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Cathie Wood sells a major tech stock (again)

The tech-heavy Nasdaq Composite index has soared 33% over the past year.

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Cathie Wood, head of Ark Investment Management, has achieved rock-star status in the money-management world, even drawing a nickname from her followers – Mama Cathie.

Presumably, she’s watching protectively over her investor-children. But her returns don’t indicate that she’s been the dearest mommy.

Wood’s flagship Ark Innovation ETF,  (ARKK) - Get Free Report, with $7.5 billion in assets, has generated a return of just 5% for the last 12 months. And the annualized return is negative 32% for the past three years and a mere positive 2% for five years.

That’s not too impressive, as the S&P 500 posted positive returns of 21% for one year, 11% for three years, and 15% for five years. Wood’s goal is at least 15% annual returns over five years.

Money manager Cathie Wood, dubbed 'Mama Cathie' by fans, frequently trades in and out of tech stocks.

PATRICK T. FALLON/Getty Images

Cathie Wood’s Year for the Ages

She did have one stupendous year, leading Ark Innovation to a return of 153% in 2020. That and clear presentations of her investment philosophy in ubiquitous media appearances help explain her popularity.

Related: Analysts revamp Amazon stock-price targets after earnings

Wood’s investment strategy isn’t difficult to digest. Ark’s ETFs generally buy young, small stocks in the high-technology categories of artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. She sees those sectors as game changers for the global economy.

As you might expect, these stocks are quite volatile, so the Ark funds are subject to quite a rollercoaster ride. And Wood frequently trades in and out of her top names.

Investment research giant Morningstar is unimpressed with Wood and Ark Innovation ETF.

“ARK Innovation has dubious ability to successfully navigate the challenging territory it explores,” wrote Morningstar analyst Robby Greengold.

The potential of Wood’s five high-tech platforms listed above is “compelling,” he said. “But Ark’s ability to spot the winners among them and navigate their myriad risks is less so. The strategy’s booms and busts have culminated in middling total returns and extreme volatility since its 2014 inception.”

Greengold isn’t enamored with Wood’s investment style. “Her reliance on her instincts to construct the portfolio is a liability,” he said.

It’s not an investment-by-the-books portfolio. “The strategy narrowly invests in stocks with paltry current earnings, elevated valuations, and highly correlated stock prices,” Greengold said. “Their extreme volatility underscores their highly uncertain futures.”

Wood has defended herself from Morningstar’s criticism. “I do know there are companies like that one [Morningstar] that do not understand what we're doing,” she said.

“We do not fit into their style boxes. And I think style boxes will become a thing of the past as technology blurs the lines between and among sectors.”

Cathie Wood sells Nvidia stock, buys more of others

On Friday, Ark Genomic Revolution ETF  (ARKG) - Get Free Report unloaded 3,022 shares of the semiconductor titan Nvidia  (NVDA) - Get Free Report worth $2 million as of that day’s close. Ark’s previous move with Nvidia's stock was a sale on Jan. 22. Wood has periodically sold Nvidia since last May.

More From Wall Street Analysts:

Last September, she called it a “really expensive and very obvious” stock, according to Bloomberg.

The shares have more than tripled over the past year amid enthusiasm for the company’s connection to artificial intelligence. 

Nvidia is the largest producer of highly powerful and energy-efficient graphic processing units (GPUs) used to train and run AI apps.

On the buy side, Ark funds picked up stock of electric vehicle giant Tesla  (TSLA) - Get Free Report for the seventh day in a row, snatching 114,811 shares Friday, valued at $21.6 million as of that day’s close.

Tesla has lost 29% over the past six months amid weak earnings, production problems, and controversy surrounding Chief Executive Elon Musk’s compensation.

Wood has repeatedly purchased Tesla shares when they have dropped in recent years, voicing support for Musk and his mission to provide non-polluting autos. Tesla is the second biggest holding in Ark Innovation ETF, after Coinbase  (COIN) - Get Free Report.

Ark funds also grabbed 47,926 shares of online securities brokerage Robinhood Markets on Friday, valued at $509,000 as of that day’s close. Robinhood stock has slid 11% over the last month.

After a brief spurt following its initial public offering in July 2021, the stock has struggled and is now down 72% from the IPO.

Meanwhile, Ark funds sold 261,981 shares of video conferencing service Zoom Video Communications  (ZM) - Get Free Report, valued at $16.8 million as of Wednesday’s close.

It has dropped 20% in the past 12 months but remains up 77% from its April 2019 IPO. Demand for the company’s products soared during the pandemic but has slowed since then. Zoom is the fourth biggest holding in Ark Innovation.

Related: Veteran fund manager picks favorite stocks for 2024

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The US Leading Economic Index Takes One For The Team

It was probably inevitable, but it’s striking nonetheless. The once-reliable US Leading Economic Index (LEI) has been signaling a US recession for more…

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It was probably inevitable, but it’s striking nonetheless. The once-reliable US Leading Economic Index (LEI) has been signaling a US recession for more than a year but the economy has continued to expand. It’s a teachable moment in recession nowcasting and forecasting, but not surprising. The main takeaway, again: every recession indicator fails, eventually.

Why? It’s the nature of recessions. Every downturn’s different, the byproduct of a unique set of factors at a given point in time. There are similarities, but not enough so that you can easily select a handful of indicators that worked the last time and assume they’ll remain forever relevant in signaling future contractions.

The lesson, which I’ve been preaching for years – and is the core principle for The US Business Cycle Risk Report – is that the closest mere mortals can come to a “reliable” recession nowcasting/forecasting methodology is to aggregate signals from multiple, complimentary models.

But even combining models doesn’t suffice, if you pick a few and assume you’re done. There’s always room for improvement, in part because the economy is continually evolving, which may render a seemingly robust modeling effort less than robust at some point.

Keeping an eye open for new ways to profile the business cycle, in other words, is a key part of the analytics. For example, as I discussed earlier this week, aggregating state coincident indexes from the bottom up offers a potentially new and useful tool for enhancing existing recession nowcasting/forecasting analytics.

Meanwhile, what happened to the LEI? Ed Yardeni at YardeniQuicktakes.com sums up the problem:

The Conference Board, which compiles the two indexes, backed off its recession forecast. A spokesperson for the group said: “While the declining LEI continues to signal headwinds to economic activity, for the first time in the past two years, six out of its 10 components were positive contributors over the past six-month period (ending in January 2024).” She added. “As a result, the leading index currently does not signal recession ahead. While no longer forecasting a recession in 2024, we do expect real GDP growth to slow to near zero percent over Q2 and Q3.”

Rather than admit that the LEI has been misleading, The Conference Board tweaked the rule of thumb, which had been that three consecutive declines in the LEI signaled a looming recession. Now it’s how many of its components are falling over a six month period. In our opinion, the LEI is due for a product recall. It needs to be fixed to give more weight to the services sector. Here is January’s LEI contributions chart:

To be fair, the economy in the post-pandemic period has surprised on multiple fronts. My efforts at trying to screen out the noise from the signal have been affected, too, albeit temporarily, in late-2022, when it appeared that the US was on the verge of slipping into an NBER-defined recession. But by the spring of 2023, the signs were accumulating that the recession warning, which never reached a tipping point, was fading. Notably, the cornerstone of The US Business Cycle Risk Report – the Composite Recession Probability (CRPI) Index, which aggregates several business-cycle benchmarks — had pulled back from a moderate but not decisive recession warning in early 2023. Here’s how CRPI stacked up in mid-April 2023:

For comparison, here’s CRPI’s reading at last week’s close (Feb. 16):

To clear, there’s never 100% certainly in real time about estimating recession risk. It’s always possible that some new twist has rendered even the best of methodologies null and void at times.

The good news is that there’s a productive path to reduce the risk of failure and it starts by carefully diversifying the indicators that inform your analysis. For those who ignore this rule, a trap awaits: Every business-cycle indicator fails eventually. Fortunately, there’s a solution via the observation that there’s strength in numbers. Although any one recession indicator will likely fail at times, it’s highly unlikely that every indicator will fail simultaneously.  


How is recession risk evolving? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report


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The Year Of Cascading Crises

The Year Of Cascading Crises

Authored by James Rickards via DailyReckoning.com,

I often write about different crises, but usually one at…

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The Year Of Cascading Crises

Authored by James Rickards via DailyReckoning.com,

I often write about different crises, but usually one at a time. Whether it’s a market crash, recession, bank failures, etc. I take them on an individual basis.

But what about a cascade of crises? What about a situation in which one crisis comes after another for a prolonged period? Each crisis might be manageable, but the sheer volume of crises and their cumulative effect might push society to the breaking point.

It may seem hyperbolic at first glance, but it’s not — it’s entirely plausible. Now, I’m not necessarily predicting that we’ll get a cascade of crises. But it’s possible, and you should be prepared just in case.

That’s because it looks like 2024 might be a year in which the crises do cascade. And the crises will not be natural disasters (although that could happen) but more like social and political disasters.

Here’s what might play out over the next 10 months and the reasons why:

Much of what is to come is in response to the likely victory of Donald Trump in the race for the presidency. One cannot overstate the sheer fear of Trump by the globalists, Davos crowd, progressives, climate alarmists, DEI gurus and just about anyone else who can’t stand Trump.

This fear often manifests itself in the form of Trump derangement syndrome (TDS), which is a genuine form of mental illness, not just a simple disagreement with Trump’s policies. And TDS is contagious.

I’m not saying this to defend Trump (he has many flaws); I’m just pointing out the degree to which his critics hate and fear him.

Confidence in the Rule of Law Is Gone

The key question is:

“What would the anti-Trumpers in government and the media do to stop Trump?”

The answer is:

“Whatever it takes.”

Trump is not just an opposing politician; he’s an existential threat to a 50-year-old globalist, anti-nationalist agenda. To keep him out of the White House, his political opponents have resorted to lawfare: the use of law to handicap a political opponent.

We see this in the New York civil case in which a judge has now ruled that Trump and his companies must pay a $355 million fine (in addition to what may amount to $100 million in interest payments) for a non-crime. Trump simply did not commit fraud under any plausible interpretation of the law. No one even claims to have been defrauded.

There’s also the defamation verdict awarding $83 million to a plaintiff that is out of all proportion to any actual damages, and the classified documents case in Florida.

We also see elite attacks in the Jan. 6 case in Washington, D.C., the notorious Stormy Daniels hush money case brought by the biased and incompetent N.Y. District Attorney Alvin Bragg, the mass RICO case brought by the unethical and compromised Fulton County, Georgia, district attorney, Fani Willis — and finally the efforts to kick Trump’s name off the ballot using Section 3 of the 14th Amendment by claiming Trump is an “insurrectionist.”

Dubious at Best

All of these cases are legally dubious at best. While I’m not a constitutional scholar, I am an attorney with decades of legal experience. And based on that experience, it’s clear that these cases are politically motivated. But in their zeal to get Trump, prosecutors and judges may have overreached.

The Washington, D.C., case may be dismissed because the U.S. special prosecutor was not properly appointed under Department of Justice rules. There are also presidential immunity issues pending before the Supreme Court.

Meanwhile, the Georgia case may also be dismissed because of unethical conduct and lack of disclosure by Fani Willis. Damages in the defamation case may be greatly reduced on appeal.

Likewise, the Stormy Daniels case is on thin legal ice. And the Supreme Court is likely to rule any day that the 14th Amendment insurrection clause does not apply to Trump’s actions.

Meanwhile, it’s difficult to see how the Florida classified documents case can result in a conviction after the kid gloves treatment given to Joe Biden in his classified documents case.

And Trump can appeal the New York civil ruling, although it’ll be more difficult than a standard appeal because under the statute, Trump would have to turn over the entire $450 million while the appeal is decided. Trump’s rich, but that’s a lot of money even for a guy like Trump to round up.

New York Gov. Kathy Hochul has assured nervous New York business owners that they have nothing to fear from this ruling, urging them to remain in New York. But that just proves that this case was about nothing more than taking down Trump.

The Damage Is Done

The fact that Trump may survive this legal onslaught (or issue a self-pardon upon election) does not alter the damage done.

Confidence in the rule of law has been badly eroded. The biased and unbalanced application of the law to Trump has increased the already extreme polarization that exists in the U.S. This polarization is the foundation for the other social dysfunctions to follow.

Here’s a summary of the social and infrastructure crises that may follow on the political crisis described above:

  • Energy shortages and blackouts due to Green New Scam policies and the simple physics of trying to maintain a baseline load in the power grid using intermittent sources such as windmills and solar
  • A new pandemic promoted to impose unnecessary lockdowns that act as cover for ballot-box stuffing, extensive ballot harvesting, drop-box abuse and other scams intended to rig the vote for Biden
  • A stock market meltdown as Congress tries to reduce out-of-control fiscal deficits and markets realize that excessive government spending was the only thing keeping the economy going in the first place
  • The rollout of central bank digital currencies (CBDCs) that will be used as a surveillance tool to identify those whom Biden calls “enemies of the people.” The targets will be Trump supporters and MAGA Republicans
  • Chinese hacking of critical infrastructure systems including air traffic control, banking and capital markets.
  • As these crises cascade, don’t be surprised if the White House imposes martial law and even takes steps to suspend the elections.

Blood in the Streets

One event which I find highly likely and a possible cover for some of these other events is blood in the streets of Chicago from Aug. 19–21, 2024. That’s the time and place of the Democratic National Convention to nominate their candidate for president.

The convention will likely come under attack from Antifa, the pro-Palestinians, climate activists and others. The new mayor of Chicago, Brandon Johnson, is even more radical than Lori Lightfoot. He will let the demonstrators do what they want and tell the police to stand down. The riots, looting, arson and violence will take on a life of their own.

A good example of this is found in Norman Mailer’s book Miami and the Siege of Chicago (1968), which covered the riots at the Democratic convention (also in Chicago) in 1968 at the height of the war in Vietnam.

The difference between then and now is that in 1968, Chicago Mayor Richard Daley let the police pound the protestors into submission. This time, Brandon Johnson will let the protestors tear up the city. In any case, events of this type can be a catalyst for extreme remedies coming from the White House that could then be used to manipulate election results.

I realize that may sound paranoid or conspiratorial. But you have to realize the lengths to which these political operators will go to stop Trump. Once you do, you’ll see it’s not nearly as far-fetched.

What Can You Do to Survive?

The events I’m talking about would likely result in market turmoil. That’s why it’s prudent to increase your cash allocation, decrease your stock allocation (especially tech stocks) and have gold bullion coins and at least one monster box (containing 500 one-ounce American Silver Eagles available from the U.S. Mint). Land and fine art are other valuable assets.

Basically, you want assets that are not vulnerable to bank failure and are not in digital form because of hacking and power grid failures. If you are in stocks, I would allocate funds to major oil companies, major defense contractors, mining companies and agriculture firms such as Cargill and ADM. Treasury notes are another good play because interest rates should plunge in any recession emerging from the chaos.

Again, I’m not making a hard prediction that these events will occur. I’m simply stating that there’s a genuine possibility that they may occur, and that you should be prepared.

And as they say, an ounce of prevention is worth a pound of cure.

Tyler Durden Wed, 02/21/2024 - 16:15

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The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate

The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate

Authored by Mike Shedlock via MishTalk.com,

On average, the economy…

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The Fed's Big Problem, There Are Two Economies But Only One Interest Rate

Authored by Mike Shedlock via MishTalk.com,

On average, the economy looks OK. But averages are misleading. Several large groups of people are struggling. They all have one thing in common.

Case-Shiller home price index, CPI rent index, and the index of hourly earnings for production and nonsupervisory workers.

Who’s Unhappy?

Those looking to buy a home but cannot afford the record high prices, are not faring well in this economy.

The last great time to buy a home was in 2012. Over the next eight years, home prices moved further and further away from wages.

When the Covid pandemic hit in 2020, we had record QE, record fiscal stimulus, mortgage rates hit record lows, and inflation hit the highest levels in 40 years.

In response, home prices soared out of sight. Worse yet, the price of rent rose at least 0.4 percent for 28 straight months.

Rent of Primary Residence vs OER

Data from the BLS, chart by Mish

Rent vs OER Chart Notes

  • OER stands for Owners’ Equivalent Rent. It is the price one would pay to rent their own house, unfurnished without rent.

  • Rent of primary residence is just what one would expect. It is measured price of rent, unfurnished, without utilities.

Mass Confusion Over OER

Contrary to widespread myth, OER is a measured price with very minor imputations that do not matter. OER is designed to track rent prices and it does. It is a measured price.

Much of the confusion comes from a misquoted BLS statement on OER, emphasis mine.

The expenditure weight in the CPI market basket for OER is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence: “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?

Note that these responses are not used in estimating price change for the shelter categories, only the weight.

People quote that question as if that is how the BLS measures prices. It doesn’t. Prices, except for minor, irrelevant imputations, are based on actual measured rents.

No One Pays OER

The problem with OER is the weight not the measure. No one actually pays OER. Rather, people pay mortgages.

Yet, OER it is the single largest component of the CPI with a weight of 26.769 percent. Rent has a weight of 7.671 percent.

Many people conclude that the CPI is overstated because no one pays OER. The problem with this idea is home prices are at record highs and home prices are not in the CPI at all.

Homes are not in the CPI because economists consider them a capital expense not a personal expense.

But so what? Inflation matters not just consumer inflation. The Fed has made a big mess of things by ignoring obvious housing bubbles.

30-year mortgage Rates

Mortgage rates courtesy of Mortgage News Daily, annotations by Mish

When the Fed slashed interest rates to zero, mortgage rates fell below 3.0% for an extended period allowing everyone to refinance at 3.0 percent or below. Most did.

OER rose from 332 to 403 between January of 2020 and January of 2024. That’s a gain of 21.4 percent.

Rent rose from 338 to 412. That’s a gain of 21.9 percent.

Whereas the renter is struggling, the homeowner refinanced lower putting extra money in his pocket every month.

Home owners also benefitted from rising wages, rising value of their home and a stable, not rising mortgage payment.

Winners and Losers

  • The homeowners are generally doing OK. The home ownership rate is 65.7 percent.

  • The 34.3 percent who rent are generally not doing OK.

The study did not break things down by home owners vs renters, but I suspect most of the use is by renters.

According to the latest CPI report, rent was up at least 0.4 percent for the 29th straight month. Shelter, a broader category, rose 0.6 percent. Food rose 0.4 percent.

CPI data from the BLS, chart by Mish

Whereas home owners have a fixed payment, likely refinanced lower than their initial mortgage, renters faces huge increases, not every month, but once a year, big bang.

For discussion please see Another Hotter Than Expected CPI Led by Shelter, Up Another 0.6 Percent

The stress is easy to spot by demographics.

Credit Card and Auto Delinquencies Soar

Credit card debt surged to a record high in the fourth quarter. Even more troubling is a steep climb in 90 day or longer delinquencies.

Record High Credit Card Debt

Credit card debt rose to a new record high of $1.13 trillion, up $50 billion in the quarter. Even more troubling is the surge in serious delinquencies, defined as 90 days or more past due.

For nearly all age groups, serious delinquencies are the highest since 2011 at best.

Auto Loan Delinquencies

Serious delinquencies on auto loans have jumped from under 3 percent in mid-2021 to to 5 percent at the end of 2023 for age group 18-29.

Age group 30-39 is also troubling. Serious delinquencies for age groups 18-29 and 30-39 are at the highest levels since 2010.

For further discussion please see Credit Card and Auto Delinquencies Soar, Especially Age Group 18 to 39

Generational Homeownership Rates

Home ownership rates courtesy of Apartment List

The above chart is from the Apartment List’s 2023 Millennial Homeownership Report

Those struggling with rent are more likely to Millennials and Zoomers than Generation X, Baby Boomers, or members of the Silent Generation.

The same age groups struggling with credit card and auto delinquencies.

On Average Everything is Great

Average it up as Fed and all the clueless economic and political writers do, and things look great.

This is why we have seen countless stories attempting to explain why people should be happy.

Krugman Blames Partisanship

OK, there is a fair amount of partisanship in the polls.

However, Biden isn’t struggling from partisanship alone. If that was the reason, Biden would not be polling so miserably with Democrats in general, blacks, and younger voters.

In addition to Biden’s Age and Senility, this allegedly booming economy left behind the renters and everyone under the age of 40 struggling to make ends meet.

Powell Pleads Patience

In Jerome Powell’s Interview with 60 Minutes, the Fed Chairman Tells 60 Minutes US Fiscal Path is Unsustainable

Powell: When high inflation really threatens to become persistent, we use our tools to bring down inflation. It’s very important for that young couple — and particularly for younger couples starting out who may not have great financial means, that we succeed in this effort.

60 Minutes: You’re asking the American people for patience?

Powell: Yes. And I think people have been patient and have been through a pretty difficult time. And I think now we’re coming through that time and starting to feel a little bit better about things.

Powell, Krugman, and most of the economic writers, even at the Wall Street Journal have not managed to figure out over a third of the nation is struggling.

Many Are Addicted to “Buy Now, Pay Later” Plans

Buy Now Pay Later, BNPL, plans are increasingly popular. It’s another sign of consumer credit stress.

For discussion, please see Many Are Addicted to “Buy Now, Pay Later” Plans, It’s a Big Trap

The study did not break things down by home owners vs renters, but I strongly suspect most of the BNPL use is by renters.

What About Jobs?

Jobs Soar but Full Time Employment Is Barely Changed Since May 2022

Nonfarm payrolls and employment levels from the BLS, chart by Mish.

But hey, that’s OK because on average, the economy is great. Or do we really mean, on average the stock market is great, and the average homeowner is fine?

Hello Mr. Powell

There are two economies (the homeowners/asset holders and everyone else). However, there is only one interest rate. Patience please says Powell.

Lowering rates risks risks fueling the housing bubble and the most expensive stock market in history.

Hello Mr. Powell, it’s your move.

Tyler Durden Wed, 02/21/2024 - 07:20

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