The News Radar

Timely links to external news and articles, usually valuation related, with occasional commentary. Most recent items shown below - for more, check the archive in the sidebar.

Friday, 30 September 2022
The Democratic Stock Trading Ban

After months of moral panic, House Democrats this week released a bill to ban federal officials from owning individual stocks, but its sheer breadth is a reason for second thoughts. The evidence is thin that this addresses any real problem, while it will deter successful people from seeking or accepting public office.

The bill would forbid federal officials from holding individual investments unless they’re in a qualified blind trust. There are some exemptions, such as for “a diversified mutual fund” or “a diversified exchange-traded fund,” as well as for “an interest in a small business concern or family-owned business that does not present a conflict of interest.” But no trading shares in companies famous or obscure.

These stringent terms would apply to Members of Congress, their spouses and dependent children, and some senior aides on Capitol Hill. They’d also cover the President and Vice President, plus any Senate-confirmed “political appointee,” which is a category that potentially reaches something like 1,200 roles.

If voters don’t trust their Senator or Representative not to profit from their office, the answer is to throw the bum out.

This is absolutly unhinged. Did a junior high school student crack the passwords to WSJ's CMS system?

Monday, 26 September 2022
Everything-Selloff on Wall Street Deepens on 98% Recession Odds

A global recession probability model by Ned Davis Research recently rose above 98%, triggering a “severe” recession signal. The only other times the model’s been that high was during previous acute downturns, such as in 2020 and 2008-2009, according to the firm’s Alejandra Grindal and Patrick Ayres.

“This indicates that the risk of severe global recession is rising for some time in 2023, which would create more downside risk for global equities,” they wrote in a note.

Sunday, 25 September 2022
Buying the Stock-Market Dip Is Backfiring, Investors Keep Piling In Anyway

Instead of rebounding after a tumble, stocks have continued to fall, burning investors who stepped in to buy shares on sale. The S&P 500 has dropped 1.2% on average this year in the week after a one-day loss of at least 1%, according to Dow Jones Market Data. That is the biggest such decline since 1931.

The extended downturn is putting a dent in the popular buy-the-dip trade, a strategy in which many investors found great success after the last financial crisis and particularly during the lightning-fast pandemic recovery.

Absolutly stunning that a timing strategy that has worked really well during *checks notes* the greatest bull market in history hasn't been doing too well during a down year...

Wednesday, 21 September 2022
Powell Signals More Pain to Come With Fed Sending Rates Higher

Federal Reserve Chair Jerome Powell vowed officials would crush inflation after they raised interest rates by 75 basis points for a third straight time and signaled even more aggressive hikes ahead than investors had expected.

“We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t,” Powell told a press conference in Washington on Wednesday after officials lifted the target for the benchmark federal funds rate to a range of 3% to 3.25%.

Sounds like the ol' yield curve is going upside down soon...

Tuesday, 20 September 2022
Fed Set to Reveal ‘Pain’ Coming in Next Stage of Inflation Fight

Federal Reserve officials are about to put numbers on the “pain” they’ve been warning of in recent weeks when they publish new projections for the economy, which could show a substantial rise in interest rates and unemployment ahead as the estimated price tag for reducing inflation.

The US central bank will release its latest quarterly projections Wednesday following a two-day policy meeting in Washington, where officials are expected to raise their benchmark rate by three-quarters of a percentage point for the third time in a row.

Thursday, 15 September 2022
Mortgage Rates Top 6% for the First Time Since the 2008 Financial Crisis

The average rate on a 30-year fixed mortgage climbed to 6.02% this week, up from 5.89% last week and 2.86% a year ago, according to a survey of lenders released Thursday by mortgage giant Freddie Mac. The last time rates were this high was in the heart of the financial crisis almost 14 years ago, when the U.S. was deep in recession.

Tuesday, 13 September 2022
Schools Are Back and Confronting Severe Learning Losses

National data show that children who were learning to read earlier in the pandemic have the lowest reading proficiency rates in about 20 years.

The U.S. Department of Education last Thursday released data showing that from 2020 to 2022, average reading scores for 9-year-olds slid 5 points—to 215 out of a possible 500—in the sharpest decline since 1990. Average math scores fell 7 points to 234, the first statistically significant decline in math scores since the long-term trend assessments began in the 1970s.

Learning loss generally is worse in districts that kept classes remote longer, with the effects most pronounced in high-poverty districts, researchers say.

Covid's most lasting impact in the USA will be a terrible acceleration of wealth inequality for generations to come.

US Inflation Tops Forecasts, Cementing Odds of Big Fed Hike

The consumer price index increased 0.1% from July, after no change in the prior month, Labor Department data showed Tuesday. From a year earlier, prices climbed 8.3%, a slight deceleration, largely due to recent declines in gasoline prices.

Particularly ugly to see inflation once again rising on a month-over-month basis.

Monday, 12 September 2022
NY Fed Says Consumers Saw in August Steep Declines in Future Inflation

The bank said in its August Survey of Consumer Expectations that one year from now, households see inflation at 5.7%, down from the 6.2% they predicted in the July survey.

How much of a predictive indicator is consumer sentiment on inflation? I'd like to know if this same survey saw the current levels of inflation coming.... That said, inflation expectations are self-fulfilling once they begin to ramp up, so very good news to see this tempered a bit.

Kanye West Is Done With Corporate America

Ye intends to open his own Donda campuses, named after his late mother, across the country, which will house shopping, schools, farms and dorms all together. Products sold there will be unique to Yeezy’s physical and online shops and designed by existing Yeezy staff.

Somehow incorporate blockchain and it sounds like something Adam Nuemann would be interested in.

Tuesday, 30 August 2022
Elon Musk Cites Twitter Whistleblower in New Letter Seeking to Scrap Deal

Mr. Musk’s lawyers wrote in the letter that the facts supporting the whistleblower complaint were known to Twitter when they agreed to sell the company to Mr. Musk and when Mr. Musk initially sought to abandon the deal in July.

I still haven't seen anything borderline compelling indicating that Musk isn't going to be compelled to close this deal. Never bet against such deep pockets, though.

Thursday, 11 August 2022
Treasury Yield Curve Inversion Has Scope to Deepen

The two-year Treasury yield was 48 basis points above the 10-year rate on Wednesday, after coming within a whisker overnight of touching the 50-basis-point milestone last seen in August 2000. That’s based on expectations the Fed’s rate will peak at around 3.5%, from a current range of 2.25%-2.5%, according to the strategist.

If the expected peak rises a half point to 4% with no change in the market’s assessment of the neutral rate of monetary policy, the curve inversion has scope to widen to 85 basis points, Swiber wrote.

Despite the current rally, these indicators still point in the direction of upcoming weakness. Seems like we still have a long ways to go before we're out of the woods.

Tuesday, 26 July 2022
Myth of ‘Free’ Checking Costs Consumers Over $8 Billion a Year

Many Americans enjoy free checking accounts on the backs of the fees paid by poor people. Customers who pay overdraft fees again and again—who typically have no more than a few hundred dollars in the bank—are responsible for over half the profits from mass-market consumer checking accounts at the biggest US lenders.

For their part, bank executives see it differently, saying that customers who never make good on their overdrafts force them to write off millions of dollars. The fees, they argue, enable them to shoulder the costs and offer a lifeline to customers.

It is trivially easy for a bank to just disallow NSF charges, and they routinly do it when it serves their interest. But if they can instead bleed people dry with fees, they will. Wells Fargo, in particular, has proven time and again to be a leech on the American consumer.

Great article, with terrific graphics.

Why the Fed May Soon Need Treasury Help

When the Fed announces a higher target range for the federal-funds rate (currently 1.5% to 1.75%), it implements its decision by raising what it pays both on reserve balances (currently 1.65%) and on reverse repurchase agreements (currently 1.55%). Money to pay for these interest expenses comes out of the Fed’s interest earnings on its own portfolio.

The tricky situation the Fed now faces is that its own net interest income—$116.8 billion in 2021, of which 93% was remitted to the Treasury—will soon be exhausted by the higher interest rates it intends to pay on those combined cash funds. A target federal-funds range of 3.25% to 3.5% by year-end would have the Fed shelling out more than $195 billion annually to maintain both reserves and reverse repurchase agreements at current levels. The Treasury will have to advance funds to cover the gap.

Sunday, 24 July 2022
Weak Earnings Reports Aren’t Fazing Investors After Brutal Year for Stocks

So far this reporting season, shares of companies in the S&P 500 that have missed Wall Street’s earnings expectations have slipped 0.1% on average in the two days before their report through the two days after, according to FactSet. That compares with the five-year average of a 2.4% decline.

Tesla’s Bitcoin Dump Leaves Accounting Mystery in Its Wake

Tesla Inc. made waves this week when it announced that it had dumped the bulk of its Bitcoin stash. Selling 75% of its cryptocurrency gave the company a one-time cash infusion, Elon Musk’s electric car company said, but the battered value of its remaining Bitcoin also dinged profits.

Exactly how crypto helped and hurt Tesla’s bottom line is difficult to disentangle, however, based on what it told the public on earnings day. Current accounting rules—or lack thereof—play a big role.


“I’m anxious to see the actual filings—to see if they disclose the date that they sold, the price that they sold at,” said Aaron Jacob, head of accounting solutions at TaxBit, a cryptocurrency software company. “They may not disclose any of that.”

Tesla isn’t compelled to do so. No part of US generally accepted accounting principles spells out how companies must account for cryptocurrency or other digital assets, nor do they mandate the type of information companies must reveal in their footnote disclosures.

These kinds of gaps in reporting standards seem like exceptionally ripe territory for earnings manipulation, which is generally aligned with lower long-term value.

Tesla in February 2021 announced that it had bought $1.5 billion worth of crypto and that it would accept Bitcoin as payment for cars. Two months later, it sold 10% of its stake, generating $101 million from the sale. CEO Musk has touted the value of Bitcoin and cryptocurrency in general.

“This should not be taken as some verdict on Bitcoin,” Musk told analysts on Wednesday. “It’s just that we were concerned about overall liquidity of the company given the Covid shutdowns in China.”

It is absolute malpractice on the part of corp FP&A and Treasury to invest cash long-term and then need to pull it a year later due to highly-foreseeable liquidity issues. To have invested that cash into the most volitile possible asset class is unthinkable. This should have been sitting in a money market fund. Shareholders would riot about this at any other company.

Wednesday, 20 July 2022
More Than 100 Million Americans Face Dangerous Heat Wave

More than 100 million Americans were in the path of a dangerous heat wave Wednesday, from the West to the Northeast, officials said.

The temperature was forecast to break the triple digits in states across the country, from California to Texas to New York, shattering records in some places, according to the National Weather Service.

July has been a relentlessly hot month in Europe, too, where a record-breaking heat wave has been blamed for hundreds of deaths across the continent. The heat and a drought fueled wildfires across swaths of Southern Europe, forcing thousands of people to evacuate their homes.

What do you think will happen to global economies and corporate valuations as this inevitably gets worse? Do mass evacuations, property destruction, infrastructure destructions, and natural resource destruction raise valuations?

Microsoft Cuts Many Open Job Listings in Weakening Economy

Microsoft Corp. is eliminating many open jobs, including in its Azure cloud business and its security software unit, as the economy continues to weaken.

I'd put this one down in the "we're not at the bottom, yet" column...

Monday, 18 July 2022
Sen. Joe Manchin Balks at Global Minimum Tax

The Biden administration’s international tax agenda suffered a setback when Sen. Joe Manchin rejected a 15% minimum tax on multinational companies this past week, dimming prospects of turning last year’s global tax agreement into reality.

Now the administration must try to urge other countries to go first and hope that momentum, pressure and the potential for lost revenue can compel a future Congress to act.

Last October’s deal had two key pieces. One, the minimum tax, would put a 15% floor under corporate tax rates. It was designed to help countries raise revenue and prevent companies from shifting profits into low-tax jurisdictions. It was designed to be optional but with mechanisms that encourage nations to join once a critical mass of countries have implemented the tax. That is the part that Mr. Manchin blocked this past week.

Global tax inconsistencies are such a drain on productivity, and hurt medium sized companies the most (though, multinational mega-corps would surely love to pare down their multi-thousand-headcount tax departments, I'm sure). This deal is a real opportunity to make progress on this front.

As Fed Tightens, Economists Worry It Will Go Too Far

Economists increasingly expect the Federal Reserve, in its efforts to push down inflation, to raise rates enough to trigger a recession, with many worrying the central bank will go too far.

Economists surveyed by The Wall Street Journal now put the chance of a recession sometime in the next 12 months at 49% in July, on average, up from 44% a month ago and just 18% in January.


There are hints that higher rates are already starting to bite. In addition to falling home sales, the two-year Treasury yield has risen above the 10-year Treasury yield, what economists call a yield-curve inversion. Yield-curve inversions signal that investors expect higher interest rates in the short run to lead to declining economic activity and future rate cuts—and historically have preceded recessions by 12 to 18 months. However, Mr. Berson cautions that downturns occur only after other short-term rates (such as the federal-funds rate) also rise above longer-term rates, and that hasn’t occurred yet.

Recessions are bad, and a lot of people get hurt during them. But at this point the alternative to a recession may be quite a bit worse...

Sunday, 17 July 2022
Wall Street Set for New ETF Gold Rush as Single-Stock Era Begins

The booming world of exchange-traded funds is about to get even more crowded after the very first single-equity ETFs launched Thursday

The eight products from AXS Investments look like the start of a coming invasion of amped-up strategies that will seek to enhance or invert the performance of volatile companies.

“We’re gonna see the floodgate absolutely open with new product launches in this arena,” said Nate Geraci, president of The ETF Store, an advisory firm. “So I think we’re gonna see ETF issuers blanket the market with all varieties of these ETFs: leverage, inverse, options overlays, you name it.”

Commissioner Crenshaw warned about putting the ETFs in the hands of retail traders in particular, saying that it would be challenging for investment advisers to recommend the products while honoring their fiduciary duties.

This is like the moment where you can see a car accident is about to happen. These things are going to be absolutly poisenous for retail traders, but a lot of them are going to eat this up.

Thursday, 14 July 2022
Commodities Never Belonged in Your Portfolio

If investors get in at a peak chasing fad portfolio construction techniques, the returns can be much worse.

The Bloomberg Commodities Index is a good illustration. On a spot basis, it is up 351% in the past two decades, a respectable 7.8% compound annual growth rate that’s just slightly behind the S&P 500 Index’s 9.3%. But that’s not what investors earn when they invest through financial instruments because it doesn’t account for the cost of rolling such futures contracts. Among other things, there’s a sizable cost associated with storing barrels of crude oil, tanks of natural gas and bushels of wheat. In part because of these additional costs, the total return version of the same index — based on financial instruments that track the commodities — is up only 50% in the same period (a meager 2% compound annual growth rate).

Chasing fads pretty much everywhere and always results in lower performance over the long term than a simple diversified buy-and-hold strategy.

Fed Could Weigh Historic 100 Basis-Point Hike After Inflation Scorcher

Investors bet that the Fed is more likely than not to raise interest rates by 100 basis points when it meets July 26-27, which would be the largest increase since the Fed started directly using overnight interest rates to conduct monetary policy in the early 1990s. Americans are furious over high prices, and critics blame the Fed for its initial slow response.

Rip off the bandaid.

Wednesday, 6 July 2022
Wall Street Says a Recession Is Coming. Consumers Say It's Already Here

Goldman Sachs Group Inc. economists put the risk of such a slump in the US in the next year at 30%. A Bloomberg Economics model sees a 38% chance in the same period, with the risks building beyond that time frame. But for many it already feels like it’s here. More than one-third of Americans believe the economy is now in a recession, according to a poll last month by CivicScience.

The worries among small business owners, consumers and others are illustrated by so-called Misery Indexes, which blend unemployment and inflation rates. The gauge for the US is already 12.2%, similar to levels witnessed at the start of the pandemic and in the wake of the 2008 financial crisis, according to Bloomberg Economics.

Yield curve is still surprisingly neutral on recession odds - but at some point once there are X many "Are we in a recession?" headlines, the answer itself seems moot.

Wednesday, 29 June 2022
US Personal Spending Is Revised Sharply Lower in First-Quarter Data

US consumer spending expanded in the first quarter at the softest pace of the pandemic recovery, marking a surprise sharp downward revision that suggests an economy on weaker footing than previously thought. Outlays on goods and services rose an annualized 1.8%, compared with a 3.1% pace in the previous estimate, according to Commerce Department data out Wednesday.