Cover:
-Vice President Kamala Harris has accepted the Democratic nomination for president, pledging to build the middle class as a defining goal. If she succeeds in her campaign, it could be seen as a political miracle and repudiate the idea that the voting public is seething over economic slights. If elected, Harris will likely see it as a mandate to extend and expand Biden's economic agenda, rather than a call to redirect the course of the nation. Biden's legislative efforts focused on spending for infrastructure and green energy. Harris may put a more progressive twist on Bidenomics and use tax and spending powers to favor lower-income workers and disfavor the savings of the affluent. However, it is unclear how far she will go to implement these ideas, as she has been employing "strategic ambiguity" to avoid getting pinned down on specific policy commitments.
Interview:
-Samantha McLemore, founder and chief investment officer of Patient Capital Management, attended a value-investing conference for the first time in a long time. Despite the rise of the Magnificent Seven, value-investing gatherings and investors have become harder to find. McLemore, who began her career in 2002 working for Bill Miller, focuses on undervalued and unloved stocks. She co-managed the Miller Value Partners Opportunity Equity strategy for many years, which has returned an average annual 10% in the past five years. However, the fund's 30% return in the past 12 months has beaten 95% of its peer group, according to Morningstar. Before the market's steep selloff in early August, McLemore spoke with Barron's about her favorite stocks - including Nvidia, General Motors - and her thoughts on Bitcoin's future.
Tech Trader:
-Eric Schmidt, former Google CEO, has been criticized for his unfiltered views on remote work. He claimed that Google was losing the AI race to start-ups due to a focus on work-life balance and remote work. However, after media outlets discovered the video, Schmidt retracted his comments and claimed he misspoke about Google's work hours. Schmidt's connections to senior tech executives, investors, and government officials make him well-positioned to discuss the future of AI. Schmidt's time as CEO of Alphabet from 2001 to 2011 allowed him to witness the internet's cultural and economic impact. With a net worth of $24B, Schmidt is no longer affiliated with Google. He mentioned four key points about AI agents, which he believes will soon be available, capable of taking simple directions and generating complex output. These agents would be able to read through chemistry texts and understand chemistry's workings, providing insights into other concepts.
The Trader:
-Utility stocks have been performing better than the market's hottest names, with the Utilities Select Sector SPDR ETF up 6.1% and the Roundhill Magnificent Seven ETF down 4%. This shift in the economy's sleepiest sector indicates a significant shift, and utilities can continue to rise. They appeal to coupon-clipping investors who enjoy steady dividend yields and protection from economic uncertainty. Hedge funds have increased their net long position in utilities over the past month, according to a survey by Evercore. Utility stocks have gained momentum due to their attractive dividend yields, which are more attractive in a world where yields on other safe investments like Treasury notes have been falling in anticipation of the Federal Reserve cutting rates. The average utility stock has a 3% dividend yield, while the 10-year Treasury note has a 3.9% yield, down from 4.7% in April. Utility stocks are also benefiting from a market rotation away from the most popular stocks, with an S&P 500 index that tracks stocks on an equal weight basis outperforming the market-cap weighted index. With job growth falling and recession odds rising, utility stocks offer more safety than most other sectors. Independent power producers, such as Vistra and Constellation Energy, have seen their stocks rise over 50% this year, as they don't need permission to earn high returns and benefit disproportionately when demand rises.
-Wolfe Research's chief investment strategist, Chris Senyek, has created two baskets of stocks based on the possibility of a Donald Trump victory and Republicans gaining control of both the House and Senate. The GOP Trifecta Long portfolio, which would benefit from a potential "Red Wave," and the GOP Trifecta Short basket, which could drop if Trump wins, are based on the pro-Trump group of stocks. The pro-Trump group of stocks surged after the presidential debate on June 27 and the assassination attempt on Trump on July 13. However, there should be more volatility between now and November.
The GOP long portfolio includes industrial giant 3M, defense contractor General Dynamics, oil services leader Halliburton, and big financials Goldman Sachs and Citigroup. The long portfolio also includes crypto leader Coinbase and online broker Robinhood, a potential nod to the Republican Party’s newfound appreciation for digital currencies. If Harris wins, Senyek expects her short basket to outperform stocks in the days after the election, even if Congress is divided. Renewable energy firms First Solar and Clearway Energy, retailers like Dollar General, Ralph Lauren, and e.l.f Beauty, and Tesla also make the GOP short list.
Features:
-Stocks rose on Friday after Federal Reserve Chairman Jerome Powell announced plans to lower interest rates as the labor market cools and inflation approaches the Fed's annual target of 2%. Tesla gained 4.6% due to lower interest rates, making vehicles more affordable. Workday's second-quarter earnings and revenue exceeded analysts' expectations, and the stock surged 12%. Workday's management expressed confidence in growth over the next few years, forecasting 15% annual subscription growth for both fiscal 2026 and fiscal 2027. Ross Stores reported earnings that beat expectations and raised fiscal-year guidance, raising the stock by 1.8%. Ross Stores posted adjusted earnings of $1.59 a share and revenue jumped 7% to $5.3B, while same-store sales rose 4%, higher than estimates of 2.9%.
-Social media has been circulating a Biden-Harris proposal to tax unrealized capital gains, which would only apply to the wealthiest Americans. President Joe Biden's 2025 revenue proposal would impose a minimum tax of 25% on total income, including unrealized capital gains, for all taxpayers with wealth greater than $100M. This is part of Biden's longstanding effort to make the rich pay their "fair share." Kamala Harris, the vice president, supports all revenue-raising proposals in Biden's 2025 budget. However, online commentators mistakenly interpret the proposal as a 25% tax on all unrealized capital gains, and some of the administration's intended targets, such as Silicon Valley venture capitalists Marc Andreessen and Ben Horowitz, who criticized the proposal and affirmed Republican presidential candidate Donald Trump's support for their concerns. The current tax code only taxes gains on appreciated assets when the asset is sold and the gains are realized. The current tax regime often allows the very wealthy to pay a lower effective tax rate than the middle class, a reversal Warren Buffett has long lamented.
European Trader:
-UK tech entrepreneur Mike Lynch, known as "Britain's Bill Gates," went missing after a luxury superyacht they were aboard sank off the Sicilian coast. The yacht had 22 people aboard, including Lynch, one of his daughters, two other British nationals, two Americans, and one crew member. Fifteen were rescued, including a one-year-old baby girl and Lynch's wife, Angela Bacares. Lynch founded software company Autonomy in the 1990s, which was bought by American tech company Hewlett Packard for $11B in 2011. The company's software relied on Bayesian mathematics, named after 18th-century British statistician Thomas Bayes. Lynch has run Invoke Capital, a venture-capital investment firm, and has also been an executive at Darktrace, a portfolio company that used artificial intelligence to detect cyberattacks. His Autonomy acquisition led to HP's write-down of $8.8B, including more than $5B attributed to inflated data.
Emerging Markets:
-no update
Commodities:
-Gold prices have surged by over 20% this year, reaching a record high above $2,560 an ounce. Investors are betting on Federal Reserve interest rate cuts to push gold up further, as gold tends to do well during times of dollar weakness. Geopolitical uncertainty and the upcoming US election could also give gold a further lift. Gold is viewed as the safest of haven trades, and emerging markets like China, India, and India have been boosting their gold holdings to lessen their dependence on the US dollar. The VanEck Gold Miners ETF, which owns stock in Newmont, Agnico Eagle Mines, and Barrick Gold, has seen a 25% increase this year. Profits and sales for miners tend to spike during times of higher gold prices. Gold and gold miners have also been rallying along with the stock market, which has rapidly recovered this month following a brief fear-induced selloff on Aug. 5.
Streetwise:
-The fiscal mudslinging of the past 30 years has left many nostalgic for the past. In 1992, Bill Clinton accused President George Bush of nearly doubling the debt, a claim he later denied. However, the debt under Bush did not double, but grew by 72% to just over $4T. Clinton's proposed tax increase was smaller, around $46B after some targeted tax cuts. The backdrop was a $290B budget deficit, the largest ever in nominal terms and equal to 4.4% of gross domestic product. The next year, Clinton won, and Republicans flipped both houses of Congress. Federal spending fell as a percentage of the economy, and deficits eventually turned into surpluses, causing the debt to shrink over three years ending in 2000. Both parties can claim credit, and external factors like stock market gains contributed to the shrinking debt. Federal Reserve Chairman Alan Greenspan predicted that the resulting surpluses would allow the Treasury debt held by the public to be paid off.