September 7, 2023

Big Tech Leads Stocks Lower as Yields Rise on ISM

📰 News Organizations

  • Big Tech Leads Stocks Lower as Yields Rise on ISM. Stocks declined, while Treasury yields climbed after a stronger-than-estimated reading on the US services industry at 54.5%, up from 52.7% last month, bolstered speculation the Fed will keep interest rates higher for longer.

  • Rising Rents Are Hitting American Suburbs Hardest. Rents in suburbs had climbed 26% through this past July since March 2020, 8 percentage points higher than the gain in urban cores. Suburban rent growth was greater than its urban counterpart in 28 of the 33 metro areas studied.

  • Gasoline Prices Hit Highest Seasonal Level in Over 10 Years. The national average cost for a gallon of regular-grade gasoline is $3.811 as of Sept. 5. The data defy expectations for significant relief at the pumps after Labor Day weekend as oil prices have soared on Saudi production cuts.

  • Pentagon Plans Vast AI Fleet to Counter China Threat. The Pentagon is considering the development of a vast network of AI-powered technology, drones, and autonomous systems within the next two years to counter threats from China and other adversaries.

  • Universal Music Strikes Deal To Reshape Streaming Economics. Universal Music and French company Deezer said artists with at least 1,000 streams per month by a minimum of 500 unique listeners will see their royalties increase to reward their contribution to the streaming platform.

  • Mortgage Demand Drops To 27-Year Low As Interest Rates Pull Back. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 7.21% from 7.31. Applications for a mortgage to purchase a home fell 2%.

🐦 Twitter

  • Supply continues to do its thing: For the first time in many decades, apartment rents are rapidly flattening (and could soon go negative) at the same time demand remains healthy. Why? Apartment construction is at 40+ year highs-- shifting the balance of power to renters. Source.

  • Surge in non-residential construction was an important support to the economy in the first half of the year. Flatlining now, which is a notable shift. Has been offset a bit by resi so far, but that is also likely to slow as rates rise / demand fades. Not good for Q4. Source.

  • August ISM Services PMI up to 54.5 vs. 52.5 est. & 52.7 prior. New orders strengthened, prices paid rose, and business activity edged higher. Employment rose to the highest since November 202. Source.

  • Diesel prices have climbed more than 40% in the U.S. and Europe since May. This gives a sense of why United Air and Alaska Air came out today with warnings about how much energy costs have increased. Source.

  • Copper prices have been pretty quiet lately, but behind the scenes, things are shaking. Total open interest has been dropping hard, which if it is a big enough drop can be a good sign of at least a temporary bottom for copper prices. Source.

  • Over the last 15 years, the S&P 500 ($SPY) has gained over 360% vs. a 58% increase for the MSCI World ex-US ETF ($ACWX) and just 33% for the Emerging Markets ETF ($EEM). This is the longest cycle of US outperformance that we’ve ever seen. Source.

The number one mistake people make is thinking too big on their first business. They try to start the next SpaceX when they should be starting a paving company. Something boring that gets you the money to start the next SpaceX later. Build the launch pad before the rocket.

Andrew Wilkinson

📓 Online Publications

  • Roku Soars on Plans to Cut 10% of Staff, Consolidate Offices. Roku plans to cut about 300 workers or 10% of its workforce, consolidate office space, and reduce its content portfolio. It will also limit new hires as part of an effort to slow its growth in operating expenses.

  • Trade Deficit at $65.0 Billion in July. The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $65.0 billion in July, up $1.3 billion from $63.7 billion in June, revised.

  • Industry Evolution Continues During a Receding Tide. The brokerage industry is evolving along two paths: low-fee brokerage models that are attracting agents and legacy brokerages that are shedding agents. The low-fee brokerage models have a structural advantage and are profitable.

  • The Rise and Fall of ESPN’s Leverage. Over the years, ESPN has become the dominant force in sports media. However, its business model is now under threat from cord-cutting and streaming services. A sign of things to come, as more cable operators drop ESPN.

  • The Bond Bear Market & Asset Allocation. Investors shouldn’t expect to see the same levels of drawdowns in bonds going forward. Unless bond yields head south of 1% again and then quickly go back to 5% in short order, the current bond bear market is likely to be a historical outlier.

🎧 Podcasts

  • UK Government ‘Slow To Take Action’ On Pandemic-Era Business Grants. A powerful House of Commons committee says the government has only recovered 2% of the money. They recouped so little because there were legal questions about the ability to claw back some of the payments. Source(3:53)

  • Didier Reynders To Take Over As EU Competition Chief. It comes at a time when the EU is giving this big push to enforce their digital rules. Only today the EU will publish this list of new services that these platforms need to comply with more responsibilities on the Digital Markets Act. Source(0:56)

  • The Disney-Charter Fight Could Spell The End Of Linear TV. Following a contract disagreement, all Disney-owned TV channels went dark on Charter’s Spectrum cable service just before Labor Day weekend, resulting in a sports-less long weekend for its 15 million cable subscribers. Source(2:05)

  • NYC vs. Airbnb. The new law enforces a rule allowing home rentals of less than 30 days only if the host is present. It mandates hosts to register with the city and can impose fines of up to $1,500 per transaction on platforms like Airbnb, Vrbo, and if listings are not registered. Source(7:27)

  • Bad Time For Financial Risk-Taking. Darius Dale says that stocks and bonds are expected to yield average returns, and the U.S. dollar, commodities, and Bitcoin are likely to underperform. Despite ongoing challenges, forecasted positive economic growth is anticipated to persist and protect U.S. equities. Source(4:40)