What we’re reading (1/22)
“Charles Schwab Just Survived A Year From Hell. The Trouble Isn’t Over Yet.” (Wall Street Journal). “Charles Schwab last year weathered a banking crisis, layoffs and a sharp drop in its stock price. Inside the company, employees are preparing for another uncertain year. The largest publicly traded U.S. brokerage on Wednesday reported a third consecutive quarter of year-over-year revenue and profit declines, hit hard by higher interest rates. Net income in 2023 dropped to $5.1 billion, down 29%. Shares fell 17% last year and are down 7% year to date.”
“The Market Has Had A Fabulous Run, But This Peak Doesn’t Really Matter” (New York Times). “Suppose you had gotten the market cycle as wrong as you possibly could, but had nonetheless decided to become a long-term stock investor — and had actually stuck with it, despite colossal losses. That would have meant buying at the market peak of Oct. 9, 2007. You would have lost most of your money by the spring of 2009, but you would have gained it back, and then some. These are the returns of the S&P 500 from Oct. 7, 2007, through Jan. 18, [2024] according to FactSet: [c]onsidering price alone, the index gained 7.1 percent annualized, or 207 percent cumulatively. With reinvested dividends, the index gained 9.3 percent annualized, or 325 percent cumulatively.”
“From 942-Year-Old Directors To ‘Financial Anomalies,’ These Red Flags Reveal Whether A Shell Company Might Be A Fraud, According To Moody’s” (Business Insider). “Moody's found instances of individuals holding a ridiculous number of jobs simultaneously, including one person who was observed to have 5,751 roles in nearly 3,000 companies. The data includes 11.5 million outlier directorship flags, the report said. Other unusual employee details include the extreme age listed for some employees, either ludicrously old or young. The data revealed that some firms have ‘beneficial owners’ older than 122, and some as young as 0. More than 4,000 directors were listed as younger than five years old, while another director at a Belgium-based firm was even listed as 942 years old, putting this person's birthdate somewhere around the year 1082.”
“FAA Urges Door Plug Checks On Second Boeing Model ‘As Soon As Possible’” (Washington Post). “The Federal Aviation Administration is recommending that airlines inspect the door plugs on a second type of Boeing plane, after one blew out midflight in another model and caused a dramatic emergency landing.”
“Harvard Teaching Hospital Seeks Retraction Of Six Papers By Top Researchers” (Wall Street Journal). “The Dana-Farber Cancer Institute, a Harvard Medical School affiliate, is seeking to retract six studies and correct 31 other papers as part of a probe involving four of its senior cancer researchers and administrators. More than 50 papers, including four co-authored by Chief Executive and President Dr. Laurie Glimcher, are part of a continuing review, according to Dr. Barrett Rollins, the cancer institute’s research-integrity officer. Some requests for retractions and corrections have already been sent to journals, he said. Others are being prepared. The institute has yet to determine whether misconduct occurred.”
What we’re reading (1/20)
“Meet the Investors Trying Quantitative Trading At Home” (Wall Street Journal). “For years, ordinary people could only watch—or pay quant funds’ hefty management fees. Now, they are getting in the game. Home computers are more powerful than ever. Websites offer tutorials. Hobbyists share tips on social media. A host of books, YouTube videos and online-trading platforms such as Composer, Alpaca.markets and QuantConnect.com have sprung up to make it easier for amateurs to trade like the pros.”
“Bank Credit Is Shrinking For The First Time Since The Great Recession - And That’s A Red Flag For The Economy” (Business Insider). “A key gauge of economic health in the US has sunk into negative territory, adding credence to some of Wall Street's more pessimistic growth predictions. Bank credit levels have now fallen for three quarters in a row, according to the Board of Governors of the Federal Reserve System – the first sustained contraction since 2010. This is only the second such decline in more than half a century. The last one was during the Great Recession, brought about by the global financial crisis of 2008-2009.”
“Why The Davos Smart Set Sounds Dumb” (Politico). “It is not that the observations and arguments are notably dumb, though it is rare to hear something arrestingly smart. The signature of most conversations about current events is how emphatically commonplace they are. Business leaders, scientists, public intellectuals, cabinet ministers and the roster of operatives who accompany them all to Davos tend to be very high news consumers. Many of these people are themselves frequently in the news or have regular access to principals of government and industry. Outsiders, however, should liberate themselves from the illusion that these insiders really know the score. Their views are no more banal than the average person who also follows the news, but they are typically no less so.”
“The Phone-Transcript Mystery In The Morgan Stanley Block Trading Settlement” (Axios). “Morgan Stanley has agreed to pay $250 million after it emerged that the head of its block trading desk, Pawan Passi, had tipped off hedge funds to large upcoming sales — after explicitly promising his clients that he wouldn't do so….[t]he case sheds a tiny bit of light on how far the government will go when it's investigating a bank….[t]he statement of facts in the case includes multiple transcribed phone calls between Passi and hedge funds. But they weren't obtained easily. The wording is intriguing: ‘These calls were not recorded by Morgan Stanley, nor did they take place on a regularly-recorded line, unless otherwise noted. Rather, the Government obtained the calls described below, as well as other calls in which Morgan Stanley employees discussed block trades, in the course of its investigation.’”
“Spot Bitcoin ETFs Are Taking Wall Street By Storm. Experts Say Options Are Next” (CNBC). “Cboe Global Markets’ Catherine Clay believes options are a natural progression for bitcoin ETFs. ‘We believe that the utility of the options, what they provide to the end investor in terms of downside hedging, risk-defined exposures into bitcoin, really would help the end investor and the ecosystem,’ the firm’s global head of derivatives told CNBC’s ‘ETF Edge’ this week.”
What we’re reading (1/19)
“S&P 500 Closes At A New All-Time High As Fresh Data Drives Optimism For Rate Cuts” (Business Insider). “Strong economic data fueled the S&P 500 to a record on Friday, with markets getting more optimistic about potential rate cuts from the Federal Reserve. Soon after trading began, the benchmark index was already on pace to clear its all-time closing high of 4,796.56 set two years ago. And by midday, it cleared its intraday record of 4,818.62.”
“A Hot Debt Market Is Slashing Borrowing Costs For Riskier Companies” (Wall Street Journal). “Companies with low credit ratings are rushing to slash their borrowing costs even before the Federal Reserve makes a single interest-rate cut. As of Thursday morning, companies such as SeaWorld Entertainment and Dave & Buster’s had asked investors to cut the interest rates on some $62 billion of sub-investment grade loans in January—already the largest monthly total in three years, according to PitchBook LCD…Prices of so-called leveraged loans, which are often used to fund private-equity buyouts, have climbed especially high, in part because a slowdown in those deals has led to lack of new loans entering the market.”
“AQR: How To Model Future Returns And Risks Of Private Credit” (Institutional Investor). “According to AQR, there are factors that could drive up private credit’s return, including the illiquidity premium, the borrower’s willingness to pay more for the flexibility and certainty that private credit offers, fewer defaults, better workouts when things go wrong, and the disintermediation of banks. But there are strikes against private credit, too. Private credit managers charge higher fees, and AQR suggests that investors may overpay for price smoothing. Credit quality deterioration could also be hidden from investors, as private credit managers report information less frequently than their public credit peers.”
“China’s Economy Is In Serious Trouble” (Paul Krugman, New York Times). “[T]he Chinese economy seems to be stumbling. Even the official statistics say that China is experiencing Japan-style deflation and high youth unemployment. It’s not a full-blown crisis, at least not yet, but there’s reason to believe that China is entering an era of stagnation and disappointment.”
“Nato Warns Of All-Out War With Russia In Next 20 Years” (The Telegraph). “Civilians must prepare for all-out war with Russia in the next 20 years, a top Nato military official has warned. While armed forces are primed for the outbreak of war, private citizens need to be ready for a conflict that would require wholesale change in their lives, Adml Rob Bauer said on Thursday.”
What we’re reading (1/14)
“It Won’t Be A Recession—It Will Just Feel Like One” (Wall Street Journal). “The good news is the probability of a recession is down sharply, according to The Wall Street Journal’s latest survey of economists. The bad news is that, for a lot of people, it is still going to feel like a recession.”
“Driven Out” (Modern Farmer). “Long-haul trucking used to be a secure and respected career. Today, it’s a job with high turnover and a lack of security. Many headlines today talk about the future of trucking, which includes the possibility of autonomous fleets replacing human-driven ones at some point down the line. But the predicament in which truckers find themselves now actually goes back in time by several decades.”
“Is The Mortgage Interest Deduction A Good Idea?” (Marginal Revolution). “I usually don’t like arguments like the one that follows, as purely short-run second best considerations tend to rub me the wrong way. Nonetheless I had never thought of it before, so I am happy to present it for our collective enlightenment: ‘Mortgage interest deductions and other homeownership subsidies are widely believed to be harmful because they redistribute resources from lower-income renters to higher-income homeowners. We argue that renters actually benefit from these policies in general equilibrium for two reasons. First, the rental supply curve is relatively inelastic, which means that rents fall when these policies reduce rental demand. Second, many renters spend most of their income on housing, and these renters gain substantially from rent decreases. We calibrate a quantitative model to match empirical evidence on these factors and show they are strong enough that subsidizing homeownership actually increases welfare.’”
“A Conspiracy Theory For Japan’s Lost Decade” (Capital Flows and Asset Markets). “[I]s there a political cycle that explains Japan’s malaise? Well yes, I think so. First of all, losing World War II was highly detrimental to Japanese growth. Prior to World War II the Japanese economy was rapidly catching depression era USA. In 1980, as Japanese economic growth surged, again Japan was becoming a threat to the USA. But in 1980s, the bureaucrats and CEOs of Japan Inc would have been men who would have distinct memories of the last outcome when Japan threatened to overtake the USA. For this reason I think Japan agreed to the Plaza accord, which saw the Yen appreciate significantly. With an export led economy, this yen appreciation should have been devastating for the Japanese economy.”
“US Cannabis Investing: An Overview” (Enterprising Investor). “The cannabis sector is slowly emerging from its long period of prohibition, and the investment opportunities are turning heads. Retail investors believe in the industry’s future and want to participate before regulations change. The institutions covering the sector are keeping a close eye on it even if most have yet to dip their toes in.”
What we’re reading (1/13)
“Why The Strength Of The Dollar Matters So Much For Stock Investors” (Wall Street Journal). “[A]bout 40% of corporate earnings come from outside the U.S. ‘What happens in a strong-dollar environment is those earnings buy fewer dollars.’ [according to Marc Chandler, chief market strategist for Bannockburn Global Forex.] The same logic works in reverse. If the dollar weakens, revenue from outside the U.S. tends to be bigger in dollar terms—giving a boost to revenue and profits, if other things stay the same. From Nov. 1 to Dec. 29, the Dollar Index—which measures the value of the greenback versus other major currencies—fell 5% amid signs that inflation is moving toward the Federal Reserve’s target and that the central bank is more likely to cut rates than to raise them in coming months. That in turn helped drive a multiweek winning streak that lifted stocks near their highest levels of the year.”
“‘It’s The Only Thing That Actually Matters’: A Weaker US Dollar Would Help The Dow Rocket To 50,000” (Business Insider). “‘Our work suggests that every 10% drop [in the US dollar] should translate into a ~3% benefit to S&P 500 earnings per share via currency translation, all else equal,’ [Bank of America’s Savita] Subramanian said. Economists at Bank of America expect the US dollar will depreciate by 3% on a trade-weighted basis in 2024, representing a tailwind for corporate profits and therefore stock prices.”
“Did The Creator Of Barbie Engage In Tax Evasion?” (Dealbreaker). “In last year’s hit movie ‘Barbie,’ there is a scene where Barbie meets her creator Ruth Handler. Handler tells Barbie that she was Mattel until the IRS got to her. The creator of Barbie is not a supermodel, but instead a ‘five-foot nothing with a double mastectomy and tax-evasion issues.’ […] numerous biographies of Handler never mention her being convicted or even charged with tax evasion. Furthermore, she has not even been suspected of engaging in tax fraud. Instead, in 1978, a federal grand jury indicted her and other Mattel officers for making false statements to the Securities and Exchange Commission. This was due to an SEC investigation after Mattel reported operating losses while also claiming that the company was recovering and growing.”
“The Billionaires Spending A Fortune To Lure Scientists Away From Universities” (New York Times). “In an unmarked laboratory stationed between the campuses of Harvard and the Massachusetts Institute of Technology, a splinter group of scientists is hunting for the next billion-dollar drug. The group, bankrolled with $500 million from some of the wealthiest families in American business, has created a stir in the world of academia by dangling seven-figure paydays to lure highly credentialed university professors to a for-profit bounty hunt. Its self-described goal: to avoid the blockages and paperwork that slow down the traditional paths of scientific research at universities and pharmaceutical companies, and discover scores of new drugs (at first, for cancer and brain disease) that can be produced and sold quickly.”
“A $126 Grocery Tab That Explains The Vibes Paradox” (Axios). “If you look at the level of prices, they are way up since 2020. If you look at the rate at which prices are changing, it has returned to fairly normal levels. This intuition is crucial to understanding this confusing moment for inflation trends and public opinion around them.
What we’re reading (1/8)
“Tech Giants Drive Stock Rebound” (Wall Street Journal). “U.S. stocks posted solid gains Monday, easing investor anxieties after the market’s rough start to 2024 last week. Both the S&P 500 and the Nasdaq Composite logged their best days since November, climbing 1.4% and 2.2%, respectively.”
“United Airlines Finds Lloose Bolts On Several Boeing 737 Max 9s After Grounding” (CNBC). “No one was seriously injured in the accident aboard the Alaska Airlines flight, though the blown-out panel produced a force so violent that some headrests and seatbacks were ripped from the cabin and the cockpit door was flung open, according to initial details of a federal safety investigation. No passengers were seated in the two seats next to the panel.”
“Investors Bail On Boeing Following Max 9 Grounding” (DealBook). “Air safety officials have ordered the grounding of the Max 9, one of Boeing’s best-selling models, and airlines around the world have canceled hundreds of flights as they await instructions from regulators in the U.S. and elsewhere.”
“The Mystery Of The Coin That Shouldn’t Exist” (New York Times). “A decade ago, a funny money mystery fell into the hands of scientists and students at the Pontifical Catholic University of Peru in Lima. The university had been acquiring 19th- and 20th-century Peruvian coins from local dealers, and graduate students in the chemistry department were analyzing the pieces for their thesis work. But one coin, a 10-cent piece known as a dinero, stood out. The dinero was marked “1899.” The problem was that official records indicated no coins of that denomination were minted in Peru that year — according to the people who made the money, the coin never existed.”
“Tiger Woods Splits With Nike” (Business Insider). “Tiger Woods and Nike are ending their nearly three-decade partnership. The legendary golfer announced Monday that he and the sportswear brand were going their separate ways as Woods prepared for ‘another chapter.’”
What we’re reading (1/7)
“The Stock Rally Has Stalled. Now Comes Earnings Season” (Wall Street Journal). “U.S. stocks defied expectations to rally in 2023 but have struggled to extend gains into the new year. The S&P 500 shed 1.5% in the first week of January. Tech stocks, which led the market last year, have stumbled, with Apple and Microsoft falling 5.9% and 2.2%, respectively, in the past week. For many investors, quarterly results and commentary from executives will help signal if the recent stock-market declines are warranted or whether companies’ profits are strong enough to renew the rally.”
“I.R.S. To Begin Trial Of Its Own Free Tax-Filing System” (New York Times). “The Internal Revenue Service is rolling out a free option for filing federal tax returns this year to some residents of a dozen states. Last month, the agency published details of its plan to test an in-house filing system, in which taxpayers submit their federal tax returns directly to the agency online at no cost. Residents of 12 states are eligible to participate if they meet certain criteria…While the direct filing system is starting on a limited basis, it has already faced some resistance, particularly from commercial tax-preparation companies.”
“Short Sellers Lost More Money Betting Against Tesla Than Any Other Company Last Year” (CNN Business). “That estimate, from markets analytics firm S3 Partners, isn’t a shock – Tesla shares slightly more than doubled during the course of the year. But for the shorts to take that kind of hit, there needs to be not only gains for the shares, but also a large group betting the other way.”
“AQR Tops Multistrategy Funds In 2023” (Institutional Investor). “AQR posted strong gains in its multistrategy portfolios, topping most of the other well-known funds in its categories. The firm’s AQR Absolute Return strategy, the longest-running multistrategy offering, was up 18.5 percent in 2023 after surging 43.5 percent the previous year, according to someone who has seen the results.”
“Can Stocks Surpass 2022 Highs? Yes, But The Math Looks Scarier From There” (Wall Street Journal). “A parallel can be drawn with 2013, when a corporate upswing was also kicking off following an earnings rout. Investors who bought then saw the price of their stocks increase at a compound annual rate of 10% over the following decade, without adjusting for inflation. To deliver this, the broad S&P Composite 1500 had to go from trading at 17 times earnings to 23 times, as earnings only grew 8%. Replicating this performance over the next 10 years would take valuations to a whopping 28 times. If earnings grow from their trough at the long-term historical average of 6%, valuations would have to climb to 32 times to achieve the same gains. History suggests they are much more likely to compress to around 21 times, which would imply an annual price return of 7% or less.”
What we’re reading (1/2)
“Fisher Investments In Sale Talks” (Wall Street Journal). “Advent International is in talks to acquire Fisher Investments, the money-management firm known for its ubiquitous advertisements, according to people familiar with the matter.”
“Apple Shares Fall 4% After Barclays Downgrade” (CNBC). “Barclays analyst Tim Long wrote in a note to clients Tuesday that the iPhone 15′s current ‘lackluster’ sales, specifically in China, presaged similarly weak iPhone 16 sales — weakness that Long expects will hold true for Apple’s hardware sales broadly.”
“Millennials May Be The Real Winners Of Baby Boomers’ Pandemic Wealth Accumulation” (CreditNews). “Millennials own a small fraction of America’s real estate wealth, but that could change in the coming decade as they inherit trillions of dollars in property from their boomer parents.”
“Is America On The Mend?” (New York Times). “The big question in the years that followed was whether America would ever fully recover from that shock. In 2023 we got the answer: yes. Our economy and society have, in fact, healed remarkably well. The big remaining question is when, if ever, the public will be ready to accept the good news.”
“The Seven Biggest Work Trends Of 2023” (BBC). “The mainstreaming of hybrid set-ups means workers still have unprecedented flexibility and are unlikely to lose it entirely. Kastle Systems, which tracks employee access-card swipes for many businesses, has shown office attendance in 2023 is still a fraction of what it was pre-pandemic. Going forward, many jobs will have a hybrid schedule – a privilege formerly afforded to a select few, mostly senior employees.”
December performance update
Hi friends, here with a monthly performance update.
Prime: +8.03%
Select: +0.79%
SPY ETF: +4.71%
Bogleheads portfolio (80% VTI + 20% BND): +5.05%
In last month’s performance update, I noted that I had incorporated a few additional value indicators into the SPC model, the addition of which was intended to gain precision in identifying “value” stocks. It’s tough to attribute Prime’s significant outperformance this month to those changes, but the December result is nevertheless encouraging. More broadly over the year, Prime underperformed its rough benchmark (SPY). The lion’s share of that underperformance occurred in the front half of the year; in the last three months, Prime actually outperformed SPY on a cumulative basis, with most of the outperformance in that period attributable to December after the inclusion of the additional indicators. There is still a lot of ground to be made up in terms of the relative performance back to May 2020, but let’s see what 2024 holds.
Happy new year!
Stoney Point Total Performance History
January picks available now
The new Prime and Select picks for January are available starting now, based on a model run put through today (December 30). As a note, I will be measuring the performance on these picks from the first trading day of the month, Tuesday, January 2, 2023 (at the mid-spread open price) through the last trading day of the month, Wednesday, January 31, 2023 (at the mid-spread closing price).
What we’re reading (12/29)
“What Did Wall Street Get Right About Markets This Year? Not Much” (Wall Street Journal). “The S&P 500 finished the year up 24%, just 0.6% from its January 2022 record. The Dow Jones Industrial Average advanced 14% to top 37000 for the first time and set seven record closes in the final days of 2023. A mania surrounding artificial intelligence and big technology stocks sent the Nasdaq Composite soaring 43%, its best year since 2020. It is a far cry from the doom and gloom many were bracing for at the start of 2023. A year ago, everyone from the strategists at Wall Street banks to rap artist Cardi B was calling for a recession. Instead, inflation continued falling, consumers kept spending and the unemployment rate fell to 3.4%, the lowest level since 1969.”
“The Stock Market Hasn't Seen A Winning Streak Like This Since 1985” (Business Insider). “The S&P 500, Nasdaq 100, and Dow Jones Industrial Average are set to notch nine-week win streaks that began on October 30…In 1985, the S&P 500 and Nasdaq 100 posted 11-week win streaks, according to data going back to 1971.”
“Five Investors On How To Navigate The Bond Market In 2024” (Wall Street Journal). “The model soft landing was engineered by the Alan Greenspan-chaired Fed in 1995: The central bank doubled the fed-funds rate to 6% before cutting it back, without spurring a slowdown. Notably, banks didn’t restrict their lending. Today, they are tightening terms on everything from individual borrowers to big corporations.”
“Tech Stocks Just Wrapped Up One Of Their Best Years In Past Two Decades After 2022 Slump” (CNBC). “Across the industry, the big story this year was a return to risk, driven by the Federal Reserve halting its interest rate hikes and a more stable outlook on inflation. Companies also benefited from the cost-cutting measures they put in place starting late last year to focus on efficiency and bolstering profit margins.”
“Tiger Global’s Coleman Regains Control Of Venture Unit After Losses, Client Complaints” (Bloomberg). “The rush to deploy almost $20 billion that Tiger raised near the height of the venture capital boom led to a 33% writedown of its private portfolio last year and an additional 6% this year, prompting questions about whether [Chase] Coleman had let the firm spin out of his control. Tiger announced last month that Shleifer, the driving force behind the VC expansion, will transition into a senior adviser role — the most significant management shakeup since the firm’s founding in 2001.”
What we’re reading (12/28)
“Startup Bubble Fueled By Fed’s Cheap Money Policy Finally Burst In 2023” (CNBC). “[M]oney was cheap and plentiful. The Federal Reserve’s near-zero interest rate policy had been in effect since after the 2008 financial crisis, and Covid stimulus efforts added fuel to the fire, incentivizing investors to take risks, betting on the next big innovation. And crypto. This year, it all unwound.”
“The State Of Deals” (New York Times). “Despite some notable transactions, the year presented challenges to the bankers and lawyers who advise corporate clients on big takeovers and initial public offerings. Global M.&A. fell to a 10-year low. About 53,529 deals worth a combined $2.9 trillion were announced, down 17 percent annually by volume, according to data from L.S.E.G.”
“Steve Ballmer Is Set To Make $1 Billion A Year For Doing Nothing” (CNN Business). “For most people, passive income is a bit of extra pocket change that requires minimal effort to earn to supplement a main source of income. For Steve Ballmer, it’s $1 billion. Ballmer, the sixth richest person in the world, is due to collect that much in dividends from Microsoft in 2024. This comes after the tech giant boosted its quarterly dividend payout to 75 cents a share, or $3 a share annually.”
“The Zeitgeist Is Changing. A Strange, Romantic Backlash To The Tech Era Looms” (The Guardian). “Cultural upheavals can be a riddle in real time. Trends that might seem obvious in hindsight are poorly understood in the present or not fathomed at all. We live in turbulent times now, at the tail end of a pandemic that killed millions and, for a period, reordered existence as we knew it. It marked, perhaps more than any other crisis in modern times, a new era, the world of the 2010s wrenched away for good.”
“Trick Your Brain Into Being Better With Money” (Wall Street Journal). “‘Our brains are fundamentally not wired to make the decisions that we’re asking ourselves to make,’ she said. ‘You’re asking a single individual to stand up against a whole host of organizations who are incentivized to get you to part with your money as quickly as possible.’”
January picks available soon
I’ll be publishing the Prime and Select picks for the month of January before Tuesday, January 2 (the first trading day of the month). As always, SPC’s performance measurement for the month of December, as well as SPC’s cumulative performance, will assume the sale of the December picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Friday, December 29). Performance tracking for the month of January will assume the January 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, January 2).
What we’re reading (12/17)
“Wall Street's Most Vicious Vultures Are About To Get Torn To Shreds” (Insider). “Over at Carlyle Group, distributable earnings — profits that can be returned to shareholders — fell to $367.4 million in the third quarter, down 43% from the same time last year. At KKR, distributable earnings in the third quarter were down 6.6% compared to the same time the year before, much better than the 23% year-on-year drop the firm reported in the second quarter. This summer, the ratings agency Moody's downgraded Blackstone, Apollo, and KKR because of their large commercial real-estate holdings (only 66% of US workers have returned to the office full time, most reports indicate).”
“Home Buyers Are Ready To Buy. But Sellers Aren’t Selling.” (Wall Street Journal). “Home sales this year are on track to be the lowest since at least 2011. But as mortgage rates retreated from nearly 8% in October to below 7% last week, buyers are responding. Mortgage applications have increased for six straight weeks on a seasonally adjusted basis, though they are still down from year-ago levels, according to the Mortgage Bankers Association. Real-estate agents say they expect more buying activity in the new year, after home shoppers return from a break over the holidays. ‘There’s just a lot of pent-up demand,’ said Lisa Sturtevant, chief economist at Bright MLS, a real-estate listings database that covers parts of six eastern states and Washington, D.C. “
“We Predict 6 Interest-Rate Cuts In 2024” (Morningstar). “In addition to the first cut in March 2024, we’re expecting a total of six cuts for the whole year. That will bring the federal-funds rate down from currently at a 5.25% to 5.50% range. It will take that down to a 3.75%-4.00% target range. So, that’s a 150-basis-point reduction from current levels by the end of 2024. And then, we’re expecting further cuts, another 150 basis points of cuts in 2025, taking the federal-funds rate down to 2.25% by the end of that year. And then, even in 2026, we expect it to get down as low as 1.75%. So that’s taking the federal-funds rate really all the way back down to about prepandemic levels. Long-term rates should fall accordingly, and that will help ensure that the economy grows at its full potential, and we don’t see a recession in that we ultimately see the soft landing that is very much possible.”
“We’re Still At Risk For Another ‘Everything Shortage’” (Freight Waves). “Ultimately, the reason we’re no longer in a supply chain crisis isn’t that companies did anything particularly amazing to overhaul their manufacturing and distribution systems. Rather, we just started to slow down our buying from the peak of 2020 to 2021 — and corporations were able to catch up at last.”
“Vase Bought At Goodwill For $3.99 Sells For More Than $100,000” (New York Times). “On Wednesday, the vase was auctioned for $107,100 to an unidentified private art collector in Europe. About $83,500 went to Ms. Vincent and about $23,600 went to Wright Auction House. Specialists who evaluated the piece determined it was part of the ‘Pennellate’ series that Mr. Scarpa designed in the 1940s. It’s unclear how many vases of this kind were made, Mr. Wright said.”
What we’re reading (12/16)
“A Quant Winter’s Tale” (Financial Times). “[W]hat went so horribly wrong for many factor-focused quant funds like AQR from 2018? Answers vary, but a few common theories have emerged. Some think that investment strategies based even on copious amounts of historical data cannot work for perpetuity — market regimes come and go, and as anomalies become well-known, they often disappear.”
“Despite Record Home Prices, Housing Is About To Drag Inflation Down” (Wall Street Journal). “So it might seem strange that shelter inflation is expected to slow. But shelter inflation is based on rents, not housing prices, and rent growth over the past year has fallen to 3.3% through November, according to Zillow, lower than the average during 2018-19.”
“Baseball Star Shohei Ohtani's New Contract Is A Massive Tax Avoidance Scheme. Nice!” (Reason). “By taking most of his pay in what's effectively a fixed annuity rather than getting it all in his paycheck, Ohtani could save as much as $98 million in state taxes if he relocates out of California by 2034, according to an analysis by the California Center for Jobs & the Economy.”
“Argentina’s New President Javier Milei Does Away With Culture Ministry 24 Hours After Taking Office” (The Art Newspaper). “It only took a day into his term as Argentina’s new president for Javier Milei to get rid of the Ministry of Culture. Milei was inaugurated on 10 December, and the following day, the boisterously libertarian economist and former television commentator fulfilled his campaign promise with typical bravado.”
“Surge In Number Of ‘Extremely Productive’ Authors Concerns Scientists” (Nature). “Up to four times more researchers pump out more than 60 papers a year than less than a decade ago. Saudi Arabia and Thailand saw the sharpest uptick in the number of such scientists over the past few years, according to a preprint posted on bioRxiv on 24 November. The increase in these ‘extremely productive’ authors raises concerns that some researchers are resorting to dubious methods to publish extra papers.”
What we’re reading (12/10)
“Investor Group Launches $5.8 Billion Buyout Bid For Macy’s” (Wall Street Journal). “Arkhouse Management, a real-estate focused investing firm, and Brigade Capital Management, a global asset manager, on Dec. 1 submitted a proposal to acquire the Macy’s stock they don’t already own for $21 a share, people familiar with the matter said. That represented a roughly 32% premium to where shares closed the day before.”
“A String Of Lawsuits Takes Aim At Regulators” (DealBook). “When Meta sued the Federal Trade Commission last week — the social networking giant’s latest effort to block new restrictions on its monetization of user data — it used an increasingly common argument against government regulators: The complaint alleged that the structure of the F.T.C. was unconstitutional and that its in-house trials were invalid. The lawsuit is the latest in a growing campaign to weaken regulators that could upend enforcement at a suite of agencies — including the F.T.C., the Securities and Exchange Commission and the Internal Revenue Service.”
“Troubled Retailer Sears Quietly Reopens Two Stores. What Is Behind The Comeback?” (CNN Business). “To the casual shopper, Sears, one of America’s oldest retailers, may appear to be on life support. The department store chain that once reinvented how Americans shopped now barely has a brick-and-mortar footprint after a 2018 bankruptcy and hundreds of store closures. But talk of Sears’ demise may be premature: just two months ago, a previously shuttered Sears in Burbank, California, quietly turned the lights back on. Two weeks after that, another reopened in Union Gap, Washington.”
“The Progressive Case For Bidenomics” (New York Times). “About the good economic news: This week two excellent economic reports were added to the pile. On Wednesday, the Bureau of Labor Statistics reported that in the third quarter, labor productivity rose at an annual rate of 5.2 percent, which is really, really fast. It’s too soon to call a trend, but there is increasing reason to hope that our economy is capable of growing considerably faster than we previously thought.”
“Big VC Funds Are Underperforming Smaller Ones And Their Future Is Dim” (Institutional Investor). “Only 17 percent of venture funds larger than $750 million have returned to investors more than 2.5-times the total value to paid-in capital, after fees and expenses. Meanwhile, 25 percent of funds smaller than $350 million achieved the same, according to an analysis of PitchBook data on more than 1,300 funds dating back to 1978 by Santé. Put another way: a smaller fund is roughly 50 percent more likely to return more than 2.5-times TVPI than a large one.”
What we’re reading (12/9)
“Decisive Moment Arrives With $4 Trillion Stocks Rally At Stake” (Bloomberg). “Investors are facing a pivotal week as a key measure of inflation that hits Tuesday and the Federal Reserve’s interest-rate decision on Wednesday are expected to set the tone for the stock market and economy heading into 2024.”
“A New Era Of Income Investing Is Turning Boomers Into Bond Buyers” (Wall Street Journal). “Decades of stellar stock-market returns produced by a series of bull markets that began in 1982 coincided with boomers’ prime working years and made their nest eggs grow. Their good fortune continues in retirement. The recent surge in interest rates that sent bond yields near a 15-year high is the “single best economic and financial development in 20 years” for retirees, said Joe Davis, global chief economist at Vanguard. That shift is turning the stock-loving Woodstock generation into bond buyers. With current yields on 10-year U.S. Treasury notes at 4.23%, boomers, ages 59 to 77, have reason to move money into the more conservative investments. The Gen Xers behind them—now around ages 43 to 58—are eyeing those moves, too.”
“Now Is A ‘Fantastic Time’ To Add Small- And Midsize-Company Stocks To Your Portfolio, Says Investing Pro” (CNBC). “Stocks in S&P small- and mid-cap indexes both currently trade at about 14 times estimated earnings for 2024, compared with a ratio of about 20 for the S&P 500. That means small- and mid-caps trade at a roughly 30% discount to large-caps. What’s more, small and medium stocks are looking cheap relative to their history. Midsize stocks are trading at a 14% discount relative to their average P/E dating back to 2005, according to data provided to CNBC Make It by CFRA chief investment strategist Sam Stovall. Small-company stocks are trading at a 19% discount to their historical average.”
“Dodgers’ Decade-Long Pursuit Of Shohei Ohtani Finally Comes Through” (Sports Illustrated). “In the end, of course, it is always about money—and in this case more than any ever handed to an athlete: $700 million over 10 years. But it was Ohtani who told his agent, Nez Balelo, to craft a deal with so much deferred money that it would reduce the Dodgers’ hit toward their competitive tax rate.”
“Jeremy Grantham Warns Stocks Could Fall As Much As 52% As A Recession Awaits The US Economy — But Says To Look To These 2 Investments For Long-Term Outperformance” (Insider). “In January 2022, Grantham published a note titled ‘Let the Wild Rumpus Begin,’ in which he said a bubble in the S&P 500 was due to unwind spectacularly. Since then, the index has been just about flat. But he’s standing by that call, as he's seen bigger rallies unfold after calling a bubble. Take 1998, for example, when he warned of the dot-com bubble. Despite being at record valuations, the S&P 500 rose another 50% after his prediction. While he was early, Grantham's forecast, of course, proved correct in 2000, when the market began its 46% descent. He was also prescient about the 2008 crisis by both predicting the market's crash and nailing the bottom within days of the low in March 2009.”
What we’re reading (12/7)
“The Most Important Debate On Wall Street: Is Inflation Licked?” (Wall Street Journal). “Most of Wall Street thinks inflation has been conquered. There is a lot at stake if they are wrong…[s]till, the Fed’s preferred inflation gauge remains elevated at around 3%. And some investors are concerned it could be hard to get all the way back to 2%, leaving stocks and bonds vulnerable to a pullback.”
“What A Slowing Jobs Market Might Mean For Interest Rates” (New York Times). “Bonds have been on an impressive monthlong rally fueled by investors’ hopes that the Fed will begin cutting interest rates next year. That bet may be tested as soon as Friday with the release of new payroll data that Wall Street expects will show the labor market cooling further.”
“Greedflation: Corporate Profiteering ‘Significantly’ Boosted Global Prices, Study Shows” (The Guardian). “Profiteering has played a significant role in boosting inflation during 2022, according to a report that calls for a global corporation tax to curb excess profits. Analysis of the financial accounts of many of the UK’s biggest businesses found that profits far outpaced increases in costs, helping to push up inflation last year to levels not seen since the early 1980s.”
“Why Bonds Are Making A Huge Comeback” (Morningstar). “Just two months ago, the Core Bond Index was flirting with an unprecedented third straight year of declines as yields surged to their highest level since 2007, thanks to an unexpectedly resilient economy. “People are surprised by the speed with which the narrative has shifted,” says Kelsey Berro, a fixed-income portfolio manager at JPMorgan Asset Management.”
“From Unicorns To Zombies: Tech Start-Ups Run Out Of Time and Money” (New York Times). “WeWork raised more than $11 billion in funding as a private company. Olive AI, a health care start-up, gathered $852 million. Convoy, a freight start-up, raised $900 million. And Veev, a home construction start-up, amassed $647 million. In the last six weeks, they all filed for bankruptcy or shut down. They are the most recent failures in a tech start-up collapse that investors say is only beginning.”
What we’re reading (12/6)
“Ego, Fear And Money: How The A.I. Fuse Was Lit” (New York Times). “At the heart of this competition is a brain-stretching paradox. The people who say they are most worried about A.I. are among the most determined to create it and enjoy its riches. They have justified their ambition with their strong belief that they alone can keep A.I. from endangering Earth.”
“The Inside Story of Microsoft’s Partnership with OpenAI” (The New Yorker). “On the video call with Nadella, Microsoft executives began outlining possible responses to Altman’s ouster. Plan A was to attempt to stabilize the situation by supporting Murati, and then working with her to see if the startup’s board might reverse its decision, or at least explain its rash move. If the board refused to do either, the Microsoft executives would move to Plan B: using their company’s considerable leverage—including the billions of dollars it had pledged to OpenAI but had not yet handed over—to help get Altman reappointed as C.E.O., and to reconfigure OpenAI’s governance by replacing board members. Someone close to this conversation told me, ‘From our perspective, things had been working great, and OpenAI’s board had done something erratic, so we thought, let’s put some adults in charge and get back to what we had.’”
“OpenAI Employees Really, Really Did Not Want To Go Work For Microsoft” (Insider). “One current OpenAI employee admitted that, despite nearly everyone on staff signing up to follow Altman out the door, ‘No one wanted to go to Microsoft.’ This person called the company ‘the biggest and slowest’ of all the major tech companies — the exact opposite of how OpenAI employees see their startup.”
“McKinsey Shrinks New Partner Class By Roughly 35%” (Wall Street Journal). “As the economy has slowed, companies in a range of industries have been re-evaluating their corporate overhead and cutting white-collar jobs. That retrenchment appears to be having an effect on consulting demand. McKinsey early this year launched a restructuring that eliminated roughly 1,400 roles, among the firm’s biggest head-count reductions to date. The firm, along with rival Bain, also delayed start dates for new M.B.A. hires.”
“Wall Street CEOs Try To Convince Senators That New Capital Rules Will Hurt Americans As Well As Banks” (CNBC). “Wall Street CEOs on Wednesday pushed back against proposed regulations aimed at raising the levels of capital they’ll need to hold against future risks. In prepared remarks and responses to lawmakers’ questions during an annual Senate oversight hearing, the CEOs of eight banks sought to raise alarms over the impact of the changes. In July, U.S. regulators unveiled a sweeping set of higher standards governing banks known as the Basel 3 endgame…If unchanged, the regulations would raise capital requirements on the largest banks by about 25%, Dimon claimed.”
What we’re reading (12/5)
“The Bigger Airlines Get, The Worse They Become” (New York Times). “If there’s one lesson we’ve learned from the recent history of the airline industry, it’s this: The bigger airlines get, the worse they become. The prices get higher, the seats smaller, the service ever snarkier. The mergers over the past 15 years that produced the “big three” of United Airlines, Delta Air Lines and American Airlines (eliminating Continental, Northwest and US Airways) — which, along with Southwest Airlines, now dominate the market — have not done Americans any favors. We’ve ended up with airlines that offer less for more and have become better than ever at getting bailouts from Congress. That’s the context in which JetBlue Airways is now seeking to buy Spirit Airlines, the nation’s largest ultra-low-cost airline.”
“Smaller Airlines Seek Mergers To Compete With Industry Giants” (New York Times). “The dominant position of the big four airlines featured prominently in JetBlue’s defense arguments in a federal antitrust case brought by the Justice Department against its acquisition of Spirit. In his closing arguments on Tuesday, Ryan Shores a lawyer for JetBlue, said that smaller airlines ‘need the network breadth to be able to compete with the larger airlines.’”
“Crypto Trading On Robinhood Surges 75% Amid Bitcoin Hype While Stock Activity Goes Flat” (Business Insider). “Crypto notional trading volumes jumped roughly 75% in November from October's levels, the company said Monday. Meanwhile, equity and options contracts trading roughly remained the same.”
“Box’s Stock Drops 11% On Tepid Revenue Forecast” (MarketWatch). “Box posted fiscal third-quarter net income of $10.7 million, or 4 cents a share, compared with net income of $9.9 million, or 3 cents a share, in the year-ago quarter. Adjusted earnings were 36 cents a share. Revenue increased 5% to $261.5 million from $249.5 million a year ago. Analysts surveyed by FactSet had expected on average net income of 38 cents a share on revenue of $262 million.”
“Supreme Court Wary Of Remaking Income Tax” (Wall Street Journal). “The Supreme Court looked unlikely to impose strict new limits on Congress’s power to tax income, with some conservative and liberal justices alike signaling wariness about upending long-settled principles of the federal tax code. Tuesday’s arguments involved a relatively small payment required by a one-time charge under the 2017 tax overhaul. Challengers are seeking a ruling limiting income that can be taxed to money “realized” by taxpayers—that is, cash they receive or in some fashion control, as opposed to a mere increase in the value of their holdings.”