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:

The Pumpkin Papers: On January 21st, 1950, Alger Hiss was convicted of perjury after a series of trials that resulted from one of the most high-profile espionage accusations of the Cold War era. The story begins when Whittaker Chambers, a Time Magazine editor and former Communist, testified before the House Committee on Un-American Activities that he and Hiss were part of a communist group in the 1930s. Hiss denied these accusations and any connections to Chambers or communism. Later, Congressman Richard Nixon pressed Chambers on the matter, who produced documents and a package of microfilm, which would come to be famously known as the “Pumpkin Papers,” from his farm. These papers, including notes in Hiss’s handwriting, suggested espionage activities. The statute of limitations for espionage had expired, but Hiss was still found guilty of lying under oath for which he was sentenced to 44 months in prison. The case not only captured lots of public attention, but also set the nation up for a period of McCarthyism, or “the second red scare.”

Population Problems

France sees collapse in births to lowest since World War Two (Reuters)
French President Emmanuel Macron has pledged to reform parental leave to offer better pay, in response to France experiencing its lowest birth rate since World War II. In 2023, births in France decreased by 7% from the previous year, and 20% since 2020. Despite traditionally robust demographics supported by generous health, childcare, and tax benefits, the birth rate has declined, with the average number of children per mother dropping to a three-decade low of 1.68 in 2022. [Link]

China’s population drops for second year, with record low birth rate (Reuters)
China’s population declined in back-to-back years, with a significant decrease of 2.08 million people in 2023 due to a record-low birth rate and a surge in COVID-19 deaths. The country’s birth rate fell to 6.39 births per 1,000 people, the lowest ever recorded, while deaths increased to 11.1 million, the highest rate since 1974. These demographic shifts are attributed to the long-term effects of the one-child policy, urbanization, economic challenges, and a property sector crisis. [Link]

AI & Technology

Apple tops Samsung for first time in global smartphone shipments (The Verge)
For the first time, Apple’s 234.6 million units shipped in 2023 surpassed Samsung’s 226.6 million. Samsung has been sitting in that driver’s seat since 2010. Apple wasn’t even in the top five then, but the rise in premium device sales, fueled by trade-in offers and financing plans, contributed to Apple’s success. Despite a 3.2% overall decline in smartphone shipments in 2023, the market showed recovery signs in the fourth quarter, indicating potential growth ahead. [Link]

More CEOs fear their companies won’t survive 10 years as AI and climate challenges grow, survey says (El País English)
Just 38% of CEOs in a recent survey are more optimistic about the economy compared to 18% last year when a recession was thought to be a likely outcome in 2023. 45% now fear their companies may not survive the next decade due to challenges like climate change and technological advancements, most notably in AI which does pose significant threats. CEOs argue that it’s tough to evolve in an environment that seems stacked against them on the regulatory playing field. Many say they also lack skilled workers in a quickly advancing world, technologically speaking. [Link]

Legal Troubles

Joe Manchin Will Help You Sue the Biden Administration (Heatmap News)
Senator Joe Manchin has publicly criticized the Biden administration’s implementation of electric vehicle (EV) subsidies under the Inflation Reduction Act, accusing it of relaxing rules to hasten EV adoption. Despite his support for the Act’s goals, Manchin challenges the approach as a deviation from the law, emphasizing his readiness to back legal challenges against these actions. The debate also encompasses the impact of EVs on the electric grid. [Link]

Morgan Stanley Banker Lifted Hedge Fund From ‘Kiddie Table’ With Stock Tips (AdvisorHub)
Pawan Passi, former head of block-trading at Morgan Stanley, entered an agreement with the US Justice Department, pleading not guilty to securities fraud. He’s accused of leaking confidential information about upcoming large stock sales, benefiting selected investors who often shorted the stock ahead of the trades. Morgan Stanley also agreed to pay $249 million to settle investigations, avoiding criminal charges. [Link]

NY Congestion Pricing Plan Violates US Constitution, NJ Governor Says (Bloomberg)
New Jersey Governor Phil Murphy is challenging New York’s plan to implement congestion pricing for motorists entering Manhattan, arguing it violates the US Constitution’s dormant commerce clause by discriminating against New Jersey residents. The lawsuit seeks to halt the MTA’s implementation of the tolls, which are expected to generate significant revenue for New York’s transportation system upgrades, but without any direct benefits or compensation for New Jersey. [Link]

No Beverly Hills Home Renovations Without Affordable Housing: Judge (The Daily Beast)
A judge in Los Angeles County has temporarily halted all home renovation permit requests in Beverly Hills, requiring the city to focus on building new affordable housing. This ruling could lead to an indefinite ban on permits for anything other than new housing developments if the appeal fails. This decision has significant implications for Beverly Hills’ affluent residents, potentially affecting their ability to make luxury modifications to their homes. [Link]

IRS collects more than $500 million in back taxes from delinquent millionaires (MarketWatch)
Millionaires with outstanding tax debts have paid $520 million to the IRS following increased enforcement efforts geared toward wealthy businesses and individuals. Now that the IRS has received a big funding boost from the Inflation Reduction Act, the agency can enhance compliance which is already having success. The crackdown could be hindered by a deal to lift the debt ceiling or a potential deal to avert an upcoming government shutdown, both of which would redirect billions of dollars of funding elsewhere. [Link]

Real Estate

Cantor Fitzgerald CEO Howard Lutnick warns of ‘generational shift’ in real estate market: ‘$1 trillion in defaults coming’ (New York Post)
The CEO of Cantor Fitzgerald predicts rocky times ahead for the US real estate market, forecasting a massive wave of loan defaults, potentially reaching $700 billion to $1 trillion. Speaking at the World Economic Forum in Davos, Lutnick highlighted the impact of high interest rates on commercial real estate loans, foreseeing a situation where property owners might default on their loans as refinancing becomes unfeasible due to lower valuations and higher rates. [Link]

Wealth Management

Offices Around America Hit a New Vacancy Record (WSJ)
Office vacancies in major US cities have reached their highest levels in over four decades, tracing back to overbuilding in the 1980s and 1990s, worsened by the shift towards remote work and smaller office spaces accelerated by the pandemic. Many of the vacancy trends have flipped too. For example, areas that were once booming like San Francisco and Texas cities are now facing high vacancy rates, while cities in Florida that once struggled now show lower rates. [Link]

EVs

Electric vehicles fail at a lower rate than gas cars in extreme cold (Electrek)
Contrary to the story this past week as seen by dead Teslas at charging stations in frigid cold temperatures in Chicago, an assistance service in Norway, Viking, reports that electric vehicles (EVs) are less likely to fail in extreme cold conditions compared to gas-powered cars. In Norway, where about 1 in 4 cars is electric, Viking responded to 34,000 assistance requests in early 2024, with only 13% involving EVs. The issue seen is Chicago was allegedly identified with the chargers, rather than the EVs themselves. [Link]

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The S&P 500 has continued its listless drift sideways this year, and sentiment has begun to take notice.  Bullish sentiment exited 2023 at elevated readings with close to half of all respondents to the weekly AAII survey reporting as bullish, but since then, that reading has dropped down to 40.4% this week. That marks the lowest reading on optimism since the first week of November when it was a much more muted reading below 25%.

In turn, bearish sentiment has begun to pick up. 26.8% of respondents reported as bearish this week. That is only the highest reading since the first week of December and would need to climb another 4.25 percentage points to reach its historical average.

With the inverse moves in bulls and bears, the bull-bear spread has fallen to 13.6.  While bulls have outnumbered bears for 11 weeks in a row now, this week’s reading marks the smallest margin during that span.

Not only is the AAII survey showing the least bullish sentiment in about two months, but so too are the Investors Intelligence survey and the NAAIM Exposure index.  Plugging each reading into our sentiment composite shows that aggregate sentiment has quickly gone from sitting over a full standard deviation more bullish than the historical norm down to barely bullish readings in less than a month.

Among a number of better than expected economic data points this morning was initial jobless claims.  Seasonally adjusted claims were expected to rise to 205K from an upwardly revised level of 203K last week.  Instead, claims were much healthier than expected, dropping all the way down to 187K. As shown below, that puts the indicator within 5K of the late September 2022 low of 182K.  Zooming further out, that is also one of the strongest readings on record, ranking in the first percentile of all weeks since the start of the data in 1967.

In reality, before seasonal adjustment, claims are much higher at 289.2K as the reading is currently working off a seasonal peak.  However, that is not to say claims are weak. As shown in the first chart below, versus comparable weeks of the year going back to 2004, this most recent reading was only slightly above where they stood this time last year. In fact, that reading last year currently stands as the record low for the second week of the year of all years going back to 1967. Looking ahead to next week, another week-over-week decline is more than likely given it is the week of the year with perhaps the strongest seasonal tendencies.  Going over the history of the data, there has not been a single time that NSA claims have risen week over week in the third week of the year.

As previously mentioned, claims tend to spike to seasonal highs around now, and there has been only one previous time that NSA claims have been lower in the second week of the year, and that was in 2023.  But looking back over the past several years shows that the strong reading on claims for this time of year even pre-dates COVID.  As shown below, in the 50 years from 1967 through 2016, the second week of the year averaged 656.5K for NSA claims. But since 2017 (excluding 2021 when claims were an outlier with far more elevated readings due to the pandemic) those same weeks have averaged a significantly lower reading of 340.3K.   Put differently, the seasonally elevated level that claims have begun the year at is not exactly what it used to be.

Looking at things from another angle, below we show the percent change in NSA claims during the period that the indicator has historically experienced its seasonal runup, lasting roughly from September through the first couple of weeks of the new year.  As shown, since the late 1990s, that seasonal climb has been trending smaller and smaller in size.  All together, that means there appears to have been some structural changes in seasonal patterns over the past couple decades (which could also have implications for the seasonally adjusted number understating). As a result of a smaller seasonal spike, claims have spent the first few weeks of the year at lower levels than may have been the case in the past.

Finally, we would note that in addition to strong initial claims, seasonally adjusted continuing claims have also continued to roll over, totaling 1.806 million last week.  That was a solid decline versus 1.834 million the previous week compared to an expected increase to 1.84 million.  That also sets a three month low in continuing claims.