Some of you had an aneurism last week because I didn’t provide a write-up on Justin Timberlake. It’s nothing personal against JT (he’s a TN brother), I just ran out of time. Here’s all you need to know. He’s a Memphis, TN, native and his entertainment roots trace back to his time as a Disney Mouseketeer, where he met his future girlfriend and singer Britney Spears. Timberlake dated Spears between 1999 and 2002 and it was a toxic relationship. Timberlake recently apologized to Britney (and Janet Jackson) after a new documentary led to criticism of how he treated her during and after their relationship. Timberlake, 39, married Jessica Biel in 2012 and the couple have two children, Silas and Phineas.
MASS SHOOTING
Robert Aaron Long, 21, of Woodstock, GA, went on a shooting spree of three Asian-owned spas that left eight people dead, including six Asian American women. Jay Baker, a Cherokee County sheriff’s captain, said the suspect believed he had a “sex addiction” and that he viewed the spas as a “sexual temptation for him that he wanted to eliminate.” Baker has come under fire for also saying that Long had a “a really bad day” and for Facebook posts in which he promoted the sale of xenophobic T-shirts that blamed China for the coronavirus pandemic. When he confessed to the crimes, Long told investigators that he was not motivated by race. Still, there has been a rise in racism and violence against Asian-Americans during the pandemic. A recent report found that hate crimes against Asian Americans in major US cities surged by nearly 150 percent in 2020—even as the number of overall hate crimes fell.
COVID
The US passed a huge milestone today with 100 million shots of the vaccine, which equates to approximately 30% of US adults have received at least one vaccine shot. NPR and PBS conducted a poll and found that 49% of Republican men refuse to get vaccinated. That compares to 6% for male Democrats.
Several EU countries implemented more coronavirus restrictions this week in a bid to slow down the spread of the variants of the virus. In Italy, most of the country has been ordered to shut down businesses and schools due to a 15% spike in infections. The Polish government ordered a lockdown in several regions, including Warsaw. France is under a 6pm to 6am curfew and authorities are contemplating putting Paris under a weekend lockdown.
ECONOMY & MARKETS
The Federal Reserve held a press conference on Wednesday and, as expected, kept its easy-money policies in place and vowed to maintain them until the US economy recovers further from the effects of the pandemic. At the same time, officials also highlighted an improved growth outlook. Central bankers voted unanimously to maintain overnight interest rates near zero, where they have been set for the past year, and to continue purchasing at least $120 billion of Treasury bonds and mortgage-backed securities monthly. Fed officials expect the economy to recover more quickly than they did a few months ago. They sharply raised their forecasts for economic growth to 6.5% in 2021 from their December forecast of 4.2%, anticipating that the COVID vaccination campaign, pent-up savings and cash on the sidelines, and trillions of dollars of government stimulus will propel the US economy to its fastest expansion since the early 1980s. The Central Bank’s median forecast now shows annual inflation accelerating to 2.4% in the fourth quarter of this year, up from their December projection of 1.8%, and remaining at or slightly above 2% through 2023. Still, most officials expect to hold rates near zero through 2023. Federal Chairman Powell underscored the central bank’s commitment to achieving maximum employment goals and sustained 2% inflation. The bond market continues to react to signs of economic growth and fears of future inflation. Yields, which rise when bond prices fall, have been climbing for months, signaling investors’ belief that inflation will force the Fed to lift short-term interest rates sooner than projected. The ten-year yield is currently trading around 1.75% after closing last year at 0.92%.
Big picture, this is positive news. However, there is a growing concern about investment mania and what appears to be bubbles in every direction. First, there are Cryptocurrencies and what feels like speculative activity. Last March, bitcoin was hovering just above $5,000; on Saturday, it hit an all-time high above $61,000. The total value of Bitcoin has surpassed $1 trillion. I covered NFTs last week, but this version of a cryptocurrency has registered head-scratching sales in 2021, highlighted by a piece of digital artwork that sold for $69 million. Trading cards even got in on the mania. This past week, a trading card featuring quarterback Tom Brady sold for a record $1.3 million. In January, the most expensive sports card transaction in history occurred when entrepreneur/actor, Rob Gough, paid $5.2 million for a 1952 Mickey Mantle baseball card. The Steph Curry rookie card is listed for $195,00 on eBay right now.
And then there is the red hot IPO market and SPACs (special purpose acquisitions company) explosion. The US is in the middle of the biggest IPO boom since the dot-com bubble, and SPACs are driving it. In 2007, the last peak of SPAC IPO volumes, SPACS made up 14% of the IPO market. In 2020, SPACS represented a 50% market share, raising $80 billion from 237 counts. And of the 302 IPOs so far this year, 80% are SPACs. In 2021, through March 10th, IPOs have raised $102 billion. That is up 763% from the 35 offerings, valued at 11 billion, for the same period in 2020. Before that, the high-water mark for IPOs came during the dot-com bubble of 1999 when 547 offerings raised about $69 billion. Plus, the performance of these IPOs has been off the charts. Over the past 12 months, the shares of 52 tech IPOs jumped an average of 65% on their first day of trading. However, most concerning is that over 80% of the 2020 IPOs are not profitable, surpassing the level experienced back in 1999. And we all know how that party ended.
The public equity markets are rolling. The pandemic slammed the brakes on the global economy, and the stock market took a hit and went into bear territory last March, but only for 33 days. (The S&P 500 took just 126 trading days to swing from a record to a bear market and back to a new high—marking the fastest such recovery in history.) Technically speaking, the longest bull market in history ended on March 11th, 2020, and a new bull market started. However, if you ignore that month-long blip in the markets, the current bull market began March 9th, 2009, when the S&P fell below 700 for the first time in 13 years as the country recovered from a housing-induced financial crisis. (Bank of America traded for just $3.68 a share.) Since that time, the current bull market, excluding the 33 days last March, has run for 4,393 days. Here is a list of stock bull markets through time and how this new one stacks up. This week the S&P established a new high and is trading above $3,900, and Bank of America (BAC) is above $38 a share. The Nasdaq is up more than 90 percent since its Covid-era low. As they say, what goes up must come down.
The last bubble heard bursting was the housing sector back in 2007. However, since that time, the US is experiencing a real estate boom, the likes of which it hasn’t seen in 15 years. Home prices are rising practically everywhere, and the national median price climbed above $300,000. Data from Realtor.com on February 20th showed median listing prices up 14.5 percent over last year, the 28th consecutive week of double-digit price gains. The biggest winners in today’s boom are people who already own homes, who gained a collective $1.5 trillion in equity in 2020 from a year earlier. According to the US Census Bureau, the homeownership rate stood at 65.8% in the fourth quarter of 2020. The problem is incomes aren’t keeping pace with housing prices, which was true of the housing boom of the mid-2000s. Rents aren’t keeping up with home prices, either. But unlike the real estate boom that led to the Great Recession, this nationwide price spike is not fueled by a wholesale collapse in lender ethics and extreme leverage. Instead, sustained low-interest rates, demographic trends, and a lack of housing supply have pushed housing prices to record highs. The US needs to produce over 1.6 million units a year to keep pace with organic housing demand, but the industry is falling 370,000 units short each year. That supply imbalance will only get worse as more than 140 million millennials and members of Gen Z move into rental units and starter homes in the years ahead. More than 50% of young adults from 18 to 29 are still living with their parents. These young adults have to go somewhere in the future. At a certain point, interest rates will rise, and there won’t be enough buyers coming in from more expensive markets to keep paying the higher prices. Either development or both could lead to a pullback in prices. The question is not if but when.
It’s difficult to predict how all of this will end. For the time being, with the Federal Reserve continuing to buy Treasury bonds and other securities under its quantitative easing program, interest rates are being held artificially low as dollars are pumped into the economy. That makes borrowing cheap and encourages investors to buy riskier assets like stocks and real estate, driving prices of those assets ever higher. Bulls argue the IPO market is simply a function of the long-running bull market, a friendly Fed, low-interest rates, and a flood of liquidity in stocks as investors struggle to find any meaningful yield. And there are rational reasons why the real estate market continues to flourish. Still, fears about asset bubbles are percolating throughout the financial world. A recent survey by investment management firm Natixis found that 41 percent expect a correction in real estate prices, and 39 percent foresee corrections in tech stock and cryptocurrency values.
The hope is that the US government can thread the proverbial needle and generate faster economic growth with little inflation, perhaps gently letting the air out of the biggest bubbles. But darker scenarios exist, including an economic recovery that hits turbulence with no bullets left in the chamber to jumpstart the economy and generate jobs for the 10 million out of work. Or, a Pyrrhic victory where the economy grows and unemployment shrinks but all of these measures lead to a spike in inflation and several bubbles burst, with big risks for investors who got overextended, and our nation saddled with servicing $30 trillion in debt.
Other News
The IRS has delayed this year’s tax filing deadline from April 15 to May 17. Last year, the IRS moved the tax filing deadline until July. The extra time will allow taxpayers to learn about tax changes included in the $1.9 trillion American Rescue Plan Act of 2021 (ARPA) signed into law by President Biden on March 11.
Pharmaceutical companies Gilead Sciences and Merck are teaming up to test a potential long-acting treatment for HIV. The therapy consists of a combination of two experimental drugs, Merck's Islatravir and Gilead's lenacapavir. The companies hope the treatment will only need to be taken once every few months and will significantly "reduce the number of patients with detectable disease." An estimated 1.2 million Americans live with HIV, with ~38,000 new diagnoses given in 2018.
A 14-year old from New Jersey has made hundreds of bowties that have helped dogs and cats in shelters get adopted. Darius Brown learned to sew bowties when he was just eight years old, and he realized that neckties could help homeless animals look cute, increasing their chances of finding a new home. Over the years, Brown has made about 600 bowties sent to animal shelters in eight states.
March Madness is upon us after a two-year hiatus. Enjoy my favorite sports weekend of the year, despite the fact the Vols laid a gigantic egg!
I. Below are the articles I found interesting the past week:
How much bitcoin should I own? A mathematical answer
II. Stats that made me go WOW!
- The private equity markets are frothy, too. Stripe, the digital payments company, recently raised a $600 million Series H funding that increased its valuation to $95 billion, nearly triple the last reported valuation less than one year ago.
III. Name that Tune!
As I write this email, I am listening to “Toxic” by Britney Spears.
Britney Jean Spears is an American singer, songwriter, dancer, and actress credited with influencing the revival of teen pop during the last 1990s and early 200s. Her first two studio albums, Baby One More Time (1999) and Oops!…I Did It Again (2000), were global successes and became two of the best-selling albums of all time, along with making her the best-selling teenage artist of all time. In January 2001, Spears performed as a special guest in the Super Bowl XXXV halftime show headlined by Aerosmith and NSYNC.
Britney's personal life has been a disaster, with multiple failed marriages, substance abuse, and controversy surrounding her parenting. Spears hit a low in 2008 when she was committed to the Ronald Reagan UCLA Medical Center's psychiatric ward. The court placed her under a conservatorship led by her father, Jamie Spears, and attorney Andrew Wallet, giving them complete control of her assets. Britney has fought to terminate the conservatorship with the support of thousands of die-hard fans under the slogan #freebritney. The initiative has gandered support from several celebrities, including Cher, Paris Hilton, Miley Cyrus, and the ACLU.
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Good stuff brother!