What we’re reading (7/30)
“It’s Not The End Of The World If The Fed Doesn’t Cut Rates Tomorrow” (CNN Business). “The Federal Reserve is all but certain to hold interest rates steady at its meeting this week. But a growing crowd of economists — among them, former Fed Vice Chair Alan Blinder and Nobel prize-winner Paul Krugman — are urging central bankers to cut now rather than at September’s meeting, when it is widely expected to do so.”
“Microsoft Has Investors Really Freaking Out About Big Tech’s AI Spending” (Business Insider). “Analysts had big expectations for Microsoft's cloud growth this quarter — and the tech giant seems to have fallen short of them even as it pumps money into its AI plans. Microsoft released its Q4 earnings Tuesday afternoon, and the company grew its Azure cloud unit's revenue by 29%. That came in slightly shy of Wedbush analysts' expectations for 30% growth in this ‘most important metric.’ Shares dropped in postmarket trading.”
“How YouTube Took Over Our Television Screens” (New York Times). “YouTube consistently ranks as the most popular streaming service on U.S. televisions, surpassing the companies it once tried to emulate. The platform’s unlikely ascent to the top of the leaderboard shows that more than a decade into the streaming era, the internet has continued to change the nature of TV and the habits of viewers.”
“OpenAI Rolls Out Voice Mode After Delaying It For Safety Reasons” (Washington Post). “OpenAI’s fans and customers have clamored for the voice mode, with some complaining online when the company delayed the launch in June. The new feature will be available to a small number of users at first, and the company will gradually open it up to all of OpenAI’s paying customers by the fall.”
“American Consumers Feeling More Confident In July As Expectations Of Future Improve” (Associated Press). “American consumers felt more confident in July as expectations over the near-term future rebounded. However, in a reversal of recent trends, feelings about current conditions weakened. The Conference Board, a business research group, said Tuesday that its consumer confidence index rose to 100.3 in July from a downwardly revised 97.8 in June. The index measures both Americans’ assessment of current economic conditions and their outlook for the next six months.”
What we’re reading (7/29)
“Investors On Alert For Fed Signals Of September Rate Cut” (Wall Street Journal). “The big question going into the Federal Reserve’s meeting Wednesday comes down to how strongly officials signal their desire to cut rates. The central bank is widely expected to hold its benchmark short-term interest rate steady—in a range between 5.25% and 5.5%, a two-decade high—while setting the table to begin a series of reductions at the next meeting in mid-September.”
“McDonald’s Earnings, Revenue Miss Estimates As Consumer Pullback Worsens” (CNBC). “Company executives acknowledged that diners considered their prices too high and said that they are taking a ‘forensic approach’ to evaluating value offerings and working with franchisees to make the necessary adjustments.”
“Texas Crude Oil Pipelines Full To The Brim, Getting Worse” (Bloomberg). “Crude oil pipelines connecting the busiest Texas oil fields to a critical export hub across the state are nearly out of space, threatening to cap US oil exports at a time when the world needs more.”
“Ethiopia Floats Its Currency In A Bid To Secure Loans” (Semafor). “Ethiopia’s government has allowed its currency to be traded on the open market instead of at a fixed rate as part of reforms aimed at securing loans from international lenders to stabilize its economy. The birr’s value against the dollar fell by 30% after it was allowed to float on Monday, said the country’s biggest lender, Commercial Bank of Ethiopia. Removing the central bank’s fixed rate is part of sweeping reforms aimed at easing the chronic shortage of foreign currency that have plagued its economy.”
“The Problem Of The Tariff In American Economic History, 1787–1934” (CATO Institute). “‘The pursuit of free trade as national policy in the United States predates the Constitution. Responding to a Spanish government inquiry in 1780, John Jay expressed the fledgling nation’s commitment to a principle of unimpeded exchange: “every man being then at liberty, by the law, to cultivate the earth as he pleased, to raise what he pleased, to manufacture as he pleased, and to sell the produce of his labor to whom he pleased, and for the best prices, without any duties or impositions whatsoever.’ Jay’s sentiments captured the Founding generation’s unease with Britain’s habit of manipulating its colonies’ trading patterns through political interventions—a stated grievance of the Declaration of Independence some four years prior.”
August picks available soon
I’ll be publishing the Prime and Select picks for the month of August before Thursday, August 1 (the first trading day of the month). As always, SPC’s performance measurement for the month of August, as well as SPC’s cumulative performance, will assume the sale of the July picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Wednesday, July 31). Performance tracking for the month of August will assume the August picks are bought at the open price (at the mid-point of the opening bid and ask prices) on the first trading day of the month (Thursday, August 1).
What we’re reading (7/22)
“Nike Is In Trouble. Can the Olympics Save It?” (Newsweek). “Nike is going for gold this summer as an official supplier for Team USA's competition uniforms for the Paris 2024 Olympic following a string of problems with the company, including poor financial performance, job cuts and criticism over its products. The sportswear brand took a kicking this spring for its Major League Baseball uniforms, with players complaining of color mismatches, see-through pants and fabric that changed after coming into contact with sweat.”
“Paul Singer Thinks There’s More That Sucks About Starbucks Than The Coffee” (Dealbreaker). “He may have been annoyed that the bacon-egg-and-gouda sandwich he’d been craving to go alongside cinnamon dolce latte was out of stock. Perhaps he popped in to one of a recent trip to China and noticed how empty it was compared the growing number of competing roasteries around it. That or, like founder Howard Schultz, he noticed that its stock was down by nearly a quarter this year and decided it was Starbucks itself rather than his own swimming head that required a pick-me-up.”
“The Spectacular Rise And Surprising Staying Power Of The George Foreman Grill” (The Hustle). “This year marks the 30-year anniversary of the grill, officially known as the George Foreman Lean Mean Fat Reducing Grilling Machine. After a slow start, it became an indelible part of ‘90s consumer culture and the world’s most popular product for cooking hamburgers, hot dogs, salmon, and just about everything else (Oprah Winfrey preferred it for bacon).”
“Global Computer Collapse Is A Chilling Look At What’s To Come” (New York Post). “In recent years, there have been an increasing number of widescale internet outages, whether from Amazon’s cloud platform collapsing, misconfigurations in fundamental network infrastructure, or actual hardware. The CrowdStrike outage was worse than any of these because it didn’t just hit the backbone of the internet, but individual endpoint computers, knocking out crucial services not just from a central failure, but by taking down everything it touches.”
“The 401(k) Rollover Mistake That Costs Retirement Savers Billions” (Wall Street Journal). “Workers miss out on billions in investment gains by pulling retirement savings out of the stock market after switching jobs—often without meaning to. When people roll 401(k) balances from their old company’s plan into an individual retirement account, the money is frequently held as cash until they select new investments. Many never do, according to new research from Vanguard Group. Nearly a third who rolled savings into IRAs at Vanguard in 2015 still had the balance sitting in cash seven years later.”
What we’re reading (7/21)
“A Stock Market Rotation Of Historic Proportions Is Taking Shape” (Wall Street Journal). “The stock market has suddenly turned upside down. The market’s laggards have sprung to life in recent days, while the seemingly impervious “Magnificent Seven” group of technology stocks has stumbled. Investors are even more focused than usual on corporate earnings as they try to anticipate what comes next. The Russell 2000 index of smaller stocks beat the S&P 500 over the seven days through Wednesday by the largest margin during a period of that length in data going back to 1986, according to Dow Jones Market Data. The Russell 1000 Value index, meanwhile, notched its biggest lead over its growth-stock counterpart since April 2001, after the dot-com bubble burst.”
“History Says The Wild Small-Cap Stock Rally Isn’t Going To Last” (Inc Magazine). “Small-cap stocks have been the big surprise in markets this month, fueled by a combination of rate cut expectations and rising odds for a second Trump presidency. That said, the group's blistering rally has fallen off as abruptly as it began. While the market's strength does seem to be broadening beyond mega-cap tech names, that does not mean small-caps will keep marching higher. From July 1 to July 16, the S&P 600 small-cap index recorded a 10.2 percent gain. In the last two days, however, the index fell about two percent.”
“RIP Hedge Fund Superstars” (Insider). “What is clear is that hedge funds run by an individual star, by one prodigious mind, are not raising the massive money they used to. Clients who once were proud to hand their money to a specific person are pushing back; they want to pay lower fees and see less-volatile returns. The funds that have survived rely on a stable of faceless traders testing out different ideas, brokering transactions, and harvesting the returns for the collective. Quant strategies — which are built on algorithmic trading — have also become more popular with the ultrawealthy. More robots, fewer people, lower overhead.”
“Apple Should Buy HBO” (Spyglass). “Two problems: Apple needs content, Warner Bros Discovery needs money. One solution: Apple has money, WBD has content. Come on folks, this isn't rocket science. It's not any kind of science. It's business. Well, as much as show business actually is still a legitimate business. A distinction which seems tenuous at best for most companies these days.”
“Costs From The Global Outage Could Top $1 Billion – But Who Pays The Bill Is Harder To Understand” (CNN Business). “Experts largely agree it’s too early to get a firm handle on the price tag for Friday’s global internet breakdown. But those costs could easily top $1 billion, said Patrick Anderson, CEO of Anderson Economic Group, a Michigan research firm that specializes in estimating the economic cost of events like strikes and other business disruptions.”
What we’re reading 7/20
“Where Do Economists Think We’re Headed? These Are Their Predictions” (Wall Street Journal). “The Wall Street Journal’s latest quarterly survey of business and academic economists shows forecasters remain firmly optimistic about the economic outlook, despite some hints of weakness in recent data.”
“Can Value Stocks Really Make A Comeback?” (Morningstar). “For value stock investors, 2024 looked like another “Wait ‘til next year” scenario, with mega-sized technology stocks driving the market higher. However, after months of lagging behind growth stocks (especially those riding the artificial intelligence wave), value stocks surged ahead this past week. A prime catalyst came from geopolitical concerns threatening the AI-driven boom in semiconductor stocks. At the same time, growing confidence that Federal Reserve rate cuts are finally on their way has the potential to make the dividends offered by many value stocks more attractive.”
“‘Greatest Bubble’ Nearing Its Peak, Says Black Swan Manager” (Wall Street Journal). “‘[Universa Investments’ Mark] Spitznagel predicts an even worse shakeout than a quarter-century ago because the excesses are more extreme—the “greatest bubble in human history.’ High public indebtedness and valuations make a Washington-led rescue harder to pull off. He sees today’s benign slowdown in inflation overshooting and says the U.S. economy could enter a recession by the end of the year.”
“What Presidential Election? So Far, The Stock Market Doesn’t Care.” (New York Times). “The stock market…is remarkably indifferent to the nation’s political fortunes. On Monday there were big moves in stocks perceived as benefiting from a Trump presidency, but that exuberance didn’t last. Instead, the market seems to be focused on issues that have little to do with politics, like the possibility of a Federal Reserve rate cut, heartening corporate earnings reports or the allure of artificial intelligence stocks.”
“Microsoft’s Global Sprawl Comes Under Fire After Historic Outage” (Washington Post). “A cascading computer outage that grounded planes, stymied hospitals and disrupted critical public services exposed the depth of the global economy’s dependence on a single company: Microsoft. Regulators and lawmakers across the political spectrum raised alarm that the sprawling outage that knocked out Windows showcases the danger of so much power concentrating into one firm, which drives governments, businesses and critical infrastructure around the world.”
What we’re reading (7/15)
“Powell Indicates Fed Won’t Wait Until Inflation Is Down To 2% Before Cutting Rates” (NBC News). “Federal Reserve Chair Jerome Powell said Monday that the central bank will not wait until inflation hits 2% to cut interest rates. Speaking at the Economic Club of Washington D.C., Powell referenced the idea that central bank policy works with ‘long and variable lags’ to explain why the Fed wouldn’t wait for its target to be hit.”
“Stock Dudes Risk A Market Wipeout” (Wall Street Journal). “The wave that broke was the momentum trade, which had pushed the ‘Magnificent Seven’ megacapitalization stocks and anything related to artificial intelligence to dizzying heights, leaving the rest of the market far behind. The question for investors now is whether the breakers will hit the rocks, or merely prove to be white caps far from the shore. Is the megacap trade over?”
“Unearthed 1980s Bill Gates Interview Features The Microsoft Founder Talking About The Earliest Iterations Of AI” (Business Insider). “‘Another thing that we're trying to get the computer to do is learn,’ Gates said in the interview. ‘That is, after you've used it for a while, then you'll be able to refer back to something you've done previously so you don't have to repeat those commands.’ He added that the computer will be able to recognize mistakes the same way ‘a human coworker might and aid you in the working process with the machine.’”
“As Policy Types Cheer the Demise Of ‘Inflation,’ Inflation Arrives” (Forbes). “Here lies the error, one of many, in using market prices as a proxy for what is always and everywhere a currency phenomenon. As has been said here over and over again, and for years, there’s an ocean of difference between rising prices and inflation. Inflation is a shrinkage of the monetary measure, in our case the dollar. Higher prices are at best a consequence of the inflation.”
“How Janet Yellen Became An Unlikely Culinary Diplomat” (New York Times). “There was mayonnaise mixed with ants at a gastronomic taqueria in Mexico City. The garlic at a Persian restaurant in Frankfurt was aged 25 years. And, yes, the magic mushrooms in Beijing were hallucinogenic. This isn’t an Anthony Bourdain travel show but rather a taste of what Janet L. Yellen, the Treasury secretary, has been eating on the road over the more than 300,000 miles she has logged over the last three years as she has been grappling with inflation and devising new ways to cripple the Russian economy.”
What we’re reading (7/14)
“Robert Putnam Knows Why You’re Lonely” (New York Times). “I think we’re in a really important turning point in American history. What I wrote in ‘Bowling Alone’ is even more relevant now. Because what we’ve seen over the last 25 years is a deepening and intensifying of that trend. We’ve become more socially isolated, and we can see it in every facet in our lives.”
“‘Dollarization’ In Argentina Isn't A Policy Choice, It’s A Market Condition” (RealClear Markets). “With money that’s actually used by producers, the simple, unspoken truth is that its circulation is production determined. Where there’s production there’s always “money” facilitating the movement of production as though placed there by an invisible hand. And where production is slight, there’s very little money as a reflection of scant production.”
“What If The A.I. Boosters Are Wrong?” (DealBook). “[MIT economist Daron] Acemoglu concluded that A.I. would contribute only “modest” improvement to worker productivity, and that it would add no more than 1 percent to U.S. economic output over the next decade. That pales in comparison to estimates by Goldman Sachs economists, who predicted last year that generative A.I. could raise global G.D.P. by 7 percent over the same period.”
“Pork Producer Smithfield Plans U.S. Stock Listing” (Wall Street Journal). “The Chinese parent of Smithfield Foods says it plans to take the pork company public in the U.S. WH Group, the world’s largest pork-producing company by sales, said Sunday it plans to float Smithfield’s business in the U.S. and Mexico on the New York Stock Exchange or Nasdaq.”
“Global Markets Ramp Up The ‘Trump Trade’ After Rally Attack” (Yahoo! Finance). “The series of wagers — based on anticipation that the Republican’s return to the White House would usher in tax cuts, higher tariffs and looser regulations — had already been gaining ground since President Joe Biden’s poor performance in last month’s debate imperiled his re-election campaign. But the trades were expected to take deeper hold, with Trump galvanizing supporters and drawing sympathy by exhibiting defiant resilience after being shot in the ear on stage at a Pennsylvania rally.”
What we’re reading (7/13)
“A Beautiful Inflation Report” (New York Times). “One of my go-to economic data experts emailed on Thursday morning about the latest inflation report, which showed prices actually falling in June and up only 3 percent over the past year. It was, he declared, ‘beautiful.’ Your aesthetic sense may vary, but we’ve now had two months of really good price data, enough to puncture the bubble of pessimism that, um, inflated early this year. And the implications of the good news are pretty big.”
“Big Banks And Customers Continue To Feel Pressure From Higher Rates” (Wall Street Journal). “The fight to rein in inflation continues to weigh on some of the nation’s largest banks. Higher interest rates crimped their profits and left more consumers struggling to keep up with elevated borrowing costs.”
“Jane Fraser Is Trying To Pull Chronically Struggling Citigroup Out Of The Gutter. She May Actually Pull It Off” (CNN Business). “Fraser, the first woman ever to run a Wall Street bank, inherited a behemoth that had become a laughingstock among its peers, hobbled by its unwieldy bureaucracy, a bloated staff and slim profit margins…But lately, to the surprise of Citi’s critics, things are looking up. Since September, when Fraser laid out her vision for a more streamlined Citigroup, the bank’s stock has shot up more than 50%.”
“Wall Street Is Bullish On Stocks For The 2nd Half Of The Year. Here Are Each Firm’s Exact Forecasts.” (Business Insider). “The S&P 500 has soared this year, with the index jumping about 15% to record highs in the first half. With the second half of 2024 underway, Wall Street strategists are updating their year-end price targets for the S&P 500, and nearly all of them are leaning bullish as they increase their forecasts.”
“The Class Gap In Career Progression: Evidence From US Academia” (Anna Stansbury & Kyra Rodriguez). “Unlike gender or race, class is rarely a focus of research or DEI efforts in elite US occupations. Should it be? In this paper, we document a large class gap in career progression in one labor market: US tenure-track academia. Using parental education to proxy for socioeconomic background, we compare career outcomes of people who got their PhDs in the same institution and field (excluding those with PhD parents). First-generation college graduates are 13% less likely to end up tenured at an R1, and are on average tenured at institutions ranked 9% lower, than their PhD classmates with a parent with a (non-PhD) graduate degree. We explore three sets of mechanisms: (1) research productivity, (2) networks, and (3) preferences. Research productivity can explain less than a third of the class gap, and preferences explain almost none. Our analyses of coauthor characteristics suggest networks likely play a role. Finally, examining PhDs who work in industry we find a class gap in pay and in managerial responsibilities which widens over the career. This means a class gap in career progression exists in other US occupations beyond academia.”
What we’re reading (7/10)
“An Exodus Of Investors Is Underway At Index Ventures On The Back Of A $2.3 Billion Fundraise” (Business Insider). “From the outside, things are looking rosy at Index Ventures. This week, the 28-year-old venture capital firm debuted a new pair of funds totaling $2.3 billion, a substantial sum during an abysmal time for the industry's fundraising efforts. However, a series of departures at the firm paints a darker picture of Index's state. Last week, the firm parted ways with five investors in its San Francisco office, including mid-level dealmakers and a senior dealmaker, according to four people familiar with the matter. The turnover came during management's midyear check-ins with staff.”
“Zucker Unbound! CBS News Change, Paramount Sale Points Former CNN Chief To Tiffany Network” (Showbiz 411). “Jeff Zucker is coming back! Sources tell me that today’s announcement that CBS News chief Ingrid Cipirian-Matthews is gone probably means one thing: the return of Jeff Zucker. What’s going on here? … in all likelihood, Ellison has purchased Paramount. And [Jeff] Shell [former NBC Universal chairman] is advising him. First project: give CBS some pizzazz with Zucker.”
‘“I’m Not Naive’: Inside Emma Tucker’s Rocky Wall Street Journal Reboot” (Vanity Fair). “Tucker, a personable and somewhat irreverent Brit, took over the Journal in February 2023. In a little over a year, the 57-year-old journalist has brought color, voice, and a renewed metabolism to America’s business newspaper of record. Sure, you’ll still find stories about interest-rate cuts and investment income. But you’ll also find investigations into Elon Musk’s unusual relationships with women at SpaceX and drug use, the succession battle for the luxury empire LVMH, and messages that Hamas military leader Yahya Sinwar sent to compatriots and mediators. (An attorney for Musk told WSJ that he’s never failed a drug test at SpaceX.) Tucker’s goal is to make the paper ‘audience-first’ and ‘to grow and retain subscribers,’ she told me. It might not sound like the most visionary mission. But the Journal today is, well, better—a more compelling product that a wider swath of people might pick up and read.”
“Costco Hikes Membership Fee For The First Time Since 2017” (CNBC). “The membership-based warehouse club said Wednesday that it will increase its membership fee by $5 in the U.S. and Canada as of Sept. 1. That is an increase to $65 from $60 for annual memberships. Its higher-tier plan, called ‘Executive Membership,’ will increase to $130 a year from $120.”
“The Age Question Looms Over America’s Bosses” (Wall Street Journal). “Leadership and cognitive decline are pressing issues throughout America’s aging workforce. High-powered professionals increasingly work past traditional retirement ages, even as ageism pushes others to leave careers early. There will be twice as many workers 75 and older in 2030 as there were in 2020, the Bureau of Labor Statistics projects.”
What we’re reading (7/9)
“Powell Inches The Fed Closer To Cutting Rates” (Wall Street Journal). “Federal Reserve Chair Jerome Powell made a subtle but important shift that moved the central bank closer to lowering interest rates when he suggested Tuesday that a further cooling in the labor market could be undesirable.”
“What Happens When Your Bank Isn’t Really a Bank And Your Money Disappears?” (New York Times). “The promise of bank insurance — a tenet of U.S. consumer protection since the Great Depression — is now being tested by a crisis swirling around online-only lenders with hundreds of millions of dollars of deposits between them. Customer accounts have been frozen, preventing people from cashing out their life savings. Most depositors have little clue where their money has gone, and whether they will get any of it back. The turmoil was set off this spring with the bankruptcy of Synapse Technology, the kind of company you’ve probably never heard of unless you suffered through all the fine print of your account statements. It operated banking software for fast-growing online lenders with names like Juno, Yieldstreet and Yotta.”
“It Suddenly Looks Like There Are Too Many Homes For Sale. Here’s Why That’s Not Quite Right. (CNBC). “The numbers…are deceiving due to the unprecedented dynamics of today’s housing market, which can be traced back two decades to another unprecedented time in housing, the subprime mortgage boom. All of it is precisely why home prices, which usually cool off when supply is high, just continue to rise.”
“A Bank Created Fake Accounts, Forced Clients Into Unnecessary Car Insurance And Repossessed Vehicles When They Didn’t Pay. Now It Has Agreed To $20 Million In Penalties” (CNN Business). “Fifth Third Bank on Tuesday said it agreed to pay $20 million in penalties imposed by the Consumer Financial Protection Bureau to settle a CFPB investigation into its auto insurance practices, and a 2020 lawsuit the agency filed pertaining to the bank’s creation of fake customer accounts.”
“The Precipitous Fall Of The Japanese Yen” (The Week). “There are several factors, but it is mainly a ‘product of divergent monetary policy between the Bank of Japan and its developed-market peers — particularly the Federal Reserve,’ said Barron's. This is the result of a wide difference in interest rates between the U.S. and Japan; the Bank of Japan ‘has only just begun to ease off intense monetary stimulus, while the Fed and other central banks are years into tightening cycles.’”
What we’re reading (7/8)
“Why Your Fund Manager Can’t Beat Today’s Stock Market” (Wall Street Journal). “[T]raditional measures like correlation and dispersion have lost much of their meaning and nearly all of their relevance. The 10 biggest stocks own the market right now, and anyone who doesn’t own them is left out in the cold—at least for the time being.”
“How A New York Short-Seller Took On One Of The World’s Richest People, Wiped Out $150 Billion In Market Value, And Barely Made Any Money” (Insider). “Nate Anderson, the chief mind behind activist short-seller Hindenburg Research, has had an eventful past 18 months. In January 2023, he accused the Indian conglomerate owned by Gautam Adani — one of the world's richest people — of fraud, subsequently wiping out $153 billion in market value from its associated companies. This led Indian regulators to his doorstep and forced him into defensive mode. A war of words has persisted ever since. A year and a half later, the battle continues. And based on new information released by Hindenburg, one might wonder whether it was all worth it.”
“The Intense Battle To Stop AI Bots From Taking Over The Internet” (The Independent). “A number of companies have taken major steps to stop scrapers from attempting to take their text. It is the latest front in an ongoing and apparently escalating battle between websites that allow people to read text and the AI companies that wish to use it to build their new tools.”
“Property Fraud Allegations Snowball As Commercial Real-Estate Values Fall” (Wall Street Journal). “Regulators and federal prosecutors say that property loans based on doctored building financials and valuations have been rising. This type of fraud became more widespread between the mid-2010s and 2021, federal investigators and real-estate brokers say, when commercial property prices surged to new highs and landlords had much to gain from such maneuvers. Now, the drop in property values caused by higher interest rates and a rise in defaults are exposing more of these schemes, dealing another blow to a commercial real-estate market suffering through its worst stretch since the 2008-09 financial crisis.”
“The American Elevator Explains Why Housing Costs Have Skyrocketed” (New York Times). “Through my research on elevators, I got a glimpse into why so little new housing is built in America and why what is built is often of such low quality and at high cost. The problem with elevators is a microcosm of the challenges of the broader construction industry — from labor to building codes to a sheer lack of political will. These challenges are at the root of a mounting housing crisis that has spread to nearly every part of the country and is damaging our economic productivity and our environment.”
July picks available now
The new Prime and Select picks for July are available starting now, based on a model run put through Today (June 30). As a note, I will be measuring the performance on these picks from the first trading day of the month, Monday, July 1, 2024 (at the mid-spread open price) through the last trading day of the month, Wednesday, July 31, 2024 (at the mid-spread closing price).
What we’re reading (6/28)
“Wall Street Seems Calm. A Closer Look Shows Something Else.” (New York Times). “A widely tracked measure of bets on more volatility to come is close to its lowest-ever level. But a look beneath the surface reveals much greater turbulence. Nvidia, for example, whose rising stock price helped it become the most valuable public company in America last week, is up more than 150 percent this year. The price has also repeatedly had deep plunges in the last six months, shaving billions of dollars of market value each time.”
“Diversity Was Supposed To Make Us Rich. Not So Much.” (Wall Street Journal). “When management consulting firm McKinsey declared in 2015 that it had found a link between profits and executive racial and gender diversity, it was a breakthrough. The research was used by investors, lobbyists and regulators to push for more women and minority groups on boards, and to justify investing in companies that appointed them. Unfortunately, the research doesn’t show what everyone thought it showed.”
“Inside The New Job Stress Test” (Business Insider). “Purporting to be the "only sports evaluation that scientifically measures an athlete's game-speed cognitive abilities down to a millisecond level," these tests — which feel like a cross between playing Pong and taking an eye exam — have fast become part and parcel of how many scouts find the next billion-dollar athlete. More than 52 colleges and universities and 16 of the NFL's 32 teams pay S2 to administer tests to prospective signees and to keep the results confidential.”
“Mark Zuckerberg Warns AI Companies Are ‘Trying To Create God’ In Stark Warning – But He Has The Key To Save Us All” (The U.S. Sun). “‘I find it a pretty big turnoff when people in the tech industry kind of talk about building this one true AI,’ Zuckerberg said. ‘It's almost as if they think they're creating God or something. And it's like, that's not what we're doing.’ The tech tycoon sat down for an interview with YouTube creator Kane Kallaway to discuss the future of AI and tease the tools in development at Meta.”
“Layoffs Watch ’24: Baupost Group” (Dealbreaker). “Seth Klarman thinks things are gonna get pretty bad, which means they’re already bad for one in five members of his Baupost Group’s investing team. Eleven of them have been given their walking papers, the largest layoff in the Boston hedge fund’s history, and its first significant reduction since pandemic days.”
July picks available soon
I’ll be publishing the Prime and Select picks for the month of July before Monday, July 1 (the first trading day of the month). As always, SPC’s performance measurement for the month of May, as well as SPC’s cumulative performance, will assume the sale of the June 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, June 28). Performance tracking for the month of July will assume the July 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 (Monday, July 1).
What we’re reading (6/25)
“Americans Chasing High Interest Rates Risk Falling Into A ‘Cash Trap’” (Wall Street Journal). “Americans have poured money into cash-like investments since the Fed began raising interest rates, driving assets in money-market funds to a record $6.12 trillion earlier this month, according to the Investment Company Institute. Now, Wall Street traders are betting rates have peaked and those investors face a choice: keep sitting on their cash as interest payments shrink, or figure out how to redeploy the money.”
“Bond Traders Boldly Bet On 300 Basis Points Of Fed Cuts By March” (Bloomberg). “Traders in the US rates options market are embracing a nascent wager on the Federal Reserve’s interest-rate path: a whopping 3 percentage points worth of cuts in the next nine months. Over the past three sessions, positioning in the options market linked to the Secured Overnight Financing Rate shows an increase in bets that stand to benefit if the central bank reduces its key rate to as low as 2.25% by the first quarter of 2025.”
“Fed Officials Are Talking Down The Chance Of Rate Cut This Year” (CNN Business). “At the beginning of the year, Federal Reserve officials projected they would cut interest rates three times this year. By June, they had lowered that projection to just one cut. Now some key policymakers say it won’t happen at all. On Tuesday morning, Fed governor Michelle Bowman said that she’s expecting no rate cuts this year.”
“Julian Assange Pleads Guilty To Espionage Charge, Ending Years Of Legal Deadlock” (Washington Post). “WikiLeaks founder Julian Assange pleaded guilty Tuesday to a felony charge of violating the Espionage Act after his organization obtained and published classified military and diplomatic documents in 2010.”
“Elon Musk Argues Twitter Flip-Flopping Not Manipulation Because His Legal Case Was So Bad” (Dealbreaker). “Late last week, Elon Musk’s attorneys from Quinn Emanuel offered a new theory for tossing an investor suit claiming that his public bad-mouthing and eventual litigation over his Twitter acquisition was an effort to drive down the share price: no one reasonably could be dumb enough to believe him.”
What we’re reading (6/24)
“Hedge Funds Made A Killing On FTX—Then It Got Complicated” (Wall Street Journal). “Hedge funds and other distressed investors rejoiced last month when bankruptcy managers said the corporate carcass of FTX, Sam Bankman-Fried’s collapsed crypto exchange, had enough assets to more than make its creditors whole. Since FTX’s 2022 implosion, hedge funds had scooped up the rights to customers’ frozen accounts for pennies on the dollar, with five firms alone buying claims with a combined face value of about $2.4 billion. That meant a huge payday was in store. But collecting these winnings won’t be straightforward. Investors are mired in legal battles with some of the original owners of the claims. They allege those former FTX customers abruptly reneged on trades and are suffering from an age-old affliction: seller’s remorse.”
“After Surpassing Microsoft, Can Chipmaker Nvidia Remain World’s Most Valuable Company?” (New York Post). “This week, chipmaker Nvidia soared to a market capitalization of more than three trillion dollars, surpassing Microsoft as the most valuable company on the planet. The historic run-up has drawn comparisons to the headier days of the dot-com era nearly three decades ago. Are they correct? When it comes to Nvidia, we’re probably not in a bubble — at least not yet. Indeed, investors have good reason to remain optimistic about the chip-maker’s prospects.”
“Nvidia’s Shares Are On Fire. The Broader Market Looks Less Rosy” (CNN Business). “The S&P 500 index has jumped nearly 15% so far in 2024, notching 31 new peaks along the way. Much of those returns have been driven by the mega-cap Magnificent Seven stocks, which have seen explosive growth as investors pour cash into the burgeoning artificial intelligence boom. But beyond that cohort of tech stocks, the market is looking less rosy. The S&P 500 equal-weighted index, which gives every stock the same weighting, has risen just 4% this year.”
“Uh-Oh: A Story Of SpaghettiOs And Forgotten History” (Snack Stack). “Beyond the shape, the new products sold well because they capitalized on the broader trend of Italian (and Italian-inspired) foods made for an American audience. Goerke was surfing that wave. A decade earlier, newspapers identified had identified part of the rising fad of “Continental” food, and pizza and pasta and their ilk were becoming ubiquitous. (Go read Ian McCellan’s Red Sauce if you’d like a deep dive.)”
“One Index, Two Publishers And The Global Research Economy” (David Mills, Oxford Review of Education). “The emergence of a global science system after the second world war was spurred by transformations in academic publishing and information science. Amidst Russian-American technological rivalries, funding for science expanded rapidly. Elsevier and Pergamon internationalised journal publishing, whilst tools such as the Science Citation Index changed the way research was measured and valued. This paper traces the connections between the post-war expansion of academic research, new commercial publishing models, the management of research information and Cold War geopolitics. Today, the analysis and use of research metadata continues to revolutionise science communication. The monetisation of citation data has led to the creation of rival publishing platforms and citation infrastructures. The value of this data is amplified by digitisation, computing power and financial investment. Corporate ownership and commercial competition reinforce geographical and resource inequalities in a global research economy, marginalising non-Anglophone knowledge ecosystems as well as long-established scholar-led serials and institutional journals. The immediate future for academic publishing will be shaped by a growing divide between commercial and ‘community-owned’ open science infrastructures.”
What we’re reading (6/23)
“Can The Dollar Stay On Top?” (The Week). “‘The big threat to dollar dominance is American dysfunction,’ Steven B. Kamin and Mark Sobel said at Financial Times. The dollar gets its strength from the size of the American economy, which produces 25% of global GDP. That could all go away, though, if "U.S. political dysfunction continues to run amok’ and politicians continue to add to the national debt at unsustainable rates. ‘If the U.S. doesn’t keep its house in better order, dollar dominance will be the least of our worries.’”
“Apple, Meta Have Discussed An AI Partnership” (Wall Street Journal). “In its hustle to catch up on AI, has been talking with a longtime rival: Meta. Facebook’s parent has held discussions with Apple about integrating Meta Platforms’ generative AI model into Apple Intelligence, the recently announced AI system for iPhones and other devices, according to people familiar with the matter. Meta and other companies developing generative AI are hoping to take advantage of Apple’s massive distribution through its iPhones—similar to what Apple offers with its App Store on the iPhone.”
“Evidence Of A Log Scaling Law For Political Persuasion With Large Language Models” (Hackenburg, et al.). “Large language models can now generate political messages as persuasive as those written by humans, raising concerns about how far this persuasiveness may continue to increase with model size…Our findings are twofold. First, we find evidence of a log scaling law: model persuasiveness is characterized by sharply diminishing returns, such that current frontier models are barely more persuasive than models smaller in size by an order of magnitude or more. Second, mere task completion (coherence, staying on topic) appears to account for larger models' persuasive advantage. These findings suggest that further scaling model size will not much increase the persuasiveness of static LLM-generated messages.”
“AI Is Exhausting The Power Grid. Tech Firms Are Seeking A Miracle Solution.” (Washington Post). “The mighty Columbia River has helped power the American West with hydroelectricity since the days of FDR’s New Deal. But the artificial intelligence revolution will demand more. Much more. So near the river’s banks in central Washington, Microsoft is betting on an effort to generate power from atomic fusion — the collision of atoms that powers the sun — a breakthrough that has eluded scientists for the past century. Physicists predict it will elude Microsoft, too.”
“After Almost 30 Years, Amazon’s Original Book Business Is Booming, Leaked Document Shows” (Business Insider). “Amazon got its start in 1994 by selling books. Decades later, this original business is thriving and massively outperforming its digital cousin, e-books. This is according to a detailed internal document obtained by Business Insider that discloses a host of new information and insights about Amazon’s book business and the broader publishing landscape.”
What we’re reading (6/23)
“America’s Top Export May Be Anxiety” (The Atlantic). “Smartphones are a global phenomenon. But apparently the rise in youth anxiety is not. In some of the largest and most trusted surveys, it appears to be largely occurring in the United States, Great Britain, Canada, Australia, and New Zealand. ‘If you’re looking for something that’s special about the countries where youth unhappiness is rising, they’re mostly Western developed countries,’ says John Helliwell, an economics professor at the University of British Columbia and a co-author of the World Happiness Report. ‘And for the most part, they are countries that speak English.’”
“These Hot New Funds Are ‘Boomer Candy’ For Retirees” (Wall Street Journal). “Baby boomers who aren’t ready to walk away from the stock market are flocking to a hot new class of funds. They are pouring billions of dollars into exchange-traded funds that use derivatives to produce extra dividend income or protect against losses. Such funds, which were almost nonexistent four years ago, give retirees and other investors the chance to chase stock returns while also protecting against a potential market slide. The funds have almost $120 billion in assets and have taken in at least $31 billion of new investor money over the past 12 months, according to FactSet.”
“The Stock Market Is In Its Longest Stretch Without A 2% Sell-Off Since The Financial Crisis” (CNBC). “Wall Street’s climb to record highs has come with conspicuously little volatility. The S&P 500 has gone 377 days without a 2.05% sell-off. That’s the longest stretch for the benchmark since the great financial crisis, according to FactSet data compiled by CNBC. The index hasn’t experienced a gain of at least 2.15% in that time either.”
“Going After The Middleman” (New York Times). “Business leaders have been combing through comments and transcripts to try to understand the pending priorities of regulators like Lina Khan, the chair of the Federal Trade Commission, and Assistant Attorney General Jonathan Kanter, the head of the Justice Department’s antitrust division. They’ve zeroed in on what may sound like a nerdy legal theory, but one that could have huge implications: the tyranny of the intermediary, middleman companies that abuse their role by squeezing out competition or creating artificially expensive moats. The Justice Department has already made one high-profile strike along these lines, suing to break up Ticketmaster and Live Nation.”
“Americans’ Spending Patterns Are Flashing A Warning Of A Possible Consumer-Led Recession” (Business Insider). “Consumers are finally starting to rein in their spending habits, which could weigh on the economy after a long period of robust spending has propped up economic growth over the past few years. Retail spending ticked 0.1% higher in May, but sales volume has dropped 1.3% year-over-year over the last three months, US Census data shows.”
What we’re reading (6/21)
“Under Armour To Pay $434 Million To Settle 2017 Shareholder Lawsuit” (CNBC). “Under Armour on Friday said it has agreed to pay $434 million to settle a 2017 class action lawsuit accusing the sports apparel maker of defrauding shareholders about its revenue growth in order to meet Wall Street forecasts. The proposed settlement, subject to court approval, averts a scheduled July 15 trial in Baltimore federal court.”
“Paul Singer Can Wait.” (Dealbreaker). “Paul Singer has been called a vulture. Told to go fuck himself, and undoubtedly, over a long career triggering migraines in adversaries, much worse. So we doubt that being compared to Yahwa Sinwar, Tim McVeigh and their like is going to do much to move him…In fairness, not everyone would agree that the such a terme de guerre is hyperbolic. And Singer has never been one to bow down before the bigger boys, be they Rupert Murdoch, Warren Buffett or an actual sovereign nation. So the fact that Veritas’ owner, the Carlyle Group, is a great deal bigger than Elliott Management’s own private equity business isn’t likely to concern Singer much.”
“Will Debt Sink The American Empire?” (Wall Street Journal). “History, however, offers some cautionary notes about the consequences of swimming in debt. Over the centuries and across the globe, nations and empires that blithely piled up debt have, sooner or later, met unhappy ends. Historian Niall Ferguson recently invoked what he calls his own personal law of history: ‘Any great power that spends more on debt service (interest payments on the national debt) than on defense will not stay great for very long. True of Habsburg Spain, true of ancien régime France, true of the Ottoman Empire, true of the British Empire, this law is about to be put to the test by the U.S. beginning this very year.’”
“The Economist Who Figured Out What Makes Workers Tick” (Wall Street Journal). “David Autor cut a peripatetic path through most of his 20s as a one-time college dropout and self-taught mechanic, before he stumbled into economics. ‘I fell into it assbackwards,’ he said. Today, his work is helping shape how the White House is approaching the biggest labor issues from responding to the threat of a ‘China Shock 2.0’ to thinking about the economic impacts of artificial intelligence. Autor has shown how the rise of the computer was hurting middle-class jobs. He sounded the alarm that workers in the South were getting pulverized by Chinese imports, years before Donald Trump was elected president, playing off this fear. Now, Autor’s research has taken an unexpectedly optimistic turn: He has shown how, after the pandemic struck, low-wage workers have started catching up. He holds a hopeful view of AI, arguing that it could help low-skilled workers. ‘To me, the labor market is the central institution of any society,’ said Autor, 60 years old. ‘The fastest way to improve people’s welfare is to improve the labor market.’”
“Political Expression of Academics on Social Media” (Prashant Garg and Thiemo Fetzer). “This paper describes patterns in academics' expression online found in a newly constructed global dataset covering over 100,000 scholars linking their social media content to academic record. We document large and systematic variation in politically salient academic expression concerning climate action, cultural, and economic concepts. We show that these appear to often diverge from general public opinion in both topic focus and style”