Wealth Accelerator replay; Report on HCI Group; PSTH breakdown; Inflation; Cheers to Ally Financial; Jeers to Juul
1) My colleague Berna Barshay and I hosted Empire Financial Research's first-ever Wealth Accelerator event yesterday, which was great fun – and, I think, educational for our viewers.
Berna also announced the launch of her brand-new product, Empire Market Insider. For a limited time, we have a special offer available for it... but this won't last long. You can watch the replay of the event – and learn more about Empire Market Insider – right here.
2) Justin Hughes of hedge fund Phase 2 Partners just sent me a bullish report he prepared on insurer HCI Group (HCI), Unlocking a Flood of Value: TypTap + HCI = $300+, which he gave me permission to share first with my readers.
I haven't done the work on HCI Group personally. But I do not doubt that Justin's analysis is correct, given his more than two-decades-long track record doing long-short investing in the financial services sector. I first met him when he spoke at my shorting conference in May 2018, where he pitched the online trading platform Plus500 (PLUS.L), which subsequently declined by 66%.
3) Following up on my colleague Enrique Abeyta's report on Pershing Square Tontine Holdings (PSTH), someone posted this hilarious sock-puppet explanation of the deal: Daddy's here with the PSTH Breakdown. Once you stop laughing, you'll realize it's actually pretty accurate!
4) Yesterday's inflation report made the front pages of today's New York Times (Prices Jumped 5% in May From Year Earlier, Stoking Debate in Washington) and Wall Street Journal (U.S. Inflation Is Highest in 13 Years as Prices Surge 5%).
I'm keeping an eye on inflation, but I tend to share the consensus view captured in this "Heard on the Street" article in today's WSJ: Stepping Through Inflation's Looking Glass. Excerpt:
In the months ahead, the stage seems set for inflation to only heat up further. The economy is growing swiftly – economists polled by IHS Markit now forecast gross domestic product will grow at a 10.1% annual rate in the second quarter followed by 6.9% in the third – while shortages of many items remain unresolved. Moreover, with many employers struggling to hire workers, wages are picking up, and some businesses are trying to make up for higher labor costs by raising prices.
But a lot of the factors pushing up prices, while they might last for a while longer, still appear temporary. The chip shortage and other supply-chain bottlenecks seem likely to be resolved over the next year. The same goes for a lot of issues businesses are having finding employees. Also, in a year's time, a lot of the demand that built up during the pandemic might be exhausted, and the boost from the substantial amount of money the government pumped into the economy could be fading. In short, Federal Reserve policymakers have good reason to believe the jump in inflation will probably be temporary.
Still, there is a lot we don't know, including what state the job market will be in next year, how much economic growth will moderate, what the state of the rest of the world will be in, and to what degree this year's spate of inflation will affect expectations and behavior. It is fine to look through what is happening with prices now, but that doesn't mean you'll get a clear view of what is going to happen next.
The bond market isn't worried about high inflation, as this second "Heard on the Street" article notes: What Does the Bond Market Know About Inflation? Excerpt:
Inflation is everywhere. Chinese manufacturing prices, broad commodity prices, and consumer prices on goods ranging from fruit to freezers are climbing. Everywhere, that is, except in the bond market.
Five-year inflation breakevens – the difference between an ordinary five-year Treasury yield and an inflation-protected one – are around where they were three months ago. They have declined in the past month when the discussion of inflation has been most frenzied.
Nor are they particularly high by historical standards. At around 2.47% a year over the next five years, the inflation currently priced into the bond market is above its historical level for most of the low-inflation period following the 2008 financial crisis. But from 2004-2007, which was hardly a period of booming inflation, that level was entirely normal.
5) Cheers to Ally Financial (ALLY) – let's hope every bank follows suit, as overdraft fees are a total scam, preying on the people least able to afford them (I've never paid one in my life): Overdraft Fees Are Getting the Boot at Ally Financial. Excerpt:
Overdraft fees are a thing of the past at Ally Financial.
Customers who overdraw their accounts will no longer face a $25 penalty, the bank said Wednesday. The change applies to the roughly 3.6 million checking, savings, and money-market accounts at Ally's online bank. Typically, Ally charged for each day that a customer tried to buy something when their account was more than $10 in the red, except on debit-card transactions.
Ally decided to eliminate the fees after positive customer feedback when it temporarily suspended the charges in the early months of the COVID-19 pandemic, said Diane Morais, Ally Bank's president of consumer and commercial banking. Last summer's protests for racial justice also drove the decision to nix the fees, she said. The charges disproportionately affect people who are living paycheck to paycheck, Ms. Morais said, and the bank also studied research that found that overdraft fees disproportionately affect Black and Latino households.
"We came to the conclusion that these fees are a great source of stress and anxiety for consumers," Ms. Morais said. "It became clear to us that the best way to relieve that anxiety was to eliminate those fees."
Many big banks were lenient on overdraft fees when the pandemic hit, with most waiving the charges when customers asked for help. Last year, banks' overdraft revenue fell for the first time in six years, according to financial-data firm Moebs Services.
Still, firms collected $31.3 billion in fees in 2020, Moebs calculates. Many analysts forecast an increase in overdraft fees this year. Some banks are already less willing to waive them, and the stimulus checks and other government measures that have padded people's checking accounts are expected to peter out.
6) Jeers to e-cigarette company Juul, as this book reveals: The Devil's Playbook: Big Tobacco, Juul, and the Addiction of a New Generation. Here's the book review in the New York Times: Juul Wanted to Disrupt Big Tobacco. Instead, It Created an Epidemic of Addiction. Excerpt:
While the tobacco industry was one of the most heavily regulated in the country, the e-cigarette market was like the Wild West, with no rules dictating how the industry could advertise or to whom it could sell its products. Vaping ads started appearing in magazines, on television, and all over social media. Juul was one of the savviest marketers, blanketing Instagram and convenience store windows with pictures of young people partying with Juul devices in their hands.
The use of e-cigarettes exploded, and Juul quickly swallowed up more than 50 percent of the market...
Perhaps the most fascinating and darkly comedic anecdote in The Devil's Playbook comes when Juul meets some of its fiercest critics: several wealthy California financiers who become incensed when they learn that their own kids and their kids' friends are Juuling.
One of the parents, a private equity and hedge fund manager named David Burke, wrote a LinkedIn message to Juul's CEO, Kevin Burns, who lived in the same Bay Area town, Atherton – known as the richest ZIP code in the United States. Burke was angry – and used the language to convey it – that Juul had gotten these kids hooked on nicotine. "From here on out, I'm going to go out of my way to fight," he wrote. And he promised to be "more than vocal about it." He went on to compare Juul to Purdue Pharma, the company that developed OxyContin, which helped create the opioid crisis. "I have deep ties in the investment world and am from Washington, D.C. and have deep ties there, all of which I will leverage to the max," Burke continued. "You'll have a beautiful, proud legacy for you and your family to celebrate in future generations."
Best regards,
Whitney