October 5, 2024

 

The S&P 500 rose 0.3% this week. Meanwhile, the US Aggregate Bond Index fell 1.2%, gold was flat, and Bitcoin shed 5.0%.

The most important news items this week involved escalating geopolitical conflict in the Middle East. President Biden has warned Israel not to strike Iran's oil fields, but the threat of supply disruptions caused crude oil to soar 9.1% this week—the biggest advance since March 2023.

On Friday, the Bureau of Labor Statistics reported 254K new jobs were added last month. This was an upside surprise that pushed the unemployment rate down to 4.1%, easing concerns about near-term recession risk. The ISM Purchasing Managers Index (PMI) for Manufacturing was unchanged in September, remaining in contraction for the sixth consecutive month. The Services sector improved, but the Prices Paid index rose to the highest level since January—indicating inflation pressures haven't dissipated much.

 

 

 

Money Printing Goes Into Overdrive

 

 

Arguably the most bullish factor in today's market is improving liquidity conditions. In September, global central banks cut interest rates 21 times. This isn't as high as during the COVID-era peak, but it's comparable to what took place during the Great Financial Crisis. What's different this time is the policy easing is happening in an environment typified by stable economic growth with most major stock markets near all-time highs.   

According to Simon White at Bloomberg, excess liquidity in the G10 has only been higher twice in the last 50 years. Stimulus in the world's two biggest economies, the US and China, is bolstering the backdrop for risk assets. Most central banks are expected to continue on this policy easing path into 2025.

If unemployment is near an all-time low of 4.1% while inflation is still tracking ahead of the Fed's 2% target, one might wonder why the Fed is easing at all. There could be many reasons. It could be they see something in the data that worries them, which others are not privy to. Or it could be the Fed playing a political game on the eve of a Presidential election. Or it could be another policy error, similar to when the Fed falsely labeled inflation a "transitory" event in 2021. 

Bottom-line: easing financial conditions will likely support risk assets into year-end, but we will keep an inflation hedge in our managed portfolios by overweighting energy and a select group of other commodities, including gold, bitcoin, copper and uranium.  

 

 

 

Climate Change Will Impact Real Estate

 

 

The pictures of flooding from Hurricane Helene are unfathomable. Emergency responders in Asheville, North Carolina said the flooding resembles a biblical level of devastation. Whether you believe in global warming or not, the reality is storm costs are surging, creating havoc in the insurance market. Annual insurance premiums average less than $2,400 nationally. But in hurricane prone states like Florida, the average is now closer to $11,000. 

Outside of Florida, only 1% of of homeowners who sustained flooding from Helene have flood insurance. That's creating a lot of stress around who is going to pay for the cleanup. FEMA estimates only 4% of homeowners across the country carry flood insurance, even though 99% of counties have faced serious levels of flooding since 1996. 

Before long, climate change may start impacting real estate prices. This will make actively tracking climate data more important. Zillow recently partnered with First Street Foundation to introduce comprehensive climate risk data on for-sale property listings across the US. This new feature provides detailed information on five climate risks: flood, wildfire, wind, heat, and air quality. Home shoppers can now access risk scores, interactive maps, and insurance recommendations directly from listing pages. The initiative aims to help buyers make informed decisions by understanding climate-related risks and their long-term implications. 

 

 

 

Elite College Students Can't Read Books Anymore

 

 

I remember feeling proud of myself when I finished reading Security Analysis by Benjamin Graham. It was hard to finish a 784 page book. These days, not many college students would even attempt it. 

Graham was a professor at Columbia University; a premier Ivy League college. This week, an article from The Atlantic explored a concerning trend among college students from Columbia who struggle to read books. Many students find it difficult to engage with lengthy texts, preferring shorter, more digestible content. This shift is attributed to the digital age, where constant exposure to screens and quick information bites have diminished their ability to focus on long-form reading. The article highlights the implications of this trend, including the potential impact on critical thinking and deep learning. It also discusses efforts by educators to address this issue by incorporating more traditional reading practices into their curricula. The piece underscores the importance of balancing digital literacy with the ability to engage deeply with written material.

 

 

 

Day Trader Makes $306 Million Trading Tesla, Then Loses It All

 

 

In the words of my grandmother, "A fool and his money will soon part." 

Christopher DeVocht, a carpenter from Vancouver Island, transformed an initial C$88,000 investment into a staggering C$415 million ($306 million) by day trading Tesla options. How did he do it? In 2019, he started reading about options trading via online forums, and he actively traded his account through Royal Bank of Canada.

After such a massive windfall, most people would have been tempted to cash out and diversify. Not Mr. DeVocht. He assembled a team of advisors who he claims told him to incorporate a company, roll all of his Tesla shares into it, and continue to pursue a strategy to "accumulate as many Tesla shares as possible." When Tesla started selling off hard in 2022, DeVocht used margin loans to try to make up lost ground, and he ended up losing all of his principal. He's now suing the Royal Bank of Canada and Grant Thorton for negligence.

 

 

 

Strawberry Fields Forever

 

 

AI is already impacting a lot of industries, including farming. 

In Virginia, a company called Plenty Unlimited says it is using AI technology to launch the world's first indoor vertical strawberry farm. The farm is capable of producing strawberries with peak-season flavor year-round. The AI system analyzes over 10 million data points daily to optimize growing conditions across 12 grow rooms. This innovative approach uses 97% less land and up to 90% less water than traditional farming. Moreover, a patent-pending pollination method using controlled airflow replaces bees, making pollination more efficient. The farm aims to produce over four million pounds of strawberries annually in less than 40,000 square feet. 

 

 

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This material is not intended to be relied upon as a forecast, research or investment advice. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and non-proprietary sources deemed by Silverlight Asset Management LLC to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Silverlight Asset Management LLC, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.​​