What we’re reading (1/19)
“TikTok Says It Will Restore US Service After Brief Shutdown” (Semafor). “TikTok said it would restore its US service Sunday, having shut down for 14 hours after a national ban went into effect. The apparent reversal came after Donald Trump said in a social media post that he will issue an executive order to delay the ban Monday after his inauguration — which TikTok’s CEO is attending.”
“Hedge-Fund Fees Eat Up Half Of Clients’ Profits” (Wall Street Journal). “Hedge-fund investors often gripe about high fees. A new report puts the problem in sharp relief. Just over half of the industry’s total gross performance was eaten away by fees over the past two decades, according to LCH Investments. That compares to about 30% between 1969 and the early 2000s, said the company, which manages and advises on investments in hedge funds on behalf of investment firm Edmond de Rothschild and other investors.”
“Contrarian Bet Emerges That Next Fed Move Is Higher, Not Lower” (Bloomberg). “It’s at best, a longshot, but one that’s emerged among a group of die-hard bond traders — that the Federal Reserve’s next move on interest rates will be up, not down. The wager, which arose after a blowout jobs report on Jan. 10, stands in stark contrast to the consensus on Wall Street for at least one rate cut this year. That contrarian bet has remained in place even after a benign inflation report on Wednesday strengthened the Fed’s rate-cutting stance and caused yields in the US Treasury market to retreat from multi-year highs.”
“Amazon Has A New Way Of Checking Whether Employees Are Really Coming Into The Office Five Days A Week” (Business Insider). “Amazon's strict new RTO policy comes with changes to how the company tracks office attendance, according to internal messages viewed by Business Insider. The new approach provides managers with less granular data on office attendance and appears to give managers more freedom to decide which employees are not complying and how to deal with these situations, the messages show.”
“US Accuses Walgreens Of Filling Unlawful Opioid Prescriptions” (CNN Business). “The U.S. Justice Department on Friday accused pharmacy chain operator Walgreens Boots Alliance of contributing to the U.S. opioid epidemic by filling millions of unlawful prescriptions for addictive painkillers and other drugs. The department intervened in a whistleblower lawsuit filed in federal court in Chicago and accused Walgreens of ignoring ‘red flags’ and filling prescriptions for opioids and other controlled substances that lacked a legitimate medical purpose.”
What we’re reading (1/18)
“How Corn Syrup Took Over America” (The Hustle). “ Silos and grain elevators loom over flat prairies at the Archer Daniels Midland processing facility in Cedar Rapids, Iowa. Every day hundreds of trucks haul corn from heartland farms to the facility, where the crop is broken down into starches and liquids before trains with gargantuan tanks ship it out to the rest of the world. The plant opened more than 50 years ago, assembled with modular panels to enable flexibility, cost-savings, and growth. At the time, Archer Daniels Midland (ADM) expected expansion, as one of the plant’s main functions was making high fructose corn syrup, a revolutionary product. But today, the saccharine days of corn sweeteners, like those produced by ADM, may be under siege.”
“The Man Making Billions From The Wildest Bitcoin Bet” (Wall Street Journal). “Michael Saylor’s company doesn’t market any hot products or services. What he and MicroStrategy do is sell new shares and debt, at a pace rarely seen in corporate history. Saylor plows all that money into bitcoin, vowing to keep doing it, over and over. MicroStrategy shares are up about 690% in the past year and the 59-year-old executive chairman’s approximately 10% stake is worth about $9.7 billion, while he personally owns an additional $1.9 billion or so of bitcoin.”
“Florida Housing Market Facing 'Widespread Price Declines’” (Newsweek). “Home prices will be falling all across Florida this year, according to real estate analyst Nick Gerli, giving hopes to aspiring homebuyers who had been squeezed out of the market in recent years. ‘Locals are priced out of Florida's housing market, vacation homeowners have stopped buying, investors have stopped buying, and inbound migration has dropped significantly,’ Gerli, CEO of Reventure App, wrote on X earlier this month. ‘And sure enough: the market is now turning down.’”
“Trump Says He Will ‘Most Likely’ Give TikTok A 90-Day Extension To Avoid A Ban” (NBC News). “Trump said he hadn’t made a final decision but was considering a 90-day extension of the Sunday deadline for TikTok’s China-based parent company to sell to a non-Chinese-buyer or face a U.S. ban. ‘I think that would be, certainly, an option that we look at. The 90-day extension is something that will be most likely done, because it’s appropriate. You know, it’s appropriate. We have to look at it carefully. It’s a very big situation,’ Trump said in the phone interview.”
“Why Elite MBA Graduates Are Struggling To Find Jobs” (The Economist). “In business there is no surer sign of distress than when a firm delays its financial results. That also appears to be true of business schools. Around Christmas—and in many cases behind their usual schedules—America’s leading business schools published their equivalent of annual reports, which include data on the new jobs of graduates from their Master of Business Administration (MBA) programmes, typically two-year courses for students with professional experience. We have crunched the numbers. At the top 15 business schools, the share of students in 2024 who sought and accepted a job offer within three months of graduating, a standard measure of career outcomes, fell by six percentage points, to 84%. Compared with the average over the past five years, that share declined by eight points.”
What we’re reading (1/17)
“IMF Raises Global Economic Growth Forecast On Stronger US Demand” (Bloomberg). “The International Monetary Fund upgraded its global growth forecast for this year, spurred by stronger-than-expected US demand and slowing inflation worldwide that will let central banks continue to cut interest rates.”
“How Will Home Insurance Change After LA’s Fires?” (The Week). “The California fires have devastated Los Angeles. They may also wreak havoc on the insurance industry: Experts say total losses will reach $250 billion or more."
“China’s Very Bad, No Good Trillion-Dollar Trade Surplus” (Paul Krugman’s Substack). “I often run into people who believe that a successful economy, one achieving rapid productivity growth and leading in cutting-edge technology, will both run big trade surpluses because it’s so competitive and attract lots of foreign capital because it’s such a good investment. But that’s arithmetically impossible. In fact, when an economy surges past its rivals in productivity and technology, it usually does attract a lot of foreign investment — but that means that it runs a trade deficit, not a surplus. A case in point: U.S. productivity surged past productivity in Europe after around 1995, because we were quicker to take advantage of information technology. As a result, foreign money began flooding in — and that led to a much bigger U.S. trade deficit[.]”
“The 2024 Sector Quilt” (A Wealth Of Common Sense). “I understand the desire to pick sectors. Sure, picking stocks is hard but sectors can help you catch trends by investing in a group of stocks. I’m sorry to say I have some problems with this sector-picking strategy. For one thing, it doesn’t move the needle all that much.”
“Is TikTok Really Worth Saving?” (Vanity Fair). “The Supreme Court won’t be rescuing TikTok, as billionaires and political leaders scramble to keep the app alive in the US ahead of a looming deadline. But amid all the eleventh-hour drama, the rationale for banning it in the first place—national security concerns stemming from its Chinese ownership—hasn’t gone away.”
What we’re reading (1/16)
“Wall Street Thinks U.S. Homes Are Overpriced” (Wall Street Journal). “House hunters don’t need to be told that property is too expensive right now. But Wall Street has an idea by just how much. The stock market is pricing portfolios of American homes at a hefty discount to what houses are changing hands for in the open market. Shares of single-family landlords Invitation Homes and American Homes 4 Rent are trading at 35% and 20% discounts to their net asset values, respectively, according to real-estate analytics firm Green Street. Invitation Homes’ stock has traded at a particularly large discount to NAV since interest rates began to rise in early 2022, but the gap has widened by 10 percentage points in the past year.”
“She Is In Love With ChatGPT” (New York Times). “ChatGPT, which now has over 300 million users, has been marketed as a general-purpose tool that can write code, summarize long documents and give advice. Ayrin found that it was easy to make it a randy conversationalist as well. She went into the ‘personalization’ settings and described what she wanted…And then she started messaging with it.”
“So Long, Net Neutrality, And Good Riddance” (Marginal Revolution). “One of the longest, most technical and, as it turns out, most inconsequential public-policy debates of the 21st century was about net neutrality. Now that a federal appeals court has effectively ended the debate by striking down the FCC’s net neutrality rules, it’s worth asking what we’ve learned. If you have forgotten the sequence of events, here’s a quick recap: In 2015, during President Barack Obama’s presidency and after years of debate, the Federal Communications Commission issued something called the Open Internet Order, guaranteeing net neutrality, which is broadly defined as the principle that internet service providers treat all communications equally, offering both users and content providers consistent service and pricing. Two years later, under President Donald Trump, the FCC rescinded the net neutrality requirement. It was then reinstated under President Joe Biden in 2024, until being struck down earlier this month. The actual reality has been somewhat different. Bandwidth has expanded, and Netflix transmissions do not interfere with Facebook, or vice versa. There is plenty of access to go around. That has been the case during periods with net neutrality and without. So one lesson of the net neutrality debate comes from economics: Supply is elastic, at least when regulation allows it to be.”
“The Surprise Winner Of The TikTok Ban” (Slate). “Press coverage of the potential winners of TikTok’s American demise has tended to focus on Meta and Google. That’s with fair reason: Instagram and YouTube would jockey for TikTok users (and creators) whose app was shut off. But the biggest beneficiaries might be the internet privacy and security firms that offer VPNs. After all, you could either find a new platform or, for a few dollars per month, maintain access to the one you already love. VPNs are likely to see an enormous influx of new sign-ups.”
“UnitedHealth Charged Cancer Patients 5000%, Bombshell FTC Report Claims” (Newsweek). “The FTC report found that from 2017 to 2022, three PBMs—UnitedHealth Group's Optum, CVS Health's CVS Caremark and Cigna's Express Scripts—marked up prices at their pharmacies by hundreds or thousands of percent…A spokesperson for Cigna's Express Scripts told Reuters that the report's findings were misleading and that the calculations are based on a subset of medications that represent less than 2 percent of what the company spends on medications in a year.”
What we’re reading (1/15)
“Core CPI Rises Less Than Forecast As Inflation Pressures Ease Slightly In December” (Yahoo! Finance). “New data from the Bureau of Labor Statistics out Wednesday showed that a key inflation metric eased for the first time since July. On a ‘core’ basis, which strips out the more volatile costs of food and gas, the December Consumer Price Index (CPI) climbed 0.2% over the prior month, a deceleration from November's 0.3% monthly gain. On an annual basis, prices rose 3.2%.”
“Wall Street’s Pre-Eminent Short Seller Is Calling It Quits” (Wall Street Journal). “‘I’ve spent most of the last eight years either in a fight or preparing for the next one,’ he [Nate Anderson] said in an interview with The Wall Street Journal. Anderson said he felt that he and Hindenburg had accomplished what they had set out to do, showing it was possible to build a business from hunting fraud and other issues in public and private markets. He hopes to soon share resources and training materials so others can use Hindenburg’s tactics in their own investigations.”
“The King of the 21st Century Wears A Golden Crown” (Standard & Poor’s). “Once again, gold has taken the crown as the best-performing asset in the 21st century. From the turn of the century to year-end 2024, the S&P 500® recorded an annualized return of 7.7%, while the S&P GSCI Gold recorded 8.5% annually. While besting stocks for a quarter century, gold is still considered a safe-haven asset, especially during periods of economic uncertainty. However, 2024 highlighted how gold can also perform well during bull markets. The S&P GSCI Gold and S&P 500 posted supersized returns for the year, topping 26.6% and 25%, respectively.”
“What Happens When A Plastic City Burns” (The Atlantic). “In 2020, the Fire Safety Research Institute set two living rooms on fire, on purpose. Both were identical in size and full of furnishings in an identical arrangement. But in one room, almost everything was synthetic: a polyurethane-foam sofa covered in polyester fabric sat behind an engineered-wood coffee table, both set on a polyolefin carpet. The curtains were polyester, and a polyester throw blanket was draped on the couch. In the other room, a wood sofa with cotton cushions sat on a hardwood floor, along with a solid-wood coffee table. The curtains and throw blanket were cotton. In the natural-material room, the cotton couch appeared to light easily, and then maintained a steady flame where it was lit, releasing little smoke. After 26 minutes, the flames had spread to the other side of the couch, but the rest of the room was still intact, if smoky. Meanwhile, in the synthetic room, a thick dark smoke rose out of the flame on the polyester couch. At just under five minutes, a flash of orange flame consumed the whole room all at once.”
“Wooly Mammoth, Dodo Get Another Shot As Startup Raises $200 Million” (Bloomberg). “Colossal Biosciences, now valued at $10.2 billion, aims to produce a mammoth by 2028.”
What we’re reading (1/14)
“Balance Of Power Shifts Back Toward Bosses” (Wall Street Journal). “On the surface, the job market looks as strong as ever. Beneath the surface, workers are getting a very different message: Their bosses are back in command. Big companies are tightening remote-work policies, shrinking travel budgets and cutting back on benefits.”
“Meta to cut 5% of staff based on performance” (Axios). “Meta notified employees Tuesday that it plans to lay off the lowest-performing 5% of its staff, or roughly 3,600 people…The eliminated roles will be backfilled, a Meta source confirmed to Axios.”
“Sony PlayStation Is Adding Smell—Yes, You Read That Right—To Its Games” (Fast Company). “Unveiled at CES 2025, the Future Immersive Entertainment Concept (FIEC) features a huge, room-size setup designed to push the boundaries of immersive gaming. A trailer for the concept shows a giant cube built from high-definition LED screens that enables players to step directly into their favorite games (unfortunately, this isn’t something you’ll be setting up in your living room anytime soon).”
“A Guide For Investment Analysts: The Prehistory Of The US Markets” (CFA Institute). “Jeremy Siegel’s path-breaking compilation of stock returns to 1802 used exclusively stocks listed in New York for most of the antebellum period. This is true for the Goetzmann, Ibbotson and Peng dataset back to 1815. I believe using exclusively stocks listed in New York introduces considerable survivorship bias. There’s a reason that the NYSE ultimately rose to national dominance. Economic, political, and financial conditions were more favorable for wealth accumulation through investing in New York City than anywhere else. I found much lower stock returns in Philadelphia and Baltimore, with more failures and busts, which had the effect of substantially lowering the stock returns reported in my paper in the Financial Analysts Journal, relative to those reported in Jeremy Siegel’s book, Stocks for the Long Run.”
“The Anti-Social Century” (The Atlantic). “Over the past few months, I’ve spoken with psychologists, political scientists, sociologists, and technologists about America’s anti-social streak. Although the particulars of these conversations differed, a theme emerged: The individual preference for solitude, scaled up across society and exercised repeatedly over time, is rewiring America’s civic and psychic identity. And the consequences are far-reaching[.]”
What we’re reading (1/13)
“Investors Hope Earnings Season Can Revive Faltering Stock Rally” (Wall Street Journal). “The Dow Jones Industrial Average has given up all of its gains since the presidential election, down 0.7% from Nov. 5. The Russell 2000 index of smaller stocks, thought to be one of the biggest potential beneficiaries of a second Donald Trump presidency, has fallen 10% from its recent high in late November. A spate of hotter-than-expected economic data, including Friday’s blockbuster jobs report, has spurred growing doubts about whether the Federal Reserve will cut interest rates this year. Government-bond yields have soared in response, putting pressure on stocks.”
“After A Great Run For Stocks, Be” (New York Times). “[H]istory suggests a sobering lesson: Stocks and sectors go out of fashion. What worked over the last two years may not work in the next one. Periods of outsize returns are followed by market declines, sooner or later…Tech stocks have bolstered returns before. They were the key to outstanding market performance in the 1990s, the dot-com era. From 1995 through 1998, the S&P 500 gained more than 20 percent annually, and came close to 20 percent in 1999, largely on the strength of tech stocks. But the market rose too high, forming a bubble that burst in March 2000. Starting that year, for three consecutive years, stocks had catastrophic losses. If you invested in stocks for the first time in late 1999, your holdings would have been underwater until well into 2006. Returns for an entire decade were disappointing. By some metrics, stocks aren’t as extravagantly priced today as they were then, but they are high enough to be concerning.”
“SEC Charges Robinhood With Securities Violations, Brokerage To Pay $45 Million Penalty” (CNBC). “Two Robinhood broker-dealers agreed to pay $45 million in combined penalties to settle administrative charges by the Securities and Exchange Commission that they violated more than 10 separate securities law provisions related to their brokerage operations. The violations by Robinhood Securities LLC and Robinhood Financial LLC related to failures to report suspicious trading in a timely manner, failing to implement adequate identity theft protections, and failing to adequately address unauthorized access to Robinhood computer systems, the SEC said Monday.”
“Economists Are in the Wilderness. Can They Find A Way Back To Influence?” (New York Times). “Partway through a panel discussion at a recent economics conference in San Francisco, Jason Furman, a former adviser to President Barack Obama, turned to Kimberly Clausing, a former member of the Biden administration and the author of a book extolling the virtues of free trade. ‘Everyone in this room agrees with your book,’ Mr. Furman said. ‘No one outside of this room agrees with your book.’”
“How Many Children Use TikTok Against the Rules? Most, Study Finds” (University of California San Francisco). “TikTok, Instagram, YouTube and Snapchat require users to be at least 13 years old to have an account. But [a new UC San Francisco] found that a majority of 11- and 12-years-olds across the country have accounts on the platforms, and 6.3% have a social media account they hide from their parents.”
What we’re reading (1/11)
“Wall Street ‘Fear Gauge’ At 3-Week High As Stocks Sink” (Reuters). “Wall Street's most watched gauge of investor anxiety rose to a three-week high on Friday as stock indexes sold off following a an upbeat jobs report that pushed back market expectations for further Federal Reserve interest rate cuts.”
“Warren Buffett Prepares His Middle Child for the Job of a Lifetime” (Wall Street Journal). “As a child, Howie Buffett listened to Warren Buffett’s side of telephone conversations, asking questions about things he didn’t understand. As an adult, he turned to his father for advice. And as a director on Berkshire’s board for more than 30 years, he’s had a front-row seat as his father built Berkshire into one of the largest companies in the U.S.”
“The Tax That’s Stopping Older Homeowners From Selling Their Valuable Properties” (Business Insider). “The share of home sales subject to the [capital gains] tax has more than doubled in the past few years. In 2023, 8% of US sellers made more than $500,000 in profit on the sale of their homes, the property data firm CoreLogic found. That's up from 1.3% in 2003 and 3% in 2019. If the threshold had been adjusted for inflation, the $250,000 cutoff for individual home sellers in 1997 dollars would be about twice as high — $496,000 — in 2024 dollars.”
“Why America Is Stuck With An Elevator Crisis” (Axios). “Elevator parts shortages appear to stem largely from two issues: Parts suppliers often prioritize their biggest customers, which in this case happens to be builders in China, where the vast majority of the world's new elevators are installed, according to Smith. And parts are often no longer available for aging — and often obsolete — elevators, meaning they often have to be custom made.”
“Higher Egg Prices May Extend Far Into 2025, And Egg Producers Like Cal-Maine Could Benefit” (Yahoo! Finance). “Eggs are starting the year on a rotten note as prices surge after the return of the bird flu. According to the latest USDA report from mid-December, US egg production is down 4% year over year, with 3% fewer egg-laying hens. Per Datasembly, eggs are at their highest price since January 2023.”
What we’re reading (1/10)
“US Labor Market Exits 2024 With Strong Job Gains, Drop In Unemployment Rate” (Reuters). “U.S. job growth unexpectedly accelerated in December while the unemployment rate fell to 4.1% as the labor market ended the year on a solid footing, reinforcing views that the Federal Reserve would keep interest rates unchanged this month.”
“The Stock Market Embraced Higher Yields. Now It Fears Them.” (Wall Street Journal). “The 10-year bond yield came within a whisker of its high from last April on Wednesday morning, and stocks, especially smaller stocks, didn’t like it one bit. It is part of a switcheroo by investors over the past month. They have shifted from thinking that higher Treasury yields are just an unwelcome side effect of the stronger growth promised by President-elect Donald Trump, to worrying that higher borrowing costs might end up being very important. If the concern is right, get ready for a bumpy ride in 2025.”
“Japan Is The Silicon Valley Of The Robot Revolution. The Stocks Are Cheap.” (Barron’s). “Japan is the Silicon Valley of industrial robotics. Companies like Fanuc, Yaskawa Electric, and Nachi-Fujikoshi churn out nearly half of the global supply of robots, according to the International Federation of Robotics. U.S. producers barely figure, as yet.”
“The Consensus On Havana Syndrome Is Cracking” (The Atlantic). “Two years ago, U.S. intelligence analysts concluded, in unusually emphatic language, that a mysterious and debilitating ailment known as “Havana syndrome” was not the handiwork of a foreign adversary wielding some kind of energy weapon. That long-awaited finding shattered an alternative theory embraced by American diplomats and intelligence officers, who said they had been victims of a deliberate, clandestine campaign by a U.S. adversary, probably Russia, that left them disabled, struggling with chronic pain, and drowning in medical bills. The intelligence report, written chiefly by the CIA, appeared to close the book on Havana syndrome. Turns out, it didn’t. New information has come to light causing some in the intelligence community to adjust their previous conclusions.”
“Zuckerberg Says Biden Administration Pushed Meta ‘Super Hard’ To Take Down Vaccine Content” (CNBC). “‘And they pushed us super hard, to take down the things that were honestly were true,’ Zuckerberg told Rogan. ‘They basically pushed us and said, you know, anything that says that vaccines might have side effects, you basically need to take down.’ Zuckerberg didn’t specify who from the White House made the requests, saying, ‘I wasn’t involved in those conversations directly.” But he said the company’s response was that it wasn’t going to take down content that ‘is kind of inarguably true.’”
What we’re reading (1/9)
“The Stock Market Embraced Higher Yields. Now It Fears Them.” (Wall Street Journal). “The 10-year bond yield came within a whisker of its high from last April on Wednesday morning, and stocks, especially smaller stocks, didn’t like it one bit. It is part of a switcheroo by investors over the past month. They have shifted from thinking that higher Treasury yields are just an unwelcome side effect of the stronger growth promised by President-elect Donald Trump, to worrying that higher borrowing costs might end up being very important. If the concern is right, get ready for a bumpy ride in 2025.”
“30-Year Mortgage Rate Climbs To 6.93%, The Highest Since July” (New York Times). “There was a moment in late September when mortgage rates, after a monthslong decline, appeared poised to drop low enough to bring would-be buyers and sellers off the sidelines. But that window has closed, at least for now. The average rate on the 30-year mortgage, the most popular home loan in the United States, rose to 6.93 percent this week, Freddie Mac reported on Thursday, the highest since early July.”
“The Great Crypto Crash” (The Atlantic). “Crypto will become more widespread. And the conventional financial markets will come to look more like the crypto markets—wilder, less transparent, and more unpredictable, with trillion-dollar consequences extending years into the future.”
“Can January Really Tell The Stock Market’s Future? Let Us Count The Ways.” (MarketWatch). “Consider those years in which the Dow declined during each of the three early-January indicators — the Santa Claus rally period, the first five trading days of January, and the entire month of January. In such years the stock market from February through December rose 73% of the time. That’s barely different from the 75% odds of a rising market when the Dow rose over each of these three early-January periods. This is one reason why the r-squared is so low for the composite indicator that is based on a combination of all three early-January indicators.”
“This Could Be The Beginning Of The End For Fire Insurance In California” (Politico). “The state’s insurance market has been teetering on the edge of insolvency for years thanks to catastrophic wildfires that have driven many insurers to stop writing new policies and drop existing ones. Wednesday’s wind-driven wildfires in a part of Los Angeles packed with multimillion-dollar homes could accelerate its collapse.”
What we’re reading (1/8)
“The US Stock Market Has Never Been More Concentrated. Does It Matter?” (Financial Times). “[Owen] Lamont uses the example of AT&T’s break-up as an example of how measures of concentration can be irrelevant to the stock market’s riskiness — being split up into seven smaller companies in 1984 made the market optically less concentrated, but no less risky.”
“On Bubble Watch” (Howard Marks). “[T]o discern a bubble, you can look at valuation parameters, but I’ve long believed a psychological diagnosis is more effective. Whenever I hear ‘there’s no price too high’ or one of its variants – a more disciplined investor might say, ‘of course there’s a price that’s too high, but we’re not there yet’ – I consider it a sure sign that a bubble is brewing.”
“Why Michael Green Is Known As The Cassandra Of Passive Investing” (Institutional Investor). “For the better part of the past decade, Michael Green has been on a mission. From talking to money managers to making the rounds of hedge fund idea dinners to attending conferences geared to everyone from financial analysts to family offices, even wrangling meetings at the International Monetary Fund and the Securities and Exchange Commission, Green has had one message: The craze to invest passively — earn the returns of an entire market rather than those of individual stocks — isn’t the low-cost, risk-free future of investing that everyone thinks it is. Instead, he argues, the growing dominance of passive investing distorts capital formation, creates market instability, and carries the potential for a crash. Green calls it a passive bubble.”
“Fed Minutes Suggest Officials Will Hold Rates Steady For Now” (Wall Street Journal). “Federal Reserve officials saw risks of higher-than-expected inflation, due in part to potential tariffs by President-elect Donald Trump, when they made a ‘finely balanced’ decision last month to lower interest rates, according to minutes of the meeting published Wednesday. The written account of the Dec. 17-18 policy meeting showed officials thought inflation was likely to continue moving down to the central bank’s 2% target, but ‘the process could take longer than previously anticipated’ due in part to possible changes to trade and immigration policy.”
“US Weekly Jobless Claims At 11-Month Low Amid Labor Market Stability” (Reuters). “The number of Americans filing new applications for unemployment benefits fell to an 11-month low last week, pointing to a stable labor market, though a slowdown in hiring has led some laid-off workers to experience long bouts of joblessness.”
What we’re reading (1/7)
“The Billionaire Mining Magnate Who Bet Coal Had A Future—And Won Big” (Wall Street Journal). “Coal, the world’s dirtiest fossil fuel, is booming, and few are profiting more than Low Tuck Kwong, the 76-year-old businessman behind one of Asia’s largest coal-mining complexes. Coal’s resurgence as a cheap and reliable energy source propelled him to a spot on Forbes’s 100 richest people. Low’s wealth is estimated to have swelled to $28 billion from $1 billion in the years since coal was assumed to be headed for the slag heap.”
“Have We Reached Peak Population?” (The Week). “According to the UN's latest projections, the global population is expected to peak at around 10.3 billion in the mid-2080s, earlier than previously predicted. It is then expected to plateau at about 10.2 million by 2100. Experts say lower birth rates and falling fertility levels – especially in "ultra-low" fertility countries like China, Italy and Spain – are to blame for the more imminent peak.”
“If Bitcoin Is The Future, What Explains MicroStrategy’s Need For Speed?” (Financial Times). “Something peculiar is afoot at MicroStrategy. The company has amassed over two per cent of all bitcoin in existence, funded through a combination of shares and convertible bonds. This strategy has turned a humdrum business software firm into something akin to a bitcoin ETF, albeit one trading at a frothy premium to its net asset value. The stock is up over 20 times since the pivot to bitcoin in August 2020. Yet recent months have revealed some curious contradictions in this narrative. While bitcoin has maintained its stratospheric altitude at around $100,000 per coin, MicroStrategy’s stock has drifted lower, shedding 40 per cent since peaking intraday on November 21 at $550, which implied at the time a market cap of $124bn. Even its inclusion in the Nasdaq 100 index failed to boost the share price. Its premium to net asset value has meanwhile decreased from a high of 3.8 times to 1.9 times. This decline in the share price is happening even as the company continues to acquire more bitcoin.”
“Myron Scholes (Stanford Professor and Nobel Prize Winner) on Academic Finance, Black-Scholes Options Pricing, and Regulation” (Jon Hartley). “So Fisher [Black] and I rewrote the paper and try to show that basically everything in our lives was options and option related. And if you really thought about uncertainty, that options were primary and think about the right to do something, but not the obligation and what the value of that right would be.”
“The Fact Checks Have Just Become Too Political” (Mark Zuckerberg, Meta). Statement from Mark Zuckerberg.
What we’re reading (1/6)
“Four Years After Capitol Riot, Congress Certifies Trump’s Victory Peacefully” (New York Times). “A joint session of Congress on Monday certified President-elect Donald J. Trump’s victory in the 2024 election, peacefully performing a basic ritual of democracy that was brutally disrupted four years ago by a violent pro-Trump mob inflamed by his lie about a stolen election.”
“Nippon Steel And US Steel File Lawsuits Over Blocked Takeover” (Semafor). “The companies also filed a separate lawsuit against rival steel company Cleveland-Cliffs, its CEO, and the President of the United Steelworkers union, citing ‘illegal and coordinated actions aimed at preventing the transaction’ and undermining Nippon and US Steel’s business practices.”
“‘Enter At Own Risk’: Why Raging Optimism For 2025 Is A Risk For Stocks And The Economy” (Business Insider). “Investors excited for another strong year for the economy and stock market could be getting in their own way — and growth may end up falling short of 2025 expectations, BCA Research said...BCA Research has the most bearish stock market call on Wall Street for 2025. In a previous note, the firm said it still saw a recession as the base case and predicted the S&P 500 would end the year at 4,452, a 26% downside from the index's current levels.”
“How Do People Survive Plane Crashes That Kill Nearly Everyone Else?” (Wall Street Journal). “Investigators assessing the survivability of a plane crash focus on five factors: integrity of the aircraft, effectiveness of safety restraints, G-forces experienced by passengers and crew, the environment inside the aircraft and postcrash factors such as fire or smoke. The two flight attendants who survived the Boeing 737-800 crash were seated in the very back of the plane, which was the only recognizable part of the aircraft left intact.”
“2025 Bond Market Outlook: Yields Range-Bound But Volatile” (Morningstar). “The US economy is expected to post steady growth, without overheating or sliding into recession. At the same time, inflation is expected to remain under control but not fall significantly. Against that backdrop, the Federal Reserve is seen as unlikely to make big changes in monetary policy. Add these factors up and it could mean a bond market that largely bounces back and forth in well-defined ranges, most likely within the highs and lows carved out in 2024.”
December performance review
Hi friends, here with the performance numbers for December:
Prime: -3.89%
Select: -2.92%
SPY ETF: -2.47%
Bogleheads Portfolio (80% VTI, 20% BND): -2.86%
What we’re reading (1/4)
“The Coming American Labour Market Shock” (Financial Times). “What would the country have done if 2022-24 immigration had averaged half a million instead of 2.2mn, and demand for workers stayed strong? It’s an interesting question…This time, with LFPR already high and the US continuing to age, wages would probably have had to rise very sharply, far more than actually happened. After all, the retiree sitting on the sidelines will only enter the job market is they are enticed into doing so. And even with higher wages, actual job creation would likely have been far less. Meanwhile, high wages would have passed into inflation, pushing it even higher than it peaked this cycle.”
“Advertisers Keep Avoiding News Sites, And Publishers Have Had Enough Of It” (Wall Street Journal). “The Washington Post’s crossword puzzle was recently deemed too offensive for advertisers. So was an article about thunderstorms. And a ranking of boxed brownie mixes. Marketers have long been wary about running ads in the news media, concerned that their brands will land next to pieces about terrorism or plane crashes or polarizing political stories. That advertising no-go zone seems to keep widening. It is a headache that news publishers can hardly afford. Many are also grappling with subscriber declines and losses in traffic from Google and other tech platforms, and are now making an aggressive push to change advertisers’ perceptions.”
“The New Science On Alcohol And Cancer: 4 Studies That Found A Link” (Business Insider). “[US Surgeon General Vivek] Murthy outlined the research that persuaded him — and other medical professionals — that alcohol is a serious and under-appreciated health concern…There are four ways alcohol causes cancer, Murthy said, citing a 2021 Nutrients study. The first two are widely accepted, he wrote. Most physicians agree that when alcohol breaks down in the body it can bind to DNA, damaging cells and fueling tumors. There is also robust evidence that alcohol can drive inflammation, which is linked to cancer…The science on alcohol is not cut-and-dry, though. some of the healthiest people in the world — in the Mediterranean and so-called Blue Zones — drink wine daily. Researchers believe the social aspect of alcohol may have strong benefits for longevity. Plus, Murthy's report clashes with a major report by the National Academies of Sciences, Engineering, and Medicine, which was published in December.”
“Nazi Ties To Credit Suisse Ran Deeper Than Was Known, Hidden Files Reveal” (Wall Street Journal). “Switzerland thought it came to terms with its Nazi-assisting past after harrowing probes in the 1990s led its two largest banks to pay more than $1 billion restitution to Holocaust victims. Documents unearthed in bank archives show it might have been at least in part a whitewash.”
“Inside Zildjian, A 400-year-Old Cymbal-Making Company In Massachusetts” (WBUR). “[I]n 1618 the Ottoman sultan summoned Avedis [I] to the Topkapi Palace to make cymbals for elite military bands. The metalsmith’s work pleased the ruler, who gave him permission to found his own business in 1623. The sultan also bestowed Avedis the family name ‘Zildjian’ which actually means cymbal maker…[b]y the 1700s European composers, including Mozart and Haydn, added Zildjian cymbals to their symphonies. ‘So, that's how the reputation grew,’ Debbie [Zildjian] said. Zildjian became synonymous with cymbals after her grandfather Avedis III, an ethnic Armenian, emigrated to the U.S. in 1909. Two decades later he re-located the family’s cymbal business from Turkey to Quincy, Massachusetts with his uncle.”
What we’re reading (1/3)
“2035: An Allocator Looks Back Over The Last 10 Years” (Cliff Asness). “…it turns out that investing in U.S. equities at a CAPE in the high 30s yet again turned out to be a disappointing exercise. Today the CAPE is down to around 20…It turned out that, just as we thought, the U.S. really did have the best companies (most profitable, most innovative, fastest growing) and this indeed continued in this last decade. But it also turned out that paying an epic multiple for the U.S. compared to the rest of the world mattered somewhat more than we thought, and international diversification, as we knew it would one day, did eventually work…we had hoped for much more protection from this volatility from our extensive (like half the portfolio at the peak) allocation to privates. Alas, sadly, and totally unforeseeably, it turned out that levered equities are still equities even if you only occasionally tell your investors their prices (and when you do, you do not really move prices that much). Disappointing, but PE acting like equities would have been tolerable if they had actually outperformed public markets, but they underperformed! It seems that eventually, and a 10-year disappointing market counts as ‘eventually,’ even privates have to be (mostly) marked-to-market.”
“The Fed Has Two Bad Options In 2025: Accept Higher Inflation Or Risk A Recession” (Mohamed El-Erian). “Absent a major policy reset, my baseline scenario for the U.S. includes a somewhat lower immediate growth rate, even as the economy outperforms its peers, and sticky inflation. This will present the Fed with a choice: accept above-target inflation or attempt to bring it down and risk tipping the economy into recession.”
“Biden Blocks Sale of U.S. Steel to Nippon Steel” (Wall Street Journal). “Biden’s decision comes after the Committee on Foreign Investment in the U.S., a federal interagency panel, spent months reviewing the $14.1 billion deal for potential national-security risks. In an order Friday, the White House required the companies to abandon the deal within 30 days unless Cfius agrees to extend the timeline.”
“When Did Growth Begin? New Estimates Of Productivity Growth In England From 1250 To 1870” (Bouscase, et al.). “We estimate productivity growth in England from 1250 to 1870. Real wages over this period were heavily influenced by plague-induced swings in the population. Our estimates account for these Malthusian dynamics. We find that productivity growth was zero prior to 1600. Productivity growth began in 1600—almost a century before the Glorious Revolution. Thus, the onset of productivity growth preceded the bourgeois institutional reforms of 17th century England. We estimate productivity growth of 2% per decade between 1600 and 1800, increasing to 5% per decade between 1810 and 1860. Much of the increase in output growth during the Industrial Revolution is explained by structural change—the falling importance of land in production—rather than faster productivity growth. Stagnant real wages in the 18th and early 19th centuries—’Engels’ Pause’—is explained by rapid population growth putting downward pressure on real wages. Yet, feedback from population growth to real wages is sufficiently weak to permit sustained deviations from the ‘iron law of wages’ prior to the Industrial Revolution.”
“Who Could Win And Lose After The Surgeon General’s Alcohol-Cancer Link Warning” (Business Insider). “Stocks of some of the biggest alcohol companies in the world were down Friday after the surgeon general released his advisory. Shares of Budweiser-maker Anheuser-Busch InBev closed down 2.8% in Belgium. In London, shares of Diageo, the company behind Captain Morgan rum and Ketel One vodka, closed nearly 4% lower. Still, there's reason to doubt that the surgeon general's advisory will lead to a lot less drinking and fewer sales for the big booze makers, Kate Bernot, lead analyst at Sightlines, which researches the alcohol space, told Business Insider.”
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.”