What we’re reading (1/2)
“Dow, S&P 500, Nasdaq Fall As Comeback Bid Falters And Tesla, Apple Slide” (Yahoo! Finance). “Stocks erased session gains on Thursday to kick off the first trading day of the new year as Wall Street returned from a holiday break.”
“Mortgage Rates Kick Off 2025 With An Increase, Nearing 7%” (Fox Business). “Freddie Mac's latest Primary Mortgage Market Survey, released Thursday, showed that the average rate on the benchmark 30-year fixed mortgage jumped to 6.91%, up from last week's reading of 6.85%. The average rate on a 30-year loan was 6.62% a year ago.”
“Hindenburg Shorts Carvana, Alleging ‘Grift for the Ages’” (Bloomberg). “Carvana Co. was accused by prominent short-seller Hindenburg Research of impropriety in a report alleging that the auto retailer’s subprime loan portfolio carries substantial risk and its growth is unsustainable.”
“Are Tax Cuts Contractionary At The Zero Lower Bound? Evidence From A Century Of Data” (James Cloyne, et al.). “Popular New Keynesian macroeconomic models predict that cuts in various types of distortionary taxes are contractionary when monetary policy is constrained at the zero lower bound (ZLB). We turn to a long span of history in the United Kingdom to test this hypothesis. Using a new long-run dataset of narrative-identified tax changes from 1918 to 2020, we show that tax cuts are expansionary in both low-interest-rate environments and more normal times. We do not find evidence of a deflationary spiral at the ZLB. Tax cuts may therefore still be a useful tool to stimulate economic activity when monetary policy is constrained.”
“The Illusion Of Information Adequacy” (Hunter Gelbach, et al.). “Participants in our preregistered study (N = 1261) responded to a hypothetical scenario in which control participants received full information and treatment participants received approximately half of that same information. We found that treatment participants assumed that they possessed comparably adequate information and presumed that they were just as competent to make thoughtful decisions based on that information. Participants’ decisions were heavily influenced by which cross-section of information they received. Finally, participants believed that most other people would make a similar decision to the one they made. We discuss the implications in the context of naïve realism and other biases that implicate how people navigate differences of perspective.”
What we’re reading (1/1)
“How The Stock Market Defied Expectations Again This Year, By The Numbers” (Associated Press). “U.S. stocks ripped higher and carried the S&P 500 to records as the economy kept growing and the Federal Reserve began cutting interest rates. The year featured many familiar winners, such as Big Tech, which got even bigger as their stock prices kept growing. But it wasn’t just Apple, Nvidia and the like. Bitcoin, gold and other investments also drove higher.”
“Concentration” (Bespoke). “Over the past decade, the largest stocks’ share of market cap has steadily been growing, and actually, this isn't the only record high to highlight with prior records being set at 29% at the end of 2021 and 30% last year. With that said, the 5.6 percentage point jump versus last year is one of the largest one-year increases in concentration at the top that we've seen.”
“Hopes for a ‘Santa Claus Rally’ Fade on Wall Street” (Wall Street Journal). “There are a number of reasons stocks tend to rally near the end of the year. Traders rebalance their portfolios. Some invest their end-of-year bonuses into the market. Lighter trading volumes around the holidays can amplify stock moves. Investors this season are struggling to embrace the holiday cheer. Speculative assets including bitcoin and economically sensitive stocks such as small-caps have pulled back from the highs they set after Donald Trump’s election victory. The big tech stocks that led the market higher in 2024 stumbled during the last few days of the year. Strategists said that could be due to a slew of uncertainties facing markets.”
“Here’s Where Wall Street Sees Stocks Heading After The Best 2-Year Stretch Since ‘97-’98” (Yahoo! Finance). “With strong earnings expected from a widespread array of companies in 2025 and US economic growth anticipated to remain resilient, the fundamental story for further market increases remains intact for 2025.”
“Oil Kicks Off New Year Higher On Signs Of Lower US Stockpiles” (Bloomberg). “Oil has been stuck in a narrow range since mid-October, with Brent posting a modest annual decline and WTI ending 2024 little changed. Investors are bracing for a glut this year, making it harder for OPEC+ to revive idled production[.]”
January picks available now
The new Prime and Select picks for January are available starting now, based on a model run put through Today (January 1). As a note, I will be measuring the performance on these picks from the first trading day of the month, Thursday, January 2, 2025 (at the mid-spread open price) through the last trading day of the month, Friday, January 31, 2025 (at the mid-spread closing price).
What we’re reading (12/30)
“US Treasury Says Chinese Hackers Stole Documents In ‘Major Incident’” (Reuters). “Chinese state-sponsored hackers breached the U.S. Treasury Department's computer security guardrails this month and stole documents in what Treasury called a ‘major incident,’ according to a letter to lawmakers that Treasury officials provided to Reuters on Monday. The hackers compromised third-party cybersecurity service provider BeyondTrust and were able to access unclassified documents, the letter said.”
“A Record-Shattering $1 Trillion Poured Into ETFs This Year” (Wall Street Journal). “Investors plowed more than $1 trillion into U.S.-based exchange-traded funds in 2024, shattering the previous record set three years ago and raising Wall Street hopes for an even bigger year ahead.”
“Last Madoff Victim Fund Payout Brings Recovery To Nearly 94% Of Ponzi Scheme Losses, DOJ Says” (CNBC). “When Madoff’s fraud first became publicly known, prosecutors estimated the total loss at $65 billion. But that estimate sharply dropped once authorities subtracted the amount of phantom investment gains and interest that Madoff’s customers were duped into believing existed.”
“Britannica Didn’t Just Survive. It’s An A.I. Company Now.” (DealBook). “For nearly 250 years, the Encyclopaedia Britannica was a bookshelf-busting series of gilt-lettered tomes, often purchased to show that its owners cared about knowledge. It was the sort of physical media expected to die in the internet era, and indeed, the encyclopedia’s publisher announced that it was ending the print edition in 2012. Skeptics wondered how Britannica the company could survive in the age of Wikipedia. The answer was to adapt to the times.”
“The Case For More H1B Visas” (Greg Mankiw’s Blog). “From the standpoint of economic efficiency, allowing a highly skilled immigrant to work at a U.S. firm is, for standard reasons, beneficial. The transaction is voluntary, so both the employee and employer are better off. And there are no obvious negative externalities (not counting, of course, pecuniary externalities). In addition, the U.S. government collects more revenue in the form of payroll and income taxes. From the standpoint of economic equality, allowing a highly skilled immigrant is again beneficial. The relative wage of skilled versus unskilled workers depends on, among other things, the relative supply of the two types of worker. When highly skilled workers immigrate into the United States, the demand for less skilled workers rises.”
What we’re reading (12/29)
“Jimmy Carter, Peacemaking President Amid Crises, Is Dead At 100” (New York Times). “Jimmy Carter, who rose from Georgia farmland to become the 39th president of the United States on a promise of national healing after the wounds of Watergate and Vietnam, then lost the White House in a cauldron of economic turmoil at home and crisis in Iran, died on Sunday at his home in Plains, Ga. He was 100.”
“What I Got Right About Markets in 2024—And Very Wrong” (Wall Street Journal). “I started out the year arguing that there’s no bubble in artificial-intelligence stocks. I’ve ended it concerned about froth after anything AI-related soared in price and the market as a whole reached dizzying heights.”
“San Francisco House Prices Plunge Amid Widespread Tech Layoffs” (New York Post). “Housing prices in San Francisco have plunged to pre-pandemic levels amid widespread layoffs in the tech sector, SFGATE reports. Despite still being one of the more expensive metropolitan areas in the US, prices for condominiums and co-ops in the city were down 14.7% from May 2022 and now average $986,000. Those prices have not been seen since 2015, according to Zillow data analyzed by Wolf Street.”
“A Global Boom In Cocaine Trafficking Defies Decades Of Anti-Drug Efforts” (Washington Post). “The drug lord had already escaped the law in three countries, and he planned to do it again. In less than a decade, Dritan Rexhepi had built a smuggling business that ran from the fields of Colombia to the ports of Ecuador and on to the streets of Europe, Italian and Latin American investigators said, rivaling the influence of Mexico’s powerful cartels. His brand, carved into cocaine packages, was ‘Bello’ — beautiful. The Albanian’s rise from gunman in his home country to transatlantic kingpin is part of a global explosion in the cocaine industry, a trade that is far bigger and more geographically diverse than at any point in history.”
“Many Digital Health Startups Are Quietly Raising Down Rounds And Closing Up Shop. Here’s Why.” (Business Insider). “Many more startups are quietly struggling — cutting their valuations, selling off assets, or closing their doors without any announcement, investors told Business Insider. While in 2021 there were a record 729 healthcare-startup deals, amounting to an eye-popping $29.1 billion, the first three quarters of 2024 brought in only about half of those deals, with much smaller checks: Startups had raised $8.2 billion through September in 379 deals, per Rock Health.”
What we’re reading (12/28)
“A Thrill-Seeking Trade Amps Up Heading Into 2025” (Wall Street Journal). “About 48 million options contracts have changed hands daily on average this year, on pace for a record in data going back to 1973, according to the Options Clearing Corp., or OCC. That is up 9% from last year and would mark the fifth straight year of fresh all-time highs. Options were traditionally used by professional investors to protect portfolios from risk. Now, they have become wildly popular among rookie traders seeking to amplify their bets, especially on extremely volatile stocks…’It’s really the phenomenon of the retail trader that continues to just drive this growth,’ said Catherine Clay, head of global derivatives at Cboe Global Markets.”
“How A.I. Could Reshape The Economic Geography Of America” (New York Times). “Chattanooga, Tenn., a midsize Southern city, is on no one’s list of artificial intelligence hot spots. But as the technology’s use moves beyond a few big city hubs and is more widely adopted across the economy, Chattanooga and other once-struggling cities in the Midwest, Mid-Atlantic and South are poised to be among the unlikely winners, a recent study found. The shared attributes of these metropolitan areas include an educated work force, affordable housing and workers who are mostly in occupations and industries less likely to be replaced or disrupted by A.I., according to the study by two labor economists, Scott Abrahams, an assistant professor at Louisiana State University, and Frank Levy, a professor emeritus at the Massachusetts Institute of Technology.”
“Mortgage Rates Rise Again, Finishing The Year At 6.85% — Just About The Way They Started” (Yahoo! Finance). “Mortgage rates rose again this week to end the year slightly higher than where they began. The average 30-year fixed-rate mortgage rate was 6.85% for the week through Wednesday, according to Freddie Mac data. That’s up from 6.72% a week earlier. Average 15-year mortgage rates rose to 6% from 5.92%.”
“Record-Breaking Ransoms And Breaches: A Timeline Of Ransomware In 2024” (TechCrunch). “It was another record-breaking year for ransomware. When file-locking malware wasn’t causing widespread disruption, like downing online services and lasting outages, ransomware was the cause of unprecedented data theft attacks affecting hundreds of millions of people, in some cases for life. While governments have struck some rare wins against ransomware hackers over the past 12 months, including the disruption of the prolific LockBit gang and the seizure and takedown of Radar, these data theft and extortion attacks continue to increase dramatically, both in terms of frequency and sophistication.”
“Climbing The Ivory Tower: How Socio-Economic Background Shapes Academia” (Ran Abramitzky, et al. working paper). “We explore how socio-economic background shapes academia, collecting the largest dataset of U.S. academics’ backgrounds and research output. Individuals from poorer backgrounds have been severely underrepresented for seven decades, especially in humanities and elite universities. Father’s occupation predicts professors’ discipline choice and, thus, the direction of research. While we find no differences in the average number of publications, academics from poorer backgrounds are both more likely to not publish and to have outstanding publication records. Academics from poorer backgrounds introduce more novel scientific concepts, but are less likely to receive recognition, as measured by citations, Nobel Prize nominations, and awards.”
What we’re reading (12/27)
“Wall St Finishes Down After Sell-Off At End Of Strong Holiday-Shortened Week” (Reuters). “Wall Street's holiday cheer ended abruptly on Friday, with all three main benchmarks closing lower in a broad-based sell-off affecting even tech and growth stocks that had driven markets higher through much of the shortened trading week.”
“Behind Closed Doors: The Spy-World Scientists Who Argued Covid Was A Lab Leak” (Wall Street Journal). “The dominant view within the intelligence community was clear when Avril Haines, the director of national intelligence, and a couple of her senior analysts, briefed Biden and his top aides on Aug. 24[, 2001]. The National Intelligence Council, a body of senior intelligence officers who reported to Haines and that organized the intelligence review, had concluded with ‘low confidence’ that Covid-19 had emerged when the virus leapt from an animal to a human. So did four intelligence agencies. At the time, the FBI was the only agency that concluded a lab leak was likely, a judgment it had rendered with ‘moderate confidence.’ But neither Bannan nor any other FBI officials were at the briefing to make their case first hand to the president.”
“We Need More Three Mile Islands” (Reason). “Our grids will need an additional capacity of at least 18 gigawatts (GWs) to service AI's data centers by 2030. New York City's grid is about 6 GW annually, so the grid needs about three Big Apples' worth of capacity to satiate AI's energy needs. Intermittent sources, such as wind and solar, cannot meet that need. They are also costly to build for the small amounts of MWh they provide, and the landmass needed to have a capacity comparable to nuclear is extensive. What would take around 15 square miles of solar, nuclear can do in one—and those 15 square miles of solar would produce power only sometimes, while the one square mile of nuclear provides power around the clock.”
“There's Fresh Interest In Informing Potential Jurors About Jury Nullification” (Dealbreaker). “Jury nullification, coupled with voting and that little bit in the Declaration of Independence about the right to abolish tyrannical governments, goes to the very heart of the powers vested in the people to fight tyranny. Given the power that judges and prosecutors wield, how might the people stand up to the application of laws or unruly authority they consider unjust? Well, when the time comes for juries to decide the fate of the defendant, they are told by the judge if they are convinced beyond a reasonable doubt that the defendant committed the crimes that they have been accused of, they must return a verdict of guilty. Thing is, that must there is all bark and no bite.”
“Luigi Mangione And The American Abyss” (City Journal). “It’s no surprise that age is inversely correlated with support for left-wing assassination, since the younger the voter, the more recent his exposure to the American education system. The pro-Mangione reaction epitomizes the dominant traits of contemporary academia: narcissism, a juvenile view of economics, the inability to think in terms of principle and precedent, and ignorance about the civilizational triumph that is Western due process…Mangione’s manifesto reflects his Ivy League education (he graduated from the University of Pennsylvania): it is poorly written (‘I do apologize for any strife of traumas’), riddled with cliché (‘clearly power games [are] at play’), and self-important (‘Evidently I am the first to face it with such brute honesty’).”
January picks available soon
I’ll be publishing the Prime and Select picks for the month of January before Thursday, January 2 (the first trading day of the month). As always, SPC’s performance measurement for the month of December, as well as SPC’s cumulative performance, will assume the sale of the December picks at the closing price (at the mid-point of the closing bid and ask prices) on the last trading day of the month (Tuesday, December 31). Performance tracking for the month of January will assume the January picks are bought at the open price (at the mid-point of the opening bid and ask prices) on the first trading day of the month (Thursday, January 2).
What we’re reading (12/21)
“The Next Great Leap In AI Is Behind Schedule And Crazy Expensive” (Wall Street Journal). “OpenAI’s new artificial-intelligence project is behind schedule and running up huge bills. It isn’t clear when—or if—it’ll work. There may not be enough data in the world to make it smart enough. The project, officially called GPT-5 and code-named Orion, has been in the works for more than 18 months and is intended to be a major advancement in the technology that powers ChatGPT. OpenAI’s closest partner and largest investor, Microsoft, had expected to see the new model around mid-2024, say people with knowledge of the matter.”
“AI Is Not Slowing Down, Except For Stop Lights” (Marginal Revolution). “o3 is solving 25% of Frontier Math challenges–these are not in the training set and are challenging for Fields medal winners.”
“What Do We Want From The Mall?” (New York Times). “Decades after mega retail centers became a shorthand for bland suburbia, there may be some hope for them yet.”
“A Risky Corner Of The ETF Market Has Boomed This Year As YOLO Traders Chase The Rally” (Business Insider). “Since their introduction in the early 1990s, ETFs have been groundbreaking in offering the characteristics of a mutual fund — owning a basket of diversified stocks — but offering the daily trading liquidity of a single stock. But even after 30 years, the humble ETF is seeing fresh updates that cater to investors with a strong appetite for risk. Instead of owning a basket of stocks, single-stock ETFs track the price of one stock, which the fund will try to juice returns on by levering up. ‘These are vehicles that mass retail has never had the ability to trade before, until now,’ Todd Sohn, an ETF specialist at Strategas told Business Insider.”
“Silk Bag Traced To Medieval England Reveals Hidden Link To Charlemagne” (Semafor). “A silk bag dating back to the reign of King Henry III of England appears to have a link to Charlemagne, the first Holy Roman Emperor. Now on display at Westminster Abbey, the silk’s pattern of white hares and delicate flowers is a match for the burial shroud encasing Charlemagne’s remains at Aachen Cathedral in Germany, Artnet reported, almost certainly meaning the two pieces were made by the same weaver.”
What we’re reading (12/19)
“The Next Big Fed Debate: Has The Era Of Very Low Rates Ended” (Wall Street Journal). “Following the 2008 financial crisis, economists and Fed policymakers steadily revised down their estimates of the neutral rate. Superlow interest rates and reservoirs of monetary stimulus didn’t deliver much of an economic boost. Some economists argued that low interest rates were here to stay, thanks to demographic headwinds from an aging workforce and a chronic shortfall of demand for new investment. Some of these same economists think neutral rates have gone up in the past few years, after a barrage of fiscal stimulus shocked the economy into a new equilibrium during the Covid-19 pandemic. The view last decade that borrowing costs would stay low became embedded in bond yields, mortgage rates, equity prices and countless other assets. The prospect of a higher neutral rate suggests mortgage rates, for example, might be stuck above where they were in the 2010s.”
“America Is One Big Casino Now” (Business Insider). “If it feels like everybody's betting nowadays, it's because a whole lot of people are. 2024 was the year companies from sportsbooks to prediction markets to trading apps asked, "Wanna bet?" And Americans responded with a resounding yes.”
“Workers Don’t Understand The Purpose Of Their Jobs Or Companies, And It’s Leading To ‘The Great Detachment’” (CNBC). “Many workers aren’t happy with their jobs, and their limited options to find a new one are contributing to an era Gallup is calling ‘The Great Detachment,’ according to a new report from the workplace advisory firm. The share of Americans watching for or actively seeking a new job has ticked up to 51% today, compared with 45% in 2020.”
“Existing-Home Sales Elevated 4.8% In November; Post Strongest Year-Over-Year Increase Since June 2021” (National Association of Realtors). “Existing-home sales grew in November, according to the National Association of Realtors. Sales advanced in three major U.S. regions and remained steady in the West. Year-over-year, sales climbed in all four regions.”
“The Wealth Of Stagnation: Falling Growth, Rising Valuations” (Jonathan Paron). “Over the last half-century, economic growth stagnated but stock-market wealth boomed. I present evidence that declining innovation productivity reconciles these trends. At the macro level, I document that R&D spending has fallen relative to value, while M&A spending has doubled relative to R&D. At the micro level, most of the increase in aggregate valuation ratios is explained by a reallocation of sales shares toward high-valuation firms. Using a Schumpeterian model of growth and asset prices, I find that declining innovation productivity explains these facts. When innovation productivity falls, R&D falls and M&A rises. This concentrates production into the hands of the most efficient (high-valuation) incumbents, causing aggregate value to boom. Quantitatively, this explains most of the decline in growth and the rise in valuations. It also helps explain other salient trends, including declining firm entry, rising concentration, and falling interest rates. While stock-market wealth boomed, the present value of consumption (consumer welfare) stagnated with output.”
What we’re reading (12/18)
“Dow Tanks By 1,100 points, Posts First 10-Day Losing Streak Since 1974” (CNBC). “The Dow lost 1,123.03 points, or 2.58%, to 42,326.87, for its worst losing streak since an 11-day slide in 1974. The Wednesday decline was its worst since August and only the second time it lost 1,000 points this year in one session. The S&P 500 lost 2.95% to 5,872.16 and the Nasdaq Composite shed 3.56% to 19,392.69 with losses intensifying into the close of trading.”
“Fed Signals Plan To Slow Rate Cuts, Sending Stocks Lower” (Wall Street Journal). “The Federal Reserve signaled greater doubt over how much it would continue to cut interest rates after agreeing to a reduction on Wednesday that Chair Jerome Powell conceded had been a close call. Stocks went into a nosedive, with the major indexes all logging their worst day in months. The declines accelerated throughout the afternoon as investors digested central-bank forecasts and comments from Powell that spurred concerns that rates might not go down again soon. That was a notable shift after the Fed initiated rate reductions with a larger than usual half-point cut in September in the midst of expectations that a steady sequence of cuts could follow.”
“Bank Of England Expected To Hold Interest Rates” (BBC Business). “The Bank of England is expected to hold interest rates at a meeting later today. Most analysts predict the benchmark rate will stay at its current level of 4.75% when the decision is announced at 12:00 GMT. It comes as inflation rose for the second month in a row to 2.6% in the year to November - pushing it further above the Bank's target of 2%. In November, the Bank's governor Andrew Bailey said the path for rates would likely be "downward from here" but cautioned that the process would be gradual.”
“The 8 Worst Technology Failures Of 2024” (MIT Technology Review). “Some of the foul-ups were funny, like the ‘woke’ AI which got Google in trouble after it drew Black Nazis. Some caused lawsuits, like a computer error by CrowdStrike that left thousands of Delta passengers stranded. We also reaped failures among startups that raced to expand from 2020 to 2022, a period of ultra-low interest rates. But then the economic winds shifted. Money wasn’t free anymore. The result? Bankruptcy and dissolution for companies whose ambitious technological projects, from vertical farms to carbon credits, hadn’t yet turned a profit and might never do so.”
“Our Zestimate Obsession” (Business Insider). “The median error rate for on-market homes is just 2.4%, per the company's website, while the median error rate for off-market homes is 7.49%. Not bad, you might think. But that's where things get sticky. By definition, half of homes sell within the median error rate, e.g., within 2.4% of the Zestimate in either direction for on-market homes. But the other half don't, and Zillow doesn't offer many details on how bad those misses are…When somebody lists their house for sale, the Zestimate will adjust to include all the new seller-provided info: new photos, details on recent renovations, and, most importantly, the list price…But Zillow also keeps a second Zestimate humming in the background, one that never sees the light of day. This version doesn't factor in the list price — it's carrying on as if the house never went up for sale at all. Instead, it's used to calculate the "off-market" error rate. When the house sells, the difference between the final price and this shadow algorithm reveals an error rate that’s much less satisfactory[.]”
What we’re reading (12/16)
“Here’s A Complete Rundown Of Wall Street’s 2025 Stock Market Predictions” (Business Insider). “after back-to-back years of more than 20% returns for the S&P 500, what's in store for 2025? According to Wall Street, more gains, albeit not at such a fast pace. The average 2025 year-end price target for the S&P 500 is 6,539, a potential gain of about about 8% from the benchmark index's current levels.”
“Will The Fed Keep Cutting In 2025?” (Wall Street Journal). “Fed officials have signaled recently that a rate cut this week could conclude the first of a two-step phase of lowering rates. In that first interval, officials had a relatively low bar for cutting rates because they had held borrowing costs at such a high level. They had also waited several extra months to gain confidence that inflation was closer to their goal—and heading lower. Officials began cutting rates in September with a big half-point cut. They cut again last month, by a quarter point. A cut this week would mark the third in a row. Over the past year, officials have slowly raised their estimates of where rates will settle out, and they could continue to do so in projections this week.”
“Nvidia Falls Into Correction Territory, Down More Than 10% From Its Record Close” (CNBC). “The chipmaker and de facto artificial intelligence trade has rallied 166% this year amid ongoing excitement for the buzzy technology trend. However, shares have faced a sluggish stretch as of late. The stock is down 4.5% in December and officially in correction territory, sitting about 11% off its closing high of $148.88 reached last month.”
“Bitcoin Hits A Record Above $107,000 As Fresh Bullishness Propels The Crypto Higher” (Business Insider). “Bitcoin crossed the $107,000 threshold for the first time on Monday, adding to the coin's string of all-time highs in recent weeks as investors grow increasingly bullish on the prospects for crypto in 2025.”
“Mega 1,000,000,000,000 Tonne Iceberg Drifting In The Ocean After Breaking Away” (Metro). “An iceberg twice the size of Greater London and weighing more than a trillion tonnes is making a bid for freedom. The ‘megaberg’, named A23a,has begun ‘spinning’ for the first time in almost 30 years after becoming stuck in a vortex off Antarctica. The huge iceberg, which is 3,800 square kilometres, broke free of Antarctica in 1986 but, because of its size, became lodged on the floor of the Weddell Sea in the Southern Ocean. A23a first began slowly moving south in 2020 but became trapped in what’s called a Taylor Column in spring of this year.”
What we’re reading (12/15)
“Bank Groups Sue The Consumer Financial Protection Bureau Over A Proposed Cap On Overdraft Fees” (Associated Press). “Under the finalized rule from the Consumer Financial Protection Bureau that was announced on Thursday, banks will be able to choose from three options: they may charge a flat overdraft fee of $5, they may charge a fee that covers their costs and losses, or they may charge any fee so long as they disclose the terms of the overdraft loan the way they would for any other loan, typically expressed as an annual percentage rate, or APR.”
“Automakers Thrived In The Pandemic. Many Are Now Struggling.” (New York Times). “A few years ago, automakers were celebrating record profits as the pandemic created shortages of new cars, allowing them to raise prices. Now the hangover is setting in. Nissan, the Japanese automaker, is laying off 9,000 employees. Volkswagen is considering closing factories in Germany for the first time. The chief executive of the U.S. and European automaker Stellantis, which owns Jeep, Peugeot, Fiat and other brands, quit after sales tumbled. Even luxury brands like BMW and Mercedes-Benz are struggling. Each carmaker has its own problems, but there are some common threads.”
“The AI Calculation Debate” (Cass Sunstein working paper). “Could AI predict the outcome of a coin flip? Could AI have predicted in (say) 2006 that Barack Hussein Obama would be elected president of the United States in 2008? Could AI have predicted in (say) 2014 that Donald Trump would be elected president of the United States in both 2016 and 2024? Could AI have predicted in (say) 2005 that Taylor Swift would become a worldwide sensation? The answer to all of these questions is "No." AI could not have predicted those things (and no human being could have predicted those things, either). There are some prediction problems on which AI will not do well; the reason lies not in randomness, but in an absence of adequate data. There are disparate challenges here, but all of them are closely connected to the knowledge problem, and in particular to the unfathomably large number of factors that account for some kinds of outcomes and the critical importance of social interactions. In important respects, the Socialist Calculation Debate and the AI Calculation Debate are the same thing.”
“Are LLMs Running Out Of Data?” (Marginal Revolution). “Ilya and many other experts say yes. I would not dare to disagree with them about AI per se, but I cannot say I am entirely convinced. Supply is elastic! That is a time-honored economic truth. So perhaps the future for traditional scaling is brighter than many of the experts currently are suggesting. We outsiders don’t know exactly which sources of data have been fed into the current top models, but surely there is plenty left? And for some price perhaps it can be mobilized. That is without even getting into data generated by mobile high-quality, life-sampling robots, which admittedly are still some number of years away.”
“The Drugs Young Bankers Use To Get Through The Day—And Night” (Wall Street Journal). “Images of Wall Street’s rank-and-file blowing cash on illegal drugs and nightlife are well known, with cocaine a favored drug through the 1980s, as portrayed in ‘The Wolf of Wall Street.’ These days, drugs are more a tool to optimize performance on the job. Especially for entry-level bankers at the analyst and associate level—who work long, tedious hours and fiercely compete for higher-level jobs with big pay days—prescriptions for stimulants such as Adderall and other ADHD drugs have become commonplace.”
October/November performance update
Hi friends,
Here with a performance update for the past two months. There was a lot of news, and of course an election. For the moment, I’ll skip the commentary and get right to the numbers, which you can also find on the “performance” section of this site.
October results
Prime: +1.30%
Select: -2.89%
SPY ETF: -0.83%
Bogleheads portfolio (80% VTI + 20% BND): -1.11%
November results
Prime: +2.16%
Select: +7.99%
SPY: +5.47%
Bogleheads portfolio: +5.06%
What we’re reading (12/5)
“Police Zero In On New York Hostel In Hunt For UnitedHealth Shooter” (Wall Street Journal). “Police are combing New York City for the suspect who used a Sharpie to write ‘deny,’ ‘defend’ and ‘depose’ on cartridges that are believed to have come out of his gun when it jammed, law-enforcement officials said. Some of the words are commonly associated with tactics insurers use to avoid paying claims.”
“Torrent Of Hate For Health Insurance Industry Follows C.E.O.’s Killing” (New York Times). “The fatal shooting on Wednesday of a top UnitedHealthcare executive, Brian Thompson, on a Manhattan sidewalk has unleashed a torrent of morbid glee from patients and others who say they have had negative experiences with health insurance companies at some of the hardest times of their lives.”
“Failure Costs” (Silicon Continent). “Last week the Financial Times published a piece by British entrepreneur Ian Hogarth with a provocative question: can the EU build a trillion dollar company? Hogarth responds that the EU first needs to solve a lack of experienced founders, a lack of ‘audacious capital’, and excessive US buyouts. These answers, according to a recent paper by Olivier Coste and Yann Coatanlem, two French entrepreneurs, miss the point: the reason more capital doesn’t flow towards high-leverage ideas in Europe is because the price of failure is too high. Coste estimates that, for a large enterprise, doing a significant restructuring in the US costs a company roughly two to four months of pay per worker. In France, that cost averages around 24 months of pay. In Germany, 30 months. In total, Coste and Coatanlem estimate restructuring costs are approximately ten times greater in Western Europe than in the United States.”
“The Greatest Scourge In Factorland: Revaluation Alpha = Fake Alpha (JPM Series)” (Research Affiliates). “When introducing a new factor or strategy, few take the time to test whether its historical success stemmed from upward or downward revaluation alpha…Past returns contain both structural alpha and a likely one-time revaluation alpha; however, the sum of the two is not a reliable method for anticipating future structural alpha.”
“Is ‘Rothification’ Coming For Your Retirement Account?” (Morningstar). “The tax incentives for retirement savings will cost the government more than $1 trillion in forgone revenue over the next 10 years. There are also trillions in expensive new tax priorities that members of both parties want to see passed into law. In combination, it’s easy to see why members of Congress will start to explore restricting or even ending some tax benefits for retirement savings. Enter the likely solution of choice: ‘Rothification.’”
What we’re reading (12/3)
“Construction Industry Braces For One-Two Punch: Tariffs And Deportations” (Wall Street Journal). “In Texas, California, New Jersey and the District of Columbia, immigrants make up more than half of construction trade workers, according to Riordan Frost, a senior research analyst at the Harvard Joint Center for Housing Studies. Undocumented workers make up an estimated 13% of the construction industry—more than twice that of the overall workforce, according to a recent estimate from Pew Research Center.”
“Intel Shares Slide As Gelsinger Exit Leaves Chipmaker Without A ‘Quick Fix’” (CNBC). “Intel shares fell 6% on Tuesday, a day after the embattled chipmaker announced the ouster of CEO Pat Gelsinger, whose four-year tenure was marred by market share losses and a major miss in artificial intelligence.”
“South Korea To Lift Martial Law Hours After Shock Announcement” (News.com.au). “Chaos has broken out in South Korea after the nation’s president issued a shock declaration of martial law, sparking widespread protests, before withdrawing it while the country slept. President Yoon Suk Yeol had announced martial law was “critical for defending the country’s constitutional order” in a late-night emergency TV address. He accused the country’s opposition of controlling the parliament, sympathising with North Korea and paralysing the government with anti-state activities.”
“Wells Fargo To Sell San Francisco Headquarters” (Wall Street Journal). “Wells Fargo is set to sell its San Francisco headquarters, part of a broader shift in the bank’s power base to the East Coast. The office at 420 Montgomery St. in San Francisco’s Financial District could be put on the market as soon as this month, people familiar with the matter said.”
“Former Celsius CEO Alex Mashinsky Pleads Guilty, Agrees To 30 years In Prison” (CryptoSlate). “Alex Mashinsky, the former CEO of crypto lender Celsius, has pleaded guilty to two charges related to fraud and market manipulation, agreeing to a sentencing guideline of 30 years in prison. Mashinsky was indicted in July 2023 on seven counts, including fraud, conspiracy, and manipulation of the market for Celsius’ token, CEL. Under the terms of the agreement, Mashinsky has waived his right to appeal any sentence below 360 months in prison.”
December picks available now
The new Prime and Select picks for December are available starting now, based on a model run put through Today (November 30). As a note, I will be measuring the performance on these picks from the first trading day of the month, Monday, December 2, 2024 (at the mid-spread open price) through the last trading day of the month, Tuesday, December 31, 2024 (at the mid-spread closing price).
What we’re reading (11/29)
“10-Year Treasury Yield slides To Lowest Point Since October On Holiday-Shortened Trading Day” (CNBC). “The 10-year Treasury yield retreated to a new low going back to late October on Friday amid a shortened trading day for U.S. markets following the Thanksgiving holiday.”
“Googling Is For Old People. That’s A Problem For Google.” (Wall Street Journal). “If Google were a ship, it would be the Titanic in the hours before it struck an iceberg—riding high, supposedly unsinkable, and about to encounter a force of nature that could make its name synonymous with catastrophe. The trends moving against Google are so numerous and interrelated that the Justice Department’s attempt to dismantle the company—the specifics of which were unveiled Nov. 20—could be the least of its problems.”
“Remote Workers Are Swapping Commute Hours For Side Hustles” (Business Insider). “Remote workers are more likely to have side gigs than their office-based peers — 34% versus 29% — according to a new LinkedIn Workforce Confidence survey of 8,606 US professionals. The trend toward additional income streams appears strongest among those with flexible work arrangements. While only a quarter of full-time employees reported having a side gig, the number jumps to 52% for freelancers and 46% for both contractors and self-employed workers.”
“Member Of Prominent Rothschild Family Found Dead After Laurel Canyon House Fire, Neighbors Say” (Los Angeles Times). “The body discovered at the Lookout Mountain Avenue property was that of William Rothschild, three people told The Times on Thursday. A magazine seen at the property was addressed to ‘WM DE ROTHSCHILD.’ The Rothschilds, a sprawling Jewish family originally from Frankfurt, Germany, long dominated European banking, with its English and French branches playing major roles in finance and politics, most notably during the 18th and 19th centuries. At one point, the Rothschilds were widely considered to have amassed the largest private fortune on Earth.”
“‘We’ve Become An Amusement Park’: The Alaskan Town Torn Apart By Cruise Ship Tourism” (The Guardian). “Residents cherish their access to Alaska’s vast wilderness – its forests, mountains, waters and glaciers. They value the security and sense of community that defines small-town life in America. But Juneau’s identity has fundamentally changed with the rise of an industry that monetises experiences local people take for granted. Hiking, whale watching, fishing and kayaking – everyday activities for Juneauites – are packaged and sold at premium prices aboard the cruise ships.”
December picks available soon
I’ll be publishing the Prime and Select picks for the month of December before Monday, December 2 (the first trading day of the month). As always, SPC’s performance measurement for the month of November, as well as SPC’s cumulative performance, will assume the sale of the November 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, November 29). Performance tracking for the month of December will assume the December 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, December 2).
What we’re reading (11/27)
“FTC Opens Wide-Ranging Antitrust Probe Into Microsoft” (CNN Business). “Microsoft is set to go under the microscope of the nation’s top antitrust watchdog, the Federal Trade Commission, which is launching a sweeping investigation into the tech giant’s practices. The FTC, in a letter sent to Microsoft, demanded that it hand over information to assist in the agency’s investigation, a source familiar with the matter told CNN.”
“A Quarter Of Your Retirement Fund Just Isn’t Keeping Up” (Wall Street Journal). “U.S. stocks have been euphoric lately—and they’ve left international stocks in the dust. The longtime performance gap between the two is widening. Since the end of 2009, an MSCI index tracking equities outside the U.S. has only topped the S&P 500 in two years, according to Dow Jones Market Data. During the S&P 500’s banner 26% rise this year, the index has risen roughly 3%. If that holds through the rest of the year, it would be the biggest performance gap in nearly three decades.”
“Patagonia Gets Serious” (Business Insider). “Since its founding in 1973, Patagonia has positioned itself as a workplace nirvana — a community more so than a company, one that prioritizes the well-being of the Earth and of its employees above all else. But in the past few years, as sales have slowed, the outdoor-apparel brand has buckled down, cutting redundant jobs, tracking performance metrics, and banning long-standing practices such as letting sales representatives sell Patagonia samples to friends and family on the side.”
“AllHere Founder Arrest Shows It’s Easy For Startups To Scam VCs” (Axios). “Joanna Smith-Griffin, founder of an ed-tech app for reducing student absenteeism, was arrested earlier this month and charged with securities fraud, wire fraud, and aggravated identity theft. Smith-Griffin, a onetime member of the Forbes ‘30 Under 30,’ faces decades in prison. Her startup was called AllHere, and raised around $4 million in seed funding led by ReThink Education. In 2021 it raised an $8 million Series A round led by Spero Ventures. Both Rethink Education and Spero received board seats. According to the Justice Department complaint, however, Smith-Griffin lied to investors about nearly everything — including revenue, customer contracts, and cash-on-hand. And she profited, selling around $750,000 of shares into the Series A.”
“The ‘It Doesn’t Matter’ Perspective” (Scott Sumner). “[T]he ‘nothing matters’ perspective goes well beyond cases of markets reacting to compensate for some sort of policy shift. I also suspect that for aggregate outcomes, all sorts of individual policies matter less than one might think. For instance, one viewpoint on which many Democrats and Republican seem to agree is that elections are very important for the future direction of the economy. But are they? The entire stock market response to the recent election could be explained by a single issue—lower corporate tax rates under a new GOP administration. Who is president might matter for the broader economy, but how could we ever know for sure?”