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.
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.
Of the nine justices sitting on the current court, five – all of them in the majority opinion that overturned Roe – were appointed by presidents who initially lost the popular vote; the three appointed by Donald Trump were confirmed by senators who represent a minority of Americans. A majority of this court, in other words, were not appointed by a process that is representative of the will of the American people.
And now, this court, stacked with far-right judges appointed via ignoble means, has stripped from American women the right to control our own bodies. They have summarily placed women into a novel category of person with fewer rights not just than other people, but than fertilized eggs and corpses. After all, no one else is forced to donate their organs for the survival of another – not parents to their children, not the dead to the living. It is only fertilized eggs, embryos and fetuses that are newly entitled to this right to use another’s body and organs against that other’s will; it is only women and other people who can get pregnant who are now subject to these unparalleled, radical demands.
This raises a fundamental question: can a country be properly understood as a democracy – an entity in which government derives its power from the people – if it subjugates half of its population, putting them into a category of sub-person with fewer rights, freedoms and liberties?
The global trend suggests that the answer to that is no.
If you think economic health, market performance, and portfolio values will be unaffected by the US sliding into authoritarian rule, it's time to wake up.
The most basic argument of the Dobbs decision is that, in 1868, states did not consider abortion a fundamental right. That is accurate, as the magisterial dissent, co-authored by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan, acknowledges.
But in 1868, there was also no clearly established right to contraception. There were no Miranda rights to protect arrestees. There was no right to choose your own sexual partner, let alone to marry the person you love. And there is no definitive historical evidence that the people who ratified the 14th Amendment thought that doing so prohibited segregation. If you take Dobbs’s logic seriously, all the landmark decisions establishing these rights are wrong.
Will the court now undertake a major effort to revisit these core rights?
Alito’s majority opinion, which is not significantly different from his leaked draft, tries to suggest the court will not do that. Its only basis for that suggestion is to say that abortion is “unique” because it involves life. Justice Clarence Thomas, in a separate concurrence, called openly for revisiting rights to sexual freedom and gay marriage. The dissenters argued cogently that it is now open season on those and similar basic rights.
Teri Ijeoma, whose “Trade and Travel” course has taught over 28,000 students, says inexperienced traders should stay on the sidelines.
This is the worst article I've seen on Bloomberg in recent memory. It reads like an adertisement for Ijeoma's $5,000 day trading course. The article presents Ijeoma as some kind of expert, advising investors/traders to be cautious during a tough market, and prominently links directly to her course website/signup form.
Here is but a small sampling of headlines taken directly from Ijeoma's website:
This is awful -- a $5,000 webinar that encouraging people with no market experiance at all that they can gamble their way to millions, effortlessly.
Bloomberg knows that day trading, particularly among unexperienced retail investors, is categorically a money-losing proposition. It's worse the playing the lotto, and much more addictive. Shame on Bloomberg for publishing this trash.
Bankers, lawyers, and sponsors all said, “It’s different this time.” But it wasn’t.
Incredible lead in, and great overview of what's happening in the SPAC market right now.
 Better Valuations, Better Future Returns – stock valuations are more attractive today vs. where they were at the beginning of the year. As valuations improve, so does the outlook for expected returns. According to FactSet, the S&P 500 trades at a forward P/E of 15.8, which is below its five- and ten-year averages. The implied earnings yield (i.e. the inverse of the P/E) is 6.3%, so that is still well above the rate you’ll get on a 10-year Treasury bond.
Great piece from Saleha Mohsin today, but an absolute blunder by whichever editor came up with the headline for it.
Janet Yellen’s stint as Treasury secretary threatens to become a stain on a storied career.
On May 31, Yellen took matters into her own hands and did something that caught the White House by surprise. She admitted to the American public on CNN that she “was wrong” about the path inflation would take. The administration had thus far been relentlessly trying to paint the surge in consumer prices as temporary.
With her statement, Yellen broke ranks with Biden’s inner circle—which doesn’t include her—and exposed the dysfunction at the heart of an administration that’s botched its communications around the country’s economic problems.
Yellen’s most tangible accomplishment so far is the progress she has forged on an international tax agreement designed to halt a global race to the bottom on corporate tax rates, a goal that has eluded negotiators for nearly a decade.
I don't know, that sounds pretty good!
Like her former colleagues at the Fed—including Jerome Powell, who succeeded her as chair—Yellen initially characterized inflation as transitory, a byproduct of tangled supply chains and temporary shortages of essential goods such as chips used in cars.
By September 2021, her thinking had changed, and her staff shared fresh analysis with the White House, where it was largely disregarded, showing that price pressures were more widespread and more stubborn.
Rather than stay quiet, Yellen is now publicly contradicting some of the most powerful officials in the White House, including Biden. On June 9, she flat-out rejected their contention that corporate greed is feeding inflation. Blaming big businesses for price gouging has been one of the administration’s most consistent talking points, and the president returned to it on June 10 as he accused Exxon Mobil Corp. and other oil companies of exploiting high gasoline prices to pad their bottom line.
One person familiar with the matter says Yellen did express concern over the size of Biden’s first major initiative as president. Her misgivings were ignored at the White House, where aides, including Deese, argued a too-small stimulus would doom the US to a slow, grinding recovery, as happened after the financial crisis.
I don't want to quote the whole article - go read it - it's quite clear and well reported. But I very, very strongly disagree with the headline. Framing Yellen as 'struggling' makes her sound inept. Her only ineptitude in the body of the piece though is her reluctance to prioritize good political optics for the administration over sound economic policy for the country.
It’s a good time to take advantage of “dollar-cost averaging,” which means you invest the same amount of money regularly regardless of the ups and downs in the market.
Good advice is always good advice.
We talked last month about Redbox Entertainment Inc., a company that (1) went public in October 2021 by merging with a special purpose acquisition company at $10 per share, (2) traded as high as $17.93, (3) then traded down to $5.60, (4) then agreed to be acquired by Chicken Soup for the Soul Entertainment Inc. for about $0.69 per share in stock, an 88% discount to its trading price, and (5) then traded down to $2.58 per share. That was weird!
Incredible stupidity that must be read to be believed. I just cannot stomach that this is the world we live in. This is a picture perfect arbitrage scenario, but it's actually too risky to arbo because retail meme traders are collectivly more stupid than the market has liquidity to bear.
Apple Inc. will handle the lending itself for a new “buy now, pay later” offering, sidestepping partners as the tech giant pushes deeper into the financial services industry.
A wholly owned subsidiary will oversee credit checks and make decisions on loans for the service, which is called Apple Pay Later. The business -- Apple Financing LLC -- has necessary state lending licenses to offer the feature, though it operates separately from the main Apple corporation, the company said.
The move marks the first time Apple is handling key financial tasks like loans, risk management and credit assessments. It’s a significant shift for a company that got its start selling computers. Until now, Apple’s financial services have been backed by third-party credit processors and banks. The Apple Card credit card, for instance, relies on Goldman Sachs Group Inc. for lending and credit assessment.
The company is also working on a longer-term “buy now, pay later” program called Apple Pay Monthly Installments, Bloomberg has reported.
Hugely dissapointing to see this. Buy now, pay later (BNPL) is an aggressivly harmful practice encouraging consumers to spend more than they can afford. For years Apple has been under pressure to raise recurring services cash flows - bummer to see them continue leaning into these predatory practices, otherwise unbecoming of their strong brand.
Even as central bankers raise rates, more economists are coalescing around the idea that peak inflation is behind us -- though there will be a lag before the lower costs of raw materials filter through to the prices shoppers see.
The Efficient Market Hypothesis is a hypothesis in financial economics that states that asset prices reflect all available information.
A direct implication of the EMH is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information. Developed independently by Samuelson and Fama in the 1960s, the EMH has become a holy grail for investors and academics alike.
I personally think there's more to this market thing than the net present value of future cash flows, and markets certainly don't seem to efficiently digest new information.
Today I am publishing my rebuttal. Ladies and gentlemen, I give you the Inefficient Market Hypothesis: 25 Instances That Prove Samuelson and Fama Wrong.
CAPM, meet CAP MEME
I did my undergrad thesis on why the Efficient Market Hypothesis was wrong, but it wasn't nearly as funny as this.
Starting June 1, the Fed will begin draining [$2 trillion overnight reserves] plus $3.3 trillion of bank reserves from its nearly $9 trillion balance sheet to put all of this money in motion -- a process it called quantitative tightening. While the central bank is leaning on facilities it created in recent years to contain ructions in US markets, there are still a number of ways this process could create turbulence.
What an interesting year we're having. Good to see this start to unwind.
It’s official: the Bear Market of 2022. The S&P 500 has now fallen 20.9% from its high in early January, the largest decline for the index since March 2020. The question everyone’s asking: what happens next? To answer that, we often look back at history, attempting to find parallels with the past. But even a cursory glance at a table of prior bear markets reveals the difficulty in doing so, as the lack of any consistent pattern is evident.
A great look at prior bear markets.
Some strippers on Twitter said they think recession is guaranteed - because the strip clubs are suddenly empty.
On Thursday (9 May), a woman who goes by @botticellibimbo on the platform said the following about the clubs: "The strip club is sadly a leading indicator, and I can promise y'all we r in a recession, lmao."
"Me getting stock alerts just to decide whether it's worth it to go to work," she further wrote in a subsequent tweet.
Calling the current environment a “crucible moment,” Sequoia Capital warned that the good times are not only over, there’s no indication when they’ll return.
Sequoia laid out the case for a long and drawn-out recession, and instructed founders to “do the cut exercise” immediately if they haven’t already done so by examining ways to conserve cash through eliminating or scaling back projects, R&D, marketing and other expenses.
Over six days last August, one crypto wallet amassed a stake of $360,000 worth of Gnosis coins, a token tied to an effort to build blockchain-based prediction markets. On the seventh day, Binance—the world’s largest cryptocurrency exchange by volume—said in a blog post that it would list Gnosis, allowing it to be traded among its users.
Token listings add both liquidity and a stamp of legitimacy to the token, and often provide a boost to a token’s trading price. The price of Gnosis rose sharply, from around $300 to $410 within an hour. The value of Gnosis traded that day surged to more than seven times its seven-day average.
Four minutes after Binance’s announcement, the wallet began selling down its stake, liquidating it entirely in just over four hours for slightly more than $500,000—netting a profit of about $140,000 and a return of roughly 40%, according to an analysis performed by Argus Inc., a firm that offers companies software to manage employee trading. The same wallet demonstrated similar patterns of buying tokens before their listings and selling quickly after with at least three other tokens.
The jury is still out on whether or not blockchain is usefull technology that will someday lead to differentiated and genuinly useful consumer products/experiences. I am highly dubious, and certainly no 'killer app' use case has yet presented itself. What is absolutly undeniable is that cryptocurrency as it exists today has only been useful as a means of transfering wealth from people who want to get-rich-quick over to scumbags, profiteers, and criminals.
Luna’s total value ballooned to more than $40 billion, creating a frenzy of excitement that swept up day traders and start-up founders, as well as wealthy investors.
Mr. Kwon dismissed concerns with a taunt: “I don’t debate the poor.”
Last week, falling crypto prices and challenging economic trends combined to create a panic in the markets. The price of Luna fell to nearly zero. As critics had predicted, the price of TerraUSD crashed in tandem, dropping from its $1 peg to as low as 11 cents this week. In a matter of days, the crypto ecosystem Mr. Kwon had built was essentially worthless.
Much of the pain of the collapse has ... been felt by regular traders. On a Reddit forum for Luna evangelists, users shared lists of suicide hotlines, as people who had poured their savings into Luna or TerraUSD expressed despair.
Retail investors saw are absolutly getting crushed by cyrpto pipe dreams, while primarily the already-rich are getting even richer from them. It is a zero-sum transfer of wealth from the poor and middle class to the wealthy.
From an interview with Nicholas Weaver of UC Berkeley and the International Computer Science Institute:
You hear about people making money in Bitcoin or cryptocurrency. They only make money because some other sucker lost more. This is very different from the stock market.
I’m a savvy investor, and by “savvy investor,” I mean I put my money into index funds and ignore it for several years. During that time, there are dividends and share buybacks where the companies put their profits into me. I then eventually sell it to somebody else. And my gain is not just the difference between what I bought it for and what somebody else bought it for, but that plus the benefit of all the dividends and interest.
So the stock market and the bond market are a positive-sum game. There are more winners than losers. Cryptocurrency starts with zero-sum. So it starts with a world where there can be no more winning than losing. We have systems like this. It’s called the horse track. It’s called the casino. Cryptocurrency investing is really provably gambling in an economic sense. And then there’s designs where those power bills have to get paid somewhere. So instead of zero-sum, it becomes deeply negative-sum.
Effectively, then, the economic analogies are gambling and a Ponzi scheme. Because the profits that are given to the early investors are literally taken from the later investors. This is why I call the space overall, a “self-assembled” Ponzi scheme. There’s been no intent to make a Ponzi scheme. But due to its nature, that is the only thing it can be.
But amid the morsels of value, the broader market looks to be buckling as recession creeps more and more into the conversation. And even as growth worries mount, the inflation focus at the Federal Reserve and other central banks means investors can’t count any more on the monetary elixir that’s helped to keep alive the long-running bull market.
I don't presume to know exactly what happens next. Maybe the market recovers from here? But looking at past market cycles, the large downturns that end bull markets tend to revert significantly below historical valuation trends. And per most models, we're not even close to that yet. So I would say that there is at least a very good chance that this downturn continues.
Sure enough, it happened.
Between November 2020 and January 2021, GME's stock price exploded from $12 per share to more than $400. At its peak, GameStop was worth an astounding $22B.
Retail investors won. Several hedge funds suffered catastrophic losses, most notably Melvin Capital, which experienced a 53% drawdown in January 2021. Retail investors must have closed their positions to book million-dollar profits, right?
This is a pitch-perfect summary of confirmation bias and the shellacking that many new retail traders are taking this week.
A record 537 million credit card accounts were opened in the first quarter, a jump of 31 million over the past year, according to the Federal Reserve Bank of New York’s quarterly report on household debt and credit. Meantime, mortgage originations totaled $859 billion in the first three months of 2022, the lowest in nearly two years.
A separate report last week showed US consumer borrowing soared in March by the most on record as credit-card balances ballooned and non-revolving credit jumped, underscoring the combined impact of solid spending and rising prices. That’s a good sign in that spending is the largest contributor to the economy, but could be worrisome if Americans can’t keep up on payments.
This is an absolute train wreck.
Four key indicators to pay attention to as our economy teeters.
Nursing losses in 2022 that are worse than the rest of the market’s, amateur investors who jumped in when the lockdown began have now given back all of their once-prodigious gains, according to an estimate by Morgan Stanley. The calculation is based on trades placed by new entrants since the start of 2020 and uses exchange and public price-feed data to tally overall profits and losses.
This comes as a huge surprise to literally no one. I hope Robinhood goes out of business.
Even with the worst April slump in the S&P 500 since 1970, money keeps pouring into ESG-labeled funds at a seemingly unrelenting pace.
More than $1.2 billion went into ESG-focused exchange-traded funds last week as the S&P 500 dropped 3.8%, bringing the index’s full-month decline to 8.8% on concerns about inflation, rising interest rates and Russia’s war on Ukraine.
So far this year, ESG funds have attracted more than $22 billion, including almost $5 billion for U.S. offerings led by BlackRock Inc.-managed funds, according to data compiled by Bloomberg.
You love to see it.