What we’re reading (5/30)
“Twitter Is Now Worth Just 33% Of Elon Musk’s Purchase Price, Fidelity Says” (Bloomberg). “Musk has acknowledged he overpaid for Twitter, which he bought for $44 billion, including $33.5 billion in equity. More recently, he said Twitter is worth less than half what he paid for it. It’s unclear how Fidelity arrived at its new, lower valuation or whether it receives any non-public information from the company.”
“To Work Fewer Hours, They Put AI On The Job” (Wall Street Journal). “Numerous workers, especially freelancers and small-business owners who are free of the legal hurdles in large companies, have already started using generative AI tools to save time. They say they’ve been struck by how the new technologies, including image and text generators, allow them to expand and speed up what they do, freeing them to take on new projects and make more money.”
“Is The Era Of Large-Cap Growth Stocks Over?” (Institutional Investor). “Only 28 percent of companies in the S&P 500 have managed to outperform the index year-to-date, compared to 59 percent in 2022, 49 percent in 2021, and 36 percent in 2020, according to RBA’s latest research. Between 2007 and May 2023, the median percentage of stocks that have outperformed the S&P 500 index is 48 percent.”
“Tech Stock Hail Mary” (Smead Capital Management). “We are very late in one of the greatest growth stock investing games in history. Technology, an investment sector with a few huge winners and mostly flame-out startups, has been on a roll dominated by the largest companies in the sector. These largest wide-moat monopoly stocks have feasted on nearly uninterrupted momentum. However, this tech stock investing era included the cheapest interest rates in my lifetime, which came to a screeching halt in late 2021.”
“Why Don’t More Voters Care About The Debt Ceiling?” (Vox). “Though there are reports that an agreement is near, a lot could go wrong if congressional Republicans and the White House are unable to work out a deal to raise the debt ceiling by late next week. At some point in the next few weeks, checks from the federal government would stop going out since the country wouldn’t be able to pay its bills. Interest rates would rise, the stock market would fall, and the country would likely enter a recession potentially resulting in millions of job losses. But do most Americans know this? And who would they blame for the economic calamity that would ensue?”
June picks available soon
We’ll be publishing our Prime and Select picks for the month of June before Thursday, June 1 (the first trading day of the month). As always, we’ll be measuring SPC’s performance for the month of May, as well as SPC’s cumulative performance, assuming the sale of the May picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Wednesday, May 31). Performance tracking for the month of June will assume the June 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 (Thursday, June 1).
What we’re reading (5/28)
“Tech Stock Rally Leaves Small-Caps In The Dust” (Wall Street Journal). “The Russell 1000 index of large companies has gained 9.2% this year, beating the 0.7% advance of the small cap concentrated Russell 2000. That is the widest outperformance since 1997, when looking at years in which the Russell 1000 has been in positive territory through May 26, Dow Jones Market Data show.”
“The Tech Trade Is Back, Driven By A.I. Craze And Prospect Of A Less Aggressive Fed” (CNBC). “‘Being concentrated in these mega-cap tech stocks has been where to be in this market,’ said Victoria Greene, chief investment officer of G Squared Private Wealth, in an interview on CNBC’s ‘Worldwide Exchange’ Friday morning. ‘You cannot deny the potential in AI, you cannot deny the earnings prowess that these companies have.’”
“As Debt Ceiling Negotiators Finalize Deal, The Nation Watches Anxiously” (Washington Post). “President Biden and House Speaker Kevin McCarthy (R-Calif.) announced late Saturday that they had reached an ‘agreement in principle’ to raise the debt ceiling and cap federal spending. But that deal still needs congressional approval to prevent a government default, and lawmakers in both parties have been raising objections over the past week.”
“Jeff Bezos Mid-Life Crisis Rumors Resurface After Lauren Sanchez Proposal” (New York Post). “Bezos now appears to be having a “mid-life crisis to end them all’[.]”
“Do Tax Increases Tame Inflation?” (Marginal Revolution). “Here is a new AER article by James Cloyne, Joseba Martinez, Haroon Mumtax, and Paolo Surico. After an extensive data analysis, they arrive at this conclusion: ‘Based on US federal tax changes post–World War II, our answer is ‘yes’ if personal income taxes are increased but ‘no’ if corporate income taxes are increased. Of course this is consistent with the view — no longer so commonly admitted — that higher corporate tax rates do have negative supply side effects.”
What we’re reading (5/25)
“A Beginner’s Guide To Getting Away With Accounting Fraud, Part Two” (Financial Times). “Bio-On’s billion-euro valuation largely hinged on its claim to have come up with a revolutionary new way of manufacturing a biodegradable plastic. The compound it planned on making had been around for about a century but Bio-On claimed it could produce it at something like a tenth of the cost anyone else had managed. Or maybe not, as it turned out.”
“Mark Zuckerberg Unveils ‘Scrappier’ Future At Meta After Layoffs” (Washington Post). “Meta chief executive Mark Zuckerberg attempted to rally the troops on Thursday, following multiple rounds of layoffs that have decimated the social media giant’s workforce. Zuckerberg told employees during a companywide meeting that he hopes the Facebook parent company will have more stability but less bureaucracy in the future, according to a recording of the call listened to by The Washington Post.”
“Gas Prices Give Drivers A Reprieve Heading Into Memorial Day Weekend” (Wall Street Journal). “The average price of unleaded gasoline in the U.S. was $3.57 a gallon on Thursday, down 22% from a year ago, according to OPIS, an energy-data and analytics provider.”
“‘Price Bubble’ In A.I. Stocks Will Wreck Rally, Economist David Rosenberg Predicts” (CNBC). “Investors piling into stocks with artificial intelligence exposure may pay a hefty price. Economist David Rosenberg, a bear known for his contrarian views, believes enthusiasm surrounding AI has become a major distraction from recession risks.”
“Elon Musk Can Now Put His Brain Implants In Humans” (Insider). “Elon Musk finally got approval from the Food and Drug Administration to start implanting his company's brain chips in humans, Neuralink announced Thursday.”
What we’re reading (5/24)
“Nvidia Barrels Toward Rare $1 Trillion Valuation After Putting A Dollar Figure On AI Boost” (MarketWatch). “Nvidia Corp. headed toward market-capitalization gains of nearly $200 billion in after-hours trading Wednesday, which could put the chip maker within sight of becoming only the seventh U.S. company to top a valuation of $1 trillion.
Nvidia shares jumped 25% in the extended session Wednesday, after executives predicted that revenue would exceed the company’s record by more than 30% in the current quarter.”“‘I Came To Kill The Banks.’ Meme-Stock Traders Find A New Passion.” (Wall Street Journal). “The sharp turns [for banks] have been exaggerated by the same forces that turbocharged GameStop and AMC a couple of years ago: the lightning-fast spread on social media of both fact and rumor, strong interest from individual investors and the use of options and other tools that can amplify the impact of trades.”
“First Republic Wealth Advisors Voted With Their Feet–And It Wasn’t For JPMorgan” (Forbes). “Depositors and shareholders weren’t the only ones fleeing San Francisco-based First Republic Bank before it was seized by regulators and sold to JPMorgan. As a crisis of confidence enveloped regional and specialized U.S. banks, especially those with significant levels of uninsured deposits, First Republic’s wealth-management advisors also headed for the exits”
“Do Americans Really Want “Unbiased” News?” (Vox). “Both companies [the Messenger and CNN] are trying to position themselves as an antidote to ‘biased media,’ and promise to deliver down-the-middle news. The problem is there’s not much evidence that people are clamoring for that, which makes it hard to envision a light at the end of the tunnel for either company.”
“Working From Home And Realizing What Matters” (Paul Krugman, New York Times). “[I]t’s not hard to make the case that the overall benefits from not commuting every day are equivalent to a gain in national income of at least one and maybe several percentage points. That’s a lot: There are very few policy proposals likely to produce gains on that scale. And yes, these are real benefits. C.E.O.s may rant about lazy or (per Musk) ‘immoral’ workers who don’t want to go back into their cubicles, but the purpose of an economy is not to make bosses happy.”
What we’re reading (5/23)
“A Housing Bust Comes For Thousands Of Small-Time Investors” (Wall Street Journal). “Over the past four years, Gajavelli built his real-estate empire using funds from dozens of small investors who wanted a chance to earn a landlord’s riches without any of the work. He pitched double-your-money returns in ebullient, can-do talks at investor conferences and on YouTube videos…In April, Gajavelli’s company lost more than 3,000 apartments at four rental complexes taken in foreclosure, one of the biggest commercial real-estate blowups since the financial crisis. Investors lost millions. Gajavelli didn’t respond to requests for comment.”
“It’s About To Get Incredibly Expensive To Watch Sports” (Intelligencer). “For years, all of you non-sports fans have been subsidizing us: By paying your hidden eight bucks a month for a channel you didn’t watch, you allowed us to pay the same amount for channels we watched obsessively. But if ESPN, the unquestioned T.Rex of the sports media world, is separating from the cable model, that eight bucks a month will have to be made up from somewhere. The plan appears to be charging me, and my fellow sports addicts, a lot more.”
“The Surprising Reason Luxury Goods Are Booming” (Vox). “The pandemic was a period of mass unemployment and economic hardship for many Americans. It was also a riotously popular time for buying luxury goods. ‘2021 and 2022 were blockbuster years for the luxury industry,’ says Lauren Sherman, fashion correspondent at Puck News. ‘The biggest years they’ve ever had — ever.’”
“Why Inflation Erupted: Two Top Economists Have The Answer” (Wall Street Journal). “Now two of the country’s top economists have an answer: It’s both. Pandemic-related supply shocks explain why inflation shot up in 2021. An economy overheated by fiscal stimulus and low interest rates explain why it has stayed high ever since. The conclusion: For inflation to fade, the economy has to cool off, which means a weaker labor market.”
“Former Fed Chair Ben Bernanke Says There’s More Work Ahead To Control Inflation” (CNBC). “Former Federal Reserve Chair Ben Bernanke, who guided the central bank and the U.S. economy through the Great Recession, thinks central bankers still have work to do to bring down inflation. That work, he and economist Olivier Blanchard argue in an academic paper released Tuesday, will entail slowing down what has been a phenomenally resilient labor market.”
What we’re reading (5/22)
“What It Would Mean For The Global Economy If The US Defaults On Its Debt” (Associated Press). “The repercussions of a first-ever default on the federal debt would quickly reverberate around the world. Orders for Chinese factories that sell electronics to the United States could dry up. Swiss investors who own U.S. Treasurys would suffer losses. Sri Lankan companies could no longer deploy dollars as an alternative to their own dodgy currency.”
“Slow Return To Work Pummels Office Stocks” (Wall Street Journal). “Both Vornado and SL Green shares are down more than 30% so far this year, while the broader stock market is higher.”
“Office Workers Don’t Hate The Office. They Hate The Commute.” (New York Times). “For many, the pandemic-era shift to remote work proved that all the schlepping was unnecessary. They can’t unsee all the wasted time, and questioning their morality isn’t going to change that. They aren’t taking a moral stance; they’re just making a rational calculation: They can get a lot more done — in their work lives and in the rest of their lives — if they skip the commute.”
“Employees Say Returning To The Office Is Breaking The Bank. Here’s What's Costing Them So Much” (Insider). “Frustrated workers are sounding off that cost of office clothes, daily lunches, commuting, and more are all adding up as they start going into the office multiple times per week. Jessica Chou of the Wall Street Journal reported spending between 20% and 30% of her paycheck when asked to report for work at the office.”
“Rigor, Not Speed, Should Define The Silicon Valley Of The Future” (RealClear Markets). “[I]n March 2023, the company [HP] found itself in a British court. At the heart of the case was the 2011 sale by British tech entrepreneur Mike Lynch of Autonomy, the company he founded, to HP for $11.7 billion…Now U.S. authorities are seeking the extradition of Mr. Lynch to the United States. The Justice Department alleges that he misled HP and its shareholders about Autonomy’s financial condition ahead of the sale…[t]his transaction continues to resonate because HP acquired Autonomy at a steep premium, one that many HP shareholders deemed excessive at the time. Later, when HP came to realize the shambolic state of Autonomy, the company had to take a nearly $9 billion write-down…HP’s then-CEO Léo Apotheker admitted in court that he did not read KPMG’s due-diligence reports on Autonomy, or even the company’s quarterly financial statements, before purchasing it. Its then-Chief Financial Officer admitted that she did not read the documents either.”
What we’re reading (5/20)
“Will The U.S. Economy Pull Off A ‘Soft Landing’?” (Paul Krugman, New York Times). “[A]t this point policymakers are more or less expected to achieve results that would have seemed wildly unrealistic for most of the past 40 years: 2 percent inflation and unemployment in the mid-3s.”
“The Optimist’s Guide To Artificial Intelligence And Work” (DealBook). “David Autor, a professor of economics at the Massachusetts Institute of Technology, said that A.I. could potentially be used to deliver ‘expertise on tap’ in jobs like health care delivery, software development, law, and skilled repair. ‘That offers an opportunity to enable more workers to do valuable work that relies on some of that expertise,’ he said.”
“What The Debt Ceiling Debate Means For Your Finances” (The Week). “The ongoing showdown over raising the debt limit could have serious implications for Americans' finances. The U.S. has never defaulted on its debt obligations since the establishment of the U.S. Treasury in 1789. However, experts contend that even just nearing — let alone passing — the point of default could rock Americans’ retirement plans.”
“A New Class Of Executives On Wall Street Is Gaining A Ton Of Power” (Insider). “It's true major decisions about where to use AI will involve CEOs and heads of tech, but the day-to-day strategy is largely left to these behind-the-scenes players. That means these executives will be tasked with making choices that have the potential to impact thousands of jobs.”
“Young Investors In College Clubs Embrace Wild Market Ride” (Wall Street Journal). “Investment clubs might not be as ubiquitous as Greek life or intramural sports, but they are fixtures at colleges around the U.S.—big and small, public and private. Lafayette College’s club says it is the oldest student-run investment club in the country, established in 1946 with $3,000 and now managing roughly $1 million.”
What we’re reading (5/19)
“Fed Chair Powell Says Rates May Not Have To Rise As Much As Expected To Curb Inflation” (CNBC). “Powell spoke with markets mostly expecting the Fed at its June meeting to take a break from the series of rate hikes it began in March 2022. However, pricing has been volatile as Fed officials weigh the impact that policy has had and will have on inflation that in the summer of last year was running at a 41-year high. On balance, Powell said inflation is still too high.”
“Markets Continuously Project Lower Rates...Much Lower” (RealClear Markets). “Several serious questions remain yet to be answered in the aftermath of recent bank failures. While politicians wrestle over who might be to blame, they’ll never come up with a useful answer anyway and far more important is what this will all do to a global system already in rough shape. The possibility of at least recession was already high to begin with before anyone came to know the name Silicon Valley Bank.”
“Americans’ Views Of Federal Income Taxes Worsen” (Gallup). “The 60% of Americans who say the amount of federal income tax they pay is too high is up six percentage points from a year ago and 15 points from the recent low measured in 2018 and 2019. Meanwhile, 36% of Americans say their federal income tax payments are “about right,” while 3% say they are ‘too low.’”
“America’s Semiconductor Boom Faces A Challenge: Not Enough Workers” (New York Times). “Semiconductor manufacturers say they will need to attract more workers…to staff the plants that are being built across the United States. America is on the cusp of a semiconductor manufacturing boom, strengthened by billions of dollars that the federal government is funneling into the sector. President Biden had said the funding will create thousands of well-paying jobs, but one question looms large: Will there be enough workers to fill them?”
“Mutual Fund Manager May Not Have Meant To Lose Investors $20 Million, But He’s Going To Jail Anyway” (Dealbreaker). “Give Ofer Abarbanel this much: He understands that the point of mutual fund is to make, and not to lose, money. We know this because he said as much…emotionality notwithstanding, saying he didn’t mean to lose them money while asking for probation and community services doesn’t sound like accepting responsibility for his crime, which was not, after all, losing Mosaic money—which is not, after all and to the great relief of mediocre and worse mutual fund managers everywhere, illegal—but lying to it.”
What we’re reading (5/18)
“Crypto: New. Fraud: Old.” (Vox). “Crypto’s utopic vision can be an attractive one: a completely decentralized, egalitarian, anonymous ecosystem. It’s intended to be trustless, meaning that it runs without relying on the government or banks or any third party. It’s also, at least for now, not entirely a reality.”
“Home Prices Posted Largest Annual Drop In More Than 11 Years In April” (Wall Street Journal). “The national median existing-home price fell 1.7% in April from a year earlier to $388,800, the biggest year-over-year price decline since January 2012, NAR said.”
“A Secretive Annual Meeting Attended By The World’s Elite Has A.I. Top Of The Agenda” (CNBC). “The three-day event, which this year runs from Thursday to Sunday, is shrouded in mystery, with clandestine talks held behind closed doors and subject to Chatham House rules, meaning the identity and affiliation of speakers must not be disclosed.”
“Netflix Stock Jumps 9% As It Boasts Ad-Tier Growth” (CNBC). “The streaming service this week said it had five million monthly active users for its cheaper, ad-supported option and 25% of its new subscribers were signing up for the tier in areas where it’s available.”
“Billionaire George Soros’ 7 Top Stock Picks In 2023” (U.S. News & World Report). “Soros is considered one of the most successful investors in history. His Soros Fund Management currently manages $6.5 billion in assets, and Soros himself has an estimated net worth of $6.7 billion after donating more than $32 billion to philanthropic causes.”
What we’re reading (5/17)
“Can We Count On The Government To Do Something About AI?” (Vox). “Big Tech moves fast. DC doesn’t…Many federal lawmakers have learned that Big Tech and social media companies can operate recklessly when guardrails are self-imposed. But those lessons haven’t resulted in much by way of actual laws, even after the consequences of not having them became obvious and even when both parties say they want them.”
“Schwab Taps Credit Markets To Raise $2.5 Billion In Debt” (Wall Street Journal). “Schwab issued $1.2 billion of bonds due in 2029 and $1.3 billion of bonds due in 2034, according to a person familiar with the matter. The bonds due in 2029 were issued at a 5.643% yield, or 2.05 percentage point higher than U.S. Treasurys, while the notes due in 2034 were sold at a 5.853% yield or 2.27 percentage point spread.”
“Will The Fed Keep Interest Rates ‘Higher For Longer’?” (The Hill). “Given the muted transmission of Fed rate hikes via the interest rate, the asset-price, and the exchange-rate channels so far, a lot is riding on the credit and risk-taking channels. The ongoing banking sector turmoil is shrinking credit availability and raising lending standards.”
“JPMorgan Is Watching: How The Nation’s Largest Bank Keeps Tabs On Its Workforce — From Their Office Attendance To Emails And Zoom Calls” (Insider). “Last year, Insider correspondent Reed Alexander unearthed details about JPMorgan's monitoring systems by speaking to roughly a dozen people currently or recently employed by the bank. They explained how the bank tracks everything from office attendance to time spent on Zoom calls and composing emails. He documented what he learned in a series of stories, starting with the bank’s tracking of office attendance and culminating in a story about a proprietary system called the ‘Workforce Activity Data Utility,’ or WADU for short, that monitors the bank's computer laptops.”
“Toronto’s Proudly Anti-Capitalist Cafe Is Permanently Closing” (blogTO). “Sims-Fewer [the proprietor] uploaded a bittersweet message to the cafe’s website this week announcing the shop’s closure…‘Unfortunately, the lack of generational wealth/seed capital from ethically bankrupt sources left me unable to weather the quiet winter season, or to grow in the ways needed to be sustainable longer-term,’ the message continues.”
What we’re reading (5/16)
“Americans Curb Spending On Home Improvements” (Wall Street Journal). “Executives at Home Depot said such spending has cooled sharply this year, prompting the retailer to warn that its annual sales will decline for the first time since 2009. Homeowners are pinching pennies amid concerns about the economic outlook, and many people have completed most of the projects they wanted to accomplish during the pandemic.”
“Homebuilder Sentiment Pulls Out Of Negative Territory For The First Time In Nearly A Year” (CNBC). “Builder confidence in the market for newly built single-family homes rose 5 points in May to 50, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). It’s the fifth straight month of gains and the first reading of builder sentiment since July that wasn’t negative, which would be a reading below 50. Sentiment stood at 69 in May of last year.”
“Move Over, U.S. Dollar. China Wants To Make The Yuan The Global Currency.” (Washington Post). “The dollar’s widespread use makes it difficult to displace. Because it is widely used, it is easy to exchange, creating more incentive for countries to use it. This network effect encapsulates part of the challenge to adoption of the yuan, which is more expensive and inconvenient partly because there is less of it circulating outside China. But the recent flurry of settlements in yuan do constitute some progress toward Chinese leader Xi Jinping’s vision: with China at the helm of a global economic order that is insulated from the fluctuations of the dollar and Western sanctions.”
“Silicon Valley Bank Was Not Your Bank” (Slate). “Imagine that the government had left SVB deposits up to fate. In that event, why would anyone bank anywhere other than JPMorgan, Bank of America, Citigroup, Wells Fargo, and the like? There’s an extremely simple answer, which I am qualified to give, because I am a reasonably normal American person with a bank account, not a venture capital-funded startup or midsize company…Smaller banks offer higher rates to be competitive with the much better known, richer Goliaths of the industry. They can do it because they run leaner businesses with lower costs.”
“The “Return To The Office” Won’t Save The Office” (Vox). “The so-called “return to the office” has been underway for a while now, and it’s a bit of a mess. Sure, more people are going to the office more often than they were a year ago, but we’re still eons away from where we were before the pandemic. And despite the gains in office attendance, many office buildings themselves are in big trouble — some of which goes beyond remote work and started long before the pandemic. So despite what you’re hearing from some bosses, things will likely never go back to the way they were.”
What we’re reading (5/15)
“The Great Yield Chase: Why A Trillion Has Fled Traditional Bank Accounts” (Forbes). “‘The opportunity cost of zero interest checking didn't really matter two years ago, whereas now you're leaving decent yield and cash flow on the table by not moving cash around and being really opportunistic and thoughtful about it,’ says Margaret Wright, a managing director and senior wealth advisor at Truist Wealth in Atlanta. ‘We've all been so yield starved,’ she adds. ‘All of a sudden you see these percentages and people are excited.’”
“Where Can You Put Your Cash Besides A Bank Account?” (The Week). “Alternatives to traditional savings accounts might be especially worth considering if you have funds in excess of the amount covered by FDIC insurance (or NCUA insurance, if your money is at a credit union), or if you're hoping to earn slightly better returns. Plus, ‘the insurance limit has not changed since 2008 and is not indexed to inflation,’ Kiplinger points out.”
“Consumer Debt Passes $17 Trillion For The First Time Despite Slide In Mortgage Demand” (CNBC). “That increase came even though new mortgage originations, including refinancings, totaled just $323.5 billion, the lowest level since the second quarter of 2014. The total was 35% lower than in the fourth quarter of 2022 and 62% below the same period a year ago.”
“Egg Prices Are Crashing. Here’s Why” (CNN Business). “As of last week, Midwest large eggs — the benchmark for eggs sold in their shells — cost just $0.94 per dozen in the wholesale market, according to Urner Barry, an independent price reporting agency. That’s a sharp fall from $5.46 per carton just six months ago. (In retail, prices are well above $1 per carton, though they too have been declining.)”
“The Forever Labor Shortage” (Insider). “By any objective measure, the balance of power in the job market should be tipping back to employers. Strangely, though, it isn't. Ask pretty much anyone who's hiring these days, and they'll tell you something curious: It remains incredibly hard to find and hire enough qualified people for the roles they're desperately trying to fill. Somehow, workers still hold the power — and a massive shift that's underway in the labor market could keep it that way forever. The shift boils down to demographics.”
What we’re reading (5/14)
“Investors Are Nervous—And That Could Support Stocks” (Wall Street Journal). “Turmoil in the banking sector has dragged fund managers’ enthusiasm for stocks to a 2023 ebb, according to Bank of America’s most recent monthly survey. The stress adds to worries including lingering inflation, higher interest rates and a slowing economy that have driven them to cut their stockholdings to their lowest levels relative to bonds since 2009.”
“The Greatest Wealth Transfer In History Is Here, With Familiar (Rich) Winners” (New York Times). “In 1989, total family wealth in the United States was about $38 trillion, adjusted for inflation. By 2022, that wealth had more than tripled, reaching $140 trillion. Of the $84 trillion projected to be passed down from older Americans to millennial and Gen X heirs through 2045, $16 trillion will be transferred within the next decade.”
“How Germany’s Hydrogen Boom Stalled” (Der Spiegel). “Welcome to the sobering hydrogen reality. While Germany hopes that it will soon be able to run basement gas heating systems on hydrogen, steel manufacturers are converting their production to the green gas at a cost of billions and energy companies are planning new power plants that will generate electricity from hydrogen, almost everything needed to make the climate-neutral dreams a reality in the near future is still lacking. The environmentally friendly hydrogen is missing, as are the pipeline networks to carry it across the country, not to mention reliable business models.”
“The Real Reasons Stores Such As Walmart And Starbucks Are Closing In Big Cities” (CNN Business). “Nordstrom. Walmart. Whole Foods. Starbucks. CVS. These big chains and others have closed stores in major US cities recently, raising alarm about the future of retail in some of the country’s most prominent downtowns and business districts.”
“Why China Doesn’t Have A Property Tax” (New York Times). “In China, where the government owns the land, localities almost never tax homeowners to support services like schools. Cities rely instead on selling long-term leases to real estate developers. Revenue from these land sales has plunged in the past year.”
What we’re reading (5/12)
“Google Just Showed How Big Tech Will Win Again In AI” (Insider). “After Google I/O this week, it's looking like AI will be another 80/20 situation where a few Big Tech companies benefit the most. The big takeaway from Google's annual conference was how the company is weaving the capabilities of its big AI model, PaLM 2, into so many of its existing – and very popular – products.”
“Meet Linda Yaccarino, Elon Musk’s New Twitter CEO And The Ad World’s ‘Velvet Hammer’” (Wall Street Journal). “The billionaire [Musk] on Friday named Ms. Yaccarino as Twitter’s new chief executive, putting her in charge of a social-media platform that has been stung by a large exodus of advertisers since Mr. Musk’s $44 billion takeover late last year.”
“I Bond Rates Dropped To 4.3 Percent. Are They Still Worth It?” (Washington Post). “[W]ith inflation waning, Treasury just announced a new rate of 4.3 percent for I bonds, down from the most recent 6.89 percent that ended in April. Still, that’s a good rate, but it’s not likely to see a mad rush like last year. The lower rate is yet another indication inflation has come down.”
“‘Vehicular Crime Wave’: Baltimore Suing Kia And Hyundai Over Lack Of Anti-Theft Tech” (WBALTV11). “Thefts of those vehicles continue to trend in Maryland. Baltimore City police said car thefts are up 95% compared to this time last year, with Kias and Hyundais making up more than 40% of those stolen vehicles.”
“The S&P 500 Is Top-Heavy With Tech. Here’s What That Says About Future Stock-Market Returns.” (MarketWatch). “The S&P 500 is up more than 7% so far in 2023, after last year’s 19.4% slide. The top 10 stocks hold a 29% weight in the index, and are responsible for around 70% of year-to-date performance, said Ross Mayfield, investment strategy analyst at Baird, in a Thursday note.”
What we’re reading (5/11)
“What’s The Best-Performing Asset Type During A Recession?” (Morningstar). “The explanation for bonds’ strength during recessionary periods is twofold. The Federal Reserve often cuts interest rates during such periods, which boosts bond prices. Moreover, investors often retreat to safety, stability, and liquidity in periods of economic insecurity (high-quality bonds and cash) and away from assets they perceive to be higher risk (equities).”
“Tech’s New Business Model: ‘Do More With Less’” (CNBC). “Cost cuts that kicked into gear in late 2022 ramped up in the first quarter and are continuing into the second. Microsoft CEO Satya Nadella told staffers Wednesday there will be no salary increases for full-time employees, after the company announced 10,000 job cuts earlier this year.”
“26 Empire State Buildings Could Fit Into New York’s Empty Office Space. That’s a Sign.” (New York Times). “In downtowns from Chicago to Los Angeles, the physical layout of the 20th-century city is clashing with the new economy. Since the 1920s, single-use zoning has divided our cities into separate neighborhoods for home, work and play. Work-from-home and Netflix have made these distinctions irrelevant, but our partitioned urban fabric has yet to catch up.”
“SoftBank Says Goodbye To Alibaba, Hello To More AI Investments” (Wall Street Journal). “One of the world’s most influential tech investors, SoftBank has been in a defensive crouch for over a year, slashing its once profligate spending after many of its investments in startups went sour during the recent tech downturn.”
“The Greek Origins Of Modern Science” (Merchants and Mechanics). “The mathematical fact that we call Pythagoras’ theorem was known to the Babylonians at least 1200 years before Pythagoras was born. Why then do we call it Pythagoras’ theorem? Because facts and theorems are different. The mathematical fact antedates him, but the theorem is his. And herein lies the difference between Greek activities, which we are calling science, and what went before or elsewhere, which we do not call science. The Babylonians observed a mathematical regularity, and compiled or calculated tables of similar regularities. The Greeks…observed this mathematical regularity, and proved geometrically that it holds for all particular cases.”
What we’re reading (5/10)
“Repeat Bankruptcies Are Piling Up At Fastest Rate Since 2009” (Bloomberg). “The 11 repeat bankruptcies filed through April already tops the tally for all of 2021 or 2022 and the spate of Chapter 22 filings through the first four months of the year has been eclipsed only once since 2000, according to BankruptcyData…Ed Altman, a New York University finance professor and inventor of a popular default prediction metric, the Z-score, said firms too often leave Chapter 11 ‘looking like a failing company’ when it would be better for creditors to get paid in a liquidation. A second bankruptcy is a sign the first was a waste of capital, Altman said.”
“Icahn, Under Federal Investigation, Blasts Short Seller” (Wall Street Journal). “Icahn Enterprises IEP, the publicly traded firm controlled by Mr. Icahn, was targeted by short seller Hindenburg Research early this month. The next day, the U.S. Attorney’s Office for the Southern District of New York contacted Icahn Enterprises asking for information about the value of its assets, corporate governance, dividends and other topics, the firm said in a securities filing Wednesday.”
“Wealthy Americans Are Getting Hit Hardest By The Economy Slowing Down” (Yahoo! Finance). “Wealthier Americans aren't spending — or earning—like they used to. Data from Bank of America Institute out Wednesday reveals households making more than $125,000 have seen wage growth slow down faster than lower-income households while spending trends have followed a similar pattern. Higher-income households' discretionary spending on Bank of America credit and debit cards has slipped below lower- and middle-income groups since the start of this year.”
“DB Proxy Rate: Bank Lending Offsets Easing Financial Conditions” (Deutsche Bank). “There remains tremendous uncertainty about how recent bank stresses will evolve and how much they will tighten financial conditions. Based on our proxy rates, the further tightening in bank lending conditions has largely offset the easing from lower yields and other high-frequency variables but has not, on net, produced a further meaningful tightening. This update therefore raises some questions about whether tighter credit conditions will substitute for Fed rate increases as much as initially anticipated.”
“Electric Vehicle Illusions” (City Journal). “The rush to subsidize and mandate EVs is animated by a fatal conceit: the assumption that they will radically reduce CO2 emissions. That assumption is embedded orthodoxy not just among green pundits and administrators of the regulatory state but also among EV critics, who take issue with a forced transition mainly on grounds of lost freedoms, costs, and market distortions. But the truth is, because of the nature of uncertainties in global industrial ecosystems, no one really knows how much widespread adoption of EVs could reduce emissions, or whether they might even increase them.”
What we’re reading (5/9)
“ChatGPT Is Causing A Stock-Market Ruckus” (Wall Street Journal). “Investors are gauging the extent to which AI’s arrival will upend companies, industries and contemporary business practices—and placing bets accordingly. That has sent stocks swinging wildly in both directions: Chip maker Nvidia’s shares are surging, while shares of study-materials company Chegg have plummeted. Enthusiasm for the potential of AI is one reason big tech companies are among this year’s strongest performers.”
“Generative AI And Firm Values” (Eisfeldt, Schubert, and Zhang, NBER). “Using Artificial Minus Human portfolios that are long firms with higher exposures and short firms with lower exposures, we show that higher-exposure firms earned excess returns that are 0.4% higher on a daily basis than returns of firms with lower exposures following the release of ChatGPT. Although this release was generally received by investors as good news for more exposed firms, there is wide variation across and within industries, consistent with the substantive disruptive potential of Generative AI technologies.”
“Banking Stress Emerges As Major Concern For Financial Stability” (Washington Post). “Banking sector stress has shot up as a concern for stability in the financial system, according to the latest Federal Reserve survey on major risks to the economy.”
“Paramount Cuts 25 Percent Of Staff From TV Networks, MTV News Shutting Down” (The Hollywood Reporter). “Chris McCarthy’s swath of Paramount Global is laying off 25 percent of its domestic team today. The reduction comes on the heels of integrating Showtime into his cable and streaming purview, which will be consolidated into two functions going forward. There are ‘studios,’ which now combine Showtime with MTV Entertainment Studios, and ‘networks,’ which will merge nine separate teams into one portfolio group. The majority of the cuts are being felt by the latter group, with certain units, including MTV News, being shut down altogether.”
“Home Prices Fell In Third Of The U.S. During First Quarter” (Wall Street Journal). “Home prices fell in more parts of the U.S. than they have in over a decade during the first quarter, when nearly a third of metro areas posted annual price declines, the National Association of Realtors said Tuesday.”
What we’re reading (5/8)
“ChatGPT Fever Has Investors Pouring Billions Into AI Startups, No Business Plan Required” (Wall Street Journal). “While most of Silicon Valley’s venture-capital ecosystem remains in the doldrums, investors this year have been pouring funds into companies like Essential specializing in generative AI systems that can create humanlike conversation, imagery and computer code. Many of the companies getting backing are new and unproven.”
“Liz Holmes Wants You To Forget About Elizabeth” (New York Times). “Ms. Holmes has not spoken to the media since 2016, when her legal team advised she go quiet. And, as the adage goes, if you don’t feed the press, we feed on you. In Elizabeth Holmes, we found an all-you-can-eat buffet. It had everything: The black turtlenecks, the Kabuki red lipstick, the green juices, the dancing to Lil Wayne. Somewhere along the way, Ms. Holmes says that the person (whoever that is) got lost. At one point, I tell her that I heard Jennifer Lawrence had pulled out of portraying her in a movie. She replied, almost reflectively, ‘They’re not playing me. They’re playing a character I created.’”
“RIP Metaverse (Insider). “The Metaverse, the once-buzzy technology that promised to allow users to hang out awkwardly in a disorientating video-game-like world, has died after being abandoned by the business world. It was three years old.”
“Fed Survey: Banks Are Tightening Up Their Lending Standards After Rate Hikes, Turmoil” (CNN Business). “More lenders have stiffened their standards in the wake of increasing turmoil within the banking sector, according to the Federal Reserve’s quarterly Senior Loan Officer Opinion Survey (SLOOS) released Monday.”
“Why Journalists Have More Freedom Than Professors” (Ross Douthat, New York Times). “[Matt] Yglesias absorbed a set of personal and professional costs by being somewhat unwoke, but he then found compensations elsewhere in the media ecosystem, while also retaining his connection to the world of practical liberal politics — precisely because politicians have to be practical to win. Crucially, he did not cease to be a journalist in this process; he merely changed his journalistic identity, and his position within the profession changed but didn’t fall apart.”
What we’re reading (5/7)
“Tech Workers Aren’t As Rich As They Used To Be” (Wall Street Journal). “For years, tech jobs were a ticket to riches. Much of that wealth has evaporated along with tech companies’ boom-time gains. Stock typically makes up a large portion of tech workers’ generous pay. Compensation soared when a pivot to remote everything made tech companies the market’s darlings. The reverse, in turn, sent tech shares down sharply. While they have recovered some this year, they are still well below their 2021 heights.”
“Short Selling Comes Under Fire As Regional Banks Sell Off” (U.S. News & World Report). “The practice of short selling is coming under increased scrutiny as shares of regional banks remain under pressure, with some calls for more regulatory oversight of the practice. Short sellers, who borrow shares they expect to fall and hope to repay the loan for less later to pocket the difference, have profited from the banking crisis. They gained $1.2 billion in the first two days of May, analytics firm Ortex said.”
“Bank Turmoil Is Paving the Way For Even Bigger ‘Shadow Banks’” (DealBook). “Whipsaw trading in shares of regional banks this week made it clear the fallout from three federal bank seizures was far from over. Some investors are betting against even seemingly healthy banks like PacWest, and regulators are gearing up to tack on new capital constraints for small and medium-size lenders.”
“Private Jet Travel Is Booming. And Shameful. And We’re All Paying For It.” (New York Times). “Last year the marketing company Yard used data from @Celebjets, a Twitter account that tracked celebrities’ private flights (and has since been suspended by Twitter), to calculate how much time some luminaries spent aboard their planes. Yard’s top-flying celeb was Taylor Swift, whose jet spent nearly 23,000 minutes — about 16 days — in the air in the first half of last year, spewing more than 1,000 times more carbon into the atmosphere than the average person does in a year. (Swift’s representative disputed the numbers, explaining that the jet is often lent out to others.)”
“College Quality As Revealed By Willingness-To-Pay For College Graduates” (Education Economics). “This study measures college quality by the amount by which the college adds to the salary of its students above what the median market value would be for the same majors and student quality. Commonly used national rankings of colleges such as U.S. News and World Report or Forbes are heavily biased by a college’s average salaries and the quality of the students it enrolls, and not by the actual value-added by the colleges. Once student quality and mix of majors are controlled, salary differences between elite and nonelite schools largely disappear.”