Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market-related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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On This Day in History:

As Tesla’s fight with Sweden escalates, the EV firm is hiring a ‘hands-on’ Nordic expert with a knack for problem-solving (MSN)
Sympathy strikes across Nordic countries in reaction to Swedish Tesla employees’ demands for collective bargaining have forced the automaker to hire an expert in the region to help tame the escalating labor disputes. Tesla’s refusal to engage in standard collective bargaining practices in Sweden has led to operational disruptions, including halted services and deliveries. Tesla hopes its new hire can get the issues settled, especially with Elon Musk so outspoken about his opposition to unions. [Link]

E-scooter company Bird files for bankruptcy (Electrek)
Global e-scooter company Bird has filed for bankruptcy in the US but will continue its operations in Canada and Europe. Bird’s US operations have faced challenges, including a significant drop in its stock value and delisting from the NYSE. Bird has also faced tough competition and regulatory challenges in the e-scooter market. The industry overall is experiencing mixed fortunes, with some companies facing layoffs and others, like Lime, reporting growth. [Link]

U.S. Battery Production Is Going … Great, Actually? (Heatmap News)
The EPA’s new emissions stardards, set for 2032, imply that 67% of new vehicles will need to be electric by 2032, posing a challenge due to the Inflation Reduction Act’s restrictions on EV components from certain countries. Despite this, a report from the Environmental Defense Fund shows promising growth in US battery production, exceeding expected demand by 2028. This increase in domestic production could help automakers meet the standards and allow consumers to benefit from EV tax credits. [Link]

Economic Trends

AI gives birth to AI: Scientists say machine intelligence now capable of replicating without humans (Fox News)
Large AI models, like those behind ChatGPT, can now autonomously create smaller, specialized AI systems. To create self-evolving AI, large models are building smaller ones, without the help of humans. What researchers believe is that this process will help all models collaborate and build out an intelligence ecosystem, basically all autonomously. Right now, these AI-built models are good for practical tasks that humans can use in everyday life. Even your dishwasher and coffee maker could use AI! [Link]

Microsoft Agrees to Remain Neutral in Union Campaigns (NYT)
Microsoft declared its neutrality towards unionization efforts in the US, a group that includes about 100,000 workers. This decision follows a neutrality agreement with the Communications Workers of America, under which Microsoft’s video game workers unionized without a formal election. Now union leaders and Microsoft will discuss issues stemming from AI. AI experts from Microsoft will inform union leaders about AI developments at the company and attempt to mitigate concerns like job displacement as a result of the quickly evolving technology. [Link]

Rite Aid faces 5-year facial recognition ban after FTC accuses it of “reckless” use of AI tech (Axios)
With retail crime on the rise and of much discussion in the media lately, facial recognition has become popular to identify those they believe to be shoplifting and causing other issues in stores. An FTC complaint suggests that Rite Aid failed to use the technology responsibly, claiming that it “disproportionally impacted people of color.” Many of the alerted results of the facial recognition came back as false positives. Rite Aid says that it disagrees with the claims and only uses the technology in a limited capacity. [Link]

The City That’s Trying to Replace Politicians With Computers (It’s Working) (WSJ)
In Porto Alegre, Brazil, Councilman Ramiro Rosário pioneered the use of ChatGPT to draft a law, marking a significant shift in legislative processes. This law, aimed at preventing the local water company from charging for stolen water meters, was passed unanimously and was the country’s first to be entirely written by AI. This could be the start of a new direction in governance, suggesting increased efficiency and cost-effectiveness in public administration, but it also raises questions about ethical practices and the future role of human legislators in policymaking. There was certainly some pushback against Rosário when others found out he didn’t write any of it. [Link]

Christmas

Just How Rich Were the McCallisters in ‘Home Alone’? (NYT)
Home Alone, is a Christmas classic. The question that has been stirring on social media as the holiday season rolls around is, what exactly did Mr. McCallister and Mr. McCallister do to afford all that they had? The film takes place in a real house in Winnetka, Illinois, one of the most expensive neighborhoods in the country. The movie suggests Kevin’s mom is a fashion designer and his dad a businessman. The family’s wealth is further implied by their ability to accommodate a large number of people and the luxurious lifestyle they lead, despite not paying for their trip to Paris, which was funded by Uncle Rob. [Link]

The Ancient Origins of the Christmas Wreath (WSJ)
Wreaths are a Christmas Staple. The tradition dates back to ancient cultures, including the Egyptians, Greeks, and Romans, and served various symbolic purposes. The Vikings introduced the Yuletide wreath as part of their winter solstice celebrations, which later evolved into the Christian Advent wreath. The practice of decorating doors with wreaths gained popularity in America in the 20th century, largely influenced by Louise B. Fisher’s creative designs at Colonial Williamsburg, leading to the widespread custom of decorating front doors with festive wreaths during the holiday season. [Link]

Billionaire Endeavors

Jeff Bezos, Elon Musk say human population not nearly big enough: ‘If we had a trillion humans, we would have at any given time a thousand Mozarts’ (Yahoo Finance)
Jeff Bezos and Elon Musk, two prominent billionaires, share a vision for expanding human presence in space. Bezos, with Blue Origin, envisions a future with a trillion humans living across the solar system, facilitated by robust space infrastructure. Musk, leading SpaceX, emphasizes the need for humanity to become a multi-planet species, focusing on Mars colonization. Both stress the importance of population growth and space exploration for the future of civilization. [Link]

Immigration

A run-down motel became an accidental sanctuary for hundreds of migrants. In them, its owner found renewed purpose and meaning. (Denverite)
Yong Cha Prince planned to close her motel in Denver but found a new purpose when she sheltered Venezuelan migrants in need. The Western Motor Inn became a home for about 300 people seeking better lives in the US. It has made Prince happy to be able to care for those living at the motel, but the future of the community is uncertain due to the motel’s deteriorating condition and financial challenges. [Link]

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A small number of (mega-cap) names have done the bulk of the heavy lifting for market-cap-weighted S&P 500 performance this year, but that does not steal from the fact that breadth has been solid. As shown below, the S&P 500’s 10-day advance decline line—which essentially measures the ten-day average of the daily net percentage of stocks in the index trading higher/lower—has shown positive readings 57.9% of the time in 2023 and is right in line with the annual average dating back to 1990.

Within this year’s respectable breadth readings has been a particularly strong run over the past couple of months which we first highlighted in yesterday’s Sector Snapshot.  As shown below, the 10-day advance-decline (A/D) line has pretty consistently sat at least one standard deviation above its historical average throughout November and December. In other words, the past couple of months have consistently seen historically large swathes of the market trading higher.

Looking at the past 50 trading days, two-thirds of the time have seen the 10-day A/D line sit in overbought territory.  Of all rolling 50-day periods, there have only been two other times when breadth by this measure has been overbought on such a consistent basis. The most recent of these was in early 2019 when it was overbought 70% of the time.  Before that, you’d need to go back to 2010 to find a reading as high.

The keyword of the year in markets has been AI, and besides Nvidia (NVDA), whose chips power most of the AI-related applications, two of the most high-profile companies competing in the sector have been Alphabet (GOOGL) and Microsoft (MSFT).  Most people forget, but it was back in 2016, six years before Chat-GPT even came out, that Alphabet CEO Sundar Pichai declared that Google was an “AI-first company.”  Pichai may have been ahead of the game, but when Chat-GPT first launched late last year, it was MSFT that found itself in the pole position while the consensus quickly declared that Alphabet missed the boat on AI.  This sentiment was reinforced throughout the year as there were numerous points where Alphabet made negative headlines due to its shortcomings in AI.

Given the headlines, you’d think that the amount of daylight between the performance of MSFT and GOOGL this year would be wide, but the charts say otherwise.  As shown in the charts below, they’re both on pace to close out the year right near their highs, and it’s GOOGL that is closer to a new high. Not only that but on a YTD basis, it’s GOOGL (58.99%) that is outperforming MSFT (54.9%) rather than the other way around.

To be fair, since the launch of Chat-GPT on 11/30/22, MSFT is still outperforming GOOGL, but the gap between them has been narrowing.  With MSFT up 45.5% and GOOGL up 38.8% since Chat-GPT introduced itself to the world, less than seven percentage points separates the two stocks. What’s notable about the performance of the two during this time is that while MSFT has been in the lead most of the time, there have been multiple periods where the lead shifted between the two.  The AI race between GOOGL and MSFT has been a lot closer than this year’s headlines would have you believe.

Future Hall of Fame quarterback Tom Brady has been in the news recently, not for anything football related, but for a just-released Bowman baseball card he’s on that collectors are going gaga for.

The quick backstory: After his senior year of high school, Tom Brady was drafted by the Montreal Expos in the 18th round of the 1995 MLB player draft.  Instead of signing with the Expos out of high school, Brady chose to take his football talents to the University of Michigan in Ann Arbor, and the rest is history.

Now retired from football with by far the most Super Bowl hardware of any quarterback in NFL history, Brady was approached by Michael Rubin’s Fanatics, which now owns and produces Topps/Bowman baseball cards, to hand-sign a number of super rare “what if” Brady baseball cards that have been inserted in the company’s newest annual set.  Who knows, maybe the two came up with the promotion at Rubin’s Hamptons white party this summer…

The elusive Tom Brady baseball “rookie card” can be found in packs of the just-released 2023 Bowman Draft product, which shipped to customers on 12/12 (Brady’s NFL jersey number) and additionally features the first rookie cards of players drafted in the 2023 MLB draft.

Brady appears to have signed 81 cards that have been inserted into packs, and the odds of pulling one have been tagged at roughly 1 in 26,600 packs!

As shown below, what appears to be the first Brady auto (autographed card) listed on eBay just sold on December 18th for $21,200!

In addition to the 81 Brady autographed cards randomly inserted into 2023 Bowman Draft packs, there are also non-autographed Brady “Expos” cards like the ones shown below that are still rare but are much more common than the autographed versions.  Even these are selling for more than $1,000 on eBay as of December 19th.

Now that you have the backstory, you may be wondering why Bespoke is writing an article about baseball cards?

While not experts by any means, we here at Bespoke know a thing or two about the sports card collectibles industry (we were, after all, kids once and now have kids of our own), so we thought: “What if we tried our luck and got in on the chase for the Brady auto?  Let’s buy a few boxes of 2023 Bowman Draft, open the packs, see what we get, and then calculate how much money we either lost or made on the whole endeavor.  We can then compare and contrast the ways that investing in the stock market is similar to and different from “investing” in sports cards collectibles.  And if we pull a super rare Brady auto, it will be a very nice Christmas!”

And here we are.  Last week we purchased six boxes of 2023 Bowman Draft from BlowoutCards.com.  The boxes arrived in a couple of days and we immediately sat down and started opening packs (called “ripping” by collectors)!

Did we pull a rare Brady?  Or what about other rare rookie autograph cards inserted in the product?  We know…the suspense is killing you…but first, let’s discuss some of the ways we think collecting baseball cards can be comparable to investing in stocks.

While many fans collect sports trading cards as a hobby instead of viewing them as an investment, a large contingent of collectors out there are indeed looking to make money in the process.  In simple terms, they’re trying to “buy low and sell high,” just like investors are trying to do when they buy and sell stocks.

We’ll get it out of the way now: many out there smirk at the thought of small, rectangular pieces of cardboard having any sort of value, because after all, the paper these cards are printed on is effectively worth nothing.  But, just like precious works of art or even to some degree, the share price of a stock, the value of something is what someone is willing to pay for it, right?  And the value of sports cards mostly comes down to three things: the athlete or celebrity on the card, the scarcity of the card, and the condition of the card.

If you’re a card collector that knows little to nothing about investing in the stock market, or vice versa, here’s a good way to break things down:

In the investment world, “blue-chip” large-cap stocks are mature companies that have weathered the ups and downs of multiple business cycles over the years.  These are generally companies that are past their peak “growth” phase, but they’re still generating steady profits, and they often pay back their shareholders in the form of annual dividends.  While these large-cap stocks may not be likely to double or triple in value in the near term, they can offer slow and steady returns over the years with relatively low volatility.  Some examples of blue-chip stocks are names like Apple (AAPL), Coca-Cola (KO), American Express (AXP), and Home Depot (HD).

In the card collector’s world, think of large-cap blue chips as the cards of some of the best players of all time in their respective sports who have already retired or are closing in on retirement.  These are the All-Stars, Hall of Famers, and GOATs (greatest of all time) that created lasting legacies with fans during their playing days.  Now past the “growth” phase of their careers, the value of the blue-chip cards are no longer going to increase because of player performance, but rather scarcity and condition as the years pass from their playing days.  Examples of “blue chips” in the collecting world are the cards of players like Mickey Mantle, Nolan Ryan, Jim Brown, Joe Montana, Larry Bird, Michael Jordan, and Wayne Gretzky.

For the cards of players that didn’t form lasting legacies during their careers, unfortunately, their cards are going to be much less valuable, or even “bankrupt” like a large-cap stock of yesteryear whose profits slowly dwindled to nothing over time.  Eastman Kodak is a name that comes to mind here.

Next up in the investment world are small-caps or growth stocks.  These are the younger companies out there that may be currently experiencing rapid revenue growth even though they’ve yet to generate any real profits.  For these companies, the sky is still the limit as long as their management teams execute and their industry remains relevant.  If everything works out, growth stocks can double, triple, or even become “ten baggers” (stocks that go up 10x in value), but the future is still unknown, so they’re typically much more risky and volatile than blue chips.  Over time, only a small percentage of small-cap growth stocks will eventually turn into large-cap blue chips, so investors must do their research and choose wisely!

The small-cap growth stocks in the card collecting industry are the up-and-coming “prospects” found in modern-day packs like 2023 Bowman Draft that we wrote about earlier.  These are players that are still super early in their playing careers, whether they’re rookies in the NFL or NBA or still in the minor leagues for baseball.  Because the sky is still the limit and these athletes could turn out to be Hall of Famers, collectors looking for the “next” Tom Brady or Michael Jordan pay a premium for “potential,” but buying these cards is much more risky than buying “blue chips” since only a small percentage of players ever make it to the top of the mountain.  Players who would now be considered “small-cap, growth” stocks in the card world might be quarterback CJ Stroud, running back Bijan Robinson, NBA rookie Victor Wembanyama, or minor leaguers like Jackson Holliday with the Orioles or Paul Skenes with the Pirates.

In the card collecting world, you can either buy individual cards of players, which are called “singles” in the industry, or you can buy boxes or packs of products like 2023 Bowman Draft.  When you buy packs of cards, the contents are unknown, but there’s a chance you could pull a rare card of a player you’re looking for.  Buying an individual card of a highly sought-after rookie or prospect is much more expensive than buying a pack that simply gives you a chance to pull the same card.  By buying a low-cost pack, you have a chance to pull a really valuable card, but there’s also a very good chance that you’ll buy the pack and NOT pull anything valuable; essentially losing your money.  That’s what makes opening packs the riskiest part of the trading card industry.  More often than not, you’re going to lose money, because the companies producing the packs have to make money!  In this way, opening packs instead of buying singles is like trading options instead of buying individual stocks.  Trading options costs much less than buying the underlying stock, but the payoff can be huge even though your option can also just as easily expire worthless.

Hopefully you enjoyed some of the comparisons above!

We mentioned that opening packs is the riskiest part of the trading card industry, but that’s exactly what we did when we bought and opened our boxes of 2023 Bowman Draft in search of rare cards like the Tom Brady auto.  To find out how we did, check back tomorrow!  We’ll highlight everything we pulled (did we pull a Brady???) and then see if their combined value based on recent eBay sales gets us anywhere close to back to even!

Is there a Brady auto in one of these boxes…