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:
On the Clock.  On August 20th, 1920, a small group including Jim Thorpe, joined together in Canton, Ohio to create the first professional football league known as the American Professional Football Conference. Later succeeded by the NFL we know today, week one of the 104th season will begin in just a couple of weeks. What was once a violent intramural game played on college campuses in the late 1800s and early 20th century, American football has evolved into a multi-billion business at the cornerstone of entertainment all over the country.

Artificial Intelligence

The $900,000 AI Job Is Here (WSJ)
US companies are engaged in a fierce race to hire AI talent, offering annual salaries close to $1 million to secure skilled professionals in fields like data science and machine learning. The high demand coupled with supply imbalance is driving up compensation. Some companies are hiring and training talent whereas others are considering the acquisition of smaller AI startups. [Link]

What if Generative AI turned out to be a Dud? (Gary Marcus)
Generative AI with soaring valuations in the trillions compared to its actual revenues in the hundreds of millions, largely from code assistance and text generation, is raising doubts about the sustainability of these valuations. As wider user disillusionment is observed, questions arise about whether generative AI truly represents a precursor to AGI due to persistent challenges and limitations. [Link]

Market and Economic Trends

Long-Term Shareholder Returns: Evidence from 64,000 Global Stocks (Financial Analysts Journal)
A study of 64,000 global equities and their performance dating back to 1990 showed that the majority of US and international stocks underperformed one-month US Treasury bills. Furthermore, the top-performing 2.4% stocks in the US accounted for 100% of the gains in US market capitalization. [Link]

Cash-Strapped Collectors Offload Prized Memorabilia. ‘Literally Like Selling Away My Life.’ (WSJ)
With budgets squeezed by inflation and mounting debts at higher rates, memorabilia collectors are being forced to sell the collections they’ve spent decades amassing. Despite having to give up prized items, sellers are comforted by the fact that the collectibles market is thriving and is projected to continue to grow. [Link]

Democrats’ climate law set off a wave of energy projects in GOP districts. A backlash followed (POLITICO)
The Inflation Reduction Act has led to a surge in clean energy investment across various U.S. states. While criticized by some Republicans, the law’s benefits are primarily benefiting conservative and Republican-leaning communities, boosting renewable energy projects and job creation. Chinese involvement in these clean energy projects has raised concern about the use of federal incentives to support Chinese companies and government. [Link]

How to maximize Series I bond redemptions amid falling inflation (CNBC)
Amid declining Series I bond yields as inflation falls, investors who flocked to these bonds due to their high yields are now considering an exit for higher-interest alternatives such as Treasury bills, CDs, or money market funds. The “best time” to sell depends on factors like when the bonds were purchased and individual investment goals. There is also an interest penalty to be aware of. [Link]

Wall Street Is Ready to Scoop Up Commercial Real Estate on the Cheap (WSJ)
Big firms are raising funds to acquire distressed commercial real estate properties, including office buildings and apartments, at reduced prices compared to a few years ago. Between rising interest rates and vacant office spaces, these firm are aiming to take advantage of declining priced. Values are expected to fall further as regional banks under pressure from recent bank failures let go of loan portfolios at discounted prices. [Link]

Streamflation Is Here and Media Companies Are Betting You’ll Pay Up (WSJ)
Streaming services are raising their prices almost 25% in about a year, prompting a “streamflation” trend. Disney, Peacock, Max, Paramount+, Apple TV+, and others are hoping that users will either accept the higher costs or switch to more affordable ad-supported plans, aiming for profitability after years of losses in pursuit of fast growth. [Link]

Fast Food

Fast-food chains adopt futuristic designs: What’s behind the new look from Wendy’s and others (AOL)
Several fast-food chains are redesigning their kitchens to enhance digital sales capabilities and cater to on-the-go customers. The new layouts are intended to increase speed, output, and overall profitability given recent trends in digital orders and delivery. The move reflects the growing influence of technology on fast-food and fast-casual restaurants, as COVID-era dining habits persist. [Link]

Chick-fil-A to release new riff on its iconic chicken sandwich with pimento cheese, jalapenos (CNBC)
Beginning at the end of the month, Chick-fil-A is adding the Honey Pepper Pimento Chicken Sandwich to its menu. The chicken chain’s menu is one of simplicity, and this move reflects a shift in strategy as the chain expands nationwide. In development for five years, feedback on the product is highly anticipated.  [Link]

Ancient History

Spartans Were Losers (Foreign Policy)
This article criticizes the glorification of ancient Sparta in modern culture, arguing that the popular image of Sparta as a symbol of military excellence is misleading. The article discusses military mediocrity, political struggles, and reliance on slavery. [Link]

Environmental Concerns

Hawaiian Electric Knew of Wildfire Threat, but Waited Years to Act (WSJ)
Following commentary from our Closer on Thursday and newest Bespoke Report published Friday, information is surfacing surrounding Hawaiian Electric’s role in the deadliest U.S. wildfire in more than 100 years. Stretching back to 2019, the company knew it needed to enhance fire prevention measures and invested much too little into the work in the period leading to Hawaii’s blazing wildfire. [Link]

Burning mangrove trees for a living: ‘I’d quit tomorrow if I could’ (BBC News)
Indonesia accounts for 20% of the world’s mangrove tree population and is facing a crisis as the trees are being cut down, turned into charcoal, and exported. Despite being a resource-intensive process with little financial return, the growing demand for charcoal is leading to deforestation and environmental degradation. The local government’s efforts to provide alternative livelihoods, such as honey farming and palm sugar production, have faced challenges due to the deeply rooted tradition of charcoal production. [Link]

Social Media Trends

The content moderation problem that isn’t going away (Platformer)
A second major contractor in the content moderation business is closing its operation. Sama and Cognizant previously offered social networks staff to review the oceans of content that violates their rules and are often beset with extreme employee burnout that rises to the level of Post-Traumatic Stress Disorder thanks to the horrifying extremes that users try and post. [Link]

Bama Rush Has Students Showcasing $20,000 Outfits on TikTok (Bloomberg)
A new viral TikTok trend is bringing attention to college students participating in sorority recruitment, showcasing their expensive outfits, sometimes in the tens-of-thousands of dollars range featuring luxury brand jewelry. The trend is often shocking, seeing young people with such expensive items. More importantly, the trend comes at a time when economic disparities and struggles among Americans are becoming more apparent, prompting discussions about consumer spending and priorities. [Link]

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Have a great weekend!

This month’s negative tone continued in the past week as the S&P 500 collapsed through its 50-DMA. Not susprisingly, the weakness has put a dampener on sentiment.  The latest investor sentiment survey from AAII showed only 35.9% of respondents reported as bullish. That is down for a second week in a row from 49% two weeks ago, and the 13.1 percentage point drop during that span ranks as the largest since the back half of February when bullish sentiment fell by more than 15 percentage points.  It is an even more pronounced drop from 50%+ reading that was put in place the week of July 20th.

Bearish sentiment picked up some of the difference this week, rising 4.6 percentage points to 30.1% and is the highest reading since the first week of June.

With inverse moves in bullish and bearish sentiment, the bull bear spread has fallen sharply to 5.8 after ten consecutive weeks of double digit positive readings (what had been the longest such streak in over two years as shown in the second chart below). In other words, sentiment continues to favor bulls, but by a much narrower margin than what has been seen in the past few months.

In the table below, we show every other instance in the AAII survey’s history in which streaks of at least ten weeks or more of bulls outnumbering bears by at least ten percentage points have come to an end. As shown above and below, these sorts of streaks tend to happen every few years and typically when they end, bullish and bearish sentiment are not far off from their overall historical averages.  As for how the S&P 500 has tended to perform going forward, short term performance has been weak with an average decline one week later.  However, performance one month to one year out is much more consistently positive. That being said, average/median returns six months to one year out have been smaller than the norm.

Finally, we would note that the AAII survey was not the only sentiment indicator to have taken a bearish turn in recent weeks. Other weekly sentiment gauges like the Investors Intelligence survey of newsletter writers and the NAAIM Exposure Index have also turned lower.  In the case of the former, the percentage of respondents reporting as bullish is back below 50% for the first time since the end of May. The latter similarly shows active managers are the least exposed to equities since the end of May.  Combined with the AAII survey, our sentiment composite shows investors are only slightly more bullish than what has historically been normal.

Jobless claims have continued to occupy the past several months’ range between a low of 221K in late July and a high of 265K from a month earlier. This week, claims came in slightly below expectations of 240K falling to 239K. That compares to last week’s reading of 248K which was at the higher end of the aforementioned range.

As we close in on the one year mark of last September’s post pandemic and multi-decade low of 182K in initial claims, they have plateaued and are merely trending sideways. Of course, that is not to say claims are in a bad spot. Although claims have come well off that low, they have yet to move back above 300K. In fact, it has almost been 100 weeks since initial claims last printed a level of more than 300K which ranks as the third longest streak of sub-300K prints on record.

On a non-seasonally adjusted basis, claims actually dipped slightly in the latest week’s data which is somewhat unusual from a seasonal perspective. As shown below, historically the past two weeks have marked modest seasonal bumps in claims before reaching a seasonal low in late August/early September. Worth noting, next week has been one of the most consistent weeks of the year to see unadjusted claims fall with a week over week drop 98% of the time.

Continuing claims are lagged an additional week to initial claims and the latest reading for the first week of August showed claims ticked back above 1.7 million.  As shown below, that is only a modest turn higher as the overall trend of falling continuing claims appears to still be in place for the time being.

If it seems to you like most financial assets have done nothing but go down this month, you’re right.  A perfect example of this pattern is the price of Gold. The SPDR Gold Trust (GLD) has had an intraday high and low that was lower than the intraday high and low of the previous day on each of the last eight trading days (shaded area in chart), and there has only been one day this month (8/4) when GLD had a higher high and higher low relative to the previous day.  August has been a one-way street, and the direction has been south.

What makes the current streak notable is that in the trading history of GLD dating back to late 2004, there has never been a longer streak of daily lower highs and lower lows.  There have been three prior periods where GLD had lower highs and lower lows for seven straight days, but with yesterday’s decline, GLD’s current streak is now in a league of its own.