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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Investing

The day Volkswagen briefly conquered the world by Jamie Powell (FTAV)

A long but incredible read re-capping the mother of all short squeezes: during the middle of the financial crisis, Volkswagen briefly became the most valuable company in the world as shares quintupled in a few days. [Link; registration required]

Morgan Stanley breaks with rest of Street, thinks October sell-off is ‘morphing’ into a bear market by Thomas Franck (CNBC)

An out-of-consensus call from MS blames the Fed’s liquidity drain and over-optimistic earnings assumptions for declines that will persist in the bank’s equity strategy view. [Link]

National Security

The CIA’s communications suffered a catastrophic compromise. It started in Iran. by Zach Dorfman and Jenna McLaughlin (Yahoo!)

A deep read on the massive intelligence failure which lead to scores of deaths for CIA assets in Iran and China (as well as other countries) when foreign intelligence services literally used Google searches to break into the previously secure communications system used to communicate with operatives on the ground. [Link]

Consumers & Advertising

On Hold for 45 Minutes? It Might Be Your Secret Customer Score by Khadeeja Safdar (WSJ)

Unbeknownst to many consumers, companies track their value in terms of spending over time and use it to inform who gets which perks, deals, or customer care. [Link; paywall]

By the numbers: The rise of “belief-driven” buyers by Marisa Fernandez (Axios)

Fully two-thirds of people worldwide say a company’s stance on societal issues impacts whether they do business with company, a significant leap versus a year ago per new Edelman data. [Link]

We posed as 100 Senators to run ads on Facebook. Facebook approved all of them by William Turton (Vice)

Advertisers can easily pose as others on Facebook’s ad system, potentially allowing deception by creating ads that contain false information attributed to other campaigns. [Link]

Real Estate

The problem with housing is prices have recovered but demand hasn’t: Real estate mogul Sam Zell by Tyler Clifford (CNBC)

Zell thinks housing is facing a breakdown of traditional housing market structure which has disconnected prices and demand. [Link]

As the housing market stagnates, American homeowners are staying put for the longest stretches ever by Andrea Riquier (MarketWatch)

The average length of time that a house has been occupied before being solid has doubled over the past 10 years, reflecting lower mobility and less flow of transactions as well as lower new home sales. [Link]

Weird News

‘Better Call Saul’ Actor Cut Off His Own Arm So He Could Pass As A Wounded Vet And Land Roles by James Clark (Task & Purpose)

An actor who claimed he lost his arm during military services admitted that he amputated his own arm in order to pass himself off as a wounded veteran. [Link]

Meet The Hydro-Haters: The People Who Refuse To Drink Water, No Matter What by Quinn Myers (Mel Magazine)

There are actually people out there who think that drinking water is so bad that they’ll risk an ER trip for dehydration instead of taking a sip of the substance which make up 50-60% of our bodies. [Link]

Regulation

Market Cheats Getting Caught in Record Numbers by Gabriel T. Rubin (WSJ)

Spoofers face a much higher risk of getting caught thanks to new data sharing provisions between the CME and SEC. In 2018 more than 25 cases were brought against spoofers, more than double the previous high. [Link; paywall]

Cancer-linked Chemicals Manufactured by 3M Are Turning Up in Drinking Water by Tiffany Kary and Christopher Cannon (Bloomberg)

A huge number of manufacturing facilities, military bases, and civilian airports are contaminated with a substance commonly found in Teflon and other products. Since the chemicals don’t break down naturally by design, they can build up over time and have been linked to cancer. [Link; soft paywall]

Despite criticism and concerns, FDA approves a new opioid 10 times more powerful than fentanyl by Ed Silverman (STAT News)

Despite ongoing concerns about the prevalence of opioid abuse, the FDA has approved a new drug that is drastically stronger than even fentanyl, a substance that’s already so dangerous that tiny exposure can kill those handling it. [Link]

Gasoline

Trump Car Standards Rollback Knocked for Faulty Analysis by Abby Smith (Bloomberg)

The EPA and NHTSA have proposed rolling back Obama-era fuel economy standards, arguing that their cost benefit analysis shows $200bn in benefits and 12,700 fewer fatalities through 2029. But global automakers led by Honda have raised challenges to the analysis, arguing that it relies on unrealistic assumptions which when corrected flip the entire analysis from benefits to costs. [Link]

Crack whacked as surplus back by Matt Smith (ClipperData)

The gasoline market in the US has flipped from deficit into surplus, driving down crack spreads between gasoline and raw crude. [Link]

Innovation

Machine-learning algorithm beats 20 lawyers in NDA legal analysis by Cal Jeffrey (TechSpot)

A machine-learning approach has yielded a 94% accuracy versus 85% for a panel of lawyers, in a tiny fraction of the time. [Link]

Stupid Patent of the Month: How 34 Patents Worth $1 Led to Hundreds of Lawsuits by Daniel Nazer (EFF)

The story of Shipping & Transit, a small company which leveraged a small number of patents into millions of dollars worth of lawsuits. [Link]

Pop Culture

30 Rock’s Werewolf Bar Mitzvah: An Oral History by Mike Roe (LAist)

The oral history of one of the strangest but persistent Halloween jokes of the past generation. [Link]

Labor Markets

The ‘gig economy’ is hugely overhyped, new study says by Adriana Belmonte (Yahoo!)

New BLS and Conference Board data suggests that the gig economy (freelance, independent work, these days mostly empowered by apps like Uber, Instacart, and the like) is vastly overhyped and a tiny share of the overall labor market. [Link; auto-playing video]

Hedge Funds

Bridgewater’s New Brain: A Millennial Woman Is Blazing To The Top Of The World’s Largest Hedge Fund by Nathan Vardi (Forbes)

The head of Bridgewater Associates investment research group is 31 years old and sits in a critical seat steering the capital of the world’s largest hedge fund. [Link]

Incarceration

America’s Other Family-Separation Crisis by Sarah Stillman (The New Yorker)

With the number of women in state prisons up more than 5% per year for 4 decades straight (despite crime rates that have been falling consistently for the last 20 years) a huge number of mothers have been separated from their children with disastrous consequences for those kids. [Link]

Health Care

A Sense of Alarm as Rural Hospitals Keep Closing by Austin Frakt (NYT)

Hospitals in rural areas are consolidating and closing. While sometimes that can have positive effects on health outcomes, in general it’s a massive source of concern. Many factors are at play, but given the huge majority of closures are in states that have not expanded Medicaid, accepting federal money tied to the ACA seems to be one weapon states can use to preserve rural hospital infrastructure. [Link; soft paywall]

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Have a great Sunday!

Week 8 Results: 7-6, Overall: 62-46 (57.4%)

Outside of financial markets, we’re also sports fans here at Bespoke.  With new legal sports betting avenues now available across the US, we figured we’d have some fun and pick each NFL game versus the spread this season (as of Saturday evening).  Let’s see how we do…on to Week 8.  (Lines as of 9:48 PM ET on 11/3/18.)

We were 7-6 in week 8, bringing our overall record through 8 weeks to 62-46 (57.4%).

2018 NFL Week 9 Bespoke Picks:

Chicago (-10) at Buffalo: Buffalo +10

Kansas City (-8) at Cleveland: Kansas City -8

NY Jets at Miami (-3): NY Jets +3

Detroit at Minnesota (-5): Detroit +5

Atlanta at Washington (-2): Atlanta +2

Tampa Bay at Carolina (-6.5): Tampa Bay +6.5

Pittsburgh at Baltimore (-2.5): Pittsburgh +2.5

Houston at Denver (-1): Houston +1

LA Chargers at Seattle (Even): LA Chargers (Even)

LA Rams (-2) at New Orleans: New Orleans +2

Green Bay at New England (-5.5): Green Bay +5.5

Tennessee at Dallas (-5): Dallas -5

2018 NFL Week 8 Bespoke Results:

Philadelphia (-3) at Jacksonville (in London): Jacksonville +3 (Loss)

NY Jets at Chicago (-9.5): NY Jets +9.5 (Loss)

Tampa Bay at Cincinnati (-3.5): Tampa Bay +3.5 (Win)

Seattle at Detroit (-3): Seattle +3 (Win)

Denver at Kansas City (-9.5): Kansas City -9.5 (Loss)

Washington (-1) at NY Giants: NY Giants +1 (Loss)

Cleveland at Pittsburgh (-8): Cleveland +8 (Loss)

Baltimore (-2.5) at Carolina: Carolina +2.5 (Win)

Indianapolis (-3) at Oakland: Indianapolis -3 (Win)

Green Bay at LA Rams (-8): Green Bay +8 (Win)

San Francisco (-1.5) at Arizona: Arizona +1.5 (Win)

New Orleans (-1.5) at Minnesota: Minnesota +1.5 (Loss)

New England (-13.5) at Buffalo: New England -13.5 (Win)

Below is a list of the best performing S&P 500 stocks on their earnings reaction days so far this season.  Under Armour (UAA) ranks at the very top of the list with a huge one-day gain of 27.71% after it reported a triple play on October 30th.  (A triple play is a company that beats EPS estimates, beats revenue estimates, and raises guidance.)

Vulcan Materials (VMC) ranks second with a gain of 17.49%, followed by Akamai Tech (AKAM), Newfield Exploration (NFX), and Twitter (TWTR).  Other notables on the list of big winners this earnings season include International Paper (IP), Ford (F), PayPal (PYPL), Church & Dwight (CHD), Starbucks (SBUX), General Motors (GM), Procter & Gamble (PG), DowDuPont (DWDP), and Whirlpool (WHR).  These certainly aren’t your typical high-fliers!

On the downside, Mohawk (MHK) has been the worst performer this earnings season with a one-day decline of 23.86% after it reported a reverse triple play on October 25th.  The stock missed EPS estimates, missed revenue estimates, and lowered guidance.

Align Tech (ALGN) ranks second worst with a one-day decline of 20.2%, followed by Western Digital (WDC), Advanced Micro (AMD), and United Rentals (URI).  Other notables on the list of losers include Equifax (EFX), Fortinet (not to be confused with the video game Fortnite!), Fortune Brands (FBHS), Kraft Heinz (KHC), Kellogg (K), General Electric (GE), AT&T (T), and Amazon (AMZN).

For more in-depth earnings season analysis, start a two-week free trial to Bespoke Premium today!

In the early part of the current earnings reporting period that began back on October 12th, stocks couldn’t sniff a bid on their earnings reaction days.  Since Monday, however, investors have been busy buying up stocks after they report.

Below we show how stocks within sectors performed on their earnings reaction days from the start of earnings season through the morning of October 29th.  We also show how stocks have performed on their earnings reaction days since the close on the 29th.  As shown, for all stocks that have reported, the average stock fell 0.91% on its earnings reaction day through October 29th.  Since then, the average stock that has reported has gained 1.56% on its earnings reaction day.  That’s a huge shift in sentiment around earnings reports.  Investors have flipped from selling the news to buying the news.

There have been some interesting trends within sectors as well.  Health Care, Materials, Energy, Technology, Consumer Staples, and Industrials stocks that reported got hit the hardest prior to the 29th.  Since then, the cyclical sectors of this group (all of them except for Consumer Staples) have seen stocks fly higher by 1.3% or more on their earnings reaction days, while Consumer Staples stocks that have reported since the 29th have actually declined.  Utilities and Communication Services stocks have averaged very small declines on their earnings reaction days over both time frames.  Finally, Consumer Discretionary stocks have been a positive outlier throughout earnings season.  Discretionary stocks that reported prior to the 29th bucked the trend and averaged gains on their earnings reaction days.  And since the 29th, they’ve continued to see gains, averaging a one-day change of +2.1%.