What we’re reading (5/22)
“Fed Officials Saw Longer Wait For Rate Cuts After Inflation Setbacks” (Wall Street Journal). “Federal Reserve officials concluded at their most recent meeting they would need to hold interest rates at their current level for longer than they previously anticipated after a third straight disappointing inflation reading last month.”
“The Second Great Bailout” (The Grumpy Economist). “After 2008, politicians and regulators promised the Dodd-Frank Act would stop bailouts. They failed. We document the massive bailouts of 2020-2023. But this time nobody is even promising to do anything about it. Too big to fail has spread everywhere. The basic architecture of allowing highly leveraged finance but promise that regulators will stop risks has failed. We have now tried everything else, it’s time for equity-financed banking and narrow deposit taking.”
“Tracing OpenAI CEO Sam Altman’s Love for Scarlett Johansson’s AI Romance Her” (Vanity Fair). “In September 2003, OpenAI cofounder and CEO Sam Altman was asked to name his favorite movie about artificial intelligence. It was two months before Altman would be pushed out of his company because, according to his board of directors, Altman was ‘not consistently candid in his communications’ with the board….onstage at Dreamforce 2023 in San Francisco, with a fake waterfall backdrop frozen behind him, Altman said that Spike Jonze’s 2013 film Her resonated with him more than other sci-fi films about AI.”
“This Man Did Not Invent Bitcoin” (New York Times). “The mystery of Satoshi’s identity has long obsessed crypto experts, who analyze every record of his communications with the reverence of Talmudic scholars. Various candidates have been proposed as possible Satoshis, only for them to deny any role in Bitcoin’s creation. Dr. Wright, by contrast, has gone to extraordinary lengths to prove that he is Satoshi. He has presented himself as Bitcoin’s inventor in interviews and social media posts, laying out evidence for virtually anyone who would listen. In lawsuits tried in three countries, he has testified that he wrote the original white paper. After a small-time crypto personality challenged his claims in 2019, Dr. Wright sued for defamation in England. He followed that up with an aggressive suit against software developers working to improve Bitcoin’s code, accusing them of violating his intellectual property rights.”
“100-Hour Weeks And Heart Palpitations: Inside Wall Street’s Brutal Work Culture” (New York Post). “The tragic death of former Green Beret and Bank of America employee Leo Lukenas III has become a flashpoint of anger over allegedly unrealistic work expectations on Wall Street — partly because some bankers say Lukenas’ experience is so similar to their own. While there is no evidence that job-related stress caused the blood clot that killed 35-year-old Lukenas on May 2, a recent Reuters report that he was talking with a recruiter to find a job with better hours has put a glaring spotlight on the 100-hour work weeks he was said to be juggling before his death.”
What we’re reading (5/21)
“Red Lobster Superfans Desperately Want A Piece Of The Bankrupt Chain” (Business Insider). “At the time the auctions closed, TAGeX's website showed that the entire contents of each location sold for between $10,000 and $35,000. That included everything from upright refrigerators and microwaves to fish tanks, furniture, and, in some cases, decor.”
“The High-Class Problem That Comes With Home Equity” (New York Times). “[R]everse mortgages or something like them seem inevitable in a nation where individuals are entirely responsible for their own retirement savings.”
“The Growing Importance Of Desalination” (Contrary). “[M]odern desalination plants are capable of converting roughly 80% of the saline water piped into potable water. The remainder is so heavily concentrated with salt that filtering it even further would be economically inefficient. This remainder is called brine and needs to be disposed of appropriately. An additional consideration for modern plants is that the filtration membranes need to be maintained and cleaned periodically as molecular compounds and minerals can get stuck in the membrane, decreasing its efficiency.”
“East Coast Has A Giant Offshore Freshwater Aquifer—How Did It Get There?” (ars technica). “For decades, scientists have known about an aquifer off the US East Coast. It stretches from Martha’s Vineyard to New Jersey and holds almost as much water as two Lake Ontarios. Research presented at the American Geophysical Union conference in December attempted to explain where the water came from—a key step in finding out where other undersea aquifers lie hidden around the world.”
“Private Equity Is No Place For Your Nest Egg” (Bloomberg). “Retirement is expensive. If you’re lucky, yours will last a few decades, and you’ll be earning no or very little income. So if you want to have enough money when you retire, you basically have three options: Save more, take more risk with your investments, or work longer. Many people find the first and third options undesirable or impossible. That leaves the second option. And despite what people such as Marc Rowan might lead you to believe, there’s really no way to get a higher return without taking more risk.”
What we’re reading (5/20)
“What Does The Dow Hitting 40,000 Tell Us?” (Paul Krugman, New York Times). “Unlike many right-wing commentators, I don’t consider the stock market the best indicator of the economy’s health, or even a good indicator. But it is an indicator. And given the state of American politics, with hyperpartisanship and conspiracy theorizing running rampant, I’d argue that this market milestone deserves more attention than it has been getting.”
“ChatGPT Can Talk, But OpenAI Employees Sure Can’t” (Vox). “what has really stirred speculation was the radio silence from former employees. [Ilya] Sutskever posted a pretty typical resignation message, saying ‘I’m confident that OpenAI will build AGI that is both safe and beneficial…I am excited for what comes next.’ [Jan] Leike ... didn’t. His resignation message was simply: ‘I resigned.’ After several days of fervent speculation, he expanded on this on Friday morning, explaining that he was worried OpenAI had shifted away from a safety-focused culture.”
“Press Pause On The Silicon Valley Hype Machine” (New York Times). “It’s a little hard to believe that just over a year ago, a group of leading researchers asked for a six-month pause in the development of larger systems of artificial intelligence, fearing that the systems would become too powerful. ‘Should we risk loss of control of our civilization?’ they asked. There was no pause. But now, a year later, the question isn’t really whether A.I. is too smart and will take over the world. It’s whether A.I. is too stupid and unreliable to be useful.”
“Oracle’s Deadly Gamble” (Business Insider). “Cerner was a total mess. While Ellison was fixated on the wildly exciting possibilities of marrying Cerner's medical records with Oracle's technology, Cerner was failing at even the most elementary tasks of data management. The company's rollout at the VA, which serves 9 million vets, had been a slow-moving catastrophe. One feature of its electronic records system had caused more than 11,000 orders for medical care to disappear into an ‘unknown queue.’ As a result, thousands of patients didn't receive the treatment their doctors had ordered. VA staffers were left in what one hospital leader called ‘a constant state of hypervigilance and distress’ as they scrambled to retrieve and reenter the missing orders, which wound up harming 149 patients. Even worse, errors in the system's underlying design were contributing factors in three deaths.”
“Ivan Boesky, Convicted In 1980s Insider-Trading Scandals, Dies At 87” (Wall Street Journal). “Ivan Boesky, who went to prison and paid a record $100 million fine for a sprawling insider-trading scandal, becoming a symbol of extravagance and corruption on Wall Street, has died at the age of 87…Boesky’s 1986 guilty plea and his cooperation with federal authorities led to the collapse of Michael Milken’s junk-bond empire and the end of the frenzied debt-fueled takeovers of the era that upended many industries. Boesky’s dramatic rise and fall marked a decade that became synonymous with unbridled ambition and even greed.”
What we’re reading (5/20)
“Sports Grow From Private Equity Afterthought To Booming Market” (Sportico). “Most every major league—and that soon will likely include the NFL—allows private equity (PE) funds to own stakes in their teams, to the point institutional investors are almost ubiquitous: At least a dozen teams in the NBA, NHL, MLB and MLS have private equity among its ownership groups. The top European soccer leagues and Formula One, as well as growing leagues from women’s soccer to lacrosse to mixed martial arts, have heavy institutional ownership.”
“Microsoft Set To Unveil Its Vision For AI PCs At Build Developer Conference” (CNBC). “One area where Microsoft has a distinct advantage over others in the AI race is in its ownership of Windows, which gives the company a massive PC userbase. Microsoft CEO Satya Nadella said in January that 2024 will mark the year when AI will become the ‘first-class part of every PC.’ The company already offers its Copilot chatbot assistant in the Bing search engine and, for a fee, in Office productivity software. Now, PC users will get to hear more about how AI will be embedded in Windows and what they can do with it on new AI PCs.”
“Our Man In East Setauket” (Institutional Investor). “The first half hour of the drive confirmed [Jim] Simons’ now famous chain-smoking habit, but otherwise it was a bit awkward. I made the mistake of telling him the names of former scientists who I knew worked at the firm. He flipped out a bit about revealing the identities of his staff in the article, and I thought he might have his driver turn the car around. Eventually, I agreed to use some but not all names.”
“Americans Are Down On The Economy (Again), With Inflation Topping Election Concerns” (The Washington Post). “Consumer sentiment, a gauge of Americans’ economic perceptions, is at a six-month low, according to a closely watched index by the University of Michigan. The measure notched its biggest drop since 2021, reflecting the persistent tug of inflation on household budgets and fueling fears that rising prices, unemployment and interest rates could all worsen in the coming months.”
“Mystery Of Mona Lisa’s Background May Have Been Solved” (The Art Newspaper). “A US geologist says she has cracked one of art history’s biggest mysteries—the location in which Leonardo da Vinci’s Mona Lisa is set. Ann Pizzorusso, who says online that she has worked in ‘oil drilling and gem hunting’, believes that the hazy landscape behind the celebrated enigmatic sitter draws on the northern Italian city of Lecco.”
What we’re reading (5/18)
“Market Froth Is Getting Extreme. Just Look At Meme Stocks.” (Wall Street Journal). “The rise of meme stocks in early 2021 came amid stock-market froth, with bubbles in SPACs, cannabis stocks, lossmaking tech, and solar and wind-related companies. They shared a common driver: Too much money in the economy had to go somewhere, and it went into stocks. Easy money was the driver of many past bubbles, too, and might again be propping up the stock market.”
“The Winners And Losers Of Meme Stock Mania Redux” (Institutional Investor). “A single post on X by Roaring Kitty sent GameStop shares soaring this week, and before the mania began to subside, short sellers were down more than $2 billion in the name — a move that fueled short squeezes in meme stocks and likely boosted a handful of hedge funds that were long both GameStop and AMC Entertainment.”
“The Fitness Fad Graveyard” (Business Insider). “he connected-fitness company is struggling. Its CEO, who joined the company in February 2022, is already stepping down. It recently announced plans to lay off 400 people, which is about 15% of its workforce. Private-equity sharks are reportedly circling. The stock is near record lows. Peloton isn't going under imminently, but let's be real here: No fitness fad lasts forever. At least culturally, the Peloton graveyard is probably on the horizon, right next to the Tae Bo cemetery and ThighMaster crematorium.”
“Watchdog Readies Crackdown On Predatory Lending After Supreme Court Win” (Washington Post). “The Consumer Financial Protection Bureau plans to restart its aggressive crackdown against payday lenders and other companies that offer high-cost, short-term loans to poor borrowers, after a Supreme Court ruling this week resolved a challenge to the federal agency’s authority to act.”
“A Would-Be Assassin Stirs Europe’s Violent Ghosts” (New York Times). “Europe is increasingly divided, and dangerously so. As in Slovakia, that divide pits nationalists opposed to immigration against liberals who see in the far right a threat to the rule of law, a free press and democracy itself. In this political world, there are no longer opponents, there are only enemies. All means are good to attack them, up to and, recent events indicate, including violence.”
What we’re reading (5/17)
“Dow Closes At Record High Above 40,000 To Cinch A Five-Week Winning Streak” (CNBC). “Stocks finished the week strong, with the Dow up 1.2% to notch its fifth straight weekly gain. The S&P 500 and Nasdaq climbed 1.5% and 2.1% week to date, cinching their longest winning streak since February.”
“The Executive Who Revived Barbie Has A New Long-Shot Mission: Save Gap” (Wall Street Journal). “The 56-year-old Dickson is the latest in a long line of Gap leaders attempting to find an answer. He is trying to reconnect with people who remember the flagship Gap brand from its heyday in the 1990s as well as younger shoppers who have no recollection that a white Gap T-shirt and pair of khakis once defined a generation.”
“The Blue-Collar Job Boom” (Business Insider). “Alyssa DeOliveira followed a well-worn path: go to college, get a degree, find a white-collar job…she tried nursing and accounting before settling on criminal justice, landing a job at a law firm. For a little over a year she arrived every morning at about 8. She listened to voicemails and checked emails. If she was lucky, she left at 5…Today, should you find yourself in Boston riding the T's green line, DeOliveira might be your conductor….She loves her job. And benefits-wise, her job loves her. ‘I'm making almost double what I was making at the office job,’ she said. ‘My office job didn't give me a 401(k), but with the T, I have the pension, I have healthcare.’”
“Current And Former Dodgers Owners, World's Wealthiest Law Firm Working On Bid To Buy TikTok” (DealBreaker). “ByteDance certainly doesn’t *want* to sell the wildly popular app TikTok. However, the United States actually got over its partisan dysfunction to pass a “divest or ban” law, so they might not have much of a choice. That is, if the legal challenges fail. Frank McCourt (the billionaire former Los Angles Dodgers owner, not the Angela’s Ashes author) is working on a bid to buy Gen Z’s social media of choice. In an announcement, McCourt revealed that he’s working in consultation with Guggenheim Securities (whose parent company's CEO currently owns the Dodgers) and Kirkland & Ellis to put together “a people’s bid’ for TikTok.”
“A Supreme Court Victory Won’t End A War On Regulators” (DealBook). “The Supreme Court lifted the existential threat hanging over the Consumer Financial Protection Bureau, rejecting a challenge to the agency’s funding. The decision could have huge consequences for a raft of conservative-led lawsuits involving administrative authority — but business groups and Republicans are vowing to fight on. A recap: Payday lenders had sued the C.F.P.B. over a rule that would limit the number of times they could withdraw money from a customer’s account for repayment. The companies and conservative groups argued that the practice wasn’t harmful, and said the way the regulator is funded — via annual allocations from the Fed’s profits rather than from Congress — was unconstitutional.”
What we’re reading (5/11)
Catching up after a little hiatus. Big news in the quant world re: Jim Simons. RIP.
“Jim Simons, Billionaire Hedge Fund Founder, Dies At 86” (CNN Business). “Simons, the founder of the hedge fund Renaissance Technologies, helped to pioneer quantitative investing, a market strategy that relies on mathematical and statistical models to identify investing opportunities. Later in life, Simons became a political donor and philanthropist. Simons had a love for math and numbers from an early age, according to his foundation’s website. Born in Newton, Massachusetts, in 1938, Simons earned a mathematics degree at the Massachusetts Institute of Technology and a doctorate in math from the University of California, Berkeley.”
“Stubbornly High Rents Prevent Fed From Finishing Inflation Fight” (Wall Street Journal). “Stalled inflation this year hasn’t derailed the Federal Reserve’s plans to eventually cut interest rates. That’s because it expects a slowdown in housing costs to eventually drag inflation close to its 2% target. The problem: It has been waiting for that slowdown for 1½ years now, and it still hasn’t arrived. The slowdown might simply be delayed. But some analysts worry it’s not going to happen because of changing dynamics in the housing market. If so, that would significantly weaken the case for lower rates.”
“Whole Foods CEO Announces Major Changes To Store That’ll Help Customers Save Money And ‘Minimize Impact Of Inflation’” (The U.S. Sun). “Speaking with Yahoo Finance, [Whole Foods CEO Jason] Buechal revealed Whole Foods would be expanding its generic brands to offer more affordable options and ‘minimize’ the impact of inflation.”
“Everything Investors Know About Hedge Funds Is Based On Flawed Data” (Institutional Investor). “If the best performing small-cap companies hadn’t publicly reported their returns for decades, investors would question everything from how much they allocated to these stocks to the validity of academic research showing that small caps outperform large-caps. Well, that’s essentially what has been happening with hedge funds for years.”
“Warren Buffett Is Battling A Bargain Drought — And Pared His Apple Bet Because It’s A 'One-Trick Pony,’ Expert Says” (Insider). “The computing behemoth is a ‘big cash generator,’ but it’s essentially a ‘one-trick pony,’ [Oxbow Advisors partner Ted] Oakley said. ‘They depend on one product when you get down to it.’”
April performance update
Here with a performance update for April. Here are the key numbers:
Prime: -4.53%
Select: -3.08%
SPY ETF: -4.17%
Bogleheads (80% VTI, 20% BND): -4.01%
A bit of mixed month for our strategies, with Prime underperforming the SPY index somewhat, but Select significantly outperforming. Despite Prime underperforming SPY in monthly returns, the magnitudes were such that, mechanically, there was actually a bit of convergence in the cumulative returns since I started this (shown in the chart below), since a -4.17% is a bigger hit in dollar terms to SPY than -4.53% is to Prime given historical performance to date. Speculating a little, but, without looking closer at the data, my prior is that the relative performance of our strategies versus the market index feels correlated with sentiment toward the rate environment, which would not be altogether surprising. Lately, sentiment has trended toward a view that rate cuts are farther out in time than previously expected. It’s unclear how that will play out in the remainder of the year but we will see. If that theory is true, we should see quicker convergence when financial conditions loosen up a bit.
Stoney Point Total Performance History
May picks available now
The new Prime and Select picks for May are available starting now, based on a model run put through Today (April 29). As a note, I will be measuring the performance on these picks from the first trading day of the month, Wednesday, May 1, 2024 (at the mid-spread open price) through the last trading day of the month, Friday, May 31, 2024 (at the mid-spread closing price).
What we’re reading (4/26)
“Private Equity’s Latest Trade: The Financial Futures Of Millions Of Retirees” (Semafor). “Over the past three years, about $135 billion of corporate pension liabilities have moved from America’s biggest companies to insurers. They are converted from corporate promises, vestiges of an era of generous paternalism, into an annuity, a type of insurance contract that has become the hottest product on Wall Street. In the process, they lose the backing of the Pension Benefit Guaranty Corp., a government entity that guarantees workers’ retirement benefits if their pension plans fail. Instead, any insolvency would be resolved by state insurance funds, which operate similarly to the FDIC’s fund for bank depositors and try to make as many people whole as possible from what’s left.”
“Thinking Doesn’t Have To Feel So Hard” (Wall Street Journal). “In a study published in the journal Science in 2020, Westbrook and colleagues found one way to do just that: Pay attention to the benefits of completing the task, instead of the effort required. The researchers gave participants the choice of solving an easy memory puzzle for a small amount of money or a much harder puzzle for more money. The options were displayed on a screen, and participants’ eye movements were tracked as they decided which puzzle to attempt. When people spent more time looking at the reward for the challenging puzzle, they were more likely to choose it. ‘The results suggest that if our mind’s eye, or our attentional focus, is on the benefits of an option, then sure enough, over time we’re more likely to choose to do hard things,’ Westbrook says.”
“‘Nation Of Makers’: Britain Industrialised Over A Century Earlier Than History Books Claim” (University of Cambridge). “Britain was well on its way to an industrialised economy under the reign of the Stuarts in the 17th century – over 100 years before textbooks mark the start of the Industrial Revolution – according to the most detailed occupational history of a nation ever created…According to Shaw-Taylor’s estimates, the share of the British labour force in an occupation involving manufacturing rather than agriculture was three times that of France by 1700.”
“With Inflation This High, Nobody Knows What A Dollar Is Worth” (New York Times). “Using nominal returns in an inflationary era can lead you to the erroneous conclusion that market is generating phenomenal returns.”
“Police Rumble Gang Stealing Antique Books Across Europe” (euronews). “Works by Russian literary greats such as Alexander Pushkin and Nikolai Gogol were substituted with valueless counterfeits from European libraries. European authorities say they have rounded up a criminal gang who stole rare antique books worth €2.5 million from libraries across Europe. In a press release, Europol announced they had arrested nine Georgian nationals in Georgia and Lithuania who are thought to have collaborated in the plot, in which at least 170 books were stolen.”
May picks available soon
I’ll be publishing the Prime and Select picks for the month of May before Wednesday, May 1 (the first trading day of the month). As always, SPC’s performance measurement for the month of April, as well as SPC’s cumulative performance, will assume the sale of the April picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Tuesday, April 30). Performance tracking for the month of May will assume the May picks are bought at the open price (at the mid-point of the opening bid and ask prices) on the first trading day of the month (Wednesday, May 1).
What we’re reading (4/24)
“Groups Sue To Block FTC’s New Rule Barring Noncompete Agreements” (Washington Post). “The lawsuit, filed in federal court in the Eastern District of Texas, comes a day after the FTC voted 3-2 to issue a rule that bans noncompete agreements, which restrict workers from switching employers within their industry. The agency estimates that 30 million workers are bound by the agreements, and proponents of the ban say it will raise wages, bolster innovation, foster new businesses and reduce health-care costs.”
“Mortgage Rates Reach New High For 2024” (Axios). “Mortgage rates touched 7.5% in April, the highest they've been since last fall, per Mortgage News Daily data…Experts were optimistic late last year that mortgage rates would drop in early 2024 and lure sellers and buyers off of the sidelines in time for spring.”
“TSMC’s Debacle In The American Desert” (Rest of World). “TSMC’s work culture is notoriously rigorous, even by Taiwanese standards. Former executives have hailed the Confucian culture, which promotes diligence and respect for authority, as well as Taiwan’s strict work ethic as key to the company’s success. [TSMC founder Morris] Chang, speaking last year about Taiwan’s competitiveness compared to the U.S., said that ‘if [a machine] breaks down at one in the morning, in the U.S. it will be fixed in the next morning. But in Taiwan, it will be fixed at 2 a.m.’”
“Why Panama Dollarized” (Caribbean Progress Studies Institute). “It is usually assumed that the United States government forced the Republic of Panama to make the United States dollar legal tender. The populace, academics, and literati in Panama also generally believe this. But that’s not what happened. The initial request to make dollars legal tender in Panama actually came from the Panamanians.”
“Crypto Mixer Samourai Wallet’s Co-founders Arrested For Money Laundering” (Wall Street Journal). “U.S. prosecutors on Wednesday targeted another so-called cryptocurrency mixer, accusing the two co-founders of Samourai Wallet of money laundering and of operating an unlicensed money-transmitting business. Keonne Rodriguez, Samourai’s chief executive, and William Lonergan Hill, its chief technology officer, were arrested and charged for developing and operating Samourai.”
What we’re reading (4/23)
“Investors Are Fearful. They Shouldn’t Be” (CNN Business). “Philipp Carlsson-Szlezak, Boston Consulting Group’s global chief economist, thinks there’s too much doomsaying on Wall Street. The economy has been extraordinarily resilient for the past few years — consistently proving the naysayers wrong, he says. For all of the market gloom last week, stocks are still near all-time highs, and this earnings season has been strong.”
“FTC Votes To Ban Noncompete Clauses That Bar Employees From Working For Competitors” (CNBC). “If officially implemented, the rule will not only prohibit new noncompete clauses, but will also force companies to scrap their existing noncompetes for all employees except senior executives who earn more than $151,164 annually and who are in policy-making roles.”
“Former CEO Of Buzzy Tech Startup Hit With Prison Time For Fraud” (Business Insider). “The founder of a buzzy Silicon Valley startup was sentenced to prison over a multimillion-dollar fraud scheme — and prosecutors want it to be a lesson to other ‘fake it til you make it’ entrepreneurs. Manish Lachwani, the former CEO of app testing company HeadSpin, was sentenced on Friday to 18 months in prison, plus three years supervised release, for wire fraud and securities fraud, the Department of Justice announced.”
“Cathie Wood’s Popular ARK Funds Are Sinking Fast” (Wall Street Journal). “Cathie Wood’s investors are jumping ship. They rushed into her funds and won big during the pandemic, when the star fund manager became a social-media sensation by making bold bets on disruptive technology stocks such as Tesla, Zoom Video Communications and Roku. They largely stuck with her when the funds’ fortunes reversed after the Federal Reserve raised interest rates. Now, after years of bruising losses, many of them have had enough.”
“How Can Elon Musk Reassure Tesla Investors?” (DealBook). “Markets aren’t sure the carmaker is on the right track. The cost cuts are only the latest announced in recent months, as Tesla tries to reverse a sales slump while rivals are taking market share. Analysts are especially worried about softening demand in China, a wider E.V. slowdown in the U.S., and that the price reductions are hurting global profit without juicing sales.”
What we’re reading (4/22)
“Stocks Regain Footing After Brutal Week” (Wall Street Journal). “Stocks jumped on Monday, bouncing back after last week’s dismal performance. The S&P 500 gained 0.9%, ending a six-day streak of losses, with each of the benchmark index’s 11 sectors finishing the day in the green. The tech-heavy Nasdaq Composite advanced 1.1% after falling 5.5% last week. The blue-chip Dow Jones Industrial Average added 0.7%, or about 254 points.”
“Is There Enough Text To Feed The AI Beast?” (Semafor). “The amount of data on the internet is growing at a pace of about 7% per year, Epoch’s [an AI forecasting research institute] director, Jaime Sevilla, said, while the amount of data AI is being trained on is increasing at 200% per year. If the biggest models have ingested most of the content already, there won’t be much new information for them to learn from.”
“Are There Really More Things Going Wrong On Airplanes?” (Vox). “[W]hat’s actually happening? Are more planes having incidents than ever before? Or are we just hearing about more incidents? It’s mostly the latter. Minor aviation incidents with few or no injuries — like those listed above — happen constantly. They just don’t make the news. The National Transportation Safety Board (NTSB), which investigates aviation incidents and accidents, lists 12 incidents on commercial aircraft in the United States so far this year. Last year, during the same time period, there were 13 such incidents.”
“Luxury Real Estate Prices Just Hit An All-Time Record” (CNBC). “Overall real estate sales fell 4% nationwide in the first quarter, according to Redfin. Yet, luxury real estate sales increased more than 2%, posting their best year-over-year gains in three years, according to Redfin.”
“Home Renovations Are Booming Thanks To High Rates” (Bloomberg). “In the early days of the pandemic, rock-bottom loan rates fueled a rise in US home sales as well as renovation spending. Today, as rates have shot up, more homeowners are staying put, but they’re still investing at near-record levels in bathroom redos, landscaping upgrades and other improvements. Abbe Will, senior research associate at the Harvard Joint Center for Housing Studies, describes their mindset this way: ‘I know I’m going to be in this home for however many more years, so what can I do to make it nicer for as long as I’m here?’”
What we’re reading (4/21)
“Chipotle Keeps Raising Prices. Gym Rats And Millennials Are Still Buying Burritos.” (Wall Street Journal). “Chipotle Mexican Grill has increased prices six times since 2021. It was among the first restaurant companies to say it would boost its menu prices on delivery apps. And its prices are set to rise further in California, where roughly 400 locations are paying higher hourly wages in response to a new state law.”
“Tesla Cuts Prices In Major Markets As Sales Fall” (BBC). “Tesla has the cut its prices again in a number of major markets - including the US, China and Germany - as the electric car giant run by multi-billionaire Elon Musk faces falling sales. The move comes after it reported a sharp fall in its global vehicle deliveries in the first three months of this year. A price war has been intensifying between electric vehicle (EV) makers, with particularly fierce competition coming from Chinese firms.”
“Private Equity Finds Its Next Bet: College Admissions” (CNN Business). “It’s been a volatile few years for US college entrance exams, and the companies that run them, as universities around the country try to figure out what’s the best way to evaluate prospective students. In the midst of that turmoil, the companies (often nonprofits) that create these tests have been slammed by financial losses. Now, private equity firms are swooping in to help while taking majority stakes in exchange. That’s worrying some education advocates.”
“The Simple Macroeconomics Of AI” (Daron Acemoglu). “[This paper] establishes that, so long as AI’s microeconomic effects are driven by cost savings/productivity improvements at the task level, its macroeconomic consequences will be given by a version of Hulten’s theorem: GDP and aggregate productivity gains can be estimated by what fraction of tasks are impacted and average task-level cost savings. Using existing estimates on exposure to AI and productivity improvements at the task level, these macroeconomic effects appear nontrivial but modest[.]”
“F.T.C. Said To Consider Blocking Major Fashion Merger” (DealBook). “The F.T.C.’s five commissioners are expected to meet next week to discuss the case, a move that could precede a formal vote on whether to file a lawsuit, the people said. The people, who were not authorized to discuss the deliberations, said it was still possible that the agency could opt not to sue.”
What we’re reading (4/20)
“US House Passes $95 Billion Ukraine, Israel Aid Package, Sends To Senate” (Reuters). “The U.S. House of Representatives on Saturday with broad bipartisan support passed a $95 billion legislative package providing security assistance to Ukraine, Israel and Taiwan, over bitter objections from Republican hardliners. The legislation now proceeds to the Democratic-majority Senate, which passed a similar measure more than two months ago.”
“Big Stocks Won When Markets Rose. They Are Winning Again In The Selloff.” (Wall Street Journal). “One of the biggest concerns amid the run-up in stocks in the first three months of the year was that the rally was dominated by the biggest companies. As it sold off this month, the market became even more top heavy. Blame the Fed, and a change in how investors react to it. This isn’t how it was supposed to be. For weeks now Wall Street has been pushing the idea that the market is broadening out beyond the “Magnificent Seven” Big Tech stocks[.]”
“The Cloud Under The Sea” (The Verge). “TheThe world’s emails, TikToks, classified memos, bank transfers, satellite surveillance, and FaceTime calls travel on cables that are about as thin as a garden hose. There are about 800,000 miles of these skinny tubes crisscrossing the Earth’s oceans, representing nearly 600 different systems, according to the industry tracking organization TeleGeography. The cables are buried near shore, but for the vast majority of their length, they just sit amid the gray ooze and alien creatures of the ocean floor, the hair-thin strands of glass at their center glowing with lasers encoding the world’s data. If, hypothetically, all these cables were to simultaneously break, modern civilization would cease to function.”
“US Small-Caps Suffer Worst Run Against Larger Stocks In Over 20 Years” (Financial Times). “US small-cap stocks are suffering their worst run of performance relative to large companies in more than 20 years, highlighting the extent to which investors have chased megacap technology stocks while smaller groups are weighed down by high interest rates. The Russell 2000 index has risen 24 per cent since the beginning of 2020, lagging behind the S&P 500’s more than 60 per cent gain over the same period.”
“There’s No Easy Answer To Chinese EVs” (The Atlantic). “Chinese electric vehicles—cheap, stylish, and high quality—should be a godsend to the Biden administration, whose two biggest priorities are reducing carbon emissions quickly enough to avert a climate catastrophe and reducing consumer prices quickly enough to avert an electoral catastrophe. Instead, the White House is going out of its way to keep Chinese EVs out of the U.S. What gives? The key to understanding this seeming contradiction is something known as “the China shock.” American policy makers long considered free trade to be close to an unalloyed good. But, according to a hugely influential 2016 paper, the loosening of trade restrictions with China at the turn of the 21st century was a disaster for the American manufacturing workforce.”
What we’re reading (4/19)
Back on the saddle here after a little reprieve…
“The Alternative Truth of Private Equity and What That Means for Asset Allocation” (Institutional Investor). “Comparing the characteristics of private equity, represented by the Preqin Private Equity Index, and public equities, represented by the S&P 500 Index, reveals intriguing insights into the potential impact of performance smoothing…high autocorrelation — the notion that past returns are correlated with future returns — is relatively higher for PE broadly defined. In fact, levels of autocorrelation this high indicate that external forces have acted on the returns of this investment in an unnatural way relative to public markets. This may indicate that asset valuations are being used as a tool to reduce volatility via the smoothing process, and that skepticism of the current returns may be warranted.”
“How Not to Invest In The Bond Market” (Wall Street Journal). “In 2023, investors poured a record $54 billion into mutual funds and exchange-traded funds specializing in long-term U.S. government debt, according to Morningstar. More than half of the iShares 20+ Year Treasury Bond ETF’s $46.1 billion in total assets, for instance, came in during last year alone. Right on cue, funds of Treasury bonds maturing in 20 years or beyond have lost about 9% so far this year, handing billions of dollars in losses to their latest buyers.”
“Too Many Passive Investors? There’s No Such Thing” (Bloomberg). “Can markets still be efficient if most investors aren’t even paying attention? Surprisingly, the answer is yes.”
“Amazon Reportedly Hounded An Ex-Trader Joe’s Employee For Data On The Store’s Best-Selling Products” (Salon). “Data concerning Trader Joe’s store products is not readily accessible, according to the Journal. So in order to acquire that information, an Amazon manager repeatedly tormented the ex-Trader Joe’s employee — who remains unnamed in the report — for six months, demanding she send over store data along with emails and documents she received while working with the grocer. The employee eventually succumbed to the pressure and handed over the data along with all the requested documents to the manager.”
“How Nike Won The Battle For Caitlin Clark” (Wall Street Journal). “As Clark was cooling off from that 49-point performance [on Feb. 15, when she had broken the NCAA women’s basketball career scoring record with one of her logo shots from near midcourt], her agents were turning up the temperature on the shoe-company reps. They informed the brands courting her—which included Nike, Adidas, Under Armour and Puma—that winning her commitment would take a historic offer: $3 million a year at the very minimum.”
What we’re reading (4/8)
Good Economy, Negative Vibes: The Story Continues” (Paul Krugman, New York Times). “When it comes to economic news, we’ve had so much winning that we’ve gotten tired of winning, or at any rate blasé about it. Last week, we got another terrific employment report — job growth for 39 straight months — and it feels as if hardly anyone noticed.”
“Why 2024 Will Be A Year Of Fits And Starts For Dealmaking On Wall Street” (CNN Business). “[O]ver the past few years, mergers and acquisitions (M&A), have been hard to come by. Goldman Sachs reported substantial drops in revenue last year as 2023 had some of the lowest M&A activity in a decade. Dealmaking activity has dried up as executives have contended with recession fears, decades-high interest rates and geopolitical tensions.”
“Apple Wants To Make More Smart Home Devices — Which May Not Be Dumb” (Business Insider). “Apple isn't going to make a supercar, after all. Its Vision Pro headset is a cool curiosity searching for a killer app. And you already have an iPhone. So what's the next would-be-mind-blowing product for Tim Cook? Well, home robots, maybe. But those aren't coming out anytime soon. In the meantime we may see something decidedly less ambitious out of Apple: New iPads.”
“Blackstone Making $10 Billion Multifamily Purchase, Going On The Real Estate Offensive” (Wall Street Journal). “Blackstone is taking private Apartment Income REIT, known as AIR Communities , which owns 76 rental housing communities that are primarily in coastal markets, including Miami, Los Angeles, and Boston, the companies confirmed Monday. Blackstone plans to invest another $400 million to improve the properties, the firm said.”
“Americans Are Hooked On The Fantasy Of Financial Liberation” (Vox). “What multilevel marketing schemes are really selling.”
What we’re reading (4/7)
“The Surprising Top Mutual Fund In The First Quarter” (Wall Street Journal). “Hennessy Cornerstone Growth claims the No. 1 spot over the past year as small-to-midcap funds start to supplant the dominant large-cap growth funds.”
“Diverging Markets, Diversified Portfolios” (PIMCO). “Given today’s flat yield curves, we believe intermediate maturities can offer a sweet spot between cash, where yields are fleeting and will decline when central bank rate cuts begin, and long-duration bonds, which could face pressure from rising bond supply needed to finance growing sovereign debt.”
“The Crypto World Has A New Villain” (New York Magazine).”Billionaire Barry Silbert is accused of defrauding thousands of people. Should he get to keep their money anyway?”
“Big Tech Has A Big Cash Problem” (Wall Street Journal). “Having more money than you know what to do with used to be a high-quality problem. Now it is just a problem. The largest tech companies in the world are also the richest. Apple , Amazon, Microsoft and the parent companies of Google and Facebook now collectively sit on a little more than $570 billion in cash, short-term and long-term investments. That is more than double the collective pile of the next five richest nonfinancial companies on the S&P 500 index, according to data from S&P Global Market Intelligence.”
“Southwest Boeing 737-800 Flight From Denver Loses Engine Cover, FAA Investigating” (CNN Business). “A Houston-bound Boeing 737-800 plane operated by Southwest Airlines returned safely to Denver International Airport on Sunday after an engine cover fell off and struck the wing flap, according to the Federal Aviation Administration. The agency said it will investigate. In recorded air traffic control audio, one of the pilots said that ‘several passengers and flight attendants heard something loud hit the wing.’”
What we’re reading (4/6)
“Why The Stock Market Keeps Changing Its Story” (Wall Street Journal). “Investors love to distill the bewildering variables that move prices around into a single narrative. Once enough people agree on “what’s driving markets” then the narrative can be self-fulfilling—until of course, something interrupts the story and the narrative changes. Oil, like gold, is in the unusual position of benefiting from two competing themes, a hot economy and geopolitical threats.”
“Don’t Blame Indexing For Your Problems” (Acadian). “[A]s an empirical matter, it is possible that indexing has hurt market efficiency, but that is a statement about who’s left in the non-passive sector. Let me give you an example. Suppose there are 100 investors in a stock market. We start with zero passive investors. Now suppose that 50 of the investors decide to switch to passively holding the market. Does that make the market less efficient, crushing price discovery and paving the way for Marxism? Well, it depends on who switches. If the 50 smartest and best-informed investors switch to passive, then yes, it could make prices less informative. If the 50 craziest and least informed investors switch, then maybe market prices get more informative. What matters is who stays in the market, providing price discovery and liquidity.”
“The Perfect Heist? Inside The Seamless, Sophisticated, Stealthy L.A. Theft That Netted Up To $30 Million” (Los Angeles Times). “Officials said the burglars appeared to enter through the roof. At least one alarm was triggered during the crime, but it was not connected to local law enforcement, according to a source familiar with the investigation who was not authorized to discuss it publicly. In any case, the thieves were able to get in and out without anyone knowing. There was also a hole in the side of the building covered by a piece of plywood. A law enforcement source confirmed to The Times there was an effort to breach the side but it was not clear how that area was used in the heist.”
“U.S. And China To Hold Talks On ‘Balanced Growth’ Amid Overcapacity Concerns, Yellen Says” (CNBC). “U.S. Treasury Secretary Janet Yellen said on Saturday that she and Chinese Vice Premier He Lifeng agreed to launch exchanges on “balanced” economic growth, an effort to address U.S. concerns about China’s excess manufacturing capacity. After two days of economic talks in China’s southern export hub of Guangzhou, Yellen said she and He also agreed to start a forum to cooperate on anti-money laundering efforts in their respective financial systems.”
“New York City’s New Gilded Age” (Business Insider). “The bars and restaurants that put the glint on New York City never stopped partying. While the rest of the country — businesses, investors, economists, regular people — misspent 2023 in a state of anxiety, waiting for a recession that never came, the bastions of New York City's dining elite came out of the pandemic louder, prouder, and more extravagant than ever. Here, it's ancient Rome. And if New York City has a legalized form of popular bloodsport, it's the restaurant business.”