Aug 13, 2021 Sign Up

by Overheard on Wall Street

"Look at what caused people to make a lot of money and you will see that usually it is in proportion to their production of what the society wanted." — Ray Dalio

Good morning! Home prices in America keep going up. Prices rose 22.9% in the second quarter to $357,900 from a year ago. In 2020 census data, US population grew 7.4% from 2010. White population dropped for the first time in a decade (down 2.6%), which puts that group’s share of the total US population below 60%. In crypto news, PSG (Lionel Messi's shiny new club) announced that Messi is partially being paid in crypto: "$PSG Fan Tokens."

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1. Story of the Day: Hedge Funds Double Down

Hedge funds' faith in their own stock-picking skills is growing stronger than ever. Morgan Stanley's hedge-fund clients have boosted holdings in their conviction buys, with the 50 most-crowded stocks making up more than 40% of the long book last month for the time since at least 2010.

What kind of stocks have hedge funds piled into? Software makers. Their net exposure has climbed to a record. Hedge funds have been known for placing more concentrated bets to enhance performance and differentiating from benchmarks such as ETFs. What’s unusual now is that they’re all going after a small pool of stocks.

After a year that started off with retail investors stealing hedge funds' thunder, the industry's performance got a further boost with short bets scoring the best month on record for funds tracked by Morgan Stanley.

Short Squeez Takeaway: FANG (Facebook, Amazon, Netflix, Google) stocks are some high conviction names that have consistently outperformed the market e.g. Facebook is up 33% year-to-date vs S&P 500 returning 19%. Hedge funds are taking home-run swings and all are buying the same names. It's great when these stock prices keep going up but if these hedge funds decide to get out from their concentrated positions in a hurry, it could send these stocks to the gulag.

Source: Bloomberg

2. Markets Rundown

• S&P 500 booked a third straight record finish after fresh labor-market data provided insight on the pace of the recovery. The moves for stocks came even as a reading for wholesale inflation came in hotter than expected

Movers & Shakers

• (+) Knowbe4 ($KNBE) +26% after the company disclosed the pricing of its upcoming common stock offering
• (+) Doximity ($DOCS) +13% after an encouraging fiscal first-quarter earnings report.
• (–) IQIYI ($IQ) -7% after announcing report for second quarter

3. Top Reads

4. Book of the Day: The Storm Before the Calm: America's Discord, the Crisis of the 2020s, and the Triumph Beyond

The master geopolitical forecaster and New York Times bestselling author of The Next 100 Years (George Friedman) focuses on the United States, predicting how the 2020s will bring dramatic upheaval and reshaping of American government, foreign policy, economics, and culture.

American history must be viewed in cycles—particularly, an eighty-year "institutional cycle" that has defined us and a fifty-year "socio-economic cycle" that has seen the formation of the industrial classes, baby boomers, and the middle classes.

These two major cycles are both converging on the late 2020s—a time in which many of these foundations will change. The United States will have to endure upheaval and possible conflict, but also, ultimately, increased strength, stability, and power in the world.

5. Daily Visual: Global Warming 
Changes in global surface temperature relative to 1850-1900

Source:  Axios

6.  Daily Acumen: Constant Evolution

Skateboarder Tony Hawk landed a 900 – two and a half spins – at the 1999 X Games. It was the biggest achievement the sport had ever seen, the equivalent of the four-minute mile.

It catapulted Hawk into legend status. His video game came out a year later and sold 30 million copies. Six Flags named a rollercoaster after him.

Fifteen years later, an eight-year-old landed a 900. Hawk was also the first person to land a 720 (two spins) – a feat later accomplished by a second-grader.

A lot of sports work like that. One person raises the bar over what previously seemed impossible, and that becomes the baseline for a new generation to build upon.

Same with technology, business, and investment knowledge. One generation builds on the impossible feats of the previous one. It’s like compound interest.

A fifth-grader recently landed a 1080 – three spins, unthinkable in Hawk’s day. Asked what he thought of the achievement, Hawk replied: “It represents everything I love about skateboarding: constant evolution.”

A statement you can apply to just about any field.

Source: Morgan Housel

7. Memes of the Day

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