What we’re reading (8/24)
“VinFast, Arm And Other Index Orphans Miss Out On Billions From Passive Investors” (Wall Street Journal). “The two stocks sit in a weird no-man’s-land between countries, qualifying neither for their home index nor the S&P 500, thanks to their decision to list outside their home countries. They’re in a growing group of companies including the Italian fashion designer Prada, the Swedish music streamer Spotify and the German vaccine maker BioNTech, which miss out not only on the trillions of dollars tracking domestic indexes and index futures but also on global index money.”
“How Jackson Hole Became An Economic Obsession” (New York Times). “Mr. Powell will be speaking at a moment when the Fed’s next moves are uncertain as inflation moderates but the economy retains a surprising amount of momentum. Wall Street is trying to figure out whether Fed officials think that they need to raise interest rates more this year, and if so, whether that move is likely to come in September. So far, policymakers have given little clear signal about their plans. They have lifted interest rates to 5.25 to 5.5 percent from near zero in March 2022, and have left their options open to do more.”
“Macro Illusions — Which Ones Are You Suffering Under?” (Marginal Revolution). “I am not saying all of these (or even most of these) are wrong. I am saying that various doctrines appeared to be ‘quite true’ on a temporary basis, and yes I stress that word temporary. Then they are not true, or at least not obviously true any more. So which are the macro delusions of our current time? I would nominate a clear winner for number one: 1. Enough government action on the demand side can fix macroeconomic problems and ensure full employment Maybe sometimes that is true. But it is not always true, and I hope you all can be wiser than the people who got caught up in earlier macroeconomic illusions, or should I call them delusions? Furthermore, all discussions of the Phillips curve — no matter what the point of view — should be conducted with this blog post in mind.”
“Wall Street Funds Discuss Potential Bankruptcy Plan For WeWork” (Wall Street Journal). “A group of Wall Street firms that lent hundreds of millions of dollars to WeWork is exploring the possibility of a bankruptcy filing that could help the company exit from expensive office leases, one of several options under discussion, according to people familiar with the creditors’ talks.”
“Nordstrom Rack And Macy’s Stores Are Ransacked By Groups Of Thieves Who Made Off With Thousands Of Dollars Worth Of Designer Purses In California” (DailyMail). “A Nordstrom Rack in Riverside has been ransacked by a band of six thieves who made off with thousands of dollars worth of designer handbags. The incident comes as Southern California experiences a wave of ‘flash robberies’, where a group of thieves overwhelm a store's employees and security before making off with as many items as possible. The department store on Canyon Springs Parkway was hit first on July 10 and again just weeks later in a separate incident on August 14.”
What we’re reading (8/23)
“SEC Takes On Private Equity, Hedge Funds” (Wall Street Journal). “The [new] rules restrict the ability of private-equity and hedge funds to entice large investors by offering them special deals, known as side letters, for better terms than other investors. The SEC will also require private funds to provide their investors quarterly financial statements detailing their performance and expenses, and to undergo annual audits.”
“Corporate America’s Chief Critic, Carl Icahn, Gets His Comeuppance” (New York Times). “[I]n May, Mr. Icahn, 87, found out what it’s like to be on the receiving end when Nathan Anderson, a 39-year-old short seller, published a report questioning the setup at Icahn Enterprises, his publicly traded company. Mr. Anderson suggested that the company was paying shareholders a dividend it could not afford. This month, Icahn Enterprises succumbed to the pressure, slashing its dividend by half. ‘It is very, very embarrassing for Carl because this guy beat him and beat him at his own game,’ said Mark Stevens, the author of a 1993 book titled ‘King Icahn: The Biography of a Renegade Capitalist.’”
“A Deep Crisis In China Would Pose A Choice For Two Leading Powers” (Hank Paulson). “Yet all those who would celebrate China’s daunting challenges should consider the emerging risks that come with them — and be careful what they wish for. A deep crisis in China, should it come, would pose a choice for two leading powers: Can China pivot from the path that has delivered it here? And can the United States remain confident in the things that make it so much more resilient?”
“How Scary Is China’s Crisis?” (Paul Krugman). “I think we can answer a more conditional question: If China does have a 2008-style crisis, will it spill over in a major way to the rest of the world, the United States in particular? And there the answer is pretty clearly no. Big as China’s economy is, America has remarkably little financial or trade exposure to China’s problems.”
“Mark-To-Market Is Not As Simple For Banks As Is Assumed” (RealClear Markets). “Looking back to 2008, it’s no revelation that investors (feverishly trying to mark-to-market) were very skeptical about the mortgages on the books of banks. This is markets at work. Still, marking all 15-year mortgages to market at the time arguably would have been as fraudulent of an exercise as not doing so.”
What we’re reading (8/23)
“Goodbye Bathtub And Living Room. America’s Homes Are Shrinking.” (Wall Street Journal). “Home prices are near record highs, frustrating millions of potential buyers who feel priced out of the housing market. Home builders are having to find ways to make their product more affordable to increase their pool of customers. Shrinking the size of a new single-family home is an increasingly popular way to do it. Smaller homes can help cost-constrained buyers facing high mortgage rates. They also boost the bottom line for builders who are contending with spiraling labor and construction costs.”
“Housing Market Affordability Is Worse Now Than At The Height Of The Housing Bubble In 2006” (Fortune). “On Monday, the average 30-year fixed mortgage rate reached 7.48%, marking the highest level since the year 2000. Even prior to this recent surge in mortgage rates, housing affordability, as monitored by the Atlanta Fed, had already deteriorated beyond the levels seen at the housing bubble’s peak in 2006. Once this latest mortgage rate surge is factored in, August 2023 will become the worst month for housing affordability this century.”
“Wall Street Is Declaring Victory Too Early — The US Is Still Headed For A Recession” (Insider). “[J]ust because the economy's flight path seems gentle now doesn't mean that there won't be turbulence ahead. According to top Wall Street strategists and economists I've spoken with in recent weeks, there's plenty of evidence that a recession is on the way. In other words, bulls are declaring victory far too early.”
“Even Millionaires Are Feeling Financial Insecure, Report Finds” (CNBC). “Even doctors, lawyers and other highly paid professionals — also referred to as the ‘regular rich’ — who benefit from stable jobs, homeownership and a well-padded retirement savings account said they don’t feel well off at all. Some even said they feel poor, according to a recent survey conducted by Bloomberg.”
“What To Know About China’s Real Estate Crisis” (New York Times). “Major developers are faltering as they face huge losses, struggle with mountains of debt and miss payments to lenders. A long-running building boom that propelled China’s growth has come to a halt, threatening the jobs and savings of millions of households. China’s markets have tumbled and its currency has weakened as officials take action to spur growth.”
What we’re reading (8/21)
“Goldman Sachs Weighs Selling Part Of Wealth Business In Broad Strategy Revamp” (U.S. News & World Report). “Goldman Sachs is weighing the sale of a part of its wealth business, it said on Monday, as it shifts its focus back to serving the ultra-rich and away from high-net-worth clients in mass markets. The Wall Street bank is evaluating alternatives for its registered investment adviser (RIA) unit, called Personal Financial Management (PFM), which manages about $29 billion, it said in a statement.”
“Betting Against U.S. Debt Has Cost Ackman This Year” (Institutional Investor). “The short of 30-year U.S. Treasuries, first undertaken in April of 2022, cost Pershing Square Holdings 4.1 percentage points during the first half of the year, according to a just-released semiannual report to investors. The bet was the biggest loss for the portfolio, whose gross gains were 10.9 percent for the six-month period. During that time Pershing Square drastically underperformed the stock market, which gained 16.9 percent during the same time.”
“Subway Sandwich Chain Nears Sale” (Wall Street Journal). “Roark Capital is nearing a deal to buy the Subway sandwich-shop chain for about $9.6 billion. After a long, heated auction, a deal for the closely held company could be finalized this week, people familiar with the matter said. Roark has been battling it out with a group of rival private-equity firms including TDR and Sycamore, and in recent days pulled ahead.”
“What Happens To All The Stuff We Return?” (The New Yorker). “Most online shoppers assume that items they return go back into regular inventory, to be sold again at full price. That rarely happens. On the last day of the R.L.A. conference, I joined a ‘champagne roundtable’ led by Nikos Papaioannou, who manages returns of Amazon’s house-brand electronic devices, including Kindles, Echos, and Blink home-security systems. He said that every item that’s returned to Amazon is subjected to what’s referred to in the reverse-logistics world as triage, beginning with an analysis of its condition. I asked what proportion of triaged products are resold as new. ‘It’s minimal,’ he said.”
“Is David Solomon On His Way Out At Goldman Sachs? The CEO Whisperer Weighs In” (CNN Business). “There are several reasons that all of this is happening right now. One is that we went through a recent era of lionizing CEOs, and now the pendulum has swung back to where we’re quick to vilify them. There’s just an outsized focus on short-term performance instead of long-term change when it comes to CEOs. But if you look at the five-year arc of David Solomon, the company is up by over 50% on nearly every performance measure.”
What we’re reading (8/20)
“Interest Rate Jitters Sink The Heavyweights Of Tech” (New York Times). “In the span of a month, the bottom has dropped out of the bull-market rally as investors have come to grips with the prospect of “higher for longer” interest rates worldwide. The sell-off in global stocks and bonds picked up steam on Thursday. And weary market watchers will be looking for more hints on the Fed’s view at next week’s Jackson Hole summit of central bankers and policymakers.”
“Why the Era of Historically Low Interest Rates Could Be Over” (Wall Street Journal). “Despite the Federal Reserve’s raising interest rates to a 22-year high, the economy remains surprisingly resilient, with estimates putting third-quarter growth on pace to easily exceed its 2% trend. It is one of the factors leading some economists to question whether rates will ever return to the lower levels that prevailed before 2020 even if inflation returns to the Fed’s 2% target over the next few years.”
“The US Mall Is Not Dying” (CNN Business). “Retail experts have long sounded the alarm on malls in the US. But malls are not going extinct, they are merely adapting to a new environment. In fact, many have reported robust occupancy levels and bigger crowds than before the pandemic, according to a recent market analysis from Coresight Research.”
“Have Airlines Gone Too Far With Their Extra Fees?” (BBC). “Airlines say that by ‘unbundling’ extras such as food and drink or cabin baggage from the ticket price, travellers get more choice and cheaper fares overall.”
“Nvidia Reports Earnings, Fed Gathers In Jackson Hole: What To Know This Week” (Yahoo! Finance). “Powell’s commentary [at Jackson Hole this week] on the path forward for interest rates, the overall state of the economy, and any suggestion inflation pressures are prompting a rethink of the Fed's current goals will be in focus.”
What we’re reading (8/19)
“WeWork Announces 1-For-40 Reverse Stock Split To Avoid Getting Kicked Off The New York Stock Exchange” (CNN Business). “The reverse stock split is a bid to boost WeWork’s ailing stock price and save its shares from getting delisted. Stocks must retain a $1 minimum closing price to continue listing on the NYSE. If a stock remains below that level for a ‘substantial period of time,’ NYSE rules state that the exchange reserves the right to remove it.”
“Aldi Is Getting Bigger. Here’s Why The No-Frills German Grocer Is Looking To The Southern U.S. For Growth” (CNBC). “The German retailer announced this week that it plans to acquire about 400 Winn-Dixie and Harveys Supermarket locations across the Southern U.S. As part of the deal, it would take over operations of the stores, which are in Florida, Alabama, Georgia, Louisiana and Mississippi, and put at least some of them under the Aldi name.”
“Wall Street, yields Tread Water As Investors Await Fed At Jackson Hole” (Reuters). “Yields on benchmark 10-year U.S. Treasuries stepped back after flirting with 16-year highs earlier in the week. Investors expected the Fed may hold interest rates higher for longer as the U.S. economy continued to show strength. ‘August historically has been a weak month for markets and it isn’t surprising that after a big rally to start the year, that investors would take a breather. The headlines haven’t changed all that much, but the lens with which investors are viewing those headlines has,’ said Blake Emerson, global investment specialist at JP Morgan Private Bank.”
“Something Has Changed On City Streets, And Amazon Is To Blame” (New York Times). “By law, two-way residential streets in Washington are supposed to be 34 feet from curb to curb, but many are a few feet narrower. The average car is about six feet wide, so parked cars on either side constrict a roadway quickly. Once you account for mirrors, swinging doors and the occasional mis-parked minivan or S.U.V., the two lanes of moving traffic might have only 13 or 14 feet of road space to work with. Drivers can move freely but cautiously, braking to pass. For Jacobs and other urban theorists, that’s perfect — these are not neighborhoods that shortcut-seeking motorists consider worthwhile to barrel through, or where playing children need to fear sudden surprises.”
“Failing Upward” (City Journal). “The FTC has had a busy summer. It proposed severe new disclosure requirements for parties seeking to merge. Joining forces with the Justice Department, it moved to de-modernize the government’s merger guidelines. (‘Weighted by the number of citations,’ observe Gus Hurwitz and Geoff Manne, ‘the average year of the 50 cases the FTC and Justice Department cite in support of their approach is 1975—ages ago in antitrust law.’) The agency launched an investigation of OpenAI, maker of ChatGPT, and signaled its intent to regulate artificial intelligence more broadly. It accused Amazon of using so-called dark patterns to trick users into subscribing to Amazon Prime. (It also claims that Prime is too hard to quit. Never mind that one can do so in fewer clicks than it takes to file a comment with the FTC.) And any day now, Khan is expected to file her biggest lawsuit of all: her long-planned quest to break up Amazon. The more Khan loses, it appears, the more ambitious she becomes.”
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.’”