Good morning! Today’s word count is 2,391 words, or a 12-minute read. Let’s get to it:
“Investors are weighing the possibility of election results being delayed or mired in dispute, as well as the risk of a second wave of coronavirus infections,” WSJ writes.
- S&P 500: $3,370.55
- Nasdaq: $11,207.27
- Bitcoin: $10,764.86
- U.S. 10-Year: 0.685%
Justin Oh’s Quick Read
The Federal Reserve has promised to hold interest rates near zero until inflation reaches 2 percent, something they don’t see happening in at least three years. The Fed is now ready for periods of higher than 2 percent inflation to compensate for very low inflation periods as we have now. But artificially low rates for too long can create asset bubbles, which is a concern we’re even having now. Low rates cause people and funds to reach for any sort of return or yield, driving up the demand for and prices of stocks and real estate, especially riskier ones. This causes bubbles in prices and can cause huge losses when the economy hits its next shock. We’re keeping an eye on the issue, but are comfortable with our Target Allocations for now. We don’t want to miss out on potential returns on the upside, which is why we target 50 percent of our portfolio in *good* stocks. But we also don’t want to be caught in a downturn holding overpriced assets. So, we target a 20 percent cash position and are overweight growing, highly-performing businesses with a lot of momentum but only at a reasonable price.
Highlights From The First Trump-Biden Presidential Debate
President Donald Trump and Democratic Nominee Joe Biden faced off in the first of three presidential debates Tuesday night as Election Day draws closer. Here are some of the highlights:
- Biden criticized the Trump administration’s handling of the coronavirus emergency, citing the 7.15 million confirmed infections in the U.S. and the 205,000 deaths.
- Trump rebuked Biden’s claims, saying the situation could have been much worse without his actions — restricting some travel, speeding along vaccine development and reopening the economy.
- The president also claimed a vaccine is “weeks away” and that politics have slowed down the timeline. Biden harped on Trump for going “against the scientists in his administration who have laid out a longer timeline.”
- Contrary to a New York Times report that said Trump had paid $750 in federal taxes for 2016 and 2017 each, the president said he paid “millions of dollars” without providing any further detail.
- Biden released his 2019 tax return a few hours before the debate, revealing he paid nearly $300,000 in federal taxes.
- The conversation pivoted to Trump highlighting the economic gains of his presidency, while “accusing” Obama and Biden of presiding over a “historically slow economic recovery.”
- Biden cited America was in a K-shape recovery, saying the higher earners have done well, and working-class families are continuing to struggle.
- Trump questioned Biden’s commitment to law enforcement, where the latter responded, “Law and order with justice—where people get treated fairly.” Biden also denied that he favors defunding the police and shot back at Trump, saying the president was trying to appeal to suburban voters without “recognizing the suburbs have diversified.”
- Trump also pointed out the 1994 crime bill, which Biden “helped draft as the Senate Judiciary Committee [chairman].” The bill increased prison and police funding, added categories to federal crime and made penalties more severe.
- Though, given the opportunity to denounce white supremacists, Trump pivoted the focus to Antifa and left-wing extremist groups.
The Supreme Court Nomination
- Trump reinforced his push to name Amy Coney Barrett to the Supreme Court, saying, “Elections have consequences. We have the Senate, and we have the White House.”
- Biden responded by saying the American people should get a say in the decision through the election. He also cautioned a conservative majority could be the end of the Affordable Care Act and could place abortion rights from Roe v. Wade in jeopardy.
- However, Biden sidestepped giving his position on expanding the court or ending the Senate filibuster.
- Trump called on his supporters to “keep a close watch on voting” as he repeatedly criticized mail-in ballots as ripe for fraud.
- The FBI has said it hasn’t found “any kind of coordinated national voter fraud effort in a major election.”
- Trump has not committed to accepting the election results and peacefully transferring power. Biden said he would support the outcome, even though he has concerns.
- With the rules and legwork needed for mail-in ballots, it could be an extended period before a winner is declared.
Up Next: Vice President Mike Pence will debate Sen. Kamala Harris on Oct. 7 at the University of Utah in Salt Lake City.
Justin Oh’s Two Cents
Surprisingly stocks are up over a percent today despite futures falling after a very messy debate. One bipartisan topic that’s concerning as an investor is the movement to break up Big Tech. The concern is that Amazon ($AMZN), Apple ($AAPL), Google ($GOOG), Facebook ($FB), and others are anti-competitive because they also control the marketplaces. Examples of this are Amazon competing with third-party sellers on Amazon.com and Google offering services that consumers look for on Google.com. The House Antitrust Subcommittee is likely to recommend significant measures, including mandating the tech companies to break up their platforms and maintain technology interoperability. For all the rhetoric, I’d guess a break up would look like how the government broke up Wall Street investment banks from traditional banks – by regulating internal separation rules. A breakup will remove some advantages and synergies, but we’re still not selling my favorite Big Tech stocks just yet. They will still have massive mindshare and scale advantages, and we’ve seen the oligopolistic Wall Street banks do very well despite their intense regulation.
Read More: (WALL STREET JOURNAL)
Palantir’s and Asana’s Dueling IPOs to Test Direct-Listing Process, NYSE
“Data firm Palantir Technologies Inc. and software company Asana Inc. are both poised to launch their direct listings Wednesday on the New York Stock Exchange, the biggest test yet for this still largely untested model for initial public offerings,” WSJ writes.
Why It Matters
Direct listings work differently than the traditional IPO.
- In a direct listing, buyers and sellers aren’t matched the night before. The company puts its shares out there and lets the market decide, which traders say can take a while.
- This method “skirts investment-banking underwriters and means the companies don’t raise money for themselves.” Employees and early investors are also able to sell shares on the first day of trading.
- The NYSE published reference prices for Palantir ($7.25) and Asana ($21) Tuesday. Shares aren’t actually bought and sold at these prices. It’s merely a “placeholder in lieu of a formal IPO price” based on recent private-market transactions.
Only two companies of note have completed direct listings before Wednesday.
- Spotify and Slack used direct listings to enter the public markets in 2018 and 2019, respectively.
- Both ended the first day of trading significantly above the reference prices the NYSE set for them.
Investors are hungry for newly public companies.
- “Despite a struggling economy weighed down by the coronavirus pandemic, U.S.-listed initial public offerings are likely to raise more money this year than any other—including the tech-bubble years of 1999 and 2000—if the feverish pace of IPOs keeps up, bankers, lawyers and executives have told WSJ.”
- Data-warehousing firm Snowflake’s shares soared above its initial price target of $120, trading as high as $319 after it opened earlier this month.
The opening process can take quite some time.
- Both Palantir and Asana share key advisers to manage the process, and “given the newness of direct listings and their complicated nature, some people close to the offerings said they aren’t thrilled that two are happening on the same day.”
- Palantir was initially supposed to start trading on Sept. 21, but a back-and-forth with the SEC pushed it back.
- Even if the price discovery process is conducted simultaneously for both companies, trading could be delayed until as early as 11:30 a.m. and as late as 1 p.m.
- If there are any issues, it’s unclear whether it’s a knock on direct listings or a consequence of too much volume.
Numbers To Consider
- Palantir shares could start trading around $10, giving the company a fully diluted valuation of $22 billion.
- Asana’s market cap is expected to be between $5 billion and $6 billion.
Justin Oh’s Two Cents
We’ve written a lot about Palantir, so refer to our old Quick Reads or YouTube videos about if we like $PLTR stock. At first glance, Asana ($ASAN) is an excellent work management company with high growth and momentum. Even at the top end of the range and assuming a continued growth rate, $ASAN would be listing at a valuation of about 19.7x forward gross profit. This is a discount to another very solid direct peer Atlassian ($TEAM), which is trading at about 26.8x forward gross profit. $ASAN is still money-losing but will see much faster revenue and profit growth than $TEAM. We plan to invest in $ASAN as a long-term growth position if we can get in under $30 per share and are considering adding $TEAM to the portfolio. This pair of stocks would give great exposure to the trend of work management software adoption
Read More: (WALL STREET JOURNAL)
Number Crunch: U.S. Home-Price Growth Picks Up Pace Amid Pandemic Buying Rush
“Home-price growth began accelerating in July, a sign that the slow down in home prices caused by the coronavirus pandemic may be reversing,” WSJ writes.
- The S&P CoreLogic Case-Shiller National Home Price Index, a measure of average home prices in major metropolitan areas around the country, increased 4.8 percent in the year ending in July. Prices rose 0.8 percentage points between June and July and stayed flat the month before.
- According to the National Association of Realtors, sales of existing homes have grown, increasing 10.5 percent yearly in August. Sales of homes that cost more than $1 million rose 44 percent.
- The Case-Shiller 10-city index improved 3.3 percent over the year ending in July. It jumped up from a 2.8 annual increase in June. The 20 city-index also rose to 3.9 percent after hitting 3.5 percent in June.
- Home prices, measured by the Federal Housing Finance Agency, increased 6.5 percent over the year, including an additional 1.0 percent from June to July.
Justin Oh’s Two Cents
U.S. home prices look inflated, so we’re not optimistic that now is a great time to buy down-the-fairway rental properties. With rates so low and available inventory depleted, prices are getting bid up so that cash flow yields are much lower. Buying too high can leave investors more-exposed if rates, delinquencies or vacancies climb. We believe the best real estate deals are now in the commercial markets (which can be invested into with Fundrise or if you have a view on certain undervalued public REITs) or unique fixer-upper or foreclosure home opportunities.
Read More: (WALL STREET JOURNAL)
What’s Going On
I’m Still Standing: “‘Smart brevity’ has been good for business at Axios. The digital news startup, which uses the term as its motto and registered trademark, is on target to make a profit this year despite the economic turmoil stemming from the coronavirus that led to broad layoffs and pay cuts at many media outlets. The company has avoided staff reductions and is on track to take in about $58 million in revenue in 2020, up more than 30% compared with the year before, and is on target with its pre-pandemic projections, largely because of the success of its sponsored-newsletter business.”
Competition Crazy: “China is preparing to launch an antitrust probe into Alphabet Inc’s Google, looking into allegations it has leveraged the dominance of its Android mobile operating system to stifle competition. The case was proposed by telecommunications equipment giant Huawei Technologies Co Ltd last year and has been submitted by the country’s top market regulator to the State Council’s antitrust committee for review. A decision on whether to proceed with a formal investigation may come as soon as October and could be affected by the state of China’s relationship with the United States.”
Raising Hope: A group of former Harvard athletes started a $55 million sports-focused venture fund, femtech startup Emjoy raised $3 million, French fintech startup October closed $300 million in new funds, Chinese search and AI giant Baidu is seeking funds on a $2.94 billion post-money valuation, Israeli cloud-based payroll startup Papaya Global pulled in $40 million in Series B, defense company Israel Aerospace Industries is pursuing $200 million in funds, Indian news aggregator Inshorts has added $35 million in new financing, e-commerce solutions provider VTEX collected $225 million, water startup Liquid Death secured $23 million, e-scooter startup Neuron Mobility netted $12 million and “multi-billion dollar tech-focused investment firm” Silver Lake Partners is adding a $2 billion, long-term hedge fund.
Quick Trick: “Becton Dickinson and Co.’s Covid-19 test that returns results in 15 minutes has been cleared for use in countries that accept Europe’s CE marking.”
All Falls Down: “Nikola Corp. is rescheduling its in-person Nikola World conference, where it was planning to show its electric pickup truck, as the company regroups in the wake of a stock sell-off and the departure of its chairman.”
Two Is Better Than One: “VMware and Nvidia unveiled a partnership that aims to make the former’s data center computing software work better with the latter’s artificial intelligence chips.”
Job Struggles: Disney announced 28,000 layoffs as its theme park business struggles through Covid-19 restrictions, Shell plans to cut 9,000 jobs as oil continues to falter in the fallout of the pandemic and a private report showed U.S. companies added 749,000 jobs in September.
Take To The Skies: “The U.S. Treasury said it has closed loans to seven passenger airlines and joined with the industry to call on Congress to extend more aid to prevent massive job cuts later this week.”
Cumulus Profits: “Alibaba Group’s chief financial officer said that the Chinese e-commerce giant expects its cloud computing business unit to become profitable in the current fiscal year.”
Keep On Cooking: “Apple on Tuesday said it has awarded its chief executive officer, Tim Cook, as much as one million shares over the next several years, in a sign the executive is likely to remain in charge for the near future.”