Bespoke Brunch Reads: 4/23/23
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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AI
ChatGPT Can Decode Fed Speak, Predict Stock Moves From Headlines by Justina Lee (Bloomberg/Yahoo!)
Academic papers applying ChatGPT and similar large language models to finance are starting to roll out and the initial results are broadly promising with ChatGPT doing a serviceable job interpreting stock headlines and Fed statements. [Link; auto-playing video]
Nvidia’s top A.I. chips are selling for more than $40,000 on eBay by Kif Leswing (CNBC)
Graphics cards that are optimal platforms for AI development and deployment are going for as much as $46k on eBay. Tens of thousands of the prior generation of chips led to the development of ChatGPT by OpenAI. [Link]
Environment
Let’s talk about the biggest cause of the West’s water crisis by Kenny Torella (Vox)
The vast majority of the Colorado River’s water gets spread onto fields irrigating crops; only about one-fifth goes to all non-crop uses. Of those crops, the vast majority are dedicated to feeding cows, with livestock feed crops sucking down a staggering 1.05 trillion gallons per year. [Link]
Pacific Ocean Garbage Patch Is Bursting With Life by Nidhi Subbaraman (WSJ)
Massive patches of plastic waste in the world’s oceans is both a major threat to some species and a comfortable ecological niche for dozens of species. [Link; paywall]
Office Woes
Brookfield Defaults on $161 Million Office-Property Debt by John Gittelsohn (Bloomberg)
The owner of a large swathe of office building has defaulted on a commercial mortgage-backed security tied to a package of Washington, DC properties. Brookfield has previously walked away from the debt tied to two LA towers. [Link; soft paywall, auto-playing video]
Houston, Dallas lead the country in office attendance — and empty office space by Dani Romero (Yahoo! Finance)
While Texas markets have lots of people back in the office, that doesn’t necessarily mean they have low vacancy rates with coastal markets finding far more paying renters for their inventory. [Link; auto-playing video]
Housing
Home Prices Fell 3% in March—Biggest Annual Drop in Over a Decade by Lily Katz (Redfin)
The sales price of the median home in March was down 3.3% YoY, the fastest drop since at least 2012 as soaring prices in pandemic boomtowns ground into reverse. [Link]
More Flexible Zoning Helps Contain Rising Rents by Alex Horowitz and Ryan Canavan (Pew)
A subset of cities and towns that have eased zoning restrictions appear to have avoided the worst of the national surge in rent, despite robust growth in those cities over the last few years. [Link]
How To Spend It
2022 the United States Average Federal Income Taxes Paid (National Priorities Project)
While taxes don’t directly finance spending in a fiat money system, the breakdown of dollar amounts scaled to tax bills are nonetheless a helpful insight into the things our country prioritizes spending on. [Link]
End-Cretaceous Asteroid Caused Massive Global Tsunami, Peaking At A Mile High (AGU)
The massive impact which ended dinosaurs’ time as the dominant life from on earth and paved the way for mammals to supplant them generated enormous waves that would have soaked land almost a mile above sea level. [Link]
Food
McDonald’s is upgrading its burgers by Danielle Wiener-Bronner (CNN)
Small tweaks including softer buns, gooier cheese, onions on the grill, and more Big Mac sauce are all steps being taken to improve the core product at McDonalds. [Link]
The Amazing Story of How Philly Cheesesteaks Became Huge in Lahore, Pakistan by Kunwar Khuldune Shahid (Philly Mag)
The iconic cheesesteak has become one of the favorite foods of Pakistan’s second city, finding fans for their accessibility and fragrance. [Link]
Feeling Good
They’re the Happiest People in America. We Called Them to Ask Why. by Aaron Zitner (WSJ)
Among the roughly one in ten Americans who report that they are “very happy”, two-thirds are very or moderately religious, a similar percentage prioritize marriage, and few attach high importance to their personal finances. [Link; paywall]
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Have a great weekend!
The Bespoke Report – 4/21/23 – Are You Even Listening?
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The buildup to earnings season is always full of anticipation, but it usually starts off slowly as the pace of reports doesn’t usually really get going until the second full week of the reporting period. This earnings season has proved to be no different. While there were some notable reports from companies like Tesla (TSLA), Netflix (NFLX), Goldman Sachs (GS), Johnson & Johnson (JNJ), Lockheed Martin (LMT), IBM, AT&T (T), Taiwan Semi (TSM), and Procter & Gamble (PG), the real fireworks won’t be until next week when more of the mega-cap stocks start to report.
While equities escaped the week with just modest losses, they felt heavy for most of the week. As things stand now, both the S&P 500 and Nasdaq remain stuck in a sideways range and have stalled out at their February highs and remain well off their highs from last August. For all the talk about whether we’re in a new bull market or still stuck in a bear, at this point it seems like neither. If you want to call it a bear market, it looks about as savage as a koala, and if you’re going to go the bull route, it’s raging more like a cow than a bull.
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Daily Sector Snapshot — 4/21/23
Lithium: The Cycle Continues
If you haven’t checked the price of lithium lately, you might be in for a surprise. Spot prices for lithium carbonate in China have collapsed by two-thirds since hitting record highs in November of last year. Prices have gone from $84k per ton to $25k per ton. That unwinds the vast majority of a spectacular surge that played out from 2020 to 2022. Lithium initially surged 1,279% from July 2020 to March 2022 as part of the broader explosion of commodity prices and booming demand for electric vehicles, eventually peaking up 1,387% from the post-COVID lows. It’s easy to forget that this critical battery input had already gone through one such cycle. A 224% rally in 6 months during late 2015 and early 2016 before a long, slow bear market that saw prices down 78% over several years.
In the equity market, the price cycle hasn’t been as dramatic in percentage terms, but there has still nonetheless been a double cycle of surging stock prices in 2016 followed by a grinding bear market, and then an even more dramatic surge through late 2022 that is now sliding into reverse. On Thursday, Chile’s government announced reforms to its lithium extraction policy. While existing contracts with firms that operate in the rich lithium brine deposits of the Chilean Atacama desert will be honored, the market is looking at weaker lithium prices and the fact that existing contracts will be replaced by less favorable ones 10+ years down the line and hitting lithium players. SQM is off 21% today while ALB is 10% lower.
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Earth Day 2023: “Invest in our Planet”
Tomorrow will mark Earth Day, an annual event in support of environmental protection. Befitting of this year’s theme “Invest in our Planet” in the charts below we check in on the performance of clean energy stocks via the iShares Global Clean Energy ETF (ICLN). As shown, ICLN has been stuck in a sideways trend over the past year with the 200-DMA essentially flat since the fall. At the moment, price is sandwiched between the 200-day and its 50-DMA. While time will tell if the 50-DMA provides any support, the past week has seen ICLN fail to break out of the downtrend off of last summer’s highs.
That downtrend also traces back even further to the early January 2021 high which was put in place following the massive run in clean energy stocks during the first year of the pandemic.
ICLN is comprised of a number of clean energy stocks from around the globe. In the snapshot from our Chart Scanner below, we show the ETF’s eight largest US-based holdings. As the ETF is trending sideways, these individual holdings’ trends are all over the place. For example, while Bloom Energy (BE) and Consolidated Edison (ED) are trending sideways, First Solar (FSLR) has been in a steady long-term uptrend. Conversely, Plug Power (PLUG) and Sunrun (RUN) have traded in steady downtrends for some time now with the former near 52-week lows.
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Bespoke’s Morning Lineup – 4/21/23 – Crawling into the Weekend
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“By day the banished sun circles the earth like a grieving mother with a lamp.” – Cormac McCarthy
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
Futures this morning have moved modestly into positive territory after trading lower overnight, but after two straight days of modest declines for stocks, there’s a heavy feeling into the weekend. The only economic data on the calendar this morning are preliminary PMI data for April from S&P. In reports for other countries we have seen already this morning, the general trend has been one of weaker readings in manufacturing and improvement in services.
Treasuries are generally trading higher this morning with the biggest moves coming at the short end of the curve. In Fedspeak overnight, Philadelphia Fed President Patrick Harker made some common sense comments when he said that “We need to be a little cautious here to not just respond to the current level of inflation, but where we think it’s going.”
With tomorrow being Earth Day, we wanted to take a quick look at how global equities look heading into the weekend and as we’re close to four full months into the (no longer) new year. While the S&P 500 has been struggling to even take out its February high, the highs from last August before Powell’s Jackson Hole speech tanked the market still loom above. Global equities, however, have fared better. In addition to trading right at the February highs, the MSCI All Country World ETF (ACWI) is also right at the highs from last August as the low-$90s range is a level that has acted as resistance multiple times in the last seven months. Bulls will point to the fact that during the pullback that followed the last unsuccessful breakout, ACWI made a higher low, while bears will highlight the fact that volume during the last leg higher was anemic. Whichever way it breaks from here, though, the move is likely to be a significant one.
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Homebuilders Breaking Out Like It’s…
It’s hard to get over how well the homebuilder stocks have been performing lately. As shown in the charts below of stocks in the S&P 1500 Homebuilder group, these names are nearly universally in steep six-month uptrends and breaking out as we type.
Below is another way to see just how crazy the run has been for the S&P 1500 Homebuilder stocks lately. Most names are now up 30-40% year-to-date after rallying 5-10% over the last week. This has pushed them ~10% above their 50-DMAs, and many are trading more than two (or even three for some) standard deviations above their 50-DMAs in extreme overbought territory.
“Mr. Market” has either lost its mind or it’s predicting that all the current worries about housing in the months and quarters ahead are misguided.
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The Closer – Claims Surge, Bad Data Day, 5y TIPS – 4/20/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a review of the latest earnings including the massive drop in AT&T (T) (page 1). We then dive into an income breakdown of unemployment benefits (page 2) and Fed liquidity (page 3). Afterward, we provide an update of our Five Fed Composite (page 4), existing home sales (page 5), leading indicators (page 6), and the 5 year TIPS auction (page 7).
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Bespoke’s Weekly Sector Snapshot — 4/20/23
The Bespoke 50 Growth Stocks — 4/20/23
The “Bespoke 50” is a basket of noteworthy growth stocks in the Russell 3,000. To make the list, a stock must have strong earnings growth prospects along with an attractive price chart based on Bespoke’s analysis. The Bespoke 50 is updated weekly on Thursday unless otherwise noted. There were no changes to the list this week.
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The Bespoke 50 performance chart shown does not represent actual investment results. The Bespoke 50 is updated weekly on Thursday. Performance is based on equally weighting each of the 50 stocks (2% each) and is calculated using each stock’s opening price as of Friday morning each week. Entry prices and exit prices used for stocks that are added or removed from the Bespoke 50 are based on Friday’s opening price. Any potential commissions, brokerage fees, or dividends are not included in the Bespoke 50 performance calculation, but the performance shown is net of a hypothetical annual advisory fee of 0.85%. Performance tracking for the Bespoke 50 and the Russell 3,000 total return index begins on March 5th, 2012 when the Bespoke 50 was first published. Past performance is not a guarantee of future results. The Bespoke 50 is meant to be an idea generator for investors and not a recommendation to buy or sell any specific securities. It is not personalized advice because it in no way takes into account an investor’s individual needs. As always, investors should conduct their own research when buying or selling individual securities. Click here to read our full disclosure on hypothetical performance tracking. Bespoke representatives or wealth management clients may have positions in securities discussed or mentioned in its published content.