sales volumes have dropped to levels not seen in a decade (excluding the depths of the pandemic). And finally rents in CRE have been soft as a shift to working from home has sapped demand for office space.”
“Banks’ Bond Losses Caused the Crisis. Now the Crisis Is Reversing the Losses.” (Wall Street Journal). “The ripple effects of the banking crisis are reversing one of the problems that sparked it. Rising rates over the past year saddled banks with losses on their massive portfolios of bonds. Those losses helped sink Silicon Valley Bank last month. But since that failure sparked turmoil across the banking sector, falling bond yields have narrowed those losses.”
“Public Pessimism On The Economy Hits A New High, CNBC Survey Shows” (CNBC). “Amid persistent inflation, higher interest rates and recession worries, Americans have never been more negative about the economy, according to the latest CNBC All-America Economic Survey. A record 69% of the public holds negative views about the economy both now and in the future, the highest percentage in the survey’s 17-year history.”
“Big Question With Dollar Under Fire From Rival Countries And Currencies: What Happens To Markets If The Greenback Loses Its Dominance?” (MarketWatch). “Is “King Dollar” in danger of losing its crown? Probably not yet, but the rapid unwinding of last year’s torrid rally in the U.S. dollar, combined with efforts in Beijing and beyond to ease dependence on the buck, have helped to reinvigorate speculation that the greenback’s dominance over international trade and finance may be moving toward its twilight.”
“De-Dollarization Is Happening At A ‘Stunning’ Pace, Jen Says” (Bloomberg). “The greenback’s share in global reserves slid last year at 10 times the average speed of the past two decades as a number of countries looked for alternatives after Russia’s invasion of Ukraine triggered sanctions, Jen and his Eurizon SLJ Capital Ltd. colleague Joana Freire wrote in a note. Adjusting for exchange rate movements, the dollar has lost about 11% of its market share since 2016 and double that amount since 2008, they said.”
What we’re reading (4/17)
“Alphabet Shares Dip On Report Samsung Phones May Switch To Microsoft Bing Search” (CNBC). “Google pays billions of dollars every year to phone manufacturers, including a reported $20 billion annually to Apple, to serve as the default search engine. In return, the search company reaps billions of dollars worth of advertising, which has long been a profit center for Google. Samsung and Google’s deal is up for renewal soon, the Times reported, and is worth an estimated $3 billion in revenue to Google. Samsung is a major Android manufacturer, and the news that Samsung would consider a switch reportedly surprised Google employees.”
“How To Recession-Proof Your Portfolio” (The Week). “Diversification — which ‘doesn't just mean allocating your money across different forms of investments like stocks or bonds,’ Nerdwallet points out, but also "across industries, geographic locations, and companies of various sizes" — is always important to mitigate portfolio risk. But during a recession, diversification becomes especially important. After all, you don't want to put all of your eggs into one basket that sinks with the market.”
“Fox Could Likely Survive A Nine-Figure Loss To Dominion, Media Analysts Say” (NBC News). “In the event Dominion wins its case, said Lyrissa Lidsky, a constitutional law professor at the University of Florida, the jury is highly unlikely to award Dominion all the money it’s seeking for what it says is the reputational damage exacted by Fox News’ broadcasts.”
“State Street, Schwab See Deposits Drop” (Wall Street Journal). “At Schwab, the brokerage giant, deposits fell 11% to $326 billion from the previous quarter and were down 30% from a year earlier. State Street, one of the largest custody banks, said Monday that deposits totaled about $224 billion at the end of the first quarter, down 5% from December and 11% from a year ago.”
“Life Insurers Could Face Liquidity Crunch Next” (Institutional Investor). “Insurers have faced liquidity problems in the past for a variety of reasons: poor product management, such as writing policies that allowed large-scale, immediate policyholder cash-outs; inadequate liquidity in investment portfolios to fund redemptions; and poorly anticipated disintermediation risk due to changing economic conditions.”
What we’re reading (4/16)
“The End of Faking It in Silicon Valley” (New York Times). “Not only has funding dried up for cash-burning start-ups over the last year, but now, fraud is also in the air, as investors scrutinize start-up claims more closely and a tech downturn reveals who has been taking the industry’s ‘fake it till you make it’ ethos too far.”
“Tech Bros Are Destroying Weird Austin” (UnHerd). “Not so long ago, Silicon Valley was a magical land where unicorns flourished; anybody with an idea, seed capital and a little luck could become richer than all the kings of folklore. These days, things aren’t so rosy. Silicon Valley’s own bank recently collapsed, some unicorns have turned out to be donkeys, and, depending on your point of view, the Valley is now either Ground Zero for a plague of disinformation or the epicentre of a sinister private-public surveillance regime.”
“Yellen Says U.S. Banks May Tighten Lending And Negate Need For More Fed Rate Hikes” (CNBC). “U.S. Treasury Secretary Janet Yellen said banks are likely to become more cautious and may tighten lending further in the wake of recent bank failures, possibly negating the need for further Federal Reserve interest rate hikes.”
“With The Odds On Their Side, They Still Couldn’t Beat The Market” (New York Times). “It’s awfully hard to beat the stock market consistently. In 2022, despite many advantages, most mutual funds couldn’t do it. There are important lessons in that failure for this year and beyond.”
“Christine Lagarde Says She Has ‘Huge Confidence’ That The US Won’t Default On Its Own Debt” (CNN Business). “Christine Lagarde, president of the European Central Bank, said she has “huge confidence” the US will not allow the country to default on its own debt during an interview on CBS’ ‘Face the Nation’ Sunday.”
What we’re reading (4/14)
“Dow Sheds More Than 100 Points Friday, But Notches Fourth Straight Positive Week” (CNBC). “The Dow Jones Industrial Average fell Friday, but notched a positive week, as investors assessed a weak retail sales report that dented enthusiasm around a stronger-than-expected start to corporate earnings.”
“People Are Investing in Bonds Again—Once They Figure Them Out” (Wall Street Journal). “After more than a decade of uninspiring returns, bonds have started to pay out real money. Over the course of 2022, a 2-year Treasury note went from yielding less than 1% annually to more than 4%. Last September was the first time since 2007 when more than 85% of fixed-income assets paid out more than 4%, according to the asset-management firm BlackRock.”
“A Top Investor In Charles Schwab Sold Its Entire $1.4 Billion Stake As The Brokerage Fell Victim To The Banking Turmoil” (Insider). “Florida-based GQG Partners was among Schwab's top 15 shareholders until fears of the bank's unrealized losses on its bond portfolio alongside a run on deposits took hold.”
“In China, Young People Ditch Prestige Jobs for Manual Labor” (New York Times). “Ms. Liu is part of a phenomenon attracting growing attention in China: young people trading high-pressure, prestigious white-collar jobs for manual labor. The scale of the trend is hard to measure, but widely shared social media posts have documented a tech worker becoming a grocery store cashier; an accountant peddling street sausages; a content manager delivering takeout. On Xiaohongshu, an Instagram-like app, the hashtag ‘My first experience with physical labor’ has more than 28 million views.”
“Why European Stocks Are Crushing US Peers” (CNN Business). “On Friday the STOXX 50 index — which tracks Europe’s blue-chip firms — hit its highest level in 22 years. It has jumped 10.8% year-to-date. The region’s broader STOXX 600 index is up 9.9% so far this year. By comparison, the Dow Jones Industrial Average in the United States has climbed 2%. The broader S&P 500 is 7.5% higher.”
What we’re reading (4/13)
“Gold Prices Near Record As Investors Bet Inflation Is Here To Stay” (Wall Street Journal). “Gold prices hit their highest level of the year on Thursday, driven by bets that inflation will remain sticky despite recent declines.”
“Silicon Valley Bank Reminds Us How Tight Banks Were Amid ‘Easy’ Fed” (RealClear Markets). “Apparently SVB didn’t get the memo judging by assets that were largely of the Treasury variety. Supposedly capital was “costless” when deposits into SVB surged, but the bank surely didn’t lend as though money was ‘free.’”
“It Cost $22 Billion To Rescue Two Failed Banks. Now The Question Is Who Will Pay” (NPR). “Freedom Bank [in Montana] and other community banks are growing worried they will now have to help pay for the rescue of Silicon Valley, as well as New York-based Signature Bank, after regulators last month took the unprecedented step of backstopping all deposits at both lenders.”
“Walmart Sells Bonobos To WHP Global And Express In $75 Million Deal” (CNBC). “Walmart has sold menswear brand Bonobos to brand management firm WHP Global and Express in a $75 million deal announced Thursday. It’s the second time this year Walmart has offloaded a direct to consumer brand that it bought under former e-commerce President Marc Lore after it sold Moosejaw to Dick’s Sporting Goods in February.”
“Amazon Is ‘Investing Heavily’ In The Technology Behind ChatGPT” (CNN Business). “Amazon wants investors to know it won’t be left behind in the latest Big Tech arms race over artificial intelligence. In a letter to shareholders Thursday, Amazon (AMZN) CEO Andy Jassy said the company is ‘investing heavily’ in large language models (LLMs) and generative AI, the same technology that underpins ChatGPT and other similar AI chatbots.”
What we’re reading (4/12)
“Fed Expects Banking Crisis To Cause A Recession This Year, Minutes Show” (CNBC). “Projections following the meeting indicated that Fed officials expect gross domestic product growth of just 0.4% for all of 2023. With the Atlanta Fed tracking a first-quarter gain around 2.2%, that would indicate a pullback later in the year.”
“The Next Financial Crisis Will Get Ugly” (UnHerd). “Only yesterday, a spooked IMF correctly interpreted SVB and Credit Suisse’s fate as the sign of things to come: the edge of a coming economic storm whipped up by a decade of geopolitical fragmentation and cheap money. Now, the overdue attempt to reverse this course has slowed the global economy, possibly to the point of recession.”
“EY Breakup Plan Doomed By Miscalculations And Powerful Opponents” (Wall Street Journal). “For months, Ernst & Young’s top leaders characterized their planned breakup of the firm as almost inevitable. All that was left were some adjustments around the edges and votes by partners in dozens of countries. They missed a brewing revolt at the firm’s biggest operation, where EY’s top leader and the architect of the breakup had deep ties. A handful of U.S. partners, prodded by a vocal group of EY retirees, scuttled the deal.”
“California Economy Is On Edge After Tech Layoffs And Studio Cutbacks” (New York Times). “A recent survey from the nonpartisan Public Policy Institute of California found widespread pessimism about the economy. Two-thirds of respondents said they expected bad economic times for the state in the next year, and a solid majority — 62 percent — said they felt the state was already in a recession.”
“Hedge Funds Signal Tough Times Ahead” (Institutional Investor). “Hedge funds have rarely been so bearish about the market. Funds’ net short position in S&P 500 futures contracts is now at the second-highest level since October 2015, according to a report from NDR, a sister company of Institutional Investor. And according to data from PivotalPath, managed futures, which are the most active trader of S&P 500 futures, now have the lowest exposure to the index since June 2017.”
What we’re reading (4/11)
“Pausing AI Developments Isn't Enough. We Need To Shut It All Down” (Time). “Many researchers steeped in these issues, including myself, expect that the most likely result of building a superhumanly smart AI, under anything remotely like the current circumstances, is that literally everyone on Earth will die. Not as in ‘maybe possibly some remote chance,’ but as in ‘that is the obvious thing that would happen’…If somebody builds a too-powerful AI, under present conditions, I expect that every single member of the human species and all biological life on Earth dies shortly thereafter.”
“AI Is Flooding The Workplace, And Workers Love It” (Vox). “Exposure was the highest among high-wage jobs that require degrees and had previously felt relatively safe from the onslaught of technological erasure: financial analysts, web designers, legal researchers, and journalists, among others. While the study said tools like ChatGPT could certainly save those jobs significant time completing tasks, it stopped short of saying those jobs would be fully automated by those technologies. It’s likely, however, that it will change them.”
“Where’s The AI Culture War?” (The Atlantic). “Part of what makes the politics of AI so tricky to get ahold of is that AI is an everything issue. It’s like so many different things—nuclear weapons, gain-of-function research, electricity—and in that sense not quite like any of them, which makes it hard to slot into any existing partisan framework. “If you asked 10 different people in Congress to define artificial intelligence,” Beyer told me, “you’d get at least 10 different answers.” It’s tough to split into two distinct camps when no one understands what you’re arguing about.”
“Inflation Data Expected To Show Continued Signs Of Cooling In March” (Yahoo! Finance). “March's Consumer Price Index (CPI), slated for release Wednesday, is expected to come in at 5.2%, a slowdown from February's 6% annual gain, according to estimates from Bloomberg. The number would mark the slowest annual increase in consumer prices since May 2021[.]”
“Ernst & Young Halts Breakup Plan After Revolt By U.S. Leaders” (Wall Street Journal). “Ernst & Young has axed its plan for a split of its auditing and consulting arms, marking a dramatic and costly retreat from a proposal that was meant to reshape the accounting profession but ended amid bitter infighting at the firm.”
What we’re reading (4/10)
“Generative AI Has An Intellectual Property Problem” (Harvard Business Review). “While it may seem like these new AI tools can conjure new material from the ether, that’s not quite the case. Generative AI platforms are trained on data lakes and question snippets — billions of parameters that are constructed by software processing huge archives of images and text. The AI platforms recover patterns and relationships, which they then use to create rules, and then make judgments and predictions, when responding to a prompt. This process comes with legal risks, including intellectual property infringement.”
“Lawmakers Trade Bank Stocks While Working On U.S. Bank-Failure Fallout” (Wall Street Journal). “Two lawmakers reported trades in bank stocks last month as they worked on government efforts to address fallout from two of the largest bank failures in American history. The disclosures, by a New York Republican and an Oregon Democrat, mark the latest instance of congressional stock trading intersecting with official business. Rep. Nicole Malliotakis (R., N.Y.) bought stock in a regional bank before a subsidiary agreed to take over Signature Bank’s deposits following its closure. Days before she bought the stock, she said she met with financial regulators to discuss the bank’s closure.”
“After Layoffs, Tech Stocks Boom” (Axios). “Tech stocks have always been volatile, and it's never a good bet to blame their fluctuations on any single cause. Here are some possible explanations for the resurgence, more than one of which might apply: Wall Street is rewarding tech for all those layoffs. Investors applaud ‘discipline,’ and thinner payrolls could mean more profits to come. No, it's the wave of enthusiasm in the industry for ChatGPT and generative AI is driving the market up. Many observers are framing the new generation of AI as the biggest leap forward in tech since the iPhone's 2007 debut. Or maybe the market just oversold tech in 2022 and it's correcting course now.”
“The Latest On Hybrid Work: Who Is WFH And Who Isn’t” (CNN Business). “As the economy slows, are employers starting to regain the upper hand in negotiations with employees and job seekers? Pay is always an issue, of course, but in the wake of the pandemic, so too is how much time employers want people to work on site versus how much they are willing to let employees work remotely.”
“Housing Is So Unaffordable That Banks Are Losing Money For Each Mortgage They Finance For The First Time Ever” (Insider). “In 2022, independent mortgage banks and mortgage subsidiaries of chartered banks banks lost an average $301 for every mortgage they financed, the MBA said in a recent report. That represents a 113% decrease from last year's average income of $2,339 per mortgage, and is the first time that banks posted negative profits for financing home loans since the MBA began recording profits in 2008.”
What we’re reading (4/8)
“Exxon Mobil: Eyes On The Permian Prize” (Wall Street Journal). “Texas-based oil major Exxon Mobil was once known for exploring for oil in all sorts of exotic places, but right now its own backyard is looking like the best option.”
“Sentiment Back To Bullish” (Bespoke Investment Group). “Sentiment saw a huge rebound this week based on the latest AAII survey. With the S&P 500 taking out early March highs late last week, bullish sentiment jumped 10.8 percentage points to 33.3%. Although there was a higher level of bullish sentiment as recently as February 16th, this week’s increase was the largest WoW jump since June of last year. Even though a double-digit jump in bullish sentiment sounds significant, S&P 500 performance has been unremarkable following similar instances historically.”
Big Law Firm Draws Ire For Leaked List Of ‘Non-Negotiable Expectations’ For Associates — Including Being Online 24/7 'No Exceptions, No Excuses’” (Insider). “The list, which was part of an internal presentation created and delivered by an associate to junior colleagues, included expectations like being online 24/7, ‘no exceptions, no excuses,’ and likened associates to waiters or ‘a concierge at the Four Seasons’ who will drop everything to cater to the client, "who comes first and is always right.’”
“First Anti-Aging Pills To Hit Shelves In 2028, Expert Predicts - As Silicone Valley Races To Conquer Death” (The Daily Mail). “Pills that can help a person reverse the effects of aging could be on the market in the next five years, according to an expert. Sam Altman, 37, was revealed to have funded biotech startup Retro BioScience to the tune of $180million last month. He is the latest in a long line of Silicon Valley billionaires to throw their considerable wealth behind the science of aging.”
“U.S. Economy May Be Heading to a Place That Must Not Be Named” (New York Times). “Recession has become a nasty word. Federal Reserve officials dance around it with euphemisms like ‘a soft landing’ or its dreaded alternative, ‘a hard landing.’ Look beneath the hood of Fed forecasts, though, and it’s clear that central bank policymakers recognize that there is a good chance of a sharp slowdown soon. Their own policies are at least partly responsible for making that happen.”
What we’re reading (4/7)
“Digging Into A $344 Billion Investing Mystery” (Wall Street Journal). “Preposterous claims in private investment offerings illustrate an important point about red-hot ‘Reg D’ securities: No one is checking to see if the details in these filings are even remotely true[.]”
“A Look Into The Growing Reluctance To Fund Startups” (RealClear Markets). “For more than a century, startups have been critical to U.S. technological advancement. They could not exist today without venture-capital funding, which enables them to form and grow. So it's alarming that venture fundraising is now at a nine-year low. What is causing investors to stop putting money into venture capital?”
“How Fabulous Fab And 2008 Still Haunt The Markets” (Financial Times). “Twelve years after the last attempt to ban the conflicts of interest that made Fab a poster child for pre-crisis banker attitudes, the US Securities and Exchange Commission is secretly making another attempt. The interval hasn’t made his task any easier, nor has the complexity of financial regulation and the potential for unintended consequences – a point to bear in mind as policymakers examine the recent banking turmoil.”
“The Job Market Is Clearly Starting To Slow Down” (Insider). “February's gain was revised from 311,000 to 326,000. January's gain was updated from 504,000 to 472,000. That means nonfarm payroll employment seems to be showing some signs of slowing. Job growth of 236,000 is still good, but isn't as high as what the US has seen in the last several months. However, Friday's jobs report does still point to a robust economy.”
“Paul Singer, The Man Who Saw The Economic Crises Coming” (Wall Street Journal). “‘Valuations are still very high,’ he says. ‘There’s a significant chance of recession. We see the possibility of a lengthy period of low returns in financial assets, low returns in real estate, corporate profits, unemployment rates higher than exist now and lots of inflation in the next round.’”
What we’re reading (4/6)
“S&P 500 Ends Thursday Higher, But Suffers Its First Down Week In Four: Live Updates” (CNBC). “Tech stocks lifted the S&P 500 into the green Thursday as the market wrapped up the short trading week on a high note despite signs of a weakening labor market.”
“Stocks Haven’t Looked This Unattractive Since 2007” (Wall Street Journal). “The equity risk premium—the gap between the S&P 500’s earnings yield and that of 10-year Treasurys—sits around 1.59 percentage points, a low not seen since October 2007.”
“Tim Cook On Shaping The Future Of Apple” (GQ). “As Apple CEO, he has defied his skeptics and refashioned the world’s most creative company on his own exacting terms. Now, in a frank conversation, he offers new insight into his leadership—explaining why he sees himself as an outsider, how he asserts Apple’s values, and what he does to keep from staring at his iPhone all day.”
“This Bank Proposal Will Damage Our Economy And Make Voters Even More Resentful” (New York Times). “The current [deposit insurance] limit, $250,000 per person, is more than adequate for any banking needs an individual might have. An unlimited guarantee to banks that their debts to depositors will always be 100 percent backed by the government is an invitation for the banks to print money with Uncle Sam’s credibility but for their private profit.”
“‘It’s An Especially Bad Time’: Tech Layoffs Are Hitting Ethics And Safety Teams” (CNN Business). “Big Tech companies brought on employees focused on election safety, misinformation and online extremism. Some also formed ethical AI teams and invested in oversight groups. These teams helped guide new safety features and policies. But over the past few months, large tech companies have slashed tens of thousands of jobs, and some of those same teams are seeing staff reductions.”
What we’re reading (4/5)
“Inflation’s Inventory Gluts Are Here To Stay And Will Hit The Bottom Line In Weaker Economy: CNBC Supply Chain Survey” (CNBC). “Bloated warehouse inventories are an expensive pressure eating away at the bottom line of many companies, and for many, the excess supply and associated costs of storage won’t abate this year, according to a new CNBC Supply Chain Survey.”
“Exxon Quits Drilling In Brazil After Failing To Find Oil” (Wall Street Journal). “Exxon Mobil Corp. has abandoned a multibillion-dollar wager on finding oil in the deep waters off Brazil after a series of disappointing wells left it with nothing to show for more than five years of work, according to people familiar with the matter.”
“Anyone Hoping To Make An Easy Buck Off Vacation Properties Must Contend With An ‘Airbnbust’ And A Growing Number Of Places Looking To Regulate Short-Term Rentals” (Insider). “[T]he industry sits at a crossroads. Some short-term rentals are doing better than ever, while other owners complain of dried-up bookings and an encroaching Airbnbust. Some experts note that localities with robust regulations of short-term rentals provide a solid environment for hosts by capping the number of permits and preserving the profits of existing Airbnb owners.”
“Reimagining Index Funds” (Research Affiliates). “We show that the indexing gold standard of cap-weighting can be improved upon when index construction uses a company’s fundamentals to choose stocks—and then cap-weights them. We propose just such an index, which we call the Research Affiliates Capitalization-Weighted Index, or RACWI.”
“These Are The Only Stocks That Matter Right Now” (CNN Business). “The rally that the S&P 500 has enjoyed since the beginning of the year has been driven by a small group of stocks — the market cap of the remaining 480 or so has basically remained the same. ‘This is not a broad-based rally where all stocks go up but instead a rally concentrated in a few of the largest stocks by market cap, mainly tech names,’ Torsten Slok, chief economist at Apollo Global Management, told CNN.”
What we’re reading (4/4)
“Jamie Dimon On Banking Turmoil: ‘This Wasn’t The Finest Hour For Many Players’” (Wall Street Journal). “Mr. Dimon used his annual letter to highlight JPMorgan’s performance and weigh in on political issues, bank regulation and the state of the economy. In his 43-page letter this year, Mr. Dimon repeated his mantra that the U.S. economy is strong but faces challenges. The fallout from the recent bank failures further clouds the outlook, he said.”
“People Are Suing Elon Musk For $258 Billion Dollars Over Meme Money. I'd Want This Case Thrown Out, Too.” (Dealbreaker). “Like it or not, Elon Musk has a lot of influence. He’s the second richest man in the world, is the (bumbling) head of one of the largest public forums in the world, and — when he’s not actively creating them — has dedicated followers who watch his every move. Said watchers, much like Tesla and Facebook, often take losses for reasons that range from normal market fluctuations to Elon bullying his employees. And when that happens, lawsuits follow.”
“Why I Would Start An Enterprise Technology Company Today” (RealClearMarkets). “Incredible companies have been founded during down economic times; just look at Google, Salesforce, Dropbox, Uber and many more. Their founders were not deterred by the macroeconomic environment. The macro was irrelevant. The cycles were ON, and the dreamers were obsessed. They were committed to navigating challenges and remained undeterred. Founders today shouldn't be deterred, either.”
“You’re Fired!” (RiskHedge). “I think a lot of Nasdaq stocks—and perhaps the whole index—will surprise to the upside when the cost-saving effects of these layoffs start to show up in earnings results. I expect that to happen during Q3 and Q4 of this year.”
“How Cigna Saves Millions by Having Its Doctors Reject Claims Without Reading Them” (ProPublica). “[Cigna] has built a system that allows its doctors to instantly reject a claim on medical grounds without opening the patient file, leaving people with unexpected bills, according to corporate documents and interviews with former Cigna officials. Over a period of two months last year, Cigna doctors denied over 300,000 requests for payments using this method, spending an average of 1.2 seconds on each case, the documents show. The company has reported it covers or administers health care plans for 18 million people. Before health insurers reject claims for medical reasons, company doctors must review them, according to insurance laws and regulations in many states. Medical directors are expected to examine patient records, review coverage policies and use their expertise to decide whether to approve or deny claims, regulators said.”