Comment of the Day
Video commentary for December 13th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: CPI falls, stocks initially rebound but fade on economic weakness fears, dollar weak, gold and oil firm, non-US asset continue to outperform but with a global recession brewing expect volatility.
Stocks Pare CPI-Fueled Rally With Fed Set to Hike
This article from Bloomberg may be of interest to subscribers. Here is a section:
“While the war against inflation is turning, we are a long way off declaring victory and the Fed will keep its hawkish stance for a while longer, even if it does potentially force a recession,” said Richard Carter, head of fixed interest research at Quilter Cheviot.
The CPI-fueled stock rally fails to recognize that corporate earnings are just starting to see the impact of tight monetary policy, James Athey, investment director at Abrdn.
“As the full effects of the Fed’s aggressive actions this year play out next year, it seems inevitable that we will see a significant repricing lower in EPS forecasts and thus the broad market,” Athey said.
Eoin Treacy's view - The stock market has been pricing in the likelihood Inflation has peaked since October. Now is the time to start thinking about the knock-on effects of inflation peaking. Economic activity will slow as the race to overtake inflation with purchase subsides and as savings are eroded. Corporate profits will inevitably slow in response and unemployment will likely rise from Q2 onwards.
Collateralised fund obligations: how private equity securitised itself
This article from the Financial Times may be of interest. Here is a section:
The product is known as a “collateralised fund obligation” and its aim is to diversify risk by parceling up the companies’ providing returns. CFOs are, in some ways, a private equity variant of “collateralised debt obligations”, the bundles of mortgage-backed securities that only reached the public consciousness when they wreaked havoc during the 2008 financial crisis.
So far, CFOs have flown largely under the radar. Although some of private equity’s largest names such as Blackstone, KKR, Ares and the specialist firm Coller Capital have set up versions, this is often done privately with little or no public disclosure of the vehicle’s contents — or even, in some cases, of its existence, making it all but impossible to build a full picture of who is exposed and on what scale. CFOs introduce a new layer of leverage into a private capital industry already built on debt. Their rise is one illustration of how post-crisis regulation, rather than ending the use of esoteric structures and risky leverage, has shifted it into a quieter, more lightly regulated corner of the financial world.
Eoin Treacy's view - In the world of investment banking everything can be made better with leverage. Private equity offered rich rewards in the decades before zero interest rates. Then the volume of cash available to the sector ballooned and valuations for the assets they acquired rose in tandem. Leverage is the easy answer for how to sustain returns despite high valuations, which would normally compress yields.
Tesla Stock Is the Cheapest Ever After This Year's 52% Slump
This article from Bloomberg may be of interest to subscribers. Here is a section:
“My biggest concern is the slowdown they’re seeing in China,” Matt Maley, chief market strategist at Miller Tabak + Co. said, adding that “as long as Elon Musk is spending a lot of time with Twitter, it’s going to keep a lid on the stock.”
Bloomberg News reported Friday that Tesla plans to suspend output in stages at its Shanghai electric car factory from the end of the month until as long as early January, amid production line upgrades and slowing consumer demand.
Meanwhile, Twitter is more than a distraction. Musk’s bankers are considering replacing some of the high-interest debt he layered on Twitter with new margin loans backed by Tesla, people with knowledge of the matter told Bloomberg.
Eoin Treacy's view - I saw in another article that SpaceX is valued at approximately $140 billion. The purchase of Twitter has stretched both Elon Musk’s time and finances. If his creditors impose a margin loan there is clear scope he will be denuded of his Tesla holdings if Twitter does not turn around quickly. That may result in a rush to IPO SpaceX to raise cash.
This section continues in the Subscriber's Area.
MSN Fired Its Human Journalists and Replaced Them With AI That Publishes Fake News About Mermaids and Bigfoot
This article for Futurism may be of interest. Here is a section:
"I spend all my time reading about how automation and AI is going to take all our jobs, and here I am," one fired MSN staffer told The Guardian at the time. "AI has taken my job."
That anonymous staffer imparted a prescient warning: that though the human team had employed close editorial guidelines to vet the material that appeared on MSN's site, the new automated system would likely struggle to bring the same level of nuance and skepticism.
MSN makes lofty promises that there's still "human oversight" over the stories it syndicates, but given the desultory deluge of fake nonsense it appears to run constantly, it seems very unlikely that the site's remaining skeleton crew is accomplishing much at all.
And with its dwindling human staff, fewer still are left to hear readers' concerns, effectively erecting a brick wall that imposes a worrying opacity. Requests for comments go unanswered, and MSN publishes more bogus stories all the time.
Eoin Treacy's view - The media coverage of ChatGP has been nothing short of euphoric. I’ve even heard it compared to a sputnik moment for artificial intelligence. That might even be true but it does not mean AI is ready to take over editorial roles.
Eoin's personal portfolio: stock market index positions closed at profit and shorts opened December 6th 2022
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.