Inflate-gate

Inflation is here. Isn’t it? I mean the YoY CPI print was +5% and the MoM was +0.6% for the US. The bulls seem to be promoting the transitory mantra and it seems most of the market is buying what they’re selling. If inflation is really here, I know just the guy we can turn to to help with deflating things.

In other news last week, the JOLT job openings in the US hit their highest level on record in April (9.3 million), while layoffs hit a record low. The accommodation and food services industry is really hurting for workers, adding like 350k new unfilled jobs. Things are all out of sorts. The G7 is looking at a global tax deal to put a floor on tax rates. We’ll see about that. At least they could all get together for some really goofy greetings. I'm also starting to think anything is possible after seeing the Senate pass a bipartisan bill on tech and manufacturing.

There are two big events already on the calendar this week. The first is the June FOMC meeting and then the Quad-Witching index rebalances. I'll have more on the FOMC below. We’re opening into Quad-Witching expiration this Friday. This also means it's just the first wave of huge passive index volume this month. S&P and NASDAQ quarterly rebalances are due on Friday. Unlike the Russell indices, S&P does additions in between its rebalances. This week before the quarterly updates, Callaway Golf is migrating up from the Smallcap 600 to the Midcap 400. Callaway is replacing GrubHub after its expected acquisition. Replacing Callaway in the Smallcap is Apollo Medical. Based on what I’ve seen, the large indices should be in for a relatively tight range this week. That is unless the Fed surprises with something crazy.

While this week will be focused on the S&P indices, the annual “Russell Recon” is on the horizon, so I will continue to follow this each week. My new colleagues at FTSE Russell do an excellent job of walking The Street through this process. In this post, the director of index product management, Catherine Yoshimoto, touches on a few highlights of this year’s event. The breakpoint to make the indices has grown tremendously. I’ve also been keeping an eye on the upcoming additions. The names going into the index outperformed by more than 125bps last week. It wasn’t all of them though. If you look, three of the top ten by addition weight were lower on the week. These portfolio weights below are just for the weight of the additions only.

2021 Russell Recon: the only way was up

Earnings Watch

Last Week

There wasn’t a ton going on last week, but there was definitely some decent action. On the positive side, RH (formerly known as Restoration Hardware), Signet Jewelers (SIG), and Stitch Fix (SFIX) had positive results and the stocks traded up nicely off them. On the negative side, Gamestop (GME) didn’t surprise me at all. There was also pressure on FuelCell (FCEL) and United Natural Foods (UNFI) after their reports.

This Week

We’re still in the off-season, but there are a few bigger companies that are in the spotlight. This week, the big four reporting Adobe, Oracle, Kroger, and Lennar standout from a market cap perspective.

Equity Capital Markets

Last week saw more than $4B raised across nine IPOs in the US. Most were positive with the exception being Zeta Global. The best performer was Kanzhun (RIC: BZ.O). It rose nearly 95% on Friday. The big news out of last week was the filing of the Chinese ride hailing company, DiDi. IFR reported that the company should be one of the year’s largest IPOs globally. They could raise about $10B off a valuation estimated to be $80-100B. IFR noted that this would be the biggest Chinese IPO in the US since Alibaba raised $25B in 2014.

The calendar this week is led by a listing out of Germany. E-commerce clothing wholesaler, About You is expecting to raise about 750M EUR this week. In the US, the largest scheduled this week is Lyell Immunopharma at $435M and it is one of six companies coming public. Lockups this week are on the smaller size, TuSimple is the largest of those. This $10B company has roughly 16% of its shares unlocking. The smaller $1.7B BioAlta has over one-third of it’s shares available for trading.

Best of the Week:

Professor Dan Taylor, from U Penn’s Wharton School, talks with Real Vision around accounting fraud and insider trading. In this particular interview, he highlights the use of big data to find red flags. There is a shorter version of this, if you’re interested in a quick summary from Dan. Dan gained some fame with his paper on the outlandishly high success of members of Congress in their personal trading accounts. He thinks 10b5-1 plans for insider selling are suspect and he walks us through how those work. Also, keep in mind that non-US companies trading on US exchanges do not even have to report these transactions. Below is a screenshot of megacap AZN mentioned in the interview as to not having to file. Even with all these limitations, I still track insider selling via Refinitiv’s Starmine Insider model. Below is a list of the top 10 names by notional sells and buys over the last seven days.

Big Data Reveals Big Problems | Insider Selling | Zer0es TV - Watch time: 53 minutes

Top 10 Insider Sales - 7 days

Top 10 Insider Buys - 7 days

Best of the Rest:

Francine shares some content in ‘The Dig’ from Dan Taylor via the SEC’s Investor Advisory Committee this week. She then dives deep into Lordstown Motors and their recent issues and some highly questionable insider dealings. Looking at the Refintiv Starmine quant models, I see mostly low numbers here.

A rollercoaster ride for Lordstown Motors this week, but its executives are ok

I’m more of a macro tourist, so I’m often finding new ways of looking at things. This Tasty Trade article reviews some of the Fed statements with the meeting coming up this week. They review some of the comments on tapering and put the data into a timeline of when the market is pricing in changes. Refinitiv’s Interest Rate Probability app is a nice way to track what’s happening here, but looking at the JPY positioning is another way to think about this according to Senior currency Strategist, Chris Vecchio.

Central Bank Watch: Fed Speeches, Interest Rate Expectations Update

Looking at the CPI from a different perspective. This Tweet breaks down the Core CPI into items that are COVID sensitive.

#US core #inflation impacted by 2 main effects

The Capital Spectator shares that the Inflation Trend Index (ITI), which is “a seven-factor benchmark that’s designed to provide a degree of forward guidance,” may be peaking. This index consists of rolling one-year percent changes for seven indicators that come in varying frequencies and points on the calendar.

Is Inflation Still Transitory? New Data Raise More Questions

Jesse Felder sort of called this reaction to the May CPI. He provided a few charts before the CPI release to show how the market was already pricing in this sort of high number. My favorite was the Tweet Jesse shared from Michael Aston (@inflation_guy) on the US CPI swaps market pricing in transitory inflation.

Markets Have Bought The Fed’s ‘Transitory’ Narrative Hook, Line And Sinker

One of my favorite new sources, at least new to me, is the ChartStorm from Callum Thomas. He puts together ten charts from the week. They can show anything and everything. This chart on SPX shorts caught my eye. There's also one on effective tax rates and S&P 500 Capex growth, which was a highlight of my Real Vision interview.

Weekly S&P500 ChartStorm - 13 June 2021

Andrew Walker is a portfolio manager at Rangeley Capital LLC and runs the 'Yet Another Value Blog'. He discusses Pershing Tontine (PSTH), a SPAC run by Bill Ackman that just recently announced a deal to acquire 10% of Universal Music Group (UMG) from Vivendi. I figured I'd share this as it's got an uncommon structure.

Pershing Square Tontine $PSTH - Andrew Walker - Listening time: 34 minutes

A quick read going through the record global assets. It’s nothing special, but this is a huge round number. The most eye-opening part of this was that “last year more than 6,000 people became “ultras,” individuals whose financial wealth exceeds $100 million. The segment now makes up a total 60,000 people worldwide with a combined $22 trillion in investable wealth or 15 percent of the world’s total.” This lends to a big increase in opportunities for wealth products to serve those advising these newly minted ultras.

Global Investable Assets Reach Record $250 Trillion

This one makes complete sense to me in some ways and is mind boggling in others. First, the blockchain is supposedly the decentralized way to be able to track who owns what and that there’s no way to counterfeit things, like BTC. If this is 100% known, why wouldn’t you think government organizations would be able to track BTC for tax purposes. Shouldn’t it all be in the code? We also saw this with the ransom payments that were recovered. BTC sold off a bit on Monday into Tuesday, but rebounded off those lows.

U.S. IRS chief asks Congress for authority to collect cryptocurrency transfer data

This conversation is not directly related to finance, but I found the conversation topical. Joshua Steinman is a former National Security Council staff member and current startup founder. This interview discusses what the National Security Council is and a ton on the recent ransomware and how to prevent these types of attacks.

Joshua Steinman on Preventing Ransomware Attacks In Future - Listening time: 63 minutes

One for the Road (Literally)

Ben covers some of the upcoming benefits that consumers might see from the credit card companies. Attractive credit card point offers are coming. He noted that there are reports of 100,000 point bonuses for new customers and 5% cash back. Chase Sapphire Preferred is offering 100,000 point bonus after spending just $4,000 in three months. The article says that it's worth like $2,000 in value. Ben is a proponent of taking advantage of these rewards. I highly recommend the Animal Spirits podcast, which Ben links to at the bottom of this article. It’s more about personal finance, but very topical.

The Coming Boom in Travel Credit Card Rewards

Thanks for reading. May your week end up in the Goldilocks zone.

Michael