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:

Monetary Tightening, Inflation Drivers and Financial Stress (Fed Bank of San Francisco)
In the US and many foreign countries, financial stress increases following a policy rate hike if inflation is supply-driven, but not significantly in demand-driven inflation scenarios. This paper considers the mechanisms behind these observations, considering factors like supply and demand shocks. Robustness checks further confirm these findings, examining impacts on specific financial conditions like loan delinquency rates. The research concludes that monetary policy needs to be nuanced to effectively manage any potential financial stress by taking into account the type of inflation present in the economy. [Link]

Carrefour says it will not sell PepsiCo goods due to price hikes (Reuters)
Carrefour is a major French supermarket chain, and it announced it will stop selling Pepsi products across several countries in Europe citing excessive price hikes. It’ll impact over 9,000 stores and is just one example of retailers pushing back against price hikes amid rising inflation. This isn’t a first for Carrefour either.  The company has contested manufacturers over pricing issues in the past and made it clear to customers when certain products have been subject to “shrinkflation.” [Link]

World food price index ends 2023 some 10% below 2022 levels (Yahoo Finance)
The United Nations Food and Agriculture Organization reported a significant decrease in global food prices last year, with the food price index dropping about 10% from 2022 levels. This decline, marked by a 1.5% drop in December from November, helped alleviate worries over global food inflation. The reduction was driven by factors such as increased production and changes in usage in key commodities like sugar, cereals, and vegetable oils. [Link]

AI & Technology

Important People Are Noticing How Terrible CLEAR Is for Airports (Slate Magazine)
After a jam-packed holiday travel season, it’s easy to look at those crowded TSA lines and rather take a different route. And you can, but there’s a price tag. CLEAR is one answer. Clear Secure (YOU) is a company that we recently highlighted as a 2023 “Triple Play King,” joining five other companies that reported four earnings triple plays last year. If you haven’t read that post, YOU had a tough 2023 despite its earnings success, declining just about 25%. Well, CLEAR offers a way to bypass security lines, and recently became a federal contractor for TSA Pre with its new identity verification system. While it can be a big time saver, many are criticizing the company for selling line-cutting privileges in a government-mandated process. [Link]

Oppenheimer and the resurgence of Blu-ray and DVDs: How to stop your films and music from disappearing (BBC)
Physical media looks to have made an unexpected resurgence, particularly Blu-ray and DVDs, in the streaming era, and Christopher Nolan’s film “Oppenheimer” has been a case study. Despite the dominance of streaming services, the physical release of “Oppenheimer” witnessed a buying frenzy, indicating a continued consumer interest in owning tangible media. This trend reflects concerns over the short-lived and revolving nature of streaming content and a desire for a more controlled and quality viewing experience. [Link]

Car Buyer Hilariously Tricks Chevy AI Bot Into Selling A Tahoe For $1, ‘No Takesies Backsies’ (HotHardware)
ChatGPT and other AI chatbots are being used seemingly everywhere and for everything now. Or at least we’re headed that way. They aren’t perfect yet, though, as Chevrolet’s chatbot was exploited and tricked into agreeing to sell a car for a dollar, “no takesies backsies.” Incidents like this are pretty comical, yes, but they also highlight the risks of unsupervised LLM deployment, including potential data leakage and generating inappropriate responses. We still have a long way to go on AI. [Link]

Jeff Bezos Bets on a Google Challenger Using AI to Try to Upend Internet Search (WSJ)
Perplexity, a startup with funding from former Amazon CEO Jeff Bezos, is looking to make a run at competing with Google. Perplexity uses AI in its search function, which could be a huge change in how people search the internet to get direct answers. The startup has quickly gained attention, attracting investments and a growing user base enthusiastic about new AI applications. Google is stiff competition, but AI is growing and transforming the landscape fast. [Link]

Sports

The Sports-Betting Traders Deciding How Much You Win or Lose (WSJ)
Sports-trading desks use complex algorithms and data analysis to simulate game outcomes and adjust odds in real-time. Throughout any game, it’s pretty impressive how fast odds update based on an infinite number of situational results. FanDuel, for instance, simulates each football play 10,000 times. Traders are positioned all over the map, in different time zones, and around the clock to ensure a smooth operation. These sports-betting platforms generate hundreds of millions of dollars on NFL games in just one weekend slate, before winnings are paid out. Gambling is gambling though, and Miami Dolphin Tyreek Hill’s 78-yard touchdown recently against the Washington Commanders caused FanDuel to lose $1 million. Never forget, though, ultimately the house always wins. [Link]

NFL officiating is broken, according to coaches and executives. Inside a fractured system with no imminent fix (Yahoo Sports)
The NFL season has been plagued by injuries to high-paid starting quarterbacks and other integral players, but even that hasn’t overshadowed how especially bad the officiating has been. Rules have changed over the years and become more focused on player safety, making some calls more subjective and tougher to enforce. The end of the Lions vs Cowboys game last week was especially controversial, leading to a game-altering outcome after what would have been a successful two-point conversion to put the Lions ahead late in the 4th quarter. Will any real changes be made next season? One can only hope, especially with advances in technology used in the NFL. [Link]

Environment

Potential Perturbation of the Ionosphere by Megaconstellations and Corresponding Artificial Re-entry Plasma Dust (Arxiv)
In upcoming decades, satellites are projected to increase by up to one million to form “mega-constellations.” The satellites will frequently re-enter Earth’s atmosphere to be replaced, and they will leave behind conductive particles. The conductive particles from re-entry satellites are already excessive and may grow to a point where a conductive layer surrounds the Earth worldwide. That means satellite re-entries will produce plasma dust with a charge higher than the rest of the magnetosphere. [Link]

I thought most of us were going to die from the climate crisis. I was wrong (The Guardian)
In 2015, scientists predicted global temperatures could rise 6°C by the turn of the century. In those conditions, biomes would change, crops would fail, many would be malnourished, sea levels would rise and drown entire cities and even countries, and the list goes on as each impact would perpetually get more severe. That isn’t a likely case now though. That 6°C figure is projected now to be under 3°C and could reduce further. For example, many underestimate how fast technology evolves, hence the widespread misconception that carbon emissions have increased by more than ten or twenty percent over the last fifteen years. In reality, technological advances have helped us decrease emissions by 20% over that time. Also, never underestimate the power of Mother Nature. Not everything is in the control of humans. [Link]

Trading in Washington

The Unusual Whales Congress Trading Report for 2023 (Unusual Whales)
The Unusual Whales Congress Trading Report for 2023 analyzes stock trades made by U.S. Congress members. It focuses on how their legislative roles might influence their investment decisions, potentially leading to conflicts of interest. The report underscores the necessity for transparency and stricter regulations in the financial activities of politicians, addressing ethical concerns surrounding their access to non-public information and its impact on their trading behaviors. [Link]

Automobiles

The new CARS Rule: What you need to know (Consumer Advice)
The FTC’s new Combating Auto Retail Scams (CARS) Rule, effective July 30, 2024, will make car buying more transparent and fair. Dealers must disclose the full price of a vehicle, including all costs. The rule also gives buyers the right to refuse add-ons like rustproofing or extended warranties and ensures charges are only applied with the buyer’s informed consent. This rule is expected to save car buyers approximately $3.4 billion annually. [Link]

War

‘I’m no longer ashamed of crying’. A volunteer in Russia’s underground support network for Ukrainian refugees tells his story (Novaya Gazeta Europe)
Vyacheslav Korshunov is an activist from Russia, from a part of the country that borders Ukraine. When the war started, refugees began fleeing the country into Russia, and Korshunov decided to step in and help, whether that meant providing suitcases, shelter for the night, food, or other necessities. When it got too dangerous, as authorities would come looking for him, Korshunov moved to Georgia, where he continued to assist refugees. He was often gifted drawings by children he met, one of which he got tattooed as a reminder of his experiences. Korshunov has several stories of his run-ins with police, activism, and connections with refugees. [Link]

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Have a great weekend!

Like their peers in the US, European stocks enjoyed quite a rally over the last two months of the year. In early December the STOXX 600 broke out above the resistance of the summer highs, and while momentum has slowed in the last couple of weeks, earlier this week the index experienced a golden cross where its 50-day moving average (DMA) moved above its 200-DMA as both were rising. Technicians consider these types of formations to be bullish in terms of longer-term returns, but are they?

The table below summarizes the performance of the STOXX 600 following prior golden crosses since the index’s inception in 1987. Looking across the table, forward returns were generally better than average over the following one, three, and six months, but over the following week and year, forward returns were weaker than the average long-term returns for all one-week and one-year periods. So, contrary to conventional wisdom, golden crosses in the STOXX 600 have not necessarily been a precursor of better-than-average returns.

What’s also notable about this week’s golden cross is the fact that it occurred on a day when the STOXX 600 declined 0.9%,  While four of the six prior golden crosses occurred on days when the STOXX 600 was down, the only one where it was down anywhere nearly as much as it was on January 3rd was back in May 1995.

At the end of last year we wrote an educational post highlighting some of the similarities between the sports card collectibles industry and stock market investing.  We wanted to see how well we’d do if we invested in some boxes of the newest baseball card product — 2023 Bowman Draft — featuring a rare Tom Brady autograph card and the rookie cards of Major League Baseball’s most recent batch of prospects.  As we noted in our prior post, opening packs of cards is the riskiest part of the sports card industry.  You simply don’t know which cards you’re going to pull, so your investment can quickly become close to worthless if you don’t pull any good cards, or you can hit it big by pulling a rare or highly sought-after card.  In the sports cards world, opening sealed packs is similar on the risk scale to buying stock options in financial markets that can quickly move sharply higher or go to zero.

So how’d we do in our recent box break?

Below are pictures of the various cards we pulled across the six boxes we opened.  All in all, of the 4,500 cards, we got 30 different autographed rookie cards along with dozens of “short-printed” parallel cards that are serial numbered.  These serial-numbered cards are more rare and thus more valuable than the non-numbered “singles” that fill up the majority of packs that we opened.

Our best pull was a Paul Skenes blue autographed rookie card serial-numbered out of 150 that was selling for roughly $450 on eBay at the end of December.  Skenes was the #1 overall pick last year by the Pittsburgh Pirates; a pitcher from LSU who is maybe most famous right now for dating LSU gymnast and NIL-celebrity Livvy Dunne.

After checking the most recent completed sale prices on eBay for all the cards we pulled, we found that the entirety of our collection was worth about 50% of our total purchase price of the six boxes.  Ugh.  We certainly didn’t find the rare Tom Brady that would have immediately doubled or tripled our initial investment!

From an investment standpoint, our experiment was not a success!  Down the road, there’s a chance that one of the autographed rookie cards we pulled will skyrocket in value.  After all, Mike Trout was a relative nobody when his rookie autographs first showed up in the 2009 version of the same product we opened.  The least rare of the Trout rookie autographs currently sells for five figures.  But the higher likelihood is that we’ll never make our initial purchase price back on these packs!

For any card collectors reading this that might see a card they’re interested in, feel free to reach out!

The S&P 500 has gotten off to a rocky start to the new year, but it hasn’t knocked down bullish sentiment yet. This week’s bullish sentiment reading from the American Association of Individual Investors (AAII) rose from 46.3% in the final week of 2023 up to 48.6% this week.  That edges bullish sentiment back towards the multi-year high of 52.9% put in place two weeks ago and still leaves bullish sentiment over a full standard deviation above its historical average.

As for bearish sentiment, things are not as extended, though at 23.5%, the share of bears is still several percentage points lower than the historical average (31%).

That means the bull-bear spread is also still historically in favor of bulls with a 25 percentage point gap between the two.

Including other weekly sentiment surveys, the picture is a bit more muddled albeit still showing a bias towards bullishness. For starters, after its holiday hiatus, the Investors Intelligence survey posted its highest reading on bullish sentiment since November 2021.  Conversely, this week’s reading in the NAAIM Exposure index tracking active managers’ equity exposure plummeted from a reading above 100 (meaning managers reported they were fully invested long) all the way down to 71. That is the lowest reading in the index since early November.

The S&P 500 is still within 2% of its record closing high reached exactly two years ago today, but beneath the surface, there have been some big moves.  The chart below shows a distribution of two-year returns for every S&P 500 stock that is currently in the index, and while there have been some big winners and losers over this period, the average component’s move has been just a modest decline of 0.54%.  So while the S&P 500 is down 1.9% from its high, over that same period, the ‘average’ stock in the index is down even less.  For all the talk over the last year about how narrow the market has been, over the last two years that hasn’t been the case.

In the tables below, we show the 25 best and worst-performing stocks in the S&P 500 over the last two years.  Starting with the winners, all of the stocks listed have rallied at least 63%, and there are another 14 stocks that are up over 50% that didn’t make the list. Perhaps what stands out most about the list of biggest winners is what stocks aren’t on it.  As shown, only three Technology sector stocks (and no Communication Services sector stocks) made the list, and of those three, not even one has a market cap of more than $30 billion.  The only mega-cap stock on the list is Eli Lilly (LLY), showing again how while mega-cap tech had a great 2023, on a ‘two-year stack,’ their performance has been unremarkable. While tech stocks weren’t well-represented on the list, Energy and Industrials filled the void with eight and six stocks, respectively.

Among the list of biggest losers over the last two years, 18 are down over 50% led lower by VF Corp (VFC) and Match Group (MTCH) which have both plummeted more than 70%. Both of these stocks now have market caps of less than $10 billion, and of the 25 names shown, only three (Paypal-PYPL, Estee Lauder-EL, and Pfizer-PFE) have market caps above $50 billion.

Please click the image below to view our January 2024 market calendar.  This calendar includes the S&P 500’s historical average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Click here to view Bespoke’s premium membership options.