Rising Yields Fatten Americans' Pocketbooks; I bought T-bills using TreasuryDirect; Outback Steakhouse Owner Draws Activist Investor; Goldman's CEO Is Stuck, Without a Clear Lifeline; Greetings from Riga
1) This front-page story in Saturday's Wall Street Journal is consistent with what I've been saying for a while – investors no longer face the TINA ("there is no alternative") dilemma when thinking about whether to invest in stocks or bonds/cash because both are now attractive: Rising Yields Fatten Americans' Pocketbooks. Excerpt:
The summer bond-market rout is delivering a windfall to savers whose rush into higher-yielding investment products is reshaping the U.S. financial system.
Americans poured $36 billion into money-market funds in the latest week, taking advantage of yields that have soared past 5% – a figure that only recently seemed like a dream for consumers and businesses shopping for a place to park their cash. That marked the biggest weekly inflows since May, according to Refinitiv Lipper data through Aug. 16.
Assets in retail money-market funds have surged more than 25% this year, according to Federal Reserve data, to a record $1.5 trillion. Funds from firms including Vanguard Group, Charles Schwab and JPMorgan Chase are offering yields above 5%.
Money-market funds are a type of mutual fund treated by most investors like bank accounts as a safe place to store spare cash. They hold only high-quality liquid assets such as Treasurys and, in some cases, short-term corporate debt. The funds recently paid an average interest rate of 5.15%, according to Crane Data, the highest level since 1999.
And they aren't the only source of succor to savers. Savings accounts at many banks are now paying above 4% – after years in which many paid next to nothing.
The torrent of cash reflects the continuing strength of the U.S. economy, whose continued expansion has prompted the fastest pace of Fed interest-rate increases in decades. The yield on the 10-year Treasury note settled Friday at 4.251%, near its highest level since 2008.
For consumers and businesses, higher short-term interest rates are giving them a chance to do something they haven't since the days before the 2008 financial crisis: park money in safe places and get paid well for it.
"I can earn 5% on cash doing nothing, versus risking losing a bunch in the market," said Yaacov Teplow-Phipps, a 42-year-old who works in real estate in Briarcliff Manor, N.Y.
2) Last week, I got a nice tax refund. Eventually I will invest it in stocks and/or index funds – where I have most of my money – but until I figure out exactly what I want to do, I would like to earn as much interest as possible holding it in a 100% safe, liquid manner.
After a bit of research, I decided to buy a mix of one-, two-, three-, and six-month U.S. Treasury bills, all yielding over 5%.
I chose this option rather than a money market fund at my broker or a CD at my bank because the interest rate was a little better, plus the interest on T-bills isn't subject to state and local taxes – which are very high in New York City – so the after-tax yield on T-bills is equivalent to nearly 6% compared to other options.
I captured further savings by buying the T-bills directly from the government using TreasuryDirect, so I didn't pay any fees to my broker or bank.
3) My old friend Jeff Smith of activist hedge fund Starboard Value made shareholders a lot of money with his campaign beginning in 2014 that targeted Darden Restaurants (DRI), which operates under many brands including Olive Garden and LongHorn Steakhouse, as you can see from this chart:
So I'm definitely going to take a look at Bloomin' Brands (BLMN), which operates Outback Steakhouse and three other restaurant concepts, in light of this news: Outback Steakhouse Owner Draws Activist Investor. Excerpt:
Starboard Value, whose victory in a proxy fight with Darden Restaurants nearly a decade ago is the stuff of Wall Street legend, has another restaurant chain in its sights: Outback Steakhouse owner Bloomin' Brands.
Starboard has built a stake of 9.9% in Bloomin' Brands, making it one of the company's top-five shareholders, the investor disclosed Friday, confirming an earlier report by the Wall Street Journal.
It couldn't be learned what change Starboard might push for at Bloomin' Brands, but the hedge fund often targets companies that could benefit from operational and financial improvements or be attractive takeover targets.
Bloomin' Brands owns and operates more than 1,450 restaurants globally, some of which are franchised, according to its website. In addition to Outback Steakhouse, its banners include Carrabba's Italian Grill, Bonefish Grill, and Fleming's Prime Steakhouse & Wine Bar.
Bloomin' Brands shares were up nearly 30% year-to-date – before rising another 7% on the news Friday morning – as the business recovers from pandemic doldrums, bringing the company's market value to about $2.2 billion. Still, the shares were little changed in the past decade as sales growth lags.
4) Following up on last Tuesday's e-mail about Goldman Sachs (GS) CEO David Solomon, the New York Times had a similarly negative article: Goldman's CEO Is Stuck, Without a Clear Lifeline. Excerpt:
It has been a slog for Mr. Solomon. Now in his fifth year as Goldman's leader, he is struggling to steer the elite investment bank through a humbling stretch that has brought intense focus on his management style. In July, Goldman reported a collapse in profits, the result of a misbegotten foray into consumer banking that the firm is unwinding. Goldman has undergone three rounds of layoffs over the past year. Its stock trails that of its peers.
It isn't just Blankfein who is fed up. Senior Goldman partners, former executives and investors have expressed frustration with the bank's performance amid a turnaround plan that has yet to show results. It's an unusual indication of unrest at a firm whose 400 or so partners have long observed an informal keep-it-in-the-family rule.
Goldman's troubles have also raised questions about the future of Mr. Solomon's leadership, according to current and former executives involved in deliberations about the firm's future. Even his own friends lament that his side gig as an amateur DJ has become a needless distraction. Mr. Solomon has also attracted criticism for jet-setting trips, including to private resorts owned by a company in which he has personally invested.
And, if you subscribe to Puck (which I recommend), here's further commentary by one of my favorite business writers, William Cohan, who thinks that Solomon will keep his job (I don't): The Judgment of Solomon. Excerpt:
The Times story was a nothingburger compared to the hit piece that Jen Wieczner, at New York, dropped later that same day about Solomon. In it, Wieczner wondered if Solomon was "too big a jerk" to run Goldman? The piece, which I was told she had been working on since March or so, was long and filled with one dagger after another aimed at Solomon. The gloves seemed finally to be coming off. "This is beyond drip, drip, drip," said one former Goldman executive, "to more like a large sluice gate being opened"...
Whether David Solomon continues on that journey remains to be seen. A longtime Goldman executive told me recently that he thought Solomon's chances of lasting at Goldman through to the end of the year were 55-45, in his favor. Not great, of course. But even after the twin shots across Solomon's bow on Friday, I think the odds are better than 55-45 that he stays.
In talking to people close to the Goldman board, my sense is that he retains its support even if they are not willing to say so publicly. Of course, if that's the case, this would be a good moment for the board to issue a statement about that support. I doubt it'll happen because I'm sure the Masters of the Goldman Universe would think such a statement would be perceived as a sign of weakness, or as a sign of giving into the naysayers and the gossipers.
But I suspect David would appreciate the vote of confidence. He did get an unexpected boost from an unlikely source, Rupak Ghose, a former research analyst at Credit Suisse. Writing Monday in the Financial Times, Ghose argued, "It's time to do the unthinkable – defend a Goldman Sachs CEO" He had read Wieczner's article and concluded that it was time to balance "the bad dressing room vibes with the hard data."
As I have, Ghose reminded readers about how relatively well the Goldman stock price has performed under Solomon's reign and how Goldman continues to lead the investment banking league table rankings, year after year. And how well Goldman's trading businesses have performed lately. Yes, Ghose wrote, Solomon stumbled with the consumer thrust, which started under Blankfein and is now being unwound.
The truth is, as Ghose wrote (as have I), Goldman has always been a rough and tumble place, composed of thousands of ambitious, aggressive, and highly commercial people who keep score by how much money they make year in and year out, and who are not above occasional avariciousness to get what they want. From that perspective, if you think about it, David Solomon may be the best person for the job after all.
And here's a related Wall Street Journal video: 'A Strategic and Financial Fail:' How Goldman Sachs Fumbled Its Consumer Bet.
Lastly, here's a Bloomberg article about the delicate situation faced by Solomon's longtime No. 2, John Waldron: Goldman CEO's Most Loyal Deputy Is Tested by Mutinous Partners. Excerpt:
The smell of seared red meat – $180 porterhouse, to be precise – hung in the air as bankers and traders from Goldman Sachs bluntly sized up their CEO.
In a once-unthinkable public display, a boisterous crew of senior managers gathered at an upscale Manhattan steakhouse last month and soon veered off their anodyne agenda. The conversation turned to the company's failings and, in particular, those of its leader, David Solomon.
Their audience that evening, Goldman President John Waldron, sat across the white-linen-topped table and listened patiently.
Such dissent has become an alarmingly frequent occurrence at Goldman Sachs, creating awkward moments for senior executives – and none more so than Waldron, the bank's second-in-command.
The 54-year-old dealmaker has spent his three-decade career ascending Wall Street's rungs behind Solomon to reach the financial industry's most rarified air as the CEO-in-waiting at the powerhouse investment bank. But as bitterness festers in the ranks this year over Solomon's leadership, Waldron is being pressed by colleagues to pick a side: Beat his own path to win over disgruntled executives, or risk being seen as an affable clone of the CEO.
5) Greetings from Riga!
I flew here last night and I depart tomorrow on a very quick four-day trip to Latvia, Estonia, and Sweden. I visited the beautiful old town this morning – here are some pictures:
6) I took my minimalist packing to a new extreme on this trip, bringing only the clothes on my back (I'll share details of exactly what I brought in Wednesday's e-mail). Some people think it's gross to wear the same clothes four days in a row, but I don't – perhaps because I've lived and traveled in so many poor countries where most people wear the same clothes every day of the year...
Here's what I looked like going out the door on Sunday (I normally don't dress so nicely, but I met a member of the Latvian parliament today, am meeting the former first lady of Estonia tomorrow, and I'm going to a dinner/event tomorrow night):
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.