Month: January 2024

Scandal plagued Harvard President Claudine Gay has been hit with an additional six allegations of plagiarism Monday night in a complaint filed with the university, the Washington Free Beacon‘s Aaron Sibarium reports.

This brings the number of allegations against Gay to just under 50 – with seven of Gay’s 17 published works already impacted by the scandal, and now, an eighth!

In a 2001 article, Gay lifts nearly half a page of material verbatim from another scholar, David Canon, a political science professor at the University of Wisconsin.  

That article, “The Effect of Minority Districts and Minority Representation on Political Participation in California,” includes some of the most extreme and clear-cut cases of plagiarism yet. At one point, Gay borrows four sentences from Canon’s 1999 book, Race, Redistricting, and Representation: The Unintended Consequences of Black Majority Districts, without quotation marks and with only minor semantic tweaks. She does not cite Canon anywhere in or near the passage, though he does appear in the bibliography. -Free Beacon

While Gay’s footnotes are copied verbatim from Canon’s endnotes. 

Claudine Gay is the Christmas gift that keeps on giving

This scandal is doing more to expose DEI than years of criticism by the right

Hope she never quits

— Gummi Bear (@gummibear737) January 2, 2024

Canon, pledging fealty, insisted that Gay had done nothing wrong.

“I am not at all concerned about the passages,” he told the Beacon. “This isn’t even close to an example of academic plagiarism.“

Oh really?

As journalist Paul Thacker of The Disinformation Chronicle reports, students are held to a much higher standard than Claudine Gay and other academics caught plagiarizing.

3) This is how they “do the scholarship” in the Ivy League, people.

But it gets better. Brand new allegations that Gay had copy and pasted sentences in 7 of her 11 publications then came to light.

— Paul D. Thacker (@thackerpd) December 28, 2023

In just one example, Thacker found a Yale professor who literally sighed their name to a GalaxoSmithKline paper to promote Paxil.

To ensure the professor erased the PR company’s writing involvement, STI prompted her on the cover page: “STI Cover Page – To be removed before submission.”

7) One example: PR company STI was working for GlaxoSmithKline and wrote a paper for a Yale professor to promote Glaxo’s antidepressant, Paxil. To erase the PR company’s writing involvement, STI prompted her on the cover page: “STI Cover Page – To be removed before submission.” pic.twitter.com/U47zo338MN

— Paul D. Thacker (@thackerpd) December 28, 2023

Thacker then lists over a dozen examples of plagiarism and other malarkey he collected from universities in the United States and Canada.

For example…

10) Some of you might be familiar with Timothy Caulfield and his multiple pandemic hot takes. Caulfield once shamed Gwyneth Paltrow for wearing an N95 on a plane trip before converting to a “STRONG advocate for masks” and advising against shaming people for not wearing masks. pic.twitter.com/zyikxTGOCN

— Paul D. Thacker (@thackerpd) December 28, 2023

Head on over to The Disinformation Chronicle to check them out.

Authored by Lance Roberts via RealInvestmentAdvice.com,

With 2023 behind us, what does a stellar “Santa Claus” rally tell us about what to expect? What about this year being a Presidential election year? These questions make it an excellent time to review our “investor resolutions.” However, before we commit to our resolutions, let’s check what January may have in store.

So Goes January

There is an abundance of “Wall Street Axioms” surrounding the first month of the New Year as investors anxiously try to predict what is in store for the next twelve months. You are likely familiar with the “Superbowl Indicator,” “So Goes The First 5 Days. So Goes The Month,” and “So Goes The Month, So Goes The Year.”

Considering that trying to predict the markets more than just a few days in advance is mostly an exercise in “folly,” it is nonetheless a traditional ritual as the old year passes into the new. While Wall Street consistently espouses overly optimistic projections of year-end returns, reality has often tended to be somewhat different.

However, from an investment management perspective, we can look at some of the statistical evidence for January to gain insight into future performance tendencies. From this analysis, we can gain some respect for the risks that might lie ahead.

According to StockTrader’s Almanac, the direction of January’s trading (gain/loss for the month) has predicted the course of the rest of the year 75% of the time. From a broad historical perspective, the chart below shows the January performance from 1900.

Furthermore, twelve of the last sixteen presidential election years followed January’s direction. Speaking of presidential election years, 2023 was held to form with a strong return year, as has been the norm over the last century. 2024, a Presidential election year, also has a high win rate with an average return of 10% and a 76% chance of success.

Digging In

The table and chart below show the monthly statistics for the S&P 500. As you will notice, there are some significant outliers, like August, with a 50% one-month return. These anomalies occurred during the 1930s following the crash of 1929.

The critical point is that January tends to be one of the best return months of the year, while February and March are significantly weaker.

January is the most favorable return month, followed only by December, April, and July.

But January is not always a winner. While the statistical odds are high, particularly after a strong start, it does not always end that way. It is worth noting that while January’s maximum positive return was 9.2%, the maximum drawdown was the mildest at -6.79%.

Following a huge “Santa Rally” during December, we will be watching January closely for clues we may glean heading into 2024. It is not unrealistic to expect a weaker January to play out with stock grossly extended and overbought from December.

However, such is why “investor resolutions” will play an essential role over the next 12 months. Importantly, it is not the market that investors need to combat but their own “psychology.”

Why We Continue To Repeat Our Mistakes

Every year, Dalbar Research publishes an extensive study that repeatedly shows three primary reasons for investor failure.

The key issues are a lack of capital to invest and psychology. Dalbar defined nine of the irrational investment behavioral biases specifically:

• Loss Aversion – The fear of loss leads to a withdrawal of capital at the worst possible time. Also known as “panic selling.”

• Narrow Framing – Making decisions about one part of the portfolio without considering the effects on the total.

• Anchoring – The process of remaining focused on what happened previously and not adapting to a changing market.

• Mental Accounting – Separating the performance of investments mentally to justify success and failure.

• Lack of Diversification – Believing a portfolio is diversified when it is actually a highly correlated pool of assets.

• Herding– Following what everyone else is doing. Such leads to “buy high/sell low.”

• Regret – Not performing a necessary action due to the regret of a previous failure.

• Media Response – The media is biased toward optimism to sell products from advertisers and attract views/readership.

• Optimism – Overly optimistic assumptions tend to lead to rather dramatic reversions when met with reality.

The “herding effect” and “loss aversion” are the most significant behaviors that compound the issues of investor mistakes over time. As markets rise, individuals believe the current price trend will continue indefinitely. The longer the rising trend lasts, the more ingrained the belief becomes. Eventually, the last of the “holdouts” finally “buy in” as the market evolves into a “euphoric state.”

The cycle then repeats itself.

While 2023 was bullish, investor allocations to equities remain elevated, and optimism is high heading into 2024. Given that investors’ behavioral traits run counter-intuitive to the “buy low/sell high” investment rule, such suggests the risk of disappointment is elevated.

Such is why it is vital to follow a set of resolutions.

Investor Resolutions For 2024

Each year, I review my annual resolutions for the coming year to be a better investor and portfolio manager:

I will:

• Do more of what is working and less of what isn’t. 

• Remember that the “Trend Is My Friend.”

• Be either bullish or bearish, but not “hoggish.” (Hogs get slaughtered)

• Remember, it is “Okay” to pay taxes.

• Maximize profits by staging my buys, working my orders, and getting the best price.

• Look to buy damaged opportunities, not damaged investments.

• Diversify to control my risk.

• Control my risk by always having pre-determined sell levels and stop-losses.

• Do my homework. I will do my homework. I will do my homework.

• Not allow panic to influence my buy/sell decisions.

• Remember that “cash” is for winners.

• Expect, but not fear, corrections.

• Expect to be wrong, and I will correct errors quickly. 

• Check “hope” at the door.

• Be flexible.

• Have the patience to allow my discipline and strategy to work.

• Turn off the television, put down the newspaper, and focus on my analysis.

Each year, I do my best to adhere to my resolutions. Sometimes, I fail.

However, such is the practice of reviewing these guides to reset my focus for the New Year. There is no easy road to being a successful investor. But following a set of basic rules, maintaining discipline, and having focus can significantly increase the odds of long-term success.

Conclusion

While most financial media and blogosphere suggest that investors should only “buy and hold” for the long term, the reality of capital destruction during significant market declines is a far more pernicious issue.

With market valuations elevated, leverage high, and economic weakness present; investors should be observing the month of January for clues. The weight of evidence suggests that this could be a year of disappointment despite ongoing “bullish calls” for the markets in the year ahead.

Pay attention. And adhere to your resolutions.

May you have a Happy and Prosperous 2024.

See You Next Week.

US Manufacturing saw only two months in 2023 that were not in contraction and ended on a decidedly poor note with the final December print dropping to 47.9 (from 48.2 flash and 49.4 prior).

Source: Bloomberg

Across the board it was ugly with:

• Renewed contraction in output as orders fall at sharper pace

• Rates of inflation pick up

• Joint-fastest drop in employment since June 2020

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:

“US manufacturers ended the year on a sour note, according to S&P Global’s PMI survey. Output fell at the fastest rate for six months as the recent order book decline intensified. Manufacturing will therefore likely have acted as a drag on the economy in the fourth quarter.

“The slowdown is spreading to the labor market. Payrolls were cut for a third month running as increasing numbers of firms grew concerned about the development of excess operating capacity. The fourth quarter has consequently seen factories reduce employment at a pace not seen since 2009 barring only the early pandemic lockdown months.

“With factories also cutting back sharply on their purchases of inputs in December, suppliers were also less busy on average, again hinting at the development of spare capacity.

“While there was some uplift in the rate of both raw material and factory gate selling price inflation, firms’ costs notably continued to rise at a pace below the survey’s long-run average to hint at historically subdued industrial price pressures.

“Given current order book trends, the overall picture from the survey is one of supply exceeding demand for many goods, which points to downside risks to production, employment and prices as we head into 2024. Potential supply chain disruptions need to be monitored, however, notably in terms of shipping, as the survey has clearly demonstrated in the past how supply chain tensions quickly feed through to higher prices.”

Not exactly the ‘goldilocks’ soft-landing every one is hoping for.

The holidays are over and the grind is back. And with that, we look to the first economic data releases of the new year, which this week are the ISM manufacturing report on Tuesday and the employment situation report on Friday. The minutes from the December FOMC meeting will be released on Wednesday. Richmond Fed President Barkin will deliver speeches on the economic outlook on Wednesday and Friday, and Dallas Fed President Logan will speak at the annual meeting of the American Economic Association on Saturday.

Tuesday, January 2

• 09:45 AM S&P Global US manufacturing PMI, December final (consensus 48.4, last 48.2)

• 10:00 AM Construction spending, November (GS +1.1%, consensus +0.5%, last +0.6%): We estimate construction spending increased 1.1% in November.

Wednesday, January 3

• 08:30 AM Richmond Fed President Barkin (FOMC non-voter) speaks: Richmond Fed President Tom Barkin will speak about the economic outlook to the Raleigh Chamber of Commerce. Text and audience Q&A are expected. On December 19th, President Barkin noted that “if … inflation comes down nicely, of course we would respond appropriately,” suggesting the FOMC could lower interest rates in response to falling inflation. Still, President Barkin observed that he has “got a perspective that inflation is a little stubborner than the average person is in there.” Since President Barkin spoke, downward revisions lowered quarterly annualized core PCE inflation to just 2.0% in Q3, and the core PCE index increased by just 0.06% in November.

• 10:00 AM ISM manufacturing index, December (GS 46.9, consensus 47.2, last 46.7): We estimate the ISM manufacturing index rebounded by 0.2pt to 46.9 in December, reflecting the rebound in East Asian industrial activity but weakness in other business surveys. Our GS manufacturing tracker fell 0.9pt to 49.1.

• 10:00 AM JOLTS job openings, November (GS 8,850k, consensus 8,850k, last 8,733k): We estimate that JOLTS job openings edged up to 8,850k in November.

• 02:00 PM Minutes from the December 12-13 FOMC meeting: The FOMC delivered a dovish message at its December meeting, as the November inflation reports and back revisions suggested that inflation had declined faster in the second half of the year. In the December meeting minutes, we will look for indications of the Committee’s views on the pace of cuts next year, especially in light of Chair Powell’s comments that “there’s a general expectation that [rate cuts] will be a topic for [the FOMC], looking ahead,” and that “that’s really what happened in today’s meeting.”

• 05:00 PM Lightweight motor vehicle sales, December (GS 15.4mn, consensus 15.5mn, last 15.3mn)

Thursday, January 4

• 08:15 AM ADP employment change, December (GS +100k, consensus +115k, last +103k): We estimate a 100k rise in ADP payroll employment in December, reflecting lackluster hiring across Big Data employment indicators.

• 08:30 AM Initial jobless claims, ending in December 30 (GS 220k, last 215k): Continuing claims, ending in December 23 (GS 1,865k, last 1875k)

• 09:45 AM S&P Global US services PMI, December final (consensus 51.3, last 51.3)

Friday, January 5

• 08:30 AM Nonfarm payroll employment, December (GS +190k, consensus +170k, last +199k); Private payroll employment, December (GS +150k, consensus +130k, last +150k); Average hourly earnings (mom), December (GS +0.30%, consensus +0.3%, last +0.4%); Average hourly earnings (yoy), December (GS +3.90%, consensus +3.9%, last +4.0%); Unemployment rate, December (GS 3.7%, consensus 3.8%, last 3.7%); Labor force participation rate, December (GS 62.8%, consensus 62.8%, last 62.8%): We estimate nonfarm payrolls rose by 190k in December (mom sa), reflecting a boost from mild winter weather and a favorable swing in the December seasonal factors worth roughly +50k. While Big Data employment indicators indicate a lackluster pace of hiring, initial jobless claims fell further, consistent with fewer end-of-year layoffs. On the negative side, we assume another sizeable decline in retail payrolls, reflecting soft brick-and-mortar spending trends during the holiday season. We estimate that the unemployment rate was unchanged at 3.7%, reflecting flat-to-up household employment following its sharp jump in November. We assume labor force participation was unchanged at 62.8%. We estimate a 0.30% increase in average hourly earnings (mom sa) that lowers the year-on-year rate by one tenth to 3.9%, reflecting waning wage pressures but positive calendar effects (the latter worth 5-10bps).

• 10:00 AM ISM services index, December (GS 52.8, consensus 52.5, last 52.7): We estimate that the ISM services index edged up 0.1pt to 52.8 in December. Our nonmanufacturing tracker edged up 0.1pt to 52.9 in November, and we see seasonality as a positive factor this month.

• 10:00 AM Factory orders, November (GS +1.8%, consensus +2.2%, last -3.6%); Durable goods orders, November final (last +5.4%); Durable goods orders ex-transportation, November final (last +0.5%); Core capital goods orders, November final (last +0.8%); Core capital goods shipments, November final (last -0.1%): We estimate that factory orders increased 1.8% in November following a 3.6% decrease in October. Durable goods orders increased 5.4% in the November advance report and core capital goods orders increased 0.8%.

• 01:30 PM Richmond Fed President Barkin (FOMC non-voter) speaks: Richmond Fed President Thomas Barkin will deliver a speech on the economic outlook at an event hosted by the Maryland Bankers Association. Text and audience Q&A are expected.

Saturday, January 6

• 11:15 AM Dallas Fed President Logan (FOMC voter) speaks: Dallas Fed President Lorie Logan will speak on a panel on market monitoring and the implementation of monetary policy at the annual meeting of the American Economic Association. Moderated Q&A is expected.

Source: Goldman

Authored by Daniel Lacalle,

Markets closed 2023 with the strongest rally for equities, bonds, gold, and cryptocurrencies in years. The level of complacency was obvious, registering an “extreme greed” level in the Greed and Fear Index.

2023 was also an unbelievably bad year for commodities, particularly oil and natural gas, something that very few would have predicted in the middle of two wars with relevant geopolitical impact and significant OPEC+ supply cuts. It was also a poor year for Chinese equities, despite slower-than-expected but strong economic growth and robust earnings in the large components of the Hang Seng index.

Markets rallied due to a combination of optimistic expectations for inflation and aggressive rate cuts from central banks. The question now is, what can investors expect in 2024?

The year of disinflation can only come from a recession. The market expectations of a massive reduction in inflation cannot come from what economists call a soft landing. The reason we have not seen a recession in 2023 is because the global money supply did not fall below $103 trillion and ended almost at the record level of $107 trillion, according to Citi. Furthermore, governments in developed countries have continued to spend as if inflation and rate hikes did not exist. Fiscal policy has been exceedingly aggressive, while monetary policy has been restrictive. As such, the decline in monetary aggregates and the impact of rate hikes have fallen on the shoulders of the private sector.

Inflation declined in line with monetary aggregates, but we have not yet seen the true impact on the economy because of the lag effect. We are likely to see the full-scale impact of 2023’s monetary contraction in 2024. If the economy weakens and private sector aggregate demand slumps, inflation will decline as expected. However, it is almost impossible to see the kind of goldilocks economy that many investors predict and achieve 2% inflation.

Central bank rate cuts will only come from a very weak economy. Central banks never act preemptively. If they end up cutting rates by 150 basis points, it will be because the slowdown in the economy is severe. We cannot bet on one thing or the other. If you believe in a soft landing, you should not expect six rate cuts. Alternatively, if you believe central banks will cut rates five or six times, you should prepare your portfolio for a hard landing—a terribly bad one, in fact.

Commodities may bounce as geopolitical risk creates a floor and marginal demand from China picks up. Markets have ignored the strength of the Chinese economy, which will grow by at least 4.5% in 2023, because the stock market has not performed. However, an economy that grows at this pace despite the real estate sector’s immense challenges should not be ignored. It is probable that marginal demand in energy commodities picks up just as geopolitical risk maintains a floor on the price, leading to a bounce in the commodity complex thanks to China’s marginal demand and India’s rapid growth. As more of the newly created currency goes to relatively rare assets, a looser monetary policy may also support this recovery in commodities.

Latin America and Europe will continue to disappoint, while Asia leads in growth. Due to expectations that the worst is over and a relative bounce in the euro against the US dollar, markets have bought European stocks and bonds. The same is happening with LatAm’s risky assets. However, the problems are deeper and more complex. The euro may bounce, but its position as a world reserve currency is weakening relative to the US dollar and rising contenders like the yuan. Europe’s lack of growth is not due to exogenous factors but, like most of LatAm, self-inflicted. The euro area ended 2023 in recession despite low commodity prices and the EU Next Generation Fund. The problem in the euro area and most Latin American countries is the constant implementation of policies that damage growth and bloat governments. In order to undo the nightmare that collectivist interventionism has created, Argentina will probably go through a detox year.

Due to the monetary destruction that central banks have implemented, equity markets may continue to perform satisfactorily, but volatility will likely rise as market optimism clashes with economic reality. Although 2024 will probably not be the year of central bank digital currencies, they are in the pipeline, and this means even more monetary debasement. In this environment, Bitcoin and gold may continue to support the fight against the destruction of the purchasing power of currencies. We cannot ignore bitcoin’s high volatility and risk, but we cannot forget that it has started to separate itself from other cryptocurrencies to be an asset class of its own.

As central banks prepare the way for digital currencies, which are the closest thing to surveillance disguised as money, reserves of value are more needed than ever before. Gold is likely to be a good de-correlated asset that protects against the debasement of sovereign bonds and domestic currencies.

2024 is likely going to be a year of significant slowdown in the major economies considering the current trends in the private sector and a year of rising public debt, which governments will try to disguise with the destruction of the purchasing power of the currency. In that scenario, betting on the swift end of the inflation burst may be premature. If inflation declines as predicted, it will be a result of the economy’s deterioration and the overspending of the government. If debt and government deficits continue to rise, inflation may surprise on the negative side. Either way, the key in 2024 will be to protect ourselves from currency destruction. Thus, investing is not simply important but crucial to survive in this gradual end of money as we know it.

For Q4, Tesla announced this morning it had “produced approximately 495,000 vehicles and delivered over 484,000 vehicles”, putting up numbers in line with recently adjusted estimates for the quarter. Production beat estimates of about 482,336, per Bloomberg’s estimates. 

The company noted that its full year vehicle delivery number was up 38% to 1.81 million, slightly less than recently revised expectations for the year. Nonetheless, total deliveries mark a record quarter for the EV manufacturer. The company manufactured approximately 1.85 million vehicles for the period. 

The company delivered 461,538 Model 3/Ys and 22,969 in “other models”, which includes Model S, Model X and the new Cybertruck.

For now, the company’s Model 3 and Model Y sales continue to drive its deliveries, with Model S, Model X and Cybertruck deliveries accounting for still only about 5% of the company’s total deliveries for the quarter. 

As we noted days ago, analysts were expecting record deliveries but a miss on the company’s 2 million mark for the year. 

Analysts had predicted the company would deliver 1.82 million vehicles in 2023, up 37% from the year prior. Estimates were for about 473,000 vehicles delivered in the fourth quarter. 

Daiwa Capital Markets analyst Jairam Nathan revised Tesla’s 2024 delivery forecast down to 2.04 million from 2.14 million, anticipating a 4% drop in average revenue per vehicle compared to 2023.

Garrett Nelson, senior analyst at CFRA Research, told Reuters last week: “The fourth quarter is typically the strongest of the year in terms of deliveries for Tesla, we’re expecting that to be the case again this year.” 

The company is grappling with a decline in sales and has been using aggressive price cuts to move metal worldwide throughout the course of the year. This strategy was particularly emphasized in China, where Tesla has seen a reduction in its market share, challenged by domestic competitors such as BYD.

We have written extensively about how China’s EV market is becoming saturated and increasingly competitive. 

Tesla, intensifying its year-end sales with increased discounts, aims for a 50% average annual growth over several years. However, in 2024, the EV leader faces challenges such as the loss of federal tax credits in the U.S. and Germany’s cessation of its EV subsidy program.

Authored by Peter Tchir via Academy Securities,

Starting The New Year

As we start the first trading day of the year, a few “familiar” themes are in the headlines and driving price action:

Chips and China

Some chip stocks are trading lower pre-market as stories circulate about pressure from the U.S. government to block sales to China ahead of the January deadline. I am looking for some “thawing” in the U.S. / China economic relationship to start the year (as well as some stimulus out of China) but neither have occurred. In any case, high end chips will remain under careful scrutiny of the U.S. government for national security reasons.

The So-Called “Magnificent 7”

The Nasdaq 100 has re-balanced so it is not as lopsided to start 2024 as it was at the start of 2023, and certainly nowhere near as overweight as it got last year. Two stocks are just under 10% of the weighting in the index (or at least in QQQ, the Nasdaq 100 ETF). No other stock is above 5% of the weighting, and even the 7th largest holding is under 4%. So, even if the “so-called” Magnificent 7 stumble, it won’t hurt the index the way it would have last year. I’m still trying to figure out the implications for that, though I suspect trades like long QQQ vs Short IWM (Russell 2000 ETF) won’t perform intuitively.

In any case, I think some of the “compression” trade we saw from November on will continue as “laggards” outperform, but I think it will be in a bearish overall market, rather than a rallying market.

Energy

I like energy for both “good” and “bad” reasons. The realization that we need a strong domestic energy industry seems to have gathered momentum. Yes, at the height of inflation fears, the government was pressuring the industry to produce, but at the same time was threatening “windfall” taxes and other actions to hurt the industry longer term. While not everyone is embracing energy, even the more extreme elements of the “sustainability” community seem more willing to accept that the transition to other energy sources will be longer and require more traditional energy than previously thought. Realism will help us get there, which is good. Vision is important to that success, but planning is too, and that balance seems much better to me as we start 2024.

On the “bad” side of things is heightened tensions in the Middle East. The threat that Iran will become fully (and officially) engaged, sending some shockwaves through the oil industry seems more real by the day.

I continue to believe that the energy companies of the future are the energy companies of today and it is the sector I am most overweight now (out of all the laggards).

Bond Yields

The 10-year traded as low as 3.78% during last week’s “holiday” trading. It traded as high as 3.96% overnight (before 8 am) – pushing us back to levels not seen in a couple of weeks.

The market has gotten ahead of itself at the front-end (too many cuts priced in) and gotten ahead of itself in the long-end (inflation risks remain – driven by geopolitical and supply chain inflation, and the whole “debt fiasco”/”supply” story that pushed us to 5% on 10’s has not been resolved).

Bottom Line

Starting the year, where we ended the year (see The Party is Over) – mildly bearish bonds and stocks, with a preference to own the “laggards” but defining the “laggards” more narrowly.

Not buying dips here, at least not yet!

Happy 2024!