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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Ukraine

The Dangerous Allure Of The No-Fly Zone by Mike Pietrucha & Mike Benitez (War On The Rocks)

Needed context and discussion for why an American or NATO-established no-fly zone over Ukraine would be both relatively unhelpful to Ukraine and create a massive risk of a devastating wider war in Europe. [Link; paywall]

Energy

The Biden Administration Has The Power: Administrative Authority To Address The Crisis in Oil Supply Right Now by Alex Williams, Arnab Datta, & Skanda Amarnath (Employ America)

A novel approach to reducing the cyclicality of energy production, ensuring lower price volatility and more stable supply by absorbing oil price volatility and demand mitigation on to the American government’s massive balance sheet. [Link]

Lead from gasoline blunted the IQ of about half the U.S. population, study says by Elizabeth Chuck (NBC)

Leaded gasoline created massive exposure to the IQ-blunting metal across the US population, with an average impact of 2 IQ points per person but much higher impacts among earlier generations. Leaded gasoline has been banned for more than a quarter century. [Link; auto-playing video]

Fertilizer giant Yara slashes production in Europe (CNN/Reuters)

Norwegian company Yara is cutting production of ammonia and urea at plants in Italy and France thanks to the extreme prices for natural gas (a key input to fertilizer) in Europe. [Link]

Municipal Matters

‘Booming’ LIRR and Metro-North commuters return to Manhattan in high spirits by Alex Mitchell (NYP)

As offices in Manhattan reopen, commuters are swarming back on to the tracks of commuter rail services around the New York area. [Link; auto-playing]

U.S. Retirement Funds, Heavy on Stocks, Brace for Losses by Heather Gillers (WSJ)

With more than 61% of their assets dedicated to equity markets, US public pensions are highly exposed to the stock market. Declines could pressure state and local finances though of course operating budgets are in excellent shape thanks to the post-pandemic economic boom. [Link; paywall]

Facebook

Facebook Libra: the inside story of how the company’s cryptocurrency dream died by Hannah Murphy and Kiran Stacey (FT)

An effort by Facebook to launch a digital currency found tentative support from the Federal Reserve Chair before Treasury pulled support. Ultimately, a failed lobbying campaign in Washington meant Diem never took off. [Link; soft paywall]

Facebook allows war posts urging violence against Russian invaders by Munsif Vengattil & Elizabeth Culliford (Reuters)

In a revealing change at the company’s own discretion, Facebook will no longer interdict posts calling for violence against Russian troops invading Ukraine. [Link]

Yikes

Gig App Gathering Data for U.S. Military, Others Prompts Safety Concerns by Byron Tau (WSJ)

Ukrainians paid to take pictures of specific areas in rural Ukraine were unwittingly participating in a US DoD research project designed to assess the accuracy of satellite photos. [Link; paywall]

Some Understaffed PetSmarts Are Dealing With Freezers Overflowing With Dead Pets by Lauren Kaori Gurley (Vice)

PetSmart stores that have been understaffed are seeing a wave of dead pets that end up stacked in freezer and improperly disposed, adding a horrifying twist to the difficulty of running a business based on selling living things. [Link]

Sovereignty

Corporate Sovereign Awakening and the Making of Modern State Sovereignty: New Archival Evidence from the English East India Company by Swati Srivastava (Cambridge University Press)

A painstaking analysis of the growth of the English East India Company, which grew outside of the English state to the point that it actually challenged the sovereignty of the nation. [Link]

Counting

2020 Census Undercounted Hispanic, Black and Native American Residents by Michael Wines & Maria Cramer (NYT)

Amidst the challenge of the COVID pandemic, the Census likely undercounted the US population by millions of people, though that undercount does not appear to be much larger than previous decennial surveys. [Link; soft paywall]

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Have a great weekend!

Crude oil may have reversed lower this week, but it’s hard to tell when drivers head to the pumps. The national average for a gallon of regular gasoline has continued to rise to hit a record high of $4.33 in data from AAA going back to 2004. While prices typically rise this time of year, the vertical move this year has meant prices have grown at a much more rapid rate than normal.Click here to read Bespoke’s premium research.

In the business world, there’s an axiom that says: when your company name becomes a verb, you’ve arrived.  Take the example of Google in the late 1990s.  When people started replacing the phrase ‘online search’ with ‘Google it’, you just knew that Google was going to be a big company.  Since its IPO in 2004, Google – now called Alphabet (GOOGL) – has been an absolute behemoth, posting a total return of 6,073.9% and an annualized gain of 26%. GOOGL has taken over the internet search business over the years, making it one of the world’s most influential companies and the ultimate verb stock.

While GOOGL is an example of a verb stock that has seen stellar returns, a group of more recent verb stocks hasn’t fared nearly as well.  Over the past few years, certain companies have introduced products and services that have become so integral to their daily lives that their names have become verbs.  Owe someone money for lunch?  Just venmo them.  Not feeling well?  Might be a good idea to schedule a teladoc appointment with your doctor before going out.  Need to sign a document?  No need to print it out and fax it back.  Just docusign it.  Have a client meeting but traffic is a nightmare? Why don’t you just hop on a zoom.

The services these companies offered became necessities of daily life during the pandemic, and because of that their stocks surged. We created an equally-weighted basket tracking the performance of PayPal (PYPL), Teladoc (TDOC), DocuSign (DOCU), and Zoom (ZM).  From the start of 2020 (right before the pandemic) through the basket’s peak in early 2021, these stocks tripled.  Around that point, investors began to question what the outlook for these stocks would be when the economy re-opened, but proponents argued that the services these companies offered provided such a convenience that they wouldn’t miss a beat.

While consumers around the world are still venmo-ing, teledoc-ing, docusign-ing, and zoom-ing, the stocks of all these companies have been imploding.  The basket of four stocks has now erased all of its COVID gains and is now in the red relative to where it traded at the start of 2020.

Although there is a little bit of variation in the performance of these four stocks, the overall trend is largely similar. Of the four, ZM is the only one that is still positive relative to where it started in 2020.  PYPL, TDOC, and DOCU, on the other hand, have declined 11.4%, 33.6%, and 4.1%, respectively. As you can see from the graph below, these stocks have round-tripped, erasing all of the gains provided by the pandemic. While valuations were certainly stretched for a while, the fact that these stocks are lower now than they were before COVID, even after proving their worth during the pandemic, shows how much sentiment has shifted in the last several months.  One trend not working in favor of these verb companies is competition.  As the pandemic proved the viability of their business models, competitors have been quick to step in.  These days, someone may ‘venmo’ you using the CashApp, do a ‘teladoc’ appointment through CVS, ‘docusign’ an application using Adobe E-signature, or do a ‘zoom’ over Teams or Google Meets. Click here to read Bespoke’s premium research.

During the Cold War, American children and adults were educated on how to best protect themselves from a nuclear explosion. This included measures from the silly “duck and cover” campaign to nuclear fallout shelter instructions. If you happen to be curious about the federal government’s current recommendations in regards to protection from a nuclear blast, you can read up on the instructions here. We’re not sure how focused people will be about wearing a mask in the event of nuclear fallout, but we guess you can never be too careful!

With tensions between Western nations and Russia reaching levels not seen since the Cold War, we took a look at Google Trends to identify the level of fear in the American population with respect to the current war in Ukraine. We looked at the search volumes for terms like nuclear war, WWIII, canned food, Potassium Iodide, and gas mask. Searches for many of these terms hit five-year highs in the early days of the Russian invasion but have subsided since. The current level is still well above normalcy, but fears appear to have eased over the last week as the West’s retaliation has been almost entirely economic (or maybe there is no internet service in the fallout shelters). The aggregate index is pictured below.

Below are charts of each search term we utilized in the composition of our index. Potassium Iodide, the compound utilized to mitigate the effects of excessive radiation exposure, is the only term that remains at a five-year high in terms of search volume. While searches for some of these terms were actually much higher during the early days of COVID, they all experienced upticks in the last few weeks.  All-in-all, based on search trends based on fears of a nuclear situation or war with Russia spiked when the Ukraine invasion first started, but those fears have over the course of the last week. Click here to view Bespoke’s premium membership options.

Considering equities and other risk asset prices continue to swing violently, so too have readings on investor sentiment.  The weekly AAII survey of individual investors saw the percentage of respondents reporting as bullish fall back below 25% this week after rising above 30% last week. While that is not the largest drop in recent months (the second week of January saw bullish sentiment fall 7.9 percentage points compared to 6.4 today), it nonetheless reaffirmed that investor confidence is shaky, if not undecided, at the moment.

The drop in bullish sentiment was mostly picked up by those reporting as bearish. Bearish sentiment rose 4.4 percentage points to 45.8%. While that reading is roughly 15 percentage points above the historical average for bearish sentiment, the reading is still lower than an even more pessimistic reading only two weeks ago when more than half of respondents reported as bearish.

With the inverse moves in bullish and bearish sentiment, the bull-bear spread has pulled back to -21.8.  As with bullish and bearish sentiment, even if that does not set a new low, it is only in the 5th percentile of readings going back to the start of the survey.

After the largest single-week decline in nearly 20 years two weeks ago, neutral sentiment has been clawing its way back into the range it was in for most of the past year.  Gaining another 2 percentage points this week, the reading is now back above 30%.

Across each category of the report, there have been sizable swings in the past two months. To highlight this, in the chart below we show the eight-week rolling average of the absolute week over week change for each sentiment reading (bullish, bearish, and neutral) over the past 20 years.  Over the history of the survey, weekly changes have gravitated towards smaller swings meaning the past decade is structurally a bit different relative to the decade before that. That being said, the weekly swings in the AAII readings on sentiment have been some of the largest of any period of the post-Global Financial Criss era. In fact, not even the COVID crash saw such volatility in sentiment (given optimism collapsed and then remained muted for some time rather than swing back and forth) while the only times this average was as high as now in the past decade were the spring of 2013, February 2016, and January 2019. Click here to view Bespoke’s premium membership options.