What we’re reading (8/17)
“Mortgage Rates Hit 7.09%, Highest In More Than 20 Years” (Wall Street Journal). “While lots of would-be buyers are struggling to find anything they can afford, plenty of would-be sellers feel stuck in place. Many homeowners are unwilling to put their homes on the market, fearful of giving up low-rate mortgages and being forced to take out loans that are much more expensive. High-rate homeowners who bought recently and were hoping they could soon refinance are coming to grips with the fact that they’ll have to wait a while.”
“Why Wall Street Is Gung-Ho On The Housing Market” (New York Times). “‘Home buyers have demonstrated behavior that, in our view, reflects unsustainable adaptations to elevated mortgage rates,’ the Goldman Sachs strategists Roger Ashworth and Vinay Viswanathan wrote in a research note. ‘For example, the average debt-to-income ratio on conforming purchase mortgages is over 38 percent, a significant aberration from post-Global Financial Crisis averages.’ Goldman’s housing affordability index this week hit its lowest level since it was created 25 years ago, the same report notes.”
“How A Small Group Of Firms Changed The Math For Insuring Against Natural Disasters” (New York Times). “Insurance companies have pulled back from offering coverage in certain areas or cut the kinds of damage they will pay to repair. A little-noticed slice of the financial industry that provides insurance to insurers, called reinsurance, has helped drive the changes.”
“LinkedIn Is Uniquely Positioned To Benefit From Twitter’s Meltdown–And Disgruntled X Users Are Offering Microsoft A Blueprint For Social Media Supremacy” (Fortune). “By implementing timely and strategic product enhancements, LinkedIn has the potential to fulfill the lofty promises that Twitter once held, emerging as an even more captivating destination for enthusiasts of up-to-the-minute news and insights. Capitalizing on its inherently more reliable identification framework stemming from its professional affiliations, LinkedIn could seamlessly blend into both a global business-centric social graph and a comprehensive knowledge repository, enabling users to pinpoint and connect with world-renowned experts while consuming their valuable content.”
“The Economic Impact Of AI” (Marginal Revolution). “I am a believer in the power of current AI trends. But a look at the way economies work argues for more moderate (but still substantial) estimates of AI’s impact. The most likely scenario is that economic growth will rise by a noticeable but not shocking amount. Economic historians typically cite Britain’s England’s Industrial Revolution as the single most significant development ever in boosting living standards. Through the late 18th and 19th centuries, it took people from a near-subsistence existence to modern industrial society. Yet economic growth rates during the Industrial Revolution were hardly astonishing.”
What we’re reading (8/16)
“U.S. Steel Takeover Talk Rattles Manufacturers” (Wall Street Journal). “The pursuit by Cleveland-Cliffs of one of the nation’s biggest steelmakers, made public in recent days, could ratchet up market concentration in steel used to make auto fenders, food cans and batteries for electric vehicles. Cleveland-Cliffs and industrial conglomerate Esmark have both made offers for U.S. Steel that would value the company at more than $7 billion.”
“Broadcast And Cable Make Up Less Than Half Of TV Usage For The First Time Ever” (CNBC). “Usage among pay-TV customers fell to 29.6% of TV, while broadcast dropped to a 20% share during the month. Streaming made up nearly 39% of usage in July, the largest share reported since Nielsen’s first time reporting the monthly numbers in The Gauge in June 2021.”
“Strongman Economics Aren’t Working For China And Russia” (Axios). “After the financial crisis of 2008 hobbled the U.S. and much of the West, China's strong economy prompted a flurry of commentary about the benefits of its style of state-led capitalism, which eliminated the inefficiencies that always accompany democracy. Reality check: More than a decade later, the economic downside of unelected, unaccountable strongmen is on display.”
“Retail Sales Rose Solidly Last Month In A Sign That Consumers Are Still Spending Freely” (ABC News). “Retail sales rose a better-than-expected 0.7% in July from June, according to the Commerce Department's report Tuesday. The gain was higher than a revised 0.3% increase the previous month and marked four straight months of increases. The figure also surpassed the 0.2% increase in consumer prices last month, indicating that shoppers are spending at a healthy pace.”
“The LED Light Revolution Has Only Just Begun” (Vox). “The new monarch is the light-emitting diode, or LED, and it’s poised to have an enduring reign. Over the past decade, scientists, engineers, designers, and policymakers groomed the LED to rule, coaxing it to do everything an incandescent could do, but with a fraction of the energy. An LED bulb provides the same amount of light as an incandescent while using 90 percent less electricity and lasting 25 times longer. The 2014 Nobel Prize in physics went to the scientists who invented the blue LED.”
What we’re reading (8/14)
“Berkshire Hathaway’s Latest Bet: Homebuilder Stocks” (Wall Street Journal). “Homebuilders have seen a boom in business since mortgage rates shot up last year. Elevated rates have kept homeowners from selling, leaving new construction as the most appealing option for many buyers. Homebuilder stocks have rallied, with the S&P Homebuilders Select Industry stock index up 39% this year.”
“‘Complete Meltdown’: Driverless Cars In San Francisco Stall Causing A Traffic Jam” (CNN Business). “San Francisco residents were caught off guard this weekend after Cruise self-driving cars caused a traffic jam, according to social media posts. The obstruction came a few days after California regulators approved robotaxi companies to operate their driverless cars 24/7 throughout the city.”
“Russia’s Ruble Hits Its Lowest Level Since Early In The War. The Central Bank Plans To Step In” (AP). “The Russian currency had passed 101 rubles to the dollar, continuing a more than one-third decline in its value since the beginning of the year and hitting the lowest level in almost 17 months. The ruble recovered slightly after the central bank’s announcement.”
“Sam Bankman-Fried Is Charged With Using Stolen Customer Funds To Donate $100M To Mostly Democratic Causes During 2022 Midterms - As He Begs For Adderall To Treat ADHD In Brooklyn Jail” (Daily Mail). “Sam Bankman-Fried used stolen customer funds to make over $100million in campaign contributions ahead of the 2022 midterms, prosecutors have claimed. The new indictment, filed Monday, charges the 31-year-old with seven counts of conspiracy and fraud over the collapse of the exchange.”
“Every Investor Is Facing The Same Alts Math Problem” (Institutional Investor). “Scott Ramsower, head of private equity funds at TRS, says the pension fund is raising the bar for managers and exploring new options to actively manage its alternatives portfolio.”
What we’re reading (8/13)
“What Wall Street’s Top Recession Gauge Is Saying Now” (Wall Street Journal). “Wall Street is growing confident the U.S. can avoid a recession. But one key market indicator is still sending seemingly bleak signals. Right now, yields on longer-term U.S. Treasurys remain far below those of shorter-term bonds, an anomaly known as an inverted yield curve that has earned fame as a harbinger of downturns.”
“Inflation May Be Cooling — But Drivers Can’t Seem To Catch A Break” (CNN Business). “It will cost you 19.5% more to repair your car now than it did a year ago, according to July’s Consumer Price Index report, released Thursday by the Bureau of Labor Statistics. Another hefty expense is car insurance, up 17.8% from a year ago. Car repairs and car insurance were the second- and third-largest annual price increases, respectively, tracked by the CPI.”
“The Frothy Saga Of The Jacuzzi Family” (New York Times). “Candido Jacuzzi didn’t set out to turn his last name into a global brand. Nor did he intend to power a business which, though it created the family fortune, nearly tore them apart. He just wanted to ease the physical pain suffered by his son, any way he could.”
“Wall Street predators Destroyed Toys ‘R’ Us. Now They’re Coming For Simon & Schuster” (Los Angeles Times). “The venerable publishing house Simon & Schuster will soon be owned by one of the nation’s biggest private equity firms, KKR. For a glimpse of their future — and tips on how to fight back — Simon & Schuster authors and employees might want to chat with the former workers of Toys ‘R’ Us. There are 33,000 of them, and their company was driven into bankruptcy five years ago by a clutch of Wall Street firms led by KKR.”
“A Former Executive Says He Was Fired By Salesforce After Raising Concerns About Software Said To Process And Organize Customer Data In Milliseconds: ‘It Was All A Lie.’” (Insider). “An ex-Salesforce vice president is suing his former employer, claiming the company lied about its software capabilities and retaliated against him for raising concerns about the product claims, court documents show.”
What we’re reading (8/11)
“Jim Cramer Is . . . Kicking Ass?” (Financial Times). “Please use the sharing tools found via the share button at the top or side of articles. Jim Cramer’s stock picks are doing pretty well. To clarify, the ETF that’s long Cramer’s “Mad Money” recommendations (LJIM) gained 16 per cent over the two months ended July 31. While it has retreated from its late-July peak, it’s still been left with a gain of more than 7 per cent. The much more popular Inverse Cramer ETF (SJIM), which shorts all his picks, is underperforming, and is down 7 per cent since May 31. Cramer can thank Nvidia for his outperformance.”
“Why Does The FTC Continue To Pursue Losing Cases?” (ProMarket). “The most troubling possible explanation for why the FTC pursued a litigated challenge in the Meta/Within and Microsoft/Activision Blizzard cases is that the commissioners who voted to authorize the complaints thought that challenging the transactions was the right policy regardless of the law or the strength of the evidence. It is important to remember that the FTC enforces laws as they are and not as individual commissioners wish them to be. There are significant negative consequences in pursuing cases based on weak evidence and misapplication of the law. Pursuing such enforcement actions wastes taxpayer-funded resources and undermines the credibility of the FTC as a law enforcement agency.”
“Larry Summers Is Still Concerned” (Semafor). “[Larry Summers:] I would want to see a few months of positive figures. I would want to see clear evidence that wage inflation was receding to levels that were consistent with the Fed’s 2% inflation target. Most recent wage inflation figures show inflation more for the month than the quarter, and more for the quarter than for the year. And I’d want to see, before feeling that everything was okay, that declines in inflation were not coming along with declines in confidence so rapid as to set off a recession. I certainly think a soft landing looks more likely than it did six months ago. But I’m not prepared to bet on a soft landing.”
“Amazon Wants To Deliver Your Order Without A Box, But Neighbors May See Your Snore Strips” (Wall Street Journal). “The company in the past year revamped its logistics network, enabling faster and more efficient deliveries. Eliminating or reducing packaging has become increasingly important for the company to maintain its dominance, reduce costs and reach its goals related to its climate impact.”
“The Crowdless Future? How Generative AI Is Shaping The Future Of Human Crowdsourcing” (HBS working paper). “This study investigates the capability of generative artificial intelligence (AI) in creating innovative business solutions compared to human crowdsourcing methods. We initiated a crowdsourcing challenge focused on sustainable, circular economy business opportunities…The connection between semantic diversity and novelty is stronger in human solutions, suggesting differences in how novelty is created by humans and AI or detected by human evaluators. This study illuminates the potential and limitations of both human and AI crowdsourcing to solve complex organizational problems and sets the groundwork for a possible integrative human-AI approach to problem-solving.”
What we’re reading (8/10)
“Cooler July Inflation Opens Door To Fed Pause On Rates” (Wall Street Journal). “The consumer-price index, a measure of goods and services prices across the economy, rose a mild 0.2% in July, the same as in June, the Labor Department said Thursday. Core prices, which exclude volatile food and energy categories, also increased just 0.2% in both months, extending a broader slowdown in price pressures.”
“A Trillion In Credit Card Debt Doesn’t Mean Consumers Are Tapped” (Fisher Investments). “Nothing attracts eyeballs like a big round number, and headlines sure made hay with one this week: Credit card balances now top $1 trillion for the first time ever, per a New York Fed report. Unsurprisingly, this raised the alarm about inflation forcing consumers to ratchet up personal debt to keep spending, implying tapped-out consumers will soon pose big economic headwinds. Yet as with all big numbers, it is important to scale and consider context. Do so with credit card debt, and it becomes clear this isn’t a big economic risk that jeopardizes this bull market.”
“How Are You Supposed To Start Investing?” (Vox). Well, here is a non-sequitur if I have ever seen one: “The truth is that many normal people don’t invest in the stock market. Just under 40 percent of American adults haven’t invested any of their money, according to a May Gallup poll — which means that you can live a perfectly normal life without ever purchasing a stock or bond.”
“Why America Is Going Backward: Being The Richest Nation In History Isn’t Enough” (Salon). “[Robert] Gordon says that inventions like electricity, internal combustion engines, central heating and sewage and clean water systems were far more significant than the so-called IT revolution of recent decades. Those things created a virtuous cycle, not only of industrial productivity but health and well-being. Indoor plumbing and general sanitation, he estimates, added more to Americans' lifespans than all the expensive wonder drugs we have today.”
“Goldman Sachs’s C.E.O. Whisperer Takes A Step Back” (DealBook). “The man who has been perhaps the most influential executive inside Goldman Sachs for more than a generation has begun to hand over some of his responsibilities. John Rogers, who over his quarter-century at the Wall Street bank has been known as a board and C.E.O. whisperer, will give his role as chief of staff to Russell Horwitz, his onetime deputy, Andrew and DealBook’s Lauren Hirsch are first to report.”
What we’re reading (8/9)
“Disney+ Hikes Prices As Sales Sink Across The Company” (CNN Business). “On Disney’s fiscal third quarter earnings call, CEO Bob Iger said pricing decisions were made with the goal of pushing more Disney+ subscribers to the service’s ad-supported tier…The price hike comes after Disney reported that its streaming business remains unprofitable, though it has narrowed its revenue loss in the third quarter. Streaming subscribers in the US and Canada are pulling back, as well. Disney reported a 1% decline in domestic subscribers for the second quarter in a row. International subscribers grew 2% in the quarter.”
“Historic Supreme Court Case Could Imperil The Entire US Tax Code” (The Hill). “The case (Moore v. United States) concerns the constitutionality of the 2017 Tax Cut and Jobs Act (TCJA). The act imposed a mandatory repatriation tax on pre-2018 profits that companies and some U.S. shareholders stored abroad. Previously, foreign business profits went untaxed until they returned to U.S. shareholders. But under mandatory repatriation tax, passed as part of Republicans’ comprehensive international tax reform, profits were taxed even if shareholders never received the income.”
“The (In)Accuracy Of Market Forecasts” (Larry Swedroe). “The financial media tends to focus much of its attention on market forecasts by so-called gurus. They do so because they know it gets the investment public’s attention. Investors must believe they have value or they wouldn’t tune in. Yet, a large body of evidence demonstrates that market forecasts from gurus have no value in terms of adding alpha […] —the accuracy of ‘expert’ forecasts is no better than one would randomly expect.”
“Banks’ Problems Aren’t Over, According To The Bond Market” (Wall Street Journal). “On Monday, ratings firm Moody’s Investors Service took action on 27 banks, including downgrading the credit ratings of 10 and putting others under review or giving their ratings a negative outlook. Credit ratings are very important for banks, which fund themselves partly with deposits, but also by selling bonds.”
“What Studies Say About UFO🛸 Conspiracies” (Alexander Webb). “Even if the aliens part is made up—and I am not saying it is or isn’t—the other elements of the story are definitely real and can be studied. These elements include; 1) The math of conspiracies. (When does an organization get too big to keep a secret?) 2) The physics of theoretical alien spacecraft. (Based on sightings, what are the capabilities of these hypothesized craft?) 3) The psychology of emotional stories. (Can we tell when an emotional story is true or false?) 4) What are the odds of life on other planets. (Based on certain assumptions, what are the odds alien life exists?)”
What we’re reading (8/9)
“Layoffs Watch ’23: Non-Swiss Credit Suissers” (Dealbreaker). “Turns out UBS was saving the deepest cuts for the Far East.”
“WeWork Warns It Has ‘Substantial Doubt’ About Whether It Can Keep Going As A Business” (Insider). “The company issued what's known as a ‘going-concern’ warning. Publicly traded companies typically issue these when they're worried, broadly speaking, that they don't have the money to pay their bills over the next year, an S&P Global report on the topic explains.”
“New Lending By Mortgage REITs Has Dried Up” (Wall Street Journal). “Blackstone Mortgage Trust and KKR Real Estate Finance Trust, two of the biggest mortgage real-estate investment trusts, have halted loans to any new borrowers. While these firms continued to provide financing related to existing loans, they didn’t originate any new loans during the first half of this year, according to the companies. Starwood Property Trust, another lender in the sector, has greatly decreased its appetite for new lending in recent quarters, securities filings show.”
“Behind All The Talk, This Is What Big Oil Is Actually Doing” (New York Times). “If you’ve been listening to the world’s major energy companies over the past few years, you probably think the clean energy transition is well on its way. But with fossil fuel use and emissions still rising, it is not moving nearly fast enough to address the climate crisis.”
“Why Are The Celtic Nations So Progressive?” (The Path Not Taken). “To an unusual degree, governments in Celtic nations (Ireland, Scotland and Wales) are more progressive than Celtic voters. Relevant measures reflect social justice ideology – recently, the Irish hate speech law has been controversial – yet have a wider basis than social justice ideology, the Welsh government regulating speeding and plastic bag use. This phenomenon is fascinating, shedding light on divisions between elites and voters which occur across the West.”
What we’re reading (8/7)
“A Trucking Giant Is Bankrupt, And Finger-Pointing Begins” (New York Times). “Yellow, one the largest trucking companies in the United States, is now in bankruptcy, three years after it got a $700 million federal loan meant to help it weather the pandemic’s upheaval. So why are rivals of the 99-year-old freight hauler doing just fine?”
“The Average Doctor In The U.S. Makes $350,000 A Year. Why?” (Washington Post). “‘I’d like to see an in-depth analysis of the effect of the government capping the number of residency spots and how it’s created an artificial ‘physician shortage’ even though we have thousands of talented and graduated doctors that can’t practice due to not enough residency spots,’ Bisaccia wrote.”
“Another Wall Street Bank Throws In The Towel On Their 2023 Recession Call” (Insider). “According to JPMorgan, economic growth still looks ‘solid’ for the third quarter of the year, and while recession risks are elevated for next year, there could still be a period of ‘modest, sub-par’ economic growth.”
“A Real-Estate Haven Turns Perilous With Roughly $1 Trillion Coming Due” (Wall Street Journal). “Apartment buildings, long considered a real-estate haven, are emerging as the next major trouble spot in the beleaguered commercial-property world. Investors bid up the prices of multifamily buildings for years, attracted by steadily rising rents and the prospect of outsize returns. Many took on too much debt, expecting they could raise rents fast enough to pay it down.”
“Bank Lending Standards Are The Toughest Since Lehman Brothers’ Collapse” (creditkarma). “Inflation is falling, the economy is strong, and the stock market rallied 20% in the first half. The market is in such high spirits it even shrugged off Fitch’s surprise downgrade of U.S. debt. Not bankers. According to data from the Fed’s latest senior loan officers survey, banks are holding their borrowers to the most stringent rules since the collapse of Lehman Brothers.”
July performance update
Hi friends, here with the numbers for July.
Prime: -0.50%
Select: +1.20%
SPY ETF: +3.36%
Bogleheads ETF (80% VTI, 20% BND): +2.91%
A lackluster month for Prime overall, but Select had a strong month by any measure — except the market itself of course, which was up 3.36%. Being relatively uncorrelated is great, but not when that means the market is on fire and your strategy is not. Prime and Select haven’t “caught fire” the same way the market has lately. To be sure, the market has been roaring in 2023, up 19.71% through July (measured by the SPY ETF). Still, Prime’s YTD performance has been quite good, up 6.98% through July, which is roughly equal to what the market does in an average full year.
Total Performance History
What we’re reading (8/3)
“What’s Happening With The Economy? The Great Wealth Transfer” (Ray Dalio on LinkedIn). “The economy clearly isn’t reacting in the usual way to the Fed’s tightening; it is much stronger than normal and stronger than expected. Why is that? There was a big government-engineered shift in wealth from 1) the public sector (the central government and central bank) and 2) holders of government bonds to 3) the private sector (i.e., households and businesses). This made the private sector relatively insensitive to the Fed’s very rapid tightening to a more normal monetary policy. As a result of this coordinated government maneuver, the household sector’s balance sheets and income statements are in good shape, while the government’s are in bad shape.”
“How The Recession Doomers Got The U.S. Economy So Wrong” (The Atlantic). “In 2022, it was a matter of conventional and nearly universal wisdom that the 2023 economy would be a nightmare. Last October, a Bloomberg economic model said that the odds of a U.S. recession this year were 100 percent. No, not 99.99 percent, as in the odds that you’ll avoid being struck by lighting this evening. One hundred percent, as in the odds that you’ll avoid falling into a time-bending wormhole that spits you out in 17th-century Versailles at a dinner table with Louis XIV.”
“Workers To Employers: We’re Just Not That Into You” (Wall Street Journal). “Early on, remote work looked like a win-win: Employees got to work where and when they pleased, and employers got more productivity. It turns out only the first part of that bargain came true. Employees still love remote work, but recent studies find no boost to productivity and a decline for fully remote work. And yet most employers have given up on prodding staff to return to the office full time.”
“Left Digit Bias In Medicine” (Marginal Revolution). “You have probably heard of left-digit bias—the idea that $7.99 seems cheaper than $8, even though $8 is only negligibly different than $8.01. Left-digit bias is widely observed in pricing but the effect is more general. A car with 39,990 miles on the odometer, for instance, sells for more than a car with 40,005 miles (so be smart and buy the car with 40,005 miles). Could left-digit bias show up in medicine? People who end up in the emergency room complaining of chest pains a few weeks before their 40th birthday are very similar to people who end up in the emergency room with chest pains a few weeks after their 40th birthday. But on a chart, the former are 39 years old and the latter are 40. The big 40 is a heuristic among physicians for potential heart attack. Looking at more than five million patient records, the economist Stephen Coussens found that patients who were slightly over the age of 40 were almost 10% more likely to be tested for a heart attack than those just under 40.”
“How People Decide Who Is Correct When Groups Of Scientists Disagree” (Branden B. Johnson, Marcus Mayorga, and Nathan F. Dieckmann, Risk Analysis). “Uncertainty that arises from disputes among scientists seems to foster public skepticism or noncompliance. Communication of potential cues to the relative performance of contending scientists might affect judgments of which position is likely more valid. We used actual scientific disputes—the nature of dark matter, sea level rise under climate change, and benefits and risks of marijuana—to assess Americans’ responses (n = 3150). Seven cues—replication, information quality, the majority position, degree source, experience, reference group support, and employer—were presented three cues at a time in a planned-missingness design. The most influential cues were majority vote, replication, information quality, and experience.”
What we’re reading (8/2)
“The Odd Logic To Fitch’s U.S. Debt Downgrade” (Axios). “The U.S. government does face tough fiscal tradeoffs in the decade ahead, with interest costs poised to eat up a growing share of the economy, deficits crowding out private investment and Social Security facing steep automatic cuts in 2033. But the issue isn't so much one of creditworthiness, as implied by the Fitch downgrade. It's when, and on what terms, those adjustments happen.”
“Can ChatGPT Help Investors Process Financial Information?” (Marginal Revolution). “Surprise, surprise, disclosures are bloated past the point of being informally useful: [quoting from the study] ‘Generative AI tools such as ChatGPT can fundamentally change the way investors process information. We probe the economic usefulness of these tools in summarizing complex corporate disclosures using the stock market as a laboratory. The unconstrained summaries are dramatically shorter, often by more than 70% compared to the originals, whereas their information content is amplified. When a document has a positive (negative) sentiment, its summary becomes more positive (negative). More importantly, the summaries are more effective at explaining stock market reactions to the disclosed information.’”
“Hedge Fund Certainly Doesn’t Seem To Think Yellow Has Run Out Of Road” (Dealbreaker). “Trucking giant Yellow—and the $700 million in taxpayer money that kept it afloat during the pandemic—are a total loss, we are told. Told by the union representing many of its employees. Told by the analysts watching its customer base dwindle after watching its leaders mismanage it and make bad deals for decades. Told by the company itself, which has ceased operations and is preparing for a bankruptcy filing, followed by probable liquidation. The private equity and hedge funds, however, are telling a different story.”
“‘How Do I Do That?’ The New Hires Of 2023 Are Unprepared For Work” (Wall Street Journal). “The knock-on effect of years of remote learning during the pandemic is gumming up workplaces around the country. It is one reason professional service jobs are going unfilled and goods aren’t making it to market. It also helps explain why national productivity has fallen for the past five quarters, the longest contraction since at least 1948, according to the U.S. Labor Department.”
“There Are Way Too Many Real-Estate Agents” (Insider). “The issue, [Denver broker Bret] Weinstein said, is that it's way too easy to become an agent. In most states, getting a license to help people buy or sell a home requires only a few hundred dollars, several weeks of coursework, and a passing grade on a multiple-choice test. The low barrier to entry and fat commission checks lure many to the industry, especially when home prices rise. In the decade-plus since the housing market started to rebound from its financial-crisis lows, the ranks of agents have swelled with part-timers and career switchers looking to capitalize on the boom. At the end of June, there were roughly 1.6 million registered Realtors in the US — or about 2 ½ Realtors for every available home on the market.”
What we’re reading (8/1)
“S&P 500, Nasdaq Start August Lower While Apple, Amazon Earnings And Jobs Data Loom This Week” (MarketWatch). “U.S. stocks ended mostly lower Tuesday afternoon, pulling back from 16-month highs and a five-month winning streak, while in a wait-and-see mode ahead of jobs numbers and major technology company earnings reports later this week.”
“Fitch Downgrades The United States’ Long-Term Ratings To ‘AA+’ From 'AAA'; Outlook Stable” (FitchRatings). “The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.”
“Maintaining Dollar Dominance Requires The US To Do What Spider-Man Would Do, Analyst Says” (Insider). “‘Americans should recognize the applicability of the Spider-Man adage to the dollar, and US leaders should adopt it as an overarching principle for all aspects of dollar policy,’ he [Paul Blustein, of CSIS] wrote. ‘Much is riding on how Washington uses the power that comes with the world's dominant currency. Whether it is wielded responsibly or not should be of profound concern to citizens of the US and other countries alike.’”
“CVS To Slash 5,000 Jobs As Company Deepens Costly Health-Care Push” (CNBC). “A CVS spokesperson confirmed the layoffs and said they are not expected to affect ‘customer-facing colleagues in our stores, pharmacies, clinics, or customer services centers.’ The spokesperson added that employees laid off will receive severance pay and benefits, including access to outplacement services.”
“Uber’s Business Is Finally Making Money After Years Of Losses” (Wall Street Journal). “The results for the three months through June were driven by solid growth in both of Uber’s core businesses, as the number of rides in the U.S. and Canada surpassed prepandemic levels for the first time and demand for delivery stayed strong despite restaurant reopenings. The quarter was the first since Uber’s 2009 founding that it reported its underlying operations were profitable. The easy availability of capital for much of the past decade had Uber and others burning tens of billions of dollars in an attempt to gain market share.”
What we’re reading (7/31)
“U.S. Stocks Roar Back In 2023 To Book Best Seven Months To Start A Year In Decades” (MarketWatch). “The S&P 500 just wrapped up its best performance through the first seven months of a year since 1997, when it gained 28.8% through July, according to Dow Jones Market Data. The index rose 31% in all of 1997, FactSet data show.”
“Local Malls, Stuck In ‘Death Spiral,’ Plunge In Value” (Wall Street Journal). “Older, low-end malls are worth at least 50% and in some cases more than 70% less than they were when mall valuations peaked in late 2016, said Vince Tibone, head of U.S. retail and industrial research for real-estate research firm Green Street…About a fifth of all malls financed through commercial mortgage-backed securities are underwater, meaning the properties are worth less than the loans they back, said Kevin Fagan, head of commercial real-estate economic analysis for Moody’s.”
“Gallium And Germanium: What China’s New Move In Microchip War Means For World” (BBC). “China is due to start restricting exports of two materials key to the semiconductor industry, as the chip war with the US heats up. Under the new controls, special licences will be needed to export gallium and germanium from the world's second largest economy. The materials are used to produce chips and have military applications. The curbs come after Washington made efforts to limit Beijing's access to advanced microprocessor technology.”
“The Robots We Were Afraid Of Are Already Here” (New York Times). “Over the last few years, significant resources have been thrown at making robots profitable — and this is paying off. More companies are competing to solve the problems that have traditionally come with automation, and many are succeeding. ‘People are finally making money,’ said Samuel Reeves, chief executive of FORT Robotics, a Philadelphia start-up focused on robot safety. ‘You’ve got legit work being done by mobile autonomous robots. And that’s only in the past two or three years.’”
“AI’s Growing Legal Troubles” (Wall Street Journal). “It turns out OpenAI scanned giant repositories of books, named Books1 and Books2—reminiscent of Dr. Seuss’s Thing 1 and Thing 2. OpenAI hasn’t said what’s in Books2, which may include more than 300,000 books. Ms. Silverman’s enjoined suit says these ‘shadow libraries’ are ‘flagrantly illegal.’”
August picks available now
The new Prime and Select picks for August are available starting now, based on a model run put through today (July 30). As a note, I will be measuring the performance on these picks from the first trading day of the month, Tuesday, August 1, 2023 (at the mid-spread open price) through the last trading day of the month, Thursday, August 31, 2023 (at the mid-spread closing price).
What we’re reading (7/28)
“Fed’s Powell Talks Tough After Rate Hike, But A Pause Seen Likely From Here” (Morningstar). “We believe more positive news about inflation will come in upcoming reports. Thus, despite the Fed’s latest projections showing one more rate rise in 2023, we think it’s done with hiking. Federal-funds futures markets agree with this assessment.”
“What Happened To Japan?” (Paul Krugman, New York Times). “Here’s the story you may have heard: In the late 1980s Japan experienced a monstrous stock and real estate bubble, which eventually burst. Even now, the Nikkei stock average is significantly below the peak it reached in 1989. When the bubble burst, it left behind troubled banks and an overhang of corporate debt, which led to a generation of economic stagnation. There’s some truth to aspects of this story, but it misses the most important factor in Japan’s relative decline: demography. Thanks to low fertility and unwillingness to accept immigrants, Japan’s working-age population has been declining quite rapidly since the mid-1990s. The only way Japan could have avoided a relative decline in the size of its economy would have been to achieve much faster growth in output per worker than other major economies, which it didn’t.”
“Bernanke Tapped To Find Out Why U.K. Central Bank Misjudged Inflation” (Wall Street Journal). “The Bank of England has named Ben Bernanke, a former chair of the Federal Reserve, to review its economic forecasting record, one of the first steps taken by a leading central bank to understand why they underestimated a surge in prices that began more than two years ago and dented living standards.”
“Barclays Can’t Count On Underpaying Customers To Keep Itself Afloat Forever” (Dealbreaker). “For a while, soaring interest rates were just the tonic C.S. Venkatakrishnan needed to hide Barclays’ many, many ills while he tried to figure out a longer-term cure. They helped paper over the misery at its investment bank while also offering a nice fillip to its retail bank. Venkat’s still working on a treatment plan, but the central bank snake oil is wearing off: Not only has the benefit for the benighted I-bank peaked, but those fat net interest margins are starting to slim down.”
“The Man Suing Buffalo Wild Wings Over Their Boneless Wings Really Being Chicken Nuggets Asked A Judge Not To Throw Out The Case And Reward The Company’s ‘Hubris’” (Insider). “Buffalo Wings Wings doesn't ‘give a s---’ that people say its boneless wings aren't really wings. The man suing the restaurant — because he thinks its boneless wings are basically chicken nuggets — says that's enough reason for a judge to hear him out. Aimen Halim filed a class-action lawsuit against Buffalo Wild Wings in March, saying the company’s marketing of boneless wings is misleading because they are ‘more akin in composition to a chicken nugget rather than a chicken wing.’”
What we’re reading (7/27)
“The Dow Sinks, Snapping Its Longest Run Since 1987” (CNN Business). “The Dow slipped on Thursday, snapping a 13-day winning streak. The blue-chip index fell 237 points after being on track to close higher for a 14th consecutive session. That would have marked the Dow’s longest run of consecutive gains since May 1897. If the Dow had closed higher Thursday and Friday, it would have notched 15 days of gains, its longest daily winning streak ever.”
“Hedge Funds That Sold Alphabet Miss Out On Huge Gains” (Institutional Investor). “The Google bulls are winning — at least for now. Shares of the search giant’s parent Alphabet surged about 6 percent Wednesday, after the company beat second-quarter earnings forecasts and reported strong revenues from its cloud business. The stock is now up more than 50 percent for the year.”
“Commercial Real Estate Is In Trouble, But Not For The Reason You Think” (Morningstar). “The long, slow metamorphosis happening in the office segment of the commercial real estate market is soaking up oxygen from another story that’s rapidly unfolding in commercial real estate markets. Remember those other categories? The biggest one, beating office by a few hundred billion dollars, is multifamily residential. Multifamily residential buildings are typically apartment complexes that are owned by commercial landlords. Real estate loans in this area are looking especially wobbly, for three primary reasons.”
“Sequoia Capital Slashes Crypto Fund As It Downsizes Amid Startup Crunch” (Wall Street Journal). “Sequoia Capital pared back the size of two major venture funds, including its cryptocurrency fund, as part of a dramatic downsizing the storied venture firm is undertaking amid a broad startup downturn. Sequoia cut the size of its cryptocurrency fund to $200 million from $585 million, according to people familiar with the matter. It also slashed the size of its so-called ecosystem fund, which invests in other venture funds, to $450 million from $900 million, the people said.”
“One Family Pocketed $7.6 Million By Taking Cans And Bottles From Arizona And Recycling Them In California. That’s Fraud, Prosecutors Say.” (Insider). A clever example of regulatory arbitrage. “In a felony complaint filed this month, state prosecutors charged eight family members in Riverside County with defrauding the state by importing used bottles and cans from Arizona — some 178 tons in 8 months — and recycling them in California.”
What we’re reading (7/26)
“Federal Reserve Raises Interest Rates To 22-Year High” (Wall Street Journal). “Fed Chair Jerome Powell said it was too soon to tell whether the hike would conclude a series of increases aimed at cooling the economy and bringing down inflation. The central bank would decide whether to keep lifting rates based on how the economy fares in the months ahead, ‘with a particular focus on making progress on inflation,’ he said at a news conference.”
“Dow Rises For A 13th Straight Day, Posting Its Best Winning Streak Since 1987” (CNBC). “The Federal Reserve raised rates to their highest level in more than 22 years after passing through a much-anticipated quarter point hike at the conclusion of its meeting. However, Treasury yields slid after Fed Chief Jerome Powell suggested the central bank could pause again here.”
“A UPS Strike Would Have Been Worse Than You Think” (Vox). “Our reliance on delivery gave the Teamsters union a lot more leverage in UPS negotiations.”
“Hollywood's Wealth Disparity By The Numbers” (The Week). “Disney CEO Bob Iger made headlines after saying the demands of the strike were ‘unrealistic,’ resulting in significant backlash. In 2022, his contract gave him the possibility of earning up to $27 million with bonuses, according to an SEC disclosure. While this makes him one of the highest-paid Hollywood executives, Iger looks primed to make even more: He re-upped with Disney earlier this month, and could make ‘$31 million annually under the new terms, depending on his performance and the company's stock price,’ the Observer reported.”
“Welcome to Forked Lightning” (David Deming). “Do rich kids apply to Ivy-Plus colleges at higher rates? Are they admitted at higher rates? Or once admitted, are they more likely to accept the offer, perhaps because they don’t need financial aid? The answer is yes to all three, but it’s mostly admissions. We [Chetty, Deming, and Friedman] estimate that about 2/3 of the ‘extra’ rich kids at Ivy-Plus colleges are there because of preferential admissions practices.”
August picks available soon
I’ll be publishing the Prime and Select picks for the month of August before Tuesday, August 1 (the first trading day of the month). As always, SPC’s performance measurement for the month of July, as well as SPC’s cumulative performance, will assume the sale of the July picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Monday, July 31). Performance tracking for the month of August will assume the August picks are bought at the open price (at the mid-point of the opening bid and ask prices) on the first trading day of the month (Tuesday, August 1).
What we’re reading (7/24)
“Dan Och Finally Kills The Hedge Fund He Founded” (Dealbreaker). “In spite of indications that Och had perhaps thought better of obliterating the creation that still houses a substantial chunk of his fortune, it turns out that a billionaire scorned will not be denied his vengeance, whatever the cost.”
“Buyout Barons Feast On Excesses Of Last Boom” (Reuters). “The interest rate on high-yield loans to large borrowers from banks has roughly doubled to 10% since late 2021, reckons investment bank Configure Partners, while private lenders now charge about 12%. That’s a problem for corporate matchmakers. Corporate debt usually features change-of-control provisions that require it be paid off if the borrower changes hands. That forces buyers to refinance old cheap loans with new expensive ones.”
“The Markets Are Counting On The Fed To Solve A Tricky Puzzle” (New York Times). “The majority opinion on Wall Street is still that there will be a recession in the next 12 months, a Wall Street Journal survey this month showed. But because of the onslaught of data indicating that the economy remains in growth mode, many economists are lowering the odds of a recession happening, and expect that if one occurs, it will be mild.”
“Why The Fed Isn’t Ready To Declare Victory On Inflation” (Wall Street Journal). “Some Fed policy makers and economists are concerned that the easing in inflation will be temporary. They see inflation’s slowdown as long overdue after the fading of pandemic-related shocks that pushed up rents and the prices of transportation and cars. And they worry underlying price pressures could persist, requiring the Fed to lift rates higher and hold them there for longer.”
“‘Barbenheimer’s’ $246 Million Weekend Joins ‘Star Wars’ And ‘Avengers’ As One Of The Biggest Openings Ever” (CNBC). “When forecasting for the two movies first started, experts predicted that ‘Barbie’ would have an opening weekend in the $50 million to $60 million range, while ‘Oppenheimer’ looked poised to sell between $30 million and $40 million worth of tickets.”