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.

Saturday, 30 April 2022
Buffett Says Sarket ‘Almost Totally A Casino’ as it Rallied in Recent Years

The billionaire and chief executive of Berkshire Hathaway, speaking in Omaha to thousands of shareholders gathered for the company’s annual meeting, added that “extraordinary” activity had been “encouraged by Wall Street because the money is in turning over stocks”.


In the first quarter, the company spent $51.1bn buying shares of companies, including large bets on oil majors Chevron and Occidental Petroleum. Buffett said it was “incredible” that Berkshire had been able to buy more than 14 per cent of Occidental in a matter of weeks.

The realest "Buffett Indicator" is whether or not Buffett himself is staying on the sidelines, or buying. Looks like last quarter he saw some deals on sale.

Friday, 29 April 2022
Were The Stimulus Checks A Mistake?

It wasn’t long ago that the U.S. economy needed a shot in the arm. Millions of Americans had lost their jobs as the country shut itself down to slow the spread of a deadly virus. At the time, policymakers, advocates and economists agreed that Americans needed immediate relief — and so they quickly acted on it.

Lawmakers passed a $2.2-trillion stimulus package in March 2020, followed by two more installments of COVID-19 relief later in 2020 and then again in 2021. In total, it added up to one of the most generous fiscal responses to the virus globally.

There would be a catch, though. As U.S. prices continue to rise by rates not seen in decades, it’s become clear that the stimulus came at a significant, unintended cost: inflation.

Betteridge's law, where for any headline that ends in a question mark the answer is always "no", strikes again. Introducing $2.2 trillion dollars into the money supply obviously is relevant and worthy of both inspection and criticism, (particularly when it happens as it did here, immediately before generational-high inflation spikes). But to not mention the decade-long expansionary monetary policy of the Fed here is derelict. At least the stimulus was intended to go to the citizens being hurt the most, rather than to prop up the asset prices of the already wealthy.

Thursday, 28 April 2022
How the Pandemic has Changed Home Design

But overall footprints are getting bigger as builders add on more smaller rooms, which may need to function as offices, play rooms, home gyms or dens, depending on the family.

Bathrooms are getting bigger, in part because we use them more often when we're home all day. And every room of the house is more wired — builders are adding power outlets and USB ports to accommodate the devices essential to working or attending school from home.

Some homes also feature separate entrances for guests, with easy access to a powder room for hand-washing.

Q1 GDP Print

The U.S. economy contracted in the first three months of the year, but strong consumer spending and continued business investment suggested that the recovery remained resilient.

Gross domestic product, adjusted for inflation, declined 0.4 percent in the first quarter, or 1.4 percent on an annualized basis...

Most important, consumer spending, the engine of the U.S. economy, grew 0.7 percent in the first quarter despite the Omicron wave of the coronavirus, which restrained spending on restaurants, travel and similar services in January.

“Consumer spending is the aircraft carrier in the middle of the ocean — it just keeps plowing ahead,” said Jay Bryson, chief economist for Wells Fargo.

Not as bad as it looks, but still not awesome.

Wednesday, 27 April 2022
Another QT Primer

What do quantitative easing and tightening mean? Quantitative easing, or QE, refers to policies that substantially expand the size of the Fed’s balance sheet. Quantitative tightening, or QT, refers to the opposite—policies that reduce the size of the Fed’s balance sheet.

Another primer to refamiliarize oneself with QE/QT basics, ahead of what will be a very interesting year of Fed policy...

Tuesday, 26 April 2022
Eight Charts that Explain the Market

Certainly not comprehensive, but a few interesting looks at how/why some sectors are performing.

Deutsche Bank Sees 5%-6% Fed Target Rate and Deep U.S. Recession

“We assume conservatively that a Fed funds rate moving well into the 5% to 6% range will be sufficient to do the job this time,” the authors including David Folkerts-Landau, group chief economist and head of research, wrote in a report Tuesday. “This is partly because the monetary-tightening process will be bolstered by Fed balance-sheet reduction, which our U.S. economics team estimates will be equivalent to a couple additional 25 basis-point rate hikes.”


This monetary tightening and the financial upheaval that accompanies it “will push the economy into a significant recession by late next year,” Folkerts-Landau said.


The Deutsche economists -- by their own admission -- are much more pessimistic than most other major forecasters. Goldman Sachs Group Inc. estimated chances of a contraction at about 35% over the next two years. Bloomberg Economics’ recession-probability model has estimated a 44% chance of recession happening before January 2024.

I'm usually no fan of DB but think they're getting this closer than the consensus.

Monday, 25 April 2022
Musk Buys Twitter

Twitter has accepted Elon Musk’s offer to purchase the company for $44 billion, the company announced in a press release today. Musk purchased the company at $54.20 a share, the same price named in his initial offer on April 14th.

There you have it. One offer, accepted. Didn't see that coming.

Musk Swayed Wall Street by Pitching His Vision for Twitter

Musk’s advisers presented the billionaire’s investment thesis to potential lenders during a call Monday. Some of the lenders saw a slide presentation offering Musk’s ideas around how Twitter’s business could be run, as well as its financial profile and how to boost revenue, said the people, who asked not to be identified as the details aren’t public.

What a saga. I still don't think this deal is going to really go through, but it's certainly looking far more likely now than it was last week. Most intriguing is whatever Musk's 'vision' for Twitter is - since all he's really said publicly about it has been conflicting nonsense about more free speech and less moderation.

The Tesla Inc. mogul lined up about $13 billion in debt financing and a $12.5 billion margin loan commitment from Morgan Stanley and 11 other banks, and pledged an additional $21 billion through equity financing

The $21b in equity is also a mystery - that's an awful lot of money that even Musk is extremly unlikely to have liquid and available. More likely he is borrowing that cash as well, collateralized against his Telsa stock holdings. Given that Tesla shares have absolutly exploded over the last few years, it seems highly plausible that they could come back to Earth quite quickly. If Tesla shares drop (and so get margin called by his banks), and Musk needs to fire-sale his Tesla position in order to support his Twitter equity, things could get ugly quickly. Seems like an awful lot of risk to add to Tesla just to enjoy a vanity side-hustle in Twitter.

Lenders were approached on Saturday, and pulled all-nighters as they rushed to get the deal together over the Easter and Passover break and into this week, people familiar with the process said.

Totally aside, it sure is exciting to see deals like this again.

Friday, 22 April 2022
Refresher on Quantitative Tightening

A great refresher on the levers the Fed will be pulling, how we got to this point, and speculation on how it will affect the market.

Wednesday, 20 April 2022
Daly Says Fed Should Hike Rates Expeditiously to Neutral by Year-End

U.S. central bankers should move expeditiously and raise interest rates to neutral -- the level which neither speeds up or slows down the economy -- by the end of the year, Federal Reserve Bank of San Francisco President Mary Daly said.

Honestly I'm not sure what the alternative here is. Unless there is another covid spike (and subsequent lockdown and rise in unemployement), how could the Fed possibly keep rates so low while inflation surges?

Sunday, 17 April 2022
Goldman Sachs Sees U.S. Recession Odds at 35% in Next Two Years
Eleven out of 14 tightening cycles in the U.S. since World War II were followed by a recession within two years, but only eight of them can be even partially attributed to Fed tightening -- and soft or “softish” landings have been more common more recently, Hatzius said. He projected the odds of a recession in the next 12 months at about 15%.

Still seems too low, but history may not be a good guide here as Fed is more active than ever with other operations.

Sure, Elon Musk Might Buy Twitter

Still I imagine that Twitter's bankers at Goldman Sachs will sit down with Musk's bankers at Morgan Stanley and Goldman will say “so uh where's the financing coming from” and Morgan Stanley will say “oh the financing is in this can” and hand Goldman a can and Goldman will open the can and a bunch of fake snakes will pop out. “AAAHHH,” Goldman will scream, and then they will chuckle and say “oh Elon, you got us again” and everyone will have a good laugh. Because, again, uniquely among public-company CEOs, Elon Musk has in the past pretended he was going to take a public company private with pretend financing! I am not saying that he’s joking now; I am just saying he’s the only person who has ever made this particular joke in the past.

Matt Levine is a national treasure. I've not seen any other article or commenter come close to summarizing this entire debacle as accurately or entertainingly.

Friday, 15 April 2022
Half-Point Rate Hike Is ‘Reasonable Option,’ Fed’s Williams Says

“We need to really focus on bringing inflation down to our 2% longer-run goal, and to do that over the next few years. So, that is the number-one focus, and I say that because the economy is strong,” Williams said. “So I do think from a monetary policy point of view, it does make sense for us to move expeditiously towards more-normal levels of the federal funds rate.”

Asked if the Fed risked tipping the economy into recession, Williams voiced confidence that it could achieve a soft landing.

“I think the economy can withstand real interest rates at neutral or a bit above,” he said. “We’ve seen a dramatic, significant movement in yields and financial conditions over the past several months and that’s already positioning policy well to get supply and demand back into balance.”

Where has this attitude been the last 5 years?

Thursday, 14 April 2022
Musk Says He's Not Sure He'll Succeed With Twitter Acquisition

Elon Musk expressed doubt about whether he’ll succeed with his $43 billion offer to buy Twitter Inc. in his first public comments about the blockbuster deal.

“I am not sure that I will actually be able to acquire it,” the billionaire entrepreneur said Thursday at a TED event in Vancouver. Musk said he has a Plan B if Twitter rejects his offer, without offering more details.

What an embarrassing fiasco. I feel sorry for Twitter employees, management, and board, who will be entirely distracted by this grandstanding clownshow instead of trying to turn the company around. I'd give near-zero odds to Musk's offer going through.

Wednesday, 13 April 2022
The Can’t-Lose Betting Strategy That’s Taking the Gamble Out of Sports Gambling

Over a three-day weekend he made a series of bets that escalated in size, culminating in a wager north of $11,000 with Caesars on the National Hockey League’s Dallas Stars to defeat the Montreal Canadiens, hedged with a $5,000 “risk-free bet” from DraftKings on Montreal.

Dave was guaranteed to win a little more than $3,000, no matter the final score. Even so, he says, betting a quarter of his annual salary on a hockey game was terrifying. “It felt like a rocket ship, like the fire was burning as I’m going back and forth between the two different screens,” he says. “And then, when I finally clicked bet on both and it went through, it was like the rocket ship went off.”

I am utterly facinated and genuinly heart-warmed whenever seeing these multi-leg arbitrage schemes. Absolutly love it.

Always Buy High Uncertainty

The old adage that stocks hate uncertainty is true—but only partially. Stocks hate high and rising uncertainty. High but falling uncertainty, however, is the absolutely best stock market fuel anyone could ever ask for. And that is dead ahead now.


Other uncertainty expiration dates approach, too. I told you January 28th, Fed rate hikes wouldn’t boost long rates nearly as much as folks widely fear. With one hike already done, more seemingly close and “quantitative tightening”—the Fed reducing its huge bond portfolio—possibly starting in May, we should soon see the effects. Either way, whether I’m right or wrong, or you are, uncertainty will fall soon in a world where stocks look beyond the news to the future for pricing.

Tuesday, 12 April 2022
Shopify to Split Shares and Create Dual Class Structure
Upon shareholders’ approval, Shopify will authorize and issue a new class of non-transferable founder share to Lutke, giving the executive a total voting power of 40% when combined with his existing Class B shares.

Dual class stock structures like this are a transparent power grab and should be absolutly pilloried in the press and by investors. I suspect decades from now there will be compelling papers about the direct correlation between financial underperformance and the concentration of voting vs non-voting share classes.

US Inflation Hits 8.5% in March

U.S. consumer prices rose in March by the most since late 1981, underscoring the painfully high cost of living and reinforcing pressure on the Federal Reserve to raise interest rates even more aggressively.


The Fed needs to hike rates expeditiously, but if goods demand continues to cool they may not need to hike as aggressively as the market -- now pricing in almost three 50-bps rate hikes this year -- currently expects.

A few general thoughts on this...

  • I see a lot of takes this morning speculating on how aggresive the Fed needs to raise rates this year in order to combat inflation, but very few taking the same view retrospectivly. I.e., not a lot of criticism in major financial press about how the Fed should have raised rates much earlier.
  • To be fair, Russia's invasion of Ukraine unsurprisingly seems to be a major contributor, with energy and gas prices leading the inflation run up.
  • The Fed is now in an unenviable position and needs to thread a pretty impossible needle. Many indicators (and sentiment) are pointing at upcoming economic slowdown and/or possible recession. If the Fed raises rates too quickly, they'll get blamed for a recession. If they raise too slowly, they'll get blamed for inflation eating away the lower/middle class. It is a problem of their own doing, but they're in it now.

Monday, 11 April 2022
Musk Opens Door to Pressing Twitter for Deal as He Avoids Board

The abrupt reversal over the board seat over the weekend ignited renewed speculation about Musk’s intentions for Twitter since the Tesla Inc. chief executive officer first disclosed he had taken a stake of just over 9% -- becoming the company’s largest individual shareholder. By not joining the board, Musk is no longer subject to an agreement to keep his stake below 14.9%.

Seems like Musk realized that he'd be too restricted as a board member to speak about Twitter management / issues. This reeks of another pump and dump scheme. As mentioned by John Gruber, I wouldn't be surprised at all if Musk begins selling his position while the stock price is high, and in a few months tweets out that he tried to help but board wouldn't listen, disclosing his divestiture and tanking the stock.

Sunday, 10 April 2022
As Mortgage Rates Rise, Home Sellers Fear Time Is Running Out to Cash In

The mood among sellers seems to have shifted in recent weeks from apathy about the slow boil of higher rates to urgency, financial advisers and real-estate agents said. Sellers are seeking advice on how best to time the market and tame their anxiety.

Not a great indicator as interest rates begin flashing warning signs. Home prices ought to slow down slightly as mortgage costs rise with rates - if sellers are panic-listing now, could be in for a bad time if macro economy begins to turn.

Saturday, 9 April 2022
The Current Financial Thing

Going against the crowd on the Current Financial Thing, though, holds the potential for upside. From the outside, that seems to be an incredibly oversimplified and dumbed down explanation for how the Medallion Fund has done so consistently well.

Dispassionately betting on mean reversion after humans overreact is easier for an algorithm to do – in an ongoing series of millions of quick trades – than it is for a human to do, particularly in a bear market. Running away from danger and retreating to the safety of a group is hardwired into our DNA.

Elon Musk Delayed Filing a Form and Made $156 Million
Elon Musk was 11 days late in publicly declaring he had amassed a large stake in Twitter. That omission may have earned him $156 million, according to a half-dozen legal and securities experts. That’s because of a 50-year-old law that requires that investors notify the Securities and Exchange Commission when they surpass a 5 percent stake in a company. Musk reached that benchmark March 14, according to the filings. But he made his public disclosure only Monday.

It's unfortunate that this is characterized as an omission that "may have earned him $156 million", when what really happened is that Musk effectivly stole $156 million from other investors, who unknowlingly sold Twitter stock at artificially low prices because Musk illegally failed to disclose his ownership stay for 11 days. I'd be pissed. Musk continues to flaut SEC law.

Saturday, 2 April 2022
The Ocean Is Coming for Homes

From Bloomberg:

The rise in sea levels is on track to increase highly destructive flooding fivefold in the U.S. by 2050, but a new study of home prices in coastal Florida suggests buyers are oblivious or indifferent to the risk. Governments need to take action to ensure that everyone has the right information about this critical threat.

No rational actor is indifferent to a giant risk on their most valuable asset - the only gap here is in education and access to information.

Friday, 1 April 2022
Bitcoin Going Nowhere in El Savador

A survey by El Salvador’s Chamber of Commerce found that the vast majority of companies in a country known for its Bitcoin-boosting president haven’t used crypto for business.

Only 14% of respondents to the Chamber of Commerce Survey said they had transacted in Bitcoin since September, when the country became the first in the world to recognize the digital token as legal tender.


Despite the lackluster embrace of Bitcoin since its roll-out, El Salvador is pressing ahead with plans to issue what would be the first state-backed Bitcoin bonds in the coming days, according to Finance Minister Alejandro Zelaya.

Hardly a surprise, Bitcoin isn't anywhere near useful for day-to-day transactions - though feels like supporters have been saying that that is 'just around the corner' for years now. It will be interesting to see how the bonds perform.